Elixir Energy (EXR) - JV Strategies Allowing Quicker Growth

Elixir Energy Ltd. is an Australian gas exploration and development company focused on the advancement of its natural gas projects. The asset portfolio of the company consists of its 100% owned Nomgon IX Coal Bed Methane (CBM) Production Sharing Contract (PSC) project, located in the South Gobi region of Mongolia, the Gobi H2 green hydrogen production project, in the Gobi Desert, and the recently acquired Grandis Gas project in Queensland.

The company on the 10^th of November 2022, announced that it had booked an initial contingent resource for its 100% owned Queensland asset, now known as the Grandis Gas project. The contingent resource is certified by the international firm ERC Equipoise Pte Ltd. The low, best and high estimates of the resource (1C/2C&3C) are 2,128 billion cubic feet (BCF) gas initially in place (GIIP), 93 BCF recoverable gas and 0.7 million barrels of oil (MMbbl) in recoverable condensate at the lowest estimate (1C). The best estimate for the contingent resource is 7,007 BCF of GIIP, 395 BCF of recoverable gas and 3.6 MMbbl in recoverable condensate (2C). The highest estimate for the contingent resource (3C) is 22,699 BCF of GIIP, 1,493 BCF of recoverable gas and 17.3 MMbbl of recoverable condensate.

Elixir Energy Ltd. announced on the 18^th of November that it concluded with the drilling of the Nomgon-8 and Nomgon-9 pilot wells in October, with all the pumping-related and surface facilities being installed at the project. The completion of the necessary infrastructure resulted in the company commencing pumping of the two wells in the week of 18 November 2022, leading to Elixir Energy Ltd. encountering a gas breakthrough that has initiated flaring at the project.

Grandis Gas resource

The company on the 10^th of November 2022, announced that it had booked an initial contingent resource for its 100%owned Queensland asset, now known as the Grandis Gas project. The contingent resource is certified by the international firm ERC Equipoise Pte Ltd. The low, best and high estimates of the resource (1C/2C&3C) are 2,128 billion cubic feet (BCF) gas initially in place (GIIP), 93 BCF recoverable gas and 0.7 million barrels of oil (MMbbl) in recoverable condensate at the lowest estimate (1C). The best estimate for the contingent resource is 7,007 BCF of GIIP, 395 BCF of recoverable gas and 3.6 MMbbl in recoverable condensate (2C). The highest estimate for the contingent resource (3C) is 22,699 BCF of GIIP, 1,493 BCF of recoverable gas and 17.3 MMbbl of recoverable condensate.

Neil Young the Managing Director and Chief Executive Officer (CEO) of Elixir Energy Ltd. explains that the company first published a prospective resource estimate of the project upon its acquisition in the middle of 2022, from where the contingent resource came to light after the company’s continued interpretation of the project’s historical data.

“When we acquired this project in the middle of the year, we announced a prospective, i.e., an undiscovered resource at the time. That was pretty substantial, 3 trillion cubic feet in the medium case. But our technical team continued to work on the open file data from the significant project that BG Group, now Shell, undertook about 10 years ago, and concluded that there was a discovered resource here, given it’s an unconventional play and that one could legitimately extrapolate from those wells into our acreage.”

The contingent resource was created in partnership with ERC Equipoise Pte Ltd., and as Young explains is large for a junior company.

“We worked with independent global reserve certifiers, ERC Equipoise, and they agreed with us that the mid-case contingent resource was around 400 billion cubic feet, which is a pretty chunky number for a junior. There was also some associated condensate or light oil with that. Pretty conservatively at this point, we assumed about 10 barrels per 1 million cubic feet and booked just over 3 million barrels for that.”

The gas resources of the Grandis Gas project are however deeper than traditional operations, with Young explaining that the resources would not have been profitable in the past. The various geopolitical factors that have affected the natural gas sector in 2022, have however led to the Grandis Gas project being profitable even with resources deeper than conventional operations.

“This project’s substantial factor of de-risking was in fact initiated by Mr Putin. This was always known to be gas that was there from this 10-year-old+ type program, but it was known to be deep, fairly tight, and therefore expensive to produce. Now, when gas prices in Australia were in the AUD$ 5 or AUD$ 6 range, this would not have been in the market, and when international gas prices were lower than they are just now, it would not have been in the market. But in our view, the war has permanently changed international gas market dynamics, both in terms of absolute pricing which means that this can enter the market and be highly profitable, but also in terms of the premium that a safe location like Australia demonstrates to, for instance, East Asian or even European gas buyers.”

Elixir Energy Ltd. believes that the best avenue to follow regarding the advancement of its Grandis Gas project is to bring in a joint venture (JV) partner. Young explains that by entering into a JV the company will be able to split costs and advance the project more easily. Another advantage a JV brings is, should the JV be with a major company, the project will enjoy validation for its technical quality and also provide the company with an easier path to raising any necessary funds.

“We are highly confident that we can bring in a partner. Now, that defrays costs and hopefully, to a very significant extent. Secondly, if they are a bigger partner of substantial credibility, which in this instance we believe can be the case given the desire for instance of East Asian energy companies to own molecules in Australia, the fact of them coming in validates the technical quality of the play and the team and the future of the asset, and then also provides an avenue to pursue future funding, not only from public capital markets but from such industry sources.”

Mongolia

Elixir Energy Ltd. announced on the 18^th of November that it concluded with the drilling of the Nomgon-8 and Nomgon-9 pilot wells in October, with all the pumping-related and surface facilities being installed at the project. The completion of the necessary infrastructure resulted in the company commencing pumping of the two wells in the week of 18 November 2022, leading to Elixir Energy Ltd. encountering a gas breakthrough that has initiated flaring at the project.

The flaring will according to Young occur for a few months in all likelihood or until the flow rate stabilises.

“We have been the pioneers of exploration in Mongolia. We commenced very recently an extended pilot production test for the first time, and that saw gas breakthrough very, very quickly, which reflects the highly gas-saturated nature of the coals in the region. More gas means less water, which means lower cost and quicker flow. Now, we’ll continue to flow that gas for a period, a period to be defined. But it could be a few months to get a stabilised rate, which we believe will establish commerciality and then we can book reserves.”

Young explains that Elixir Energy Ltd. is the first company to conduct flaring tests in Mongolia. The first-of-a-kind testing however brings with it the challenge that the company does not have any reference data to compare its readings against, leading to the duration being longer than usually conducted.

“In coal seam gas, we expect a build-up first and then a period of steady states, and then a decline. But because we’re the first people to do this, we don’t have analogues. I mean if we were in Australia or the States or whatever, there would be hundreds if not thousands of wells, and you’d establish whether you are on the successful type curve fairly readily. Here, we’re establishing the first type curve, so we will carefully look at it 10 times a day as we go forward, access the collective brains of our team and our reserve certifiers, and then get to a point in, could be a month or so or it could be slightly longer, where we go, ‘Okay, we have now established a commercial flow rate which is sustainable from this, and we can turn off the flair and we will know that we can now book reserves.’”

Future

Young believes that due to the changes in the global gas sector, the price of gas in Australia and the world will continue to be higher than previous years. Young believes that the supply-demand issues are also likely to persist, with the Russian geopolitical factors not expected to mitigate soon.

“I think that Australian gas prices will be permanently above AUD$ 10 and for the medium term, they will be probably considerably above that… It reflects the fact that the cost of production has gone up and that the easiest to extract gas is already gone. That’s just reality.”

Elixir Energy Ltd. will in 2023 focus on providing a steady flow of announcements to the market about the advancement of its Australian and Mongolian gas projects. The company plans to secure a drill rig which is experienced in the area at its Grandis Gas project, commonly referred to as a hot rig. The company further plans to pursue its aim of securing a joint-venture partner, which will in all likelihood be a major gas company, from where it will secure the correct financing enabling the advancement of its Grandis Gas project.

“In terms of being a listed company, we like to generate news flow and we anticipate a very nice build-up over the next 10 or so months of securing the same rig as our neighbours, securing other service sector providers, and locking in the particular spot, although we want to drill, we’re pretty confident we’ve got that already. Bringing in finance through farm-in, and indeed in Australia, there’s another form of finance here called an R&D credit from the Australian tax office, which for this type of play can fund nearly half the costs of a well.”

The company also plans to rapidly advance the Grandis Gas project to have appraisal stage wells by the end of 2024.

“We’re pursuing numerous angles and we think that it’ll be a very nice run-up of news, which the market will welcome and the industry will welcome into the drilling of what will be an appraisal rather than an exploration well in Q4 of 2023”

Elixir Energy Ltd. will upon the conclusion of the flaring of its Nomgon project and the finalisation of a JV and the financing of the Grandis Gas project look to further explore its Mongolian land package.

“Do we develop that particular spot, do we explore and appraise elsewhere, or do we do all of the above? We’ll certainly be aiming for the latter but keeping our powder a little bit drier until the form is clarified. Then as and when we close out the financing outcome, which we believe is likely to be a farm-in in Queensland, that will liberate deployment elsewhere in our portfolio, i.e., to Mongolia.´”

Young believes that the company is ideally positioned with both its projects to be able to capitalise on the security of supply to various markets including the Chinese and Japanese markets. Elixir Energy Ltd. plans to have a busy 2023, with the company set to make large moves in rapidly advancing its projects.

“The other factor to consider is the security of supply. Everyone’s got a different perspective on this. If I’m a Japanese gas buyer, I’ll see Australia as being secure. If I’m a Chinese gas buyer, I’ll see Mongolia as being very secure because it prevents any geopolitical threat to me at all.”

To find out more, go to the Elixir Energy website