Elixir Energy Finds Major Gas Resource in Australia's Bowen Basin

• Elixir Energy is well-positioned to take advantage of strong gas demand and high prices in eastern Australia
• Recent drilling results have been very encouraging, confirming significant gas resources in place
• Over the next 2-3 months, Elixir plans stimulation and flow testing to demonstrate commercial gas flow rates
• Successful flow tests would trigger farm-out discussions with larger oil & gas companies to fund development
• Favorable location near existing infrastructure and markets makes Elixir an attractive partner for larger players in the east coast market

With a global energy transition underway, natural gas is poised to play a critical role as a cleaner-burning fuel that can help bridge the gap to a low-carbon future. Australia-based Elixir Energy (ASX:EXR) is on the cusp of proving up a major new source of gas supply in Queensland's prolific Bowen Basin. Recent drilling has confirmed a significant gas resource, with stimulation and flow testing over the coming months set to demonstrate the project's commercial potential. For investors, Elixir represents an early-stage opportunity to gain exposure to Australia's increasingly lucrative domestic gas sector.

Elixir's Bowen Basin Advantage

Elixir's key asset lies in the Bowen Basin, a world-class hydrocarbon province that has been producing coal and gas for nearly a century. As CEO & Managing Director Neil Young explains, this comes with several advantages:

"It's a great location for that but in oil and gas as in most resources there are other issues that count as well. You've got to have communities that are not going to block you and here we've had oil and gas for nearly 100 years. People know it, they make money from it and they respect it."

The Bowen Basin's existing oil and gas activity also means key infrastructure is already in place. Elixir's permit is strategically located near pipeline, power generation and LNG export facilities. "We're only like 50 or so kilometers from the end of our permit to what's called the Wallumbilla Hub, the primary gas trading hub in the region," Young points out. This could allow Elixir to avoid hefty gas transportation costs.

Interview with MD & CEO, Neil Young

Encouraging Drilling Results

Elixir's recent drilling has delivered strong indications of the project's resource potential. A deep well drilled in late 2022 encountered an unexpected gas kick from a previously unknown deep sand formation. Lab analysis has since confirmed reservoir characteristics similar to the prolific Perth Basin, a promising analog. Young elaborates: "We analyzed the sandstone qualities in that zone that free-flowed and they had geochemical analogues with the Deep Perth Basin in Western Australia, which again had free-flowing gas from deep zones that no one expected."

"If I just do some somewhat artificial math - we got 65 meters of coal, we've got 1,000 square kilometers, we've got 34 cubic meters per ton - I mean you just go in your head and there's tens of trillions of cubic feet of gas in place there," Young enthuses.

The well also encountered very high gas content in deep coal seams, with lab tests measuring 34 cubic meters per ton. While recovery rates for this unconventional resource will be lower, the sheer scale points to a highly material opportunity.

The Path to Commerciality

The next steps for Elixir are all about proving commercial gas flow rates through stimulation and testing of target zones in the existing well. This work is set to kick off imminently and will run through the May-June timeframe.

"In the course of May-June, which is now imminent, we will start the stimulation program," Young confirms. "Then we'll be flow testing after that - that'll be in May potentially going into June. And then, if we've done what we expect to do, we will have that commercial flow rate."

Hitting a commercial flow rate would mark a key milestone for the project, triggering farm-out discussions with larger industry players. "The discussions that we're having in the background with the farm-out parties will be informed by that," says Young. "I'd then like to see, in say Q3, a farm-out deal closed - providing a carry and cash, and critically, the endorsement of a large party that this is a significant asset that they deem worthy of getting into."

Attracting Major Partners

Indeed, securing a larger partner to help fund the next phase of appraisal and development will be crucial for Elixir. Young sees several factors working in the company's favor on this front, including the project's large scale, low-risk jurisdiction, and low CO₂ content. He points to both larger operators with nearby assets that may want exposure, as well as US players with key technical expertise in unlocking unconventional plays.

"The large companies, they don't go to small plays. They go to big plays, and this is very large. Materiality is very big," Young emphasizes. "And then this is an unconventional play - you're not making a decision to invest in a deepwater offshore platform, a $5 B 'yes or no' investment. Here you can put in $100M, $500M, $1B- you can scale it up and down."

Tapping Into Premium Gas Markets

For Elixir, the East Coast gas market represents a highly attractive opportunity, with insufficient local supply and increasing reliance on LNG imports pushing prices to nearly US$10/mcf - multiples of historical levels. This structural tightness means Elixir will have optionality in terms of commercializing its gas, either through direct supply into the domestic market, feeding the nearby LNG export plants, or supporting the growing fleet of gas-fired power generators that will be crucial in backing up Queensland's expanding renewable power capacity.

A Busy Year Ahead

With drilling success now in hand, the remainder of 2023 is shaping up as a potentially transformational period for Elixir. Stimulation and flow testing results over the next few months will be closely watched, as will the company's ongoing farm-out discussions. If Elixir can demonstrate its gas resource is commercially viable and secure a larger partner, it will represent a major step towards unlocking the value of this strategic acreage position.

As Young sums up, "We need to deliver the well outcomes that we've been planning for a long time and which we've been kicking goals on to date, over the next two months. In parallel, pursue those commercial discussions with the assistance of various parties. And then in Q3, we hope it all comes together with a significant farm-out deal. That really opens eyes, not only of Australia, but of the world, to a play that's got enormous potential - not only for Australian markets, but to supplement the liquefaction plants in Gladstone that currently supply a good number of East Asian countries."

With a major gas resource on the doorstep of Australia's tightening East Coast market, Elixir Energy appears well-placed to create shareholder value in the years ahead. Successful flow testing and a farm-out to a larger partner would substantially de-risk the play and provide a line of sight to first production. In the Board's view, Elixir offers investors a highly prospective play on rising Australian gas prices, with multiple share price catalysts on the horizon over the coming 6-12 months.

The Investment Thesis for Elixir Energy

• Large-scale gas resource with lab-confirmed reservoir quality and high in-place volumes
• Upcoming stimulation and flow testing program has the potential to demonstrate commercial flow rates within months
• Success would drive a farm-out deal, funding forward appraisal/development and endorsing the play
• Strategic Bowen Basin location offers low-cost access to premium-priced domestic and export gas markets
• Exposure to strengthening gas fundamentals as Asian demand grows and legacy Australian fields decline
• Valuation upside as Elixir progresses from the current appraisal stage to development and production
• Near-term catalysts include stimulation/flow test results and a potential farm-out deal in Q3 2024

Macro Thematic Summary

Australia's East Coast gas market is rapidly transitioning from a period of oversupply to one of structural tightness. Legacy conventional fields in the region are mature and in decline, while the main unconventional source, coal seam gas, appears to have reached a production plateau. With the market increasingly reliant on LNG imports to balance, prices have recently spiked to nearly US$10/mcf.

"The very high class, conventional gas fields are now very, very mature and in significant and irreversible decline. What that has meant is that there is at least one LNG import project which has been FID'd and will import gas by LNG. That sets a pretty high pricing benchmark."

This precarious supply situation is unfolding against a constructive demand backdrop. Gas is poised to play a key role in Australia's energy transition as the main firming fuel to support intermittent wind and solar generation. Industrial demand is also expected to remain robust. These fundamentals point to the need for major new sources of gas supply in Eastern Australia - a backdrop that should be highly beneficial for Elixir Energy as it seeks to commercialize its Bowen Basin project in the years ahead.