Omega is poised to drill a horizontal gas well that could prove the commerciality of its Canyon project
\nThis will have increased exposure to the target reservoir compared to a nearby third-party vertical well is already flowing gas
\nSuccess will also allow the company to secure partnerships to deliver a significant gas development<\/p>\n
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With growing expectations that eastern Australia will see a supply shortfall, ASX listed specialist resources investment fund Strata Investment Holdings believes that gas explorer Omega Oil & Gas (ASX:OMA)<\/strong><\/a> \u2013 in which it holds a material interest in \u2013 is a \u201chidden gem\u201d.<\/p>\n OMA is a ~$60m market cap focused on exploring its deep Permian gas assets within Queensland\u2019s Taroom Trough \u2013 a proven, large-scale tight gas play where several operators including supermajors such as Shell are actively de-risking the play.<\/p>\n Unlike newer basins such as the Beetaloo Basin in the Northern Territory, the Taroom Trough in the Surat-Bowen Basin benefits from close proximity to pipelines, access points and other infrastructure.<\/p>\n The company itself has not sat idle, having drilled two successful discovery wells \u2013 Canyon-1 and Canyon-2 \u2013 that intersected high gas readings within 394m and 360m intervals respectively.<\/p>\n It has also finalised a contract with Ensign Australia for the drilling of the Canyon-1H horizontal well, which is expected to spud in Q3 2024 and will be the first horizontal drilled into the highly prospective Canyon Sandstone at the base of the Kianga Formation. This comes as the Australian Energy Market Operator (AEMO) forecast in its latest 2024 Gas Statement of Opportunities<\/strong><\/a> that eastern Australia could experience shortfalls on extreme peak demand days from 2025 and small seasonal supply gaps from 2026.<\/p>\n The supply gap<\/strong><\/a> will increase in magnitude from 2028 as gas production in southern Australia declines and demand for gas-fired electricity generation increases from mid-2030s due to the retirement of coal generators.<\/p>\n Strata chief executive officer Michael McNeilly says the reason eastern Australia is facing the gas supply crunch is due to underinvestment, a lot of exporting and increased investment in clean energy.<\/p>\n \u201cThere is a lot of underinvestment in gas for domestic purposes. Clearly the government recognises this with their recent announcement that Australia will ramp up its extraction and use of gas until 2050 and beyond as it represents a crucial role in supporting the Australian economy,\u201d he added.<\/p>\n \u201cMore exploration, investment and development will be needed. It accounts for 27% of the country\u2019s existing energy needs and is a robust market, you have got a vibrant export market with key trading partners and a great domestic market.<\/p>\n \u201cI think by 2028 by all accounts, and of course they are projections and are subject to being revised, you should be seeing quite a substantial shortfall of gas for the domestic market unless there is investment in further production or incentive pricing kicks in.\u201d McNeilly believes that a substantial part of the future production needed to meet the supply shortfall will come out of the Taroom Trough, which has the likes of Santos (ASX:STO)<\/strong><\/a>, Shell, Elixir Energy (ASX:EXR)<\/strong><\/a> and OMA.<\/p>\n He notes that OMA is just 40-50km way from infrastructure, allowing it to just plug into the Wallumbilla Gladstone pipeline. This allows the company to get into production quickly if the targeted unconventional sandstones can be successfully fractured and stimulated.<\/p>\n \u201cThat\u2019s really the appeal and why we are investors in this play and equally you are seeing early success out of Elixir who have done a vertical well and they are already getting about 1.2MMcf (million cubic feet) per day on a stabilised flow test, unstimulated,\u201d McNeilly explained.<\/p>\n He noted that OMA\u2019s share price is trading at 22.5c even after raising more than $20m last year through a share placement at 18c.<\/p>\n This placement saw the Flannery family and Tri-Star Group increasing their stakes in the company with McNeilly noting that OMA\u2019s share register is dominated by quality investors with probably 85% of the shares on issue held by the top 20.<\/p>\n He added that with the company having secured a drill rig that had completed or nearly completed three horizontal wells for Shell that are about 25km northwest of where OMA\u2019s project is, the company will soon move to drill the horizontal well, which differs from EXR\u2019s vertical well that flows gas at a substantial rate.<\/p>\n \u201cThe difference between vertical and horizontal is that they are going to hit a much larger area on their resource site, which will hopefully liberate a lot more gas,\u201d McNeilly said.<\/p>\n \u201cIt is a de-risking factor for the company, but it also allows them to accelerate their development plans as well.<\/p>\n \u201cOnce that is de-risked, given the amount of time and the technical team they have behind them, and the success of Elixir has on only a vertical well, it is going to really cross quite well to where Omega is sitting at a substantial discount to Elixir is especially considering that a horizontal well has the option to stack and covers a much larger portion of the reservoir surface and can result in increased flow rates which is what is needed to demonstrate commerciality.<\/p>\n \u201cIf it does flow at 4MMcf\/d, you could be looking at a multi-billion dollar NPV potential, and you are looking at company right now with a market cap of just under $60m with extremely deep pocketed and experienced investors in Illwella (the Flannery family) and Tristar.\u201d A successfully horizontal well will also likely see OMA bring partners to table to help develop the project with McNeilly noting what while individual wells were not hugely capital intensive \u2013 optimising project economics would require more wells.<\/p>\n \u201cYou could be looking at anywhere from \u2013 depending on what the floor rates are \u2013 six wells for a really base case lower capex, lower output operation all the way up to 18-20 wells, which is what you will typically see if someone farms in at the project level to help fund a lot of cost and infrastructure,\u201d he added.<\/p>\n \u201cThey have seen a lot of interest from a lot of third parties who are interested in their project, I can\u2019t speak for them but I think once they finally get drilling in Q3, any success there, which given the experience that Tri-Star has in unconventional oil and gas as well as the quality of the register, I think you are going to see some partnerships materialise quite quickly.\u201d<\/p>\n McNeilly also contrasted OMA with EXR, noting that while EXR had a market cap of $130m and several other project, they were not really progressing at the moment relatively to what they are doing on the east coast.<\/p>\n \u201cOmega has already come out and proven 1.73Tcf 2C contingent resources. We are already talking about a substantial resource here and they are obviously very confident that their approach to go straight into horizontal following their initial drilling will bear success,\u201d he said.<\/p>\n \u201cIf you are looking at this from an investment perspective, where are you getting value uplifts?<\/p>\n \u201cYou are really getting the value uplift from this next campaign and there will be some speculation at this stage. After that, it is partnerships and execution.<\/p>\n \u201cThey are very well financed, they have about $18.5m at the end of March, I think that\u2019s the clear differentiator when you start looking at them.\u201d<\/p>\n \u00a0<\/p>\n \u00a0 The post MoneyTalks: Here\u2019s an explorer that could ease eastern Australia\u2019s future gas supply blues<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"
\n\u00a0<\/p>\nGas supply shortfall<\/h2>\n
\n\u00a0<\/p>\nA hidden gem<\/h2>\n
\n\u00a0<\/p>\nLooking to the future<\/h2>\n
Omega Oil & Gas share price today:<\/h3>\n\n
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