Buru Energy Limited (BRU) Earnings Call Transcript & Summary

Hello, and welcome back to the Proactive Webinar series. Today, we are speaking with CEO, Thomas Nador, who will provide an update on Buru Energy's progress, discuss the current share purchase plan and answer investor questions. The webinar will also be live streamed on YouTube and a replay will be available at any time. The presentation will run for around 20 minutes, then we'll enter a Q&A session. We've already received about a dozen questions from investors, but please send any more through. I'd like to [Technical Difficulty] present on behalf of Buru. Welcome along.

Good morning, and thank you, John, and greetings to all of our shareholders and potential investors on this webcast. My name is Thomas Nador. I'm the CEO of Buru Energy, and I'm speaking with you today from Perth, which is the ancient country of the Whadjuk Noongar people who have been the traditional owners of the Southwest of WA for at least 45,000 years. As such, I pay my respects to elders past, present and emerging. My presentation should take around 20 minutes, after which I will respond to questions that have been received from our shareholders and investors prior to this webcast. This is an important part of the proceedings, and I look forward to the Q&A session. Before I begin, I encourage you to study a disclaimer regarding our forward-looking statements contained in the presentation. This presentation will also be [ launched ] with the ASX in parallel with this session, so you can refer to it at your convenience. So here is a quick snapshot of Buru today. There are 3 key points I would like to point out, especially for those new to the company. #1, since the company's formation 15 years ago, we have been the most active onshore oil and gas explorer in WA. We are the only E&P company in the Canning basin, with recent production history. It's fair to say we know the onshore Canning Basin, and it is this geological knowledge together with strong stakeholder relationships that has delivered material discoveries in the past, and most recently delivered Rafael, the first potentially very significant conventional gas and condensate discovery in the basin. Two, for our size of company, we were an early mover in energy transition and energy expansion, having formed subsidiary companies that target carbon capture and storage, natural hydrogen and helium exploration and battery minerals exploration. Although not capital intensive, we are front-end loading these activities using Buru expertise, so that we can be part of the future energy ecosystem. And three, we have a strong balance sheet. This places us in the best possible financial health to execute our plan, to commercialize our Rafael discovery, and at the same time, look at ways to realize value from our subsidiaries. Our corporate strategy is designed to balance short-term to medium-term returns from our natural gas focused business with longer-term new energy businesses. We seek to find, enable and co-develop both traditional and new energy sources of energy. And by doing so, respond to the energy trilemma of contributing to energy security, energy affordability and energy sustainability. We think of the onshore Canning basin as an emerging advantaged energy basin. By this, I mean, it is becoming clear that it has it all, not only proven hydrocarbons such as a conventional Rafael discovery, but significant carbon storage potential and plentiful renewable energy resources for clean electricity generation. With this trifecta, Buru is uniquely positioned to meet the challenges of Australia's and Southeast Asia's changing energy needs, whilst providing a responsible emissions reduction pathway in line with government targets and stakeholder expectations. And I mentioned that [ neighbors in ] Southeast Asia quite specifically, as the Canning basin gas is found in sufficient quantities, may be exported under the current state domestic gas policy, with 15% reserved for the domestic market. On the gas front, we know the Australian Energy Market Operator, or AMO, is telling us that Australia and indeed Western Australia is projected to face a supply shortfall in coming years. Recently, the rate of reserves replacement has not kept pace with the growth in gas demand. In simple terms, Western Australia needs more gas supply. We believe our fully owned and operated low CO2 carbon conventional wet gas resource is well placed to respond to this, and our priority is to appraise it to inform development. We are on the hunt for a development partner that shares our vision, more on this later. We are also buoyed by the results of the recent work done by our GeoVault subsidiary, that confirmed that our operated areas in the basin have ample greenhouse gas storage potential, which provides added confidence in our ability to develop Rafael with CCS and also provides third-party emitters, with an option to store their carbon as a service. We are also active in the energy expansion space and our 2 hedge resources subsidiary has been busy on negotiating native title agreements in South Australia as a precursor to securing tenure across 30,000 square kilometers of prospective natural hydrogen and helium acreage. Although we expected this work to conclude by now, we are still negotiating and expect this to conclude during the first half of next year. We also recently have applied for 6 special prospecting authorities with an acreage option in Western Australia, which is currently under assessment by the WA regulator. Together, this will give us a very commanding acreage position on which to explore. As far as organizational effort and capital allocation is concerned, we are forging ahead on commercializing our Rafael discovery, which has been independently assessed to hold between 59 Bcf and 1 trillion cubic feet of gas and over 20 million barrels of condensate. This is our biggest value creation opportunity in our portfolio, and coupled with co-located CCS and abundant clean electricity resources can provide a template for a new paradigm of energy development in the Kimberley. Its proximity to the burgeoning Southeast Asian market, makes it an appealing proposition for those in the region, seeking security of supply. We continue to build the momentum of Rafael, through execution discipline. Off-note and since acquiring Origin's interest only 9 months ago, we have completed feasibility studies for the full range of Rafael resource volumes. We've confirmed the phase development strategy to generate early and enduring cash flows, completed a 3D seismic survey over the Rafael structure. We have commenced pre-FEED work for a phase 1 development based on already proven gas. We've placed long-lead items for our equipment to protect planned appraisal in the second half of next year, and we've commenced the partner selection process for Rafael appraisal and development. It's fair to say that we are moving fast towards a common goal. So what does the near future look like? We are on schedule to receive the fast-track Rafael 3D seismic interpretation as scheduled in -- over the next week. And final processing both for time and depth will be done by the end of February next year. This work is done both in Australia and in Canada, and is essential to optimize the placement of appraisals to reduce geological and drilling risks. In the second half of next year, during the Kimberley operating season, we are planning to recomplete and test Rafael 1 and drill up to 2 appraisal wells. Our Rafael Phase 1 development, consisting of a local gas and power project requires only 2 wells. So the wells are being designed to be completed as producers. A Phase 1 development works on less than the independently assessed 1C contingent resource volume and is aiming to replace the currently trucked LNG from the northwest shelf to the Kimberley with a local conventional gas resource. This has significant energy security, cost and emissions advantages over the existing arrangements that comes to an end, coincident with the currently planned start-up date for the first phase of this project. We have commenced pre-FEED engineering with GHD, and we will be in a position to enter FEED mid next year. Appraisal outcomes next year will then provide the basis for a large-scale Phase 2 development, with studies completed confirming feasibility for ammonia, methanol or LNG export concepts, all supported by CCS. We cannot do all of this alone. As such, we have kicked off a partner selection process to secure an appraisal and development partner that shares our vision for the Canning Basin. We are in discussions with several parties. However, these processes do take time, and as such, we don't expect any material news in this space until the end of first quarter 2024. Although Rafael in itself is groundbreaking. We have worked up a staircase of sizable prospects and leads within tieback distance to Rafael, to extend the development and production runway. This, of course, is of great interest to parties looking to come onboard for appraisal and development, as is the CCS potential of the area. Just coming back to the Rafael 3D seismic, I couldn't hold a webinar without showing you the very first glimpse of the 3D in comparison to the vintage 2D, which we acquired back in 2013. We have very recently completed what we call an ultra fast-track swathe of about 30 square kilometers that has shown significant data quality uplift from the vintage 2D seismic. The team are quite excited by this, and it gives us confidence in our ability to interpret reservoir and seal packages with great fidelity. Rafael is rightfully a centerpiece of activity, representing the greatest potential value uplift for the company, but we have also been incubating 2 very important and potentially lucrative new energy businesses aimed at benefiting our shareholders. Our GeoVault subsidiary is directly linked to Rafael development insofar, as it aims to provide suitable carbon storage for a large scale development. However, as the independently validated storage potential of Buru's permit and license areas recently confirmed substantial excess storage capacity over and above what Rafael requires, there's an opportunity for GeoVault to make this excess capacity available to third parties who currently do not have a viable option to reduce their own emissions. The economics of such an arrangement can be compelling. Finally, our 2H resources subsidiary is quietly making very good progress in this nascent field of natural hydrogen and helium exploration. Much akin to the gold rushes of Kalgoorlie in the 1890s, there's plenty of attention on this area of energy expansion and 2H resources, has been making good progress towards securing, what it believes as prospective grant in South Australia and WA for natural hydrogen and helium exploration. The investment thematic is strong, as evidenced by another ASX-listed pure play natural hydrogen explorer in South Australia, and we look forward to growing the value of this subsidiary, with a view to make it independently investable at the right time in the future. So really to wrap up before we get into the Q&A, I would like to summarize the Buru investment proposition. We continue to deliver through good planning and execution discipline. We are transparent with our plans and provide regular updates on that progress. We have completed the long-awaited 3D seismic survey over Rafael. We were not able to do this while Origin was exiting the venture. Having completed it on time and on budget, we are pleased with the data quality of what we have seen so far, and we are on track to deliver fast track and final products as planned. Thanks to the recent successful placement, we have now ordered critical long leaded well items to support planned appraisal drilling next year. We are also in discussions with rig providers. We have completed 8 months of engineering studies to give us confidence that irrespective of appraisal outcomes, we have a path to market for Rafael gas and condensate. We are getting noticed by parties seeking a gas development. The upscale CCS potential is icing on the cake for parties looking for a cleaner development. We are diversifying our energy portfolio, and looking at options to create tangible value for our shareholders from these emerging areas. And finally, we want our balance sheet to be robust and resilient to support the good momentum that we have built over the year, and place us in a position of strength to attract the most value-accretive deals over the coming 6 months. With that, I will hand back to John, to emcee the Q&A session.

Thank you very much Thomas for taking us through Buru Energy today. It's a very interesting and expansive story. Now we do have quite a few questions from investors, and I'll be able to send some more through later and get in contact with the company. First of all, Thomas, how will Buru shareholders benefit when the subsidiaries are spun off?

Okay, very good question. So Buru views that a potential listing of its subsidiaries in time will allow a more appropriate valuation of these entities. We are considering mechanisms which existing Buru shareholders could benefit from via the direct holding of shares by Buru shareholders, in a separately listed company. Clearly, with the momentum around 2H resources right now, we are fast-tracking our thinking around the commercial models that will transfer that value to existing Buru shareholders as soon as practicable.

Okay. Another question sort of in the same area as well, will Buru retain a stake in the floated entities? And if so, could there be escrow periods?

Okay. Buru would likely still remain a material owner in any separate listed company. And the ASX listing rules will dictate the timeframe required to hold the shares in escrow.

Okay. The next question, so this is a bit of a different one. So in the case of GeoVault, can you also describe how the relationship will work in the case of Rafael development, where CCS will be an integral feature?

Okay, there's a fair bit to unpack here. But look, in summary, I envisage that GeoVault in-time will hold the greenhouse gas storage rights and provide the CCS service to Buru and the Rafael development. This mechanism will also allow other third-party emitters to deal with GeoVault for their own emissions, thereby creating a separate P&L business for GeoVault.

Now next one is could you please provide clarity on the plans and timeline for restarting Ungani production and export?

Okay. Look, our Ungani operations have served very well over the years. It is, however, a late life asset. And for this reason, we impaired it last year. It's important to recognize that the profitability of the operation is highly dependent on market conditions, including oil price, operating costs and shipping costs, as well as our ability to reliably transport product to Wyndham for export. Considering the fixed costs of the operation and the volatility in the market, the profitability of the operation has been of continual focus. For these reasons, the Buru board supported management's recommendation to hard suspend operations to really allow us to fully evaluate the asset and its short-term to medium-term viability. Having the asset 100% earned by Buru, that provides us with additional options to extract what value remains in the asset.

The next one for you Thomas, if you could provide an update please on the 2H native title negotiations and expected timeline?

Okay. I touched on this a little bit in my presentation. We've been working with the key native title parties in South Australia for some time now to expedite the required agreements under the Native Title Act. Unfortunately, the process is taking longer than originally expected. I suspect most of these negotiations around the country are taking longer than expected. However, based on the very recent interactions, we are targeting conclusion of these agreements in the first half of next year.

The next question is, testing the conventional prospects of Yulleroo has been talked about for years. Could you please provide an answer on why this has never eventuated? And any plans for the future?

Very good question. So look, the conventional prospects at Yulleroo are well and truly back on the radar for us, in the context of backfill for Rafael. These conventional prospects are part of the longer-term exploration plans for Yulleroo. So the team will be spending more time over the upcoming period to really mature these conventional prospects, because we do need -- as part of the longer-term development plan for Rafael, we do need a nice runway of backfill opportunities and Yulleroo could be very well one of those.

Next one is a very interesting question as well. Will Yulleroo and other tenements be included in the partner selection for Rafael?

The short answer is yes. The partner selection process includes EP428, which is Rafael -- which contains Rafael. EP391 and EP436, so these are the permits with a significant exploration running room. And EP457 to the south of Rafael, which we share with Rey Resources. So there's a very nice portfolio there for the partners to look through in detail in the data rooms, that not only provides a line of sight to Rafael itself, but that's the case of [ molecules ].

Okay. Now I got some questions from Steve, one of your longtime shareholders who contacted us last night. With Rafael 1, the pressure indications highlighted in the potential gas column could exceed 900 meters. What are your thoughts?

I'd love to be in that position, to be honest, but I've been equally happy with over 600 meters to be frank. Look, we have only received the ultra fast-track small sample a couple of days ago, which I shared today. It's too early to speculate, but I'm frothing with the possibility of a column of that size, that would be truly a game changer, that would bring some very large companies to the fore with interest.

Watch this space on that one. So part of that question as well, with the next steps, could Buru consider sole risk in your appraisal wells, and retest of Rafael 1?

I would love to do that, Steve. However, our balance sheet cannot be at the cost of appraisal or a retest. The reason for the recent placement in the current SPP is to really bolster our finances, so we can be in the best possible and strongest position to negotiate a good deal for our shareholders. Once again, I think the asset will speak for itself, and we have started that process in [ Ingo ]. We've got people coming through the details. And the idea there is that we get a decent deal, where those costs are covered by others.

Now moving to the Butler prospect, could you please provide an update if this was hyped up some years ago?

Yes, it was a little bit before my time. But look, Butler is one of those interesting prospects that definitely has its place in the tight gas basket, with conventional possibility. For conventional, we believe it does represent some risk for sale, as well as reservoir. So we need to do more work on it. It is still very much in the portfolio, but following the 2021 seismic and the Rafael discovery, there are now other targets that have jumped the queue.

Okay. We have already touched on Rafael a little bit. This was the -- another question from the same shareholder. How close are you to landing a Rafael partner, just so we can cover it off?

Yes. Look, the process is well underway, and we are pleased with the level of interest from both domestic and international parties. However, the process will take time, and we expect it will edge into the late first, very early second quarter of next year to actually consummate. These are big deals. There's a lot of risk money up. And also there's -- especially in this day and age around investment in this space, we want to make sure we get the right partner that stays around and shares the vision for the Canning, as much as we do.

Well, here's some more vision from the next shareholder, Thomas. The question is, why do a Phase 1 development? Why not just go for a big project?

Simply put, phase 1 is an enabler for phase 2. So by staging our development, we can derisk the subsurface, while we accelerate cash flows from a smaller scale project that we know works on that 1C contingent resource. But it does go a lot beyond that. We have the opportunity to potentially transform the energy system of the Kimberley, by reducing the reliance for imported expansive energy into the region, thereby creating local opportunities and reducing emissions as well. It is also a powerful signal to the government, that we take our domestic gas obligation seriously. And by doing so, we create the best possible conditions for a large-scale Phase 2 development, and generate value from our shareholders that way.

And one of the most important questions for shareholders, it's always asked every time, what are the chance of shareholders receiving regular dividends, if and when Rafael becomes commercialized?

Yes. Look, the team is working hard to unlock Rafael, which we see as our #1 value lever. Needless to say, getting that development up is our priority, so we can reward our shareholders appropriately. Dividends are one of the mechanisms to do that. Although it gives us confidence that we've got good quality data, we are yet to receive fast track data, that that will help us get our appraisal programs locked and loaded. But I feel pretty confident that, as and when we get Rafael, and there will be opportunities to reward shareholders.

Well, the final question is Thomas, we do have hundreds of people watch these webinars. Why should a current investor consider investing further in Buru Energy, or why should a new investor consider adding Buru to their portfolio?

Okay. Okay. Look, Buru is grossly undervalued for a company with a potentially significant conventional gas and condensate resource, in an underexplored advantaged energy basin. We understand the options to bring product to market, at a time when analysts are pointing to a shortfall of supply, and an increasing clean energy product demand. We are delivering on our plans, and we have built a compelling investment thesis for medium-term to long-term value creation. So I think those points should speak for themselves. I've got a great team. We've got a lot of incumbency in the canning basin, and we do understand how to get development up. And I think after 15 years, we have found the resource that will be the stepping stone for some serious development in the basin.

Well, Thomas, thank you very much for updating shareholders today through the Proactive Webinar series. We appreciate your time. Just a final quick question, how do we actually get in contact with the company, what's the best way, the best e-mail address if shareholders would like to follow up?

Yes. Look, we do receive questions ad hoc, and we do our best to respond to everyone. [email protected] is the best way to contact us. We do have some additional details on this slide, so we've got a phone number there as well. And once again, we do our best to respond to all questions. So if you have not been able to raise a question in this forum, please send us through your question, and we'll do our best to respond.

Thank you very much for your time today, Thomas and your insights. We hope to speak to you again in the future. Thank you.

Okay. Thank you very much.