Buru Energy Limited (BRU) Earnings Call Transcript & Summary

Hello and welcome to Market Open Direct Connect. I'm your host, Stuart Walters, and we're joined today by David Maxwell, the Executive Chairman; and Joanne Williams, the Executive Director of Buru Energy, ASX code BRU. Today's webinar will be a discussion about recent company announcements and the progress of the Rafael Gas Project and the Ungani Oil Project and a live Q&A post presentation. [Operator Instructions] David, Jo, welcome to Direct Connect and over to you.

Thanks very much, Stuart, and thank you for the introduction, and welcome to all those that are listening live and those that will pick up and listen to a recording later on. The purpose of today is really to go through how we managing the business. We're very conscious in the last 4, 5 months. There have been some changes at the leadership side, and we haven't been out there telling the world, what's going on. But I can assure you it has been very, very busy. And what we're going to do today is go through the approach we're taking, the progress we've made with the different projects, and in particular, the Rafael project, and then as Stuart flagged to open it up for questions. If we could go to the next slide. This is the standard disclaimer slide. I'm sure all those attending today have seen plenty of these, very standard and we'll move on to the next slide. The approach that we're taking to managing the business is set around first off, establishing the foundation a foundation which is robust and long term. And this is utilizing the advantages that we have inherent in the business, and these advantages being in particular, our location in the Kimberly, our low-cost and the regional demand. At the moment, for energy, and particularly here, we're talking about gas and LPGs and further down the track, diesel, is all imported into the Kimberly. We being located in the Kimberly gives us some natural advantages. And we're doing this on a very, what I would deem prudent conservative basis. And we refer to this as the P90 way of thinking on a low-risk basis. What does that mean? It means we focus, in particular, firstly, on proven reserves as opposed to how big things could be, we're focusing very much to build that foundation on the high confidence proven reserves. Were used in our economics and all of our forecasting prudent price assumptions. So certainly competitive and below current and forecast market prices. And we're using conventional improvement technologies. There's nothing in this that's really new. And we're looking to partner with companies that are well funded and are already in the business. So you can see through those 4 criteria I mentioned there, we're really taking a low-risk approach to establishing the foundation once that foundation is in place, then we're looking to grow from that foundation. I should mention the foundation is a long-term cash flow effectively, the long term being 20 years. And we look to -- with that foundation, then look to grow again, utilizing our strengths, converting contingent resources to reserves. Looking at the Ungani restart, we'll talk a little bit about that. The opportunity for a micro refinery and then there's a number of exploration prospects, which are low value -- sorry, low-cost and high-value tieback opportunities to existing facilities. We're going to explain a little bit more on our approach in each of the assets and in particular, on the Rafael project. If we can go to the next slide. I won't spend much time on this slide. It's 1 that people will be familiar with. It's really there for the future, the company snapshot. Now the Rafael Gas Project and its competitive advantages. Why is it well placed in this respect? At present, all fuel, as I mentioned, consumed in the Kimberly is imported from a long way away. Gas comes from Karratha in particular, and that's in excess of 1,000 kilometers away. Diesel is imported by sea, to broom and Wyndham or truck from Perth. LPG is trucked up from Perth or across from Darwin. Therefore, the local supply has a significant cost advantage, a cost advantage in this case, in terms of transport, but separately also cost advantage in terms of the nature of the conventional resource that we've got. There are relatively low emissions both in the project itself and in particular, transport. Obviously, the shorter the distance, the less the emissions. The significant opportunities for regional development and here in particular around mining and minerals processing opportunities, which, by and large, are currently consuming diesel at prices significantly higher than the price that we've set, we'll be looking to sell LNG. Importantly, we work with and not against renewables. What do we mean by this? We're not seeking to demand and compete with renewables, we're seeking to fill the gap when renewables can't supply the energy or in particular, the electricity. The Rafael conventional gas is the local regional energy solution for the Kimberly. Last week, we announced the maiden reserves for Buru and this was making reserves in the Rafale gas project. This was a milestone for the company and Jo is going to take us through that and some other resource subsurface aspects.

All right. Thank you, David. Yes, it's very exciting actually for brewery to make its very first reserves booking last week. We had ERCE sprawled independent review for us, and we incorporated the well and test data from Rafael 1, the 3D seismic and the inversion products of that data as well as for the first time, 3D reservoir simulation of the Rafael field and economic modeling was all independently reviewed as well. So the reserves booking gives us independent verification of the range of recoverable volumes of gas and liquids, but also importantly, confirms the project is commercially robust on the basis of what we have planned at the initial development being 2 production wells, 1 at horizontal redrill of and the second well are failed to both producing through a mini LNG facility, which is owned and operated by a partner, CEFA. It's important to know that the reserves that have been booked relate only to this initial development. And on the map there, you'll see a shaded area of the access part of the field from those 2 wells and the greater field outline there in blue. So the 1P volumes, 22 Bcf is a low case and is verified by an independent auditor as having sufficient resources to deliver a very attractive return on our investments and good baseline cash flow for Buru for and a number of years at that level. So essentially, 1P means that there's a 90% chance or better that this will be the outcome of our initial development at Rafael. So as David said, from a low risk perspective, we have a really well supported robust project on the basis of that -- of those proven reserves. So the 2P improvement plus probable is the base case. It's essentially the expected case from the development and 66 Bcf, it's about 3x the resource for the same capital investment. So it's very clear that that's an excellent project. The contingent resources where the project will grow. So we're talking here about additional wells or compression at surface or life extension. So these volumes represent those gas and liquids that are discovered and can be recovered from further development of the field. and represents a fully developed field over time. And I won't read those volumes for you, but you can see them down there. Flying Fox is a prospect, which sits beneath the Rafael field. It's a very exciting opportunity actually, about 500 meters below the Rafael discovered field. And in due course, it could be tested relatively cost effectively with the deepening of our future Rafael development well. It's got -- it was identified from the 3D seismic around the Rafael and specifically the inversion products. It's got significant seismic averages. You can see how bright it is there. That layer beneath the Ungani dolomite 20, which is the Rafael second, that third layer below the is Flying Fox. And you can see how bright those amplitudes are, and these amplitudes can be really good indicator of hydrocarbon fuel. The chance of success on this prospect is a 45%, and if successful, we could more than double the recoverable resources from the Rafael area. So that's -- it's a very exciting 1 there. On the next slide, we've tried to capture the total potential across the Rafael area. So the dark blue columns on the left represent our initial development and the booked reserves. So this is the initial 2 wells in the CEFA 300 tonnes a day plant. We've got the proven and probable adding up to the 2P reserves there at 66 Bcf. Further along, the next 2 columns are our contingent resources at Rafael. We've got a third well a few years in and then further development after that with well 4 plus life extension and possibly compression, giving us a fully developed field and the additional contingent resources that you saw a couple of slides ago. And then also the prospective resources at Flying Fox, we'll make obviously a material contribution if that is a successful if that's successful there. And next, you have the development.

Thanks, Jo. Just first 1 point from what Jo just shared is that we talk about the foundation. The foundation has been worked off the proven. And I think as the last graph illustrated, the upside from that is quite significant, but it's a solid foundation that we're really focused on today. And a number of the numbers in this slide here I've already reported. I won't go through them the judge or discuss, we might go through them again. The real development is a simple 2-well development on the original Rafael 1 well pit, the well pad slightly expanded. And on the well pit, we also locate the LNG plant, the liquids processing plant and the storage and loading facilities. Both the planned production wells are drilled from the same well pit. The capacity of the LNG plant is in the order -- is up to 200 -- sorry, up to 300 tonnes a day with associated LPG and condensate Importantly, there is no pipeline. All product leaves the site by truck. And the 3 products that we'll be looking to produce from the site -- from the production license LNG condensate liquids and LPG. If we can go to the next slide. This is an illustration of the process, the single mixed refrigerant process used in many locations around the world, including in a plant here in Western Australia, down at Mt Magnet built on and operated by Clean Energy Fuels Australia, who will talk a little bit about in a moment. The capacity of the part, as I mentioned earlier, 300 tonnes a day of LNG tons a day of LPG and the order of 100,000 liters a day of condensate diesel. To put those numbers in perspective in terms of the market, the LNG market that would -- that is in terms of LNG, that's more than is required at present in the Kimberly. There's natural growth in the Kimberly and we'll come to that. But our base numbers and our economics are worked off circa 150 to 200 tonnes a day. And this project flies at those production levels. LPG at the volumes that we've noted here is around about 1/3 of the LPG concerned within the Kimberly. So we wouldn't be replacing all of that that's currently imported. And condensate and a portion of that at some point in time is converted to diesel, is less than 10% of what's consumed in the Kimberly. And again, so we're a mature that will not mature markets, but markets which are available and our price assumptions are a bit under what's currently long-term expected in the market. So again, coming back to that proven base, proven resource, proven technologies, known technologies with partners that have done it before, and we'll come to that in a minute, and pricing, which is quite conservative. So I'll go to the next slide. And I'm not going to spend too much time on this. There's quite a bit here. But gasoline Kimberly is used for power generation in 4 of the 5 main power stations. And that gas demand is in the order of 6 trials or 13 terajoules a year -- sorry, 6 terajoules a day to 30 terajoules a day seasonal through the year. And as I mentioned earlier, the capacity of the LNG plant that we're using in our base case assumptions is 200 tonnes per day, albeit -- sorry, that's the volume throughput, albeit the capacity of the plant 300 tonnes a day and 200 tonnes a day for those that want to know what does that equate to, that equates to around about 11 million cubic feet a day or minerals, roughly 11 terajoules a day. The next slide, we just list some of the market opportunities. There are multiple opportunities for offtake. In addition to this, the opportunities that are listed here, there's a number of opportunities in what we might call the greater Pilbara -- so we're focused in particular on the Kimberly, but then we can stretch ourselves beyond that into the Pilbara region also. This is a slide which has been used previously. It hasn't changed. As we mentioned earlier, we have a development agreement with Clean Energy Fuels Australia, which is part of the Octa Group. The Octa group is owned majority by I Squared, U.S. private equity infrastructure owner. The arrangement with Clean Energy Fuels Australia is that they will build, own and operate the LNG plant and the liquids processing plant and loadout facilities and that's in the order of $150 million. We will drill the 2 wells. That's, as Jo mentioned earlier, the recompletion and drilling of the horizontal section of the Rafael 1 well, production well and then the Rafael 2 production well. And now the costs for those 2 wells is in the order of Australian 1 in the order of Australian $50 million. We then pay Clean Energy Fuels Australia a tariff, which guarantees them a rate of return for the part that they've built, own and operate. We, as Buru, operate the wells, and we've got responsibility for the site. So in a sense, in Energy Fuels Australia as a contractor for us on our site, on the site, which is within the production license. Clean Energy Fuels Australia interestingly, also owns Evol LNG which is a business that they picked -- they purchased from Wesfarmers a year or so back. Evol LNG has the trucking fleet, which can move the LNG around Western Australia Northern Territory and beyond. And as I said earlier, Buru's responsibility is to fund the 2 wells. Once those 2 wells are funded and drilled, our capital requirements are effectively done in terms of between now and project start-up. The schedule. This has not changed very much at all in the last 6 months other than that we've been ticking off the various deliverables. We're maintaining the plan to drill at the start of the next dry season. That's the 2 wells we referred to earlier. And on that basis, we will be taking a final investment decision or SEC, we'll be taking a final investment decision in the middle of next year and conservatively or prudently assuming a circa 18-month construction period, the loan production by early 2029. It's worth noting that the LNG plant is all modular. One of these was constructed in the last few years by CF at Mt Magnet and took considerably less time than what we are proposing than what we're proposing here. In terms of other key items ahead of FID, just briefly, the environmental approvals are ready to go. I expect within the next couple of weeks, that will be submitted. There's a lot of work going into that. And we're expecting to have the approval in place before the end of the year and maybe quite a bit earlier than that. In terms of the negotiations, discussions with the traditional owners, they've been going on for 2 years. They're well advanced. And I expect we'll have something to say about that in the next month or 2. That reserve certification. We delivered that last week. And then the only other item really is the production license, which becomes -- which is, in many respects, a consequence of the other items that we've mentioned. So the project maintains its schedule for first gas in early '29. So really wrapping up Rafael and why we classify it as the high-value foundation. The reserves, as Jo mentioned, independently assessed and at the P90 level, 90% to a higher chance of delivering the numbers that have been estimated. A 20-year foundation with for the cash flows coming from gas delivered into an LNG plant, proven technology, known and used elsewhere in Western Australia and very competitive cost, which then enables high-margin product streams and the 3 products I mentioned earlier. This leads to the payback for the project. And here, we talk about the payback from Buru's point of view and taking account of a tariff to CEFA, that payback for Buru is within 1 year on the foundation base case. The annual operating cash flow out of the project is multiples of Buru's current market cap. That's why we are working to ensure that the strategic and competitive value of Rafael is realized for the Buru shareholders. And the structure and the funding reflects the gas LPG and associated liquids value that that's delivered from that is held as much of that is held for Berry shareholders and the brewery value uplift benefits are realized. I think the tag line at the bottom there really sums up what we said at the start, Rafael is the foundation for a highly cash-generative business on the long term, which is probably a good segue into the funding. We've been working with Carlingford and we've been pursuing or evaluating for 4 options, private equity, venture capital, joint ventures, which is very typical in the oil and gas business, mezzanine financing, debt financing and what we referred to here is strategic partnerships. Multiple parties are conducting their analysis of Buru. The ERCE reserves report is a key foundation for that. And I expect that things will move quite quickly now that, that is out. There's a range of options being pursued at this point, attractive project economics underpin the attractive economics that underpin the project have attracted quite a bit of interest, and particularly the fact that the cash flows are robust and go for such a long period. There is an increasing emphasis on energy security in Australia. We don't need to talk too much about that, particularly in remote regions and that is triggering a level of interest also from a number of parties. And as we've mentioned earlier, there's material upside once the foundation is set. The candidates and the groups that are talking to us and are in the data room of both Australian and international parties. And our plan is to have that funding in place to support drilling from approximately April of next year. So that's the start of the dry season next year. Key in all of this from the Board's point of view is to maximize the value to Buru shareholders. How do we do that? Obviously, taking all things into account, you want to get the best cost funding you can but maintain as much equity in the project as you possibly can. And when we come back to the payback period that I mentioned earlier, in many respects, the funding that we're talking about here, and we're wanting to put in place is bridging finance because the payback on the project is so rapid. We go through this very briefly through the other assets in the business. And Jo, do you want to talk about Ungani?

Yes. Rafael is clearly our focus, but we haven't been shining in pushing forward some of our other assets. to capture those capture value there as well. Ungani's been shown since the middle of 2023, produced just over 2 million barrels of oil per day. Last month, you will have seen that we increased the remaining contingent resources there. So it took them from 220,000 up 3x to 660,000 barrels of oil remaining. From a different approach to the production mechanism there. So we're assessing restart scenarios here, including the ultimate food operating strategy and production philosophy, which gives us that increase in contingent resources. And we're also looking at alternative downstream processing end markets, including potentially a micro refinery in the area to produce diesel and other fuels directly into the Kimberly region rather than exporting like Ungani used to do. Next slide. Very close to Ungani, just some 9 kilometers away is a prospect called very low-risk prospect called Mars, potentially is going to add significant value to Ungani restart, and we see a 40% geological chance of success there. They're quite high-value barrels to go along with any because it is so close. It's relatively shallow 1,800 meters subsea and a relatively low cost shale exploration will be potentially 2.5 million barrels of recoverable oil. Next. Other assets, we've got a significant discovered unconventional gas field at Yulleroo. It's a very, very large accumulation but it is unconventional. And so that's what that is 1 that we're keeping an eye on for the future as that develops. Yulleroo again, you can say the numbers that we've previously announced in relation to the prospective and contingent resources there.

Okay. Look, as Jo, myself, Mel King is the other Director and then supported by Paul Bird, who's the CFO and Company Secretary. It's fair to say that the experience is quite significant relative to the company's current experience in developing projects of this sort elsewhere and much larger and that experience has all been brought to bear together with a number of groups that are working closely with us to make it all possible. And in particular, as I mentioned earlier, Clean Energy Fuels Australia who have been there done this before here in Western Australia. So if I was to summarize briefly. Rail transforms Buru. And that's the reason why we're pursuing that as the foundation for a long-term cash flow, and we expect to be in production within a couple of years. The base case is work now off certified reserves. There's a number of significant competitive advantages. We really don't have any competition in the region at all. And there's a number of Jo's just pointed out high-value upsides. But those high-value upside opportunities would be funded out of the -- out of the foundation cash flow. We're not focusing on those until we've got that foundation in place. Partnering with companies that have been there and done it before, here I refer in particular to Clean Energy Fuels Australia. The funding, the project approvals and commercial agreements are the key near-term deliverables. And I expect we'll have quite a bit to say on that in the next month or 2. And then as we've just touched on, there's a number of opportunities to grow value and cash flow from other assets within the portfolio. So if I was to summarize it, we're within reach of FID once the funding is in place for what is a long-term stable foundation from which we can then grow.

David, Jo, thank you. Fantastic presentation, and we will get straight on to the Q&A. There's some great questions that have come through. Following Rafael's maiden 2P reserves booking, what commercial and financing milestones remain before a final investment decision? And when do you expect to complete them? Could the funding involve the material equity raising?

Yes. Thanks, Stuart, and for the person that provided that question. We've had the opportunity to prepare the answer. So the specific milestones before an FID decision, and I touched on some of this in the presentation and the status of each are the environmental approvals or the referral as we call it, and that's drafted includes specialist reports and analysis. We expect this to be submitted to the EPA that's the Environmental Protection Authority of Western Australia in the next couple of weeks and approval certainly by year-end and hopefully earlier. The next approval, and this is in no particular order, is the traditional owner agreements. We've been working with the traditional owners, as I mentioned, for the last 2 years. The negotiations have been very constructive. I should point out that Buru has established more than 20 agreements with the traditional owners in the past and we're at a very advanced stage. I anticipate there should be alignment in the next month or so around that. Reserve certification is the third one. That was a big milestone and that's been worked on for quite a while now. And as Joe reflected, that was announced last week. Fully termed agreements with Clean Energy Fuels Australia is the next milestone. We've got the strategic development agreement, the alignment between ourselves and clean energy fuels Australia is apparent. We're now working on all the detailed terms and conditions. Now hopefully, these will be concluded within the next 2 months, if not before. And then that's a good segue into funding for drilling the 2 production wells, and that's in the order of -- the cost of that to Buru is in the order of AUD 50 million. Discussions on this, as I said, are underway with a number of parties at present. And again, I'll stress it that the reserve certification has been key. Once we have clearly defined proposals, we plan to decide what is the best path to pursue. Our objectives as a Board in this respect are to maintain as much equity for Buru shareholders as possible given the significant value uplift. And secondly, understand and the ease of durability within the time frame that -- so as the ease of durability of that finance option within the time frame that's before us. And I expect we'll have more to say on this in the next month or so. After we've drilled the wells, the Buru spend is largely dark, and that's behind us. It is then for Clean Energy Fuel Australia, as I said in my presentation, to make the final investment decision on the plant. In some respects, we're pretty close to already having taken a soft, what I referred to as a soft FID that's already underway. It's the parties are planning for success. On the question -- the last part of that question, will the existing shareholders be exposed to material equity raising. This is very dependent on the funding option selected and how we maintain as much equity as possible for existing shareholders. In this respect, a short-term debt package on the right terms or bridging finance makes sense as it allows us as much equity as possible for our shareholders. Now I haven't given the perfect 100 out of 100 answer on the second part of that, but I've answered it as best I possibly can.

And 1 on Ungani restart. On a stand-alone basis, what commercial conditions and oil price would justify restarting?

The well commercial conditions and oil price would justify the project restarting? The focus is really on 2 parts. Firstly, the operating procedures within the field. And Jo touched on that. And looking at producing the remaining wells in a slightly different way to what has been done in the past. So lower for longer is probably the best way to describe it, not produce as hard, and therefore, the production levels come down in terms of absolute volume to surface. But what that means is on the reservoir in detailed reservoir engineering that's been undertaken, you're producing for a lot longer and that materially increases the recovery. Separately, it also materially reduces the cost, particularly the cost of diesel. So that's from an upstream subsurface point of view. From a market and offtake point of view. In the past, the crude was tracked up to Wyndham in the order of 1,000 kilometers. That was an expensive better transport. So looking for local markets is -- and what's being done in that respect, we're looking at opportunities to process the crude within the Kimberly itself, and that's where the micro refinery comes into it. Micro refinery would produce a portion of the crude into diesel and other products. And the revenue from that is a multiple of what we would get. We were selling it just as crude oil to an export market. So we're working on both the cost side and the price side to increase the margin. I mean if we absolutely had to today, we could restart Ungani and push it and export it that is today a viable option because we don't think it's the best option. We think there's much better options out there for us, and that's what we're pursuing and analyzing right now.

Could a farm -- or happen to farm out of Mars create additional value for Buru through use of Ungani's existing infrastructure?

On 2 accounts, we're on 3 counts. Firstly, to plus million barrels of oil recoverable, Mars is clearly economic and processing that through the existing Ungani facilities means that can be brought to market very, very quickly. And that would, in itself, extend the life of Ungani also above the 660,000 that we've talked of there. So the ad value, obviously, Mars itself is a valuable opportunity it would add value to Ungani and further increase the recoverable oil in Ungani. But then what I said earlier about Ungani and looking at market opportunities, that remains and the market is there, the diesel market, in particular, is there, and we will probably also then be looking at the heavy fuel oil market, which is also there in the Kimberly. And that would increase the margin from our a multiple over the export opportunity. It would mean that you've got -- you're dealing with a slightly enlarged downstream processing facility if it was to be a micro refinery, but the economics on that will be very compelling. It's probably the understatement.

How are you weighing the dilution from raising equity against giving up a share of Rafael's ownership or future cash flow?

Yes. That's a good question. And that's 1 question that does occupy quite a lot of time and discussion with the Board. We look at it on a whole of project, the whole of life for the company basis. As I reflected in the presentation, the payback for Rafael on very conservative assumptions is rapid. So maintaining as much equity as possible is important, but not at the expense of the project not proceeding. So it is a combination of ability and maximizing the equity. And as I said in the answer to the earlier question, if we were able to put in place a bridging facility for the financing facility, which effectively was a short-term bridging facility for between now and first gas. Then what are the -- we can afford we can afford to pay quite a bit for that and maintain 100% equity because that is the best outcome for shareholders because the payback of that facility is within the first year of production.

And you've highlighted a 1-year payback, what investment is that measured against? And what annual cash flow would be left for Buru after CEFA's fees?

Yes. We've previously at 200 tonnes a day and on conservative assumptions. After paying CEFA fair fee, the project is generating more than $50 million, $60 million cash flow a year. So that's after operating costs after paying Clean Energy Fuels their tariffs, then the project is very robust at that $40 million, $50 million, $60 million, $70 million a year. Obviously, the range there is dependent on the absolute volume and the pricing in the market. At the low end, $50 million, you're producing some below 200 tonnes a day in conservative prices. At the higher end, a $70 million, $80 million, you're producing around in tons a day and at prices which are still competitive against existing prices but higher than the low case. And you compare that with the current market cap of the company, which is in the order of $20 million. Hence, my comment earlier, maintaining as much equity as possible is important for Buru.

How much of Rafael's production? Are you aiming to secure under long-term contracts? And how would those contracts protect Buru if gas prices fall?

We -- that's a conversation, which is being held between ourselves and Clean Energy Fuels Australia. We don't need long-term contracts to underpin the project in an economic sense and a financial return sense. We will contract on the basis of what the customer prefers and what gives us the best terms and conditions. The payback in the project is such that and it is so rapid from our point of view that we can look forward to do relatively short-term contracts. And in some respects, a good portion of the LNG could well be what you might be merchant product. We are in discussions with some customers at the moment and to Clean Energy Feels Australia is active in the market. I should point out that they have a portfolio of customers already. They have a portfolio of offtake and some of it within what you might call the greater Kimberly region. So -- and that's a conversation that's being held between ourselves and Clean Energy Fuels Australia. So the short answer to the question is we don't need long-term contracts to underpin the project. The competitive positioning of the project and the payback means that we can get the project going without the typical long-term 10-, 15-, 20-year contracts being in place. But if some of it will offer us 1 of those, we'd be silly not to look at.