Tamboran Resources Corporation (TBN) Earnings Call Transcript & Summary

Thanks for holding, and welcome to the Tamboran Resources conference call for the first quarter of FY 2025. Every line has been muted so background noise won't interfere. Following the speaker's remarks, we'll hold a question and answer session. Should you wish to ask a question at that point, just press star and then the number one on your telephone keypad. To withdraw your question, press the star one once more. Thank you. I'll now hand the call over to Joel Riddle, Managing Director and CEO. You may begin.

Thank you, and welcome to the presentation of Tamboran Resources' results for the first quarter of fiscal year 2025. I'm Joel Riddle, Chief Executive Officer of Tamboran Resources, and with me this morning is Eric Dyer, our Chief Financial Officer. Before we dive into the details, I want to point everyone to the disclaimer statement on slide two concerning forward-looking statements. Moving to slide three, which summarizes what we did over the past three months of the quarter. To begin, we finished drilling the Shenandoah South 2H well, and with it the company drilled the first 10,000 foot horizontal section in the Beetaloo Basin. Regrettably, while pulling out of the hole after drilling that horizontal section, we hit a mechanical problem that meant the well had to be redrilled through a sidetrack. Drilling of that sidetrack well is now underway in the horizontal section, and we remain on target to reach TD on the sidetrack well within the next few days. Data from both the SS-2H well and the SS-2H sidetrack well show geologic rock properties consistent with what we have seen when compared with the SS-1H well. Furthermore, we found no faulting across the entire horizontal section, and strong gas shows were observed throughout the whole interval.

Later this month, drilling on the SS-3H well is slated to begin, and it will be drilled from that same pad. The SS-3H well, once more, is going to be engineered much like the SS-2H well, featuring a 10,000 foot horizontal. By the close of this year, both the SS-2H sidetrack well and the SS-3H well should have been drilled and cased. Ahead of the stimulation of our two wells set for early in the first quarter of 2025, Liberty Energy also managed to bring new frack equipment from the U.S. into the Beetaloo Basin successfully. In addition, as I mentioned on our prior call, the company continues to concentrate on advancing development of the Beetaloo Basin's first local sand mine. We are aiming to have phase one of that local sand mine operational and in place as part of our 2025 drilling campaign. In our view, this local sand mine will be a major factor in lowering costs and boosting efficiencies for our 2025 drilling program and beyond. The cash balance we had at the close of this quarter came to roughly AUD 82 million. Receivables of about AUD 7.6 million were tied to the sale of a rig here in the U.S., which has more than offset the extra AUD 5 million the company has incurred in connection with the redrilling of SS-2H.

Above all, our funding is complete, and we are on schedule to achieve IP30 flow rates at both wells before the first quarter of 2025 ends. Turning to slide four, that gives an overview of what we've seen from the initial two wells drilled under the 2024 program. As you can see once more, these wells represent the opening pair in a 6-well campaign, positioned squarely within our 1 million acre development area in the western portion of the Beetaloo Basin. The image on the right shows the pad where those first two wells are being drilled. You'll notice the stimulation sand has now reached the location, along with the space in the pad's northwest corner set aside for our compression facility, which we intend to bring into service at some point in 2025. As I mentioned at the start, the SS-2H well was spudded in late August, and we reached a total measured depth of 20,670 feet over 35 days. Inside that well, we also geosteered a 10,000 foot lateral section — once again, the longest horizontal section drilled to date within the Mid Velkerri B Shale target in the Beetaloo Basin.

Before we could run the five and a half inch casing, a mechanical problem downhole forced us to redrill the well and sidetrack it from roughly 1,840 feet. We have now taken the key lessons from the SS-2H well and applied them in the sidetrack well, and we have successfully drilled about 16,200 feet, with a substantial gain in drilling efficiencies from SS-2H to the sidetrack well. Once the SS-2H sidetrack well has been drilled and cased, we will move right away to the SS-3H well, where drilling is planned to begin later this month from the same well pad. As I noted, the IP30 flow rates for both wells are still on schedule for release in first quarter 2025, depending on weather conditions. Turning to slide five, you can see the days versus depth curve for each of the three wells the company has drilled over the last six months. The SS-1H well, the SS-2H well, and the SS-2H sidetrack well appear in red. One of the biggest opportunities we have been able to capture over the last two wells is applying what we learned at the SS-1H well about improved drilling rates. From SS-1H to SS-2H, the average spud to TD drilling rate rose 6%, and we surpassed 580 feet per day there, versus approximately 370 feet a day at SS-1H.

On a broad level, when we look at how this drilling performance stacks up against other wells in the basin — especially the deepest sections over on the east side of the basin — you can see that the 35 days we needed to hit TD at SS-2H looks quite favorable next to the two wells our partner Santos drilled, which took roughly 80 days. Beyond that, efficiencies have improved as we went from SS-2H to the SS-2H sidetrack well, and we're still on track to drill that sidetrack in under 30 days. Moving to slide six, this again compares the three wells we've drilled during the past six months. I'd like to call out the main successes and lessons learned from each well, with particular attention on SS-2H. The first one: we managed to land a lateral section with no pilot hole at all. That not only validated our geologic thesis regarding where SS-2H sits — roughly 3 miles north of SS-1H — but it also cut six days off drilling time. Second, we geo-steered across a 70-foot section and hit no faults over the entire 10,000-foot section. On the lessons-learned side, a good deal of attention has gone toward cutting non-productive time.

Our sidetrack well performance improved by switching to a KCl mud instead of the calcium chloride mud we had used on both SS-1H and the SS-2H well. With that better mud system, we managed to cut several days from how the sidetrack well performed. Beyond that, we've been collaborating with our partner, Baker Hughes, to reduce the count of tool failures we've experienced — especially the RSS tool failure that caused us a number of problems in the SS-2H well. Together with the enhanced mud system, that has let us drill the horizontal section, as shown on the well schematic at the left, going from 17 days in the SS-2H well to a projected 10 days in the sidetrack well. Turning to slide seven. Among the most encouraging observations from drilling the SS-2H well and the SS-2H sidetrack well is how consistent the geology has been relative to what we encountered at the SS-1H well. The SS-2H location sits roughly 3 miles from the SS-1H location, and the log section of the 10,000-foot horizontal we drilled in SS-2H shows rock properties that look very consistent with those we saw at SS-1H.

We also observed no faulting throughout this entire horizontal section, along with strong gas shows over the whole horizontal section. Those gas shows appear very similar to those encountered at SS-1H. On the whole, this is quite encouraging, as is our capacity to show consistent productivity along this 10,000-foot horizontal when compared with the SS-1H well. Turning to slide eight. As I noted, the full Liberty frac spread has now arrived on location after being imported from the U.S. This will be the biggest frac spread anywhere in Australia, with 80,000 horsepower, 32 pumps, and 240 sandboxes. I'm extremely excited about the chance to see optimized stimulation across the 120 stages we'll be pumping over two wells, and also about the potential for meaningful cost reductions, not only for the two wells being drilled and completed this year, but likewise for the four follow-up wells coming next year. With this new equipment, our goal is to pump five to seven stages per day, which compares very favorably with the one stage per day we pumped using the previous equipment on SS-1H. Turning to slide nine. Once again, we are advancing development of the first local sand mine in the Beetaloo Basin.

On the map at the top left of this slide, you're able to see the 11 sand mining leases granted to the company by the NT government. At three of those locations, we've identified a sand resource. That resource could produce an equivalent 100 mesh sand, which is what we need for our completions. And the volume of sand we've identified is sufficient to support completing 500 development wells. One thing that excites me greatly is that, as we move down this cost curve by sourcing sand locally in the Beetaloo Basin, we have the chance to bring our current sand cost in our wells of around AUD 4.5 million down to approximately AUD 0.5 million per well. Put another way, we have an opportunity to lower the overall well cost for our 2025 program and beyond by approximately AUD 4 million for each well. Turning to slide 10, our current cash position as of the September 30th of this year is approximately AUD 82 million. As you can see, we began the quarter with a cash balance of AUD 75 million, plus an additional AUD 7.4 million incorporating the Greenshoe following our IPO in late June. We've had approximately AUD 19 million in cash go into the ground for the drilling of our two wells.

On top of that, selling a U.S. rig we'd been marketing over the past few months brought in net proceeds of AUD 7.6 million. Those AUD 7.6 million in net proceeds, once again, more than offset the AUD 5 million budget impact tied to redrilling our SS-2H sidetrack well. Importantly, the company is still fully funded to deliver IP30 flow rates from our two wells, which we expect to announce to the market in late first quarter of 2025. Lastly, slide 11 shows the upcoming catalyst. Once again, we aim to complete drilling and casing of the SS-2H sidetrack and the SS-3H well. Stimulation activities and flow testing for these two wells will begin in first quarter, and we're currently on track to announce IP30 flow rate results from these two wells in the later part of first quarter of 2025. Alongside all of this, we're wrapping up stakeholder and regulatory approvals for our pilot project. That, too, will lead us to start construction of the facility and pipeline infrastructure supporting our pilot project. First gas, again, is what we anticipate in first half of 2026. Thank you very much, and I'll hand it back to the operator for our Q&A session from here.

I appreciate that.

Appreciate it. Today's opening question is from Charles Mead at Johnson Rice, and your line is now live.

Yes. Good evening, Joel and Eric. Thanks for staying up late to join this call at your local time. Joel, I’m curious whether you could say a bit more about exactly where in the hole that mechanical issue occurred. It sounds like this is somewhat a known issue with a known fix, given how successfully you redrilled it. I’m wondering if you could share a little more detail about that and about what you’ve done differently on the sidetrack.

Absolutely, and thanks for raising that, Charles. So, as I said earlier in my opening remarks, we wrapped up drilling the horizontal section on SS-2H, and while we were pulling the drilling assembly out of the hole, we encountered a tight spot at roughly 4,000 feet. That tight spot caused the torque readings on the drill string to rise. We wound up parting that drill string once more, at about 4,000 feet. Altogether, that drill string measured roughly 800 feet. We left 800 feet of drill string down in the hole. Then, after talking it over with our JV partners, we went back in and attempted to fish out the drill string we had left in the hole. We devoted a couple of days to the fishing effort, and as a JV we decided to pump cement and sidetrack. On the learnings side, as I noted, we believe mud integrity played a part in the sticky spot we experienced while coming out of the hole. So again, following consultation with our JV partners, we switched from a calcium chloride mud over to a KCl mud. We have already observed improved performance while drilling the SS-2H sidetrack well.

That better mud integrity, I think, is already delivering some benefit. You know, big picture, when you look at many of the shale basins developed in these early stages here in the U.S., you know, in any of these early drilling situations that we're currently in at the Beetaloo Basin, there are optimizations you're constantly working through, everything from well design to mud systems. You know. The good news is I think we're able to leverage a lot of our team's experience from many of the basins we've drilled here in the U.S. Obviously, leveraging our JV partner, Bryan Sheffield's team, to really, you know, make some adjustments going from SS-2H to the sidetrack well. Just to give you a kind of a sense, we were averaging around 530 feet per day in the SS-2H well. In the SS-2H sidetrack well, we were, we're averaging about double that kind of penetration rate per day. We feel pretty good about the upgraded mud system. That doesn't mean we're not gonna continue to evaluate. We're already looking at ways to further optimize the mud system from the results that we're seeing in the sidetrack.

That's where I'll leave it. Should anyone have additional questions about this, I'm glad to address any follow-ups.

Thanks for laying that out so thoroughly, Joel. During your prepared remarks, you brought up the completion schedule and noted it depends on weather conditions. My assumption is that you mean rain tied to the season, but could you walk us through exactly which factors are in play there?