- What is going on with world energy markets?
- What is the Domestic Gas Security Mechanism (DGSM) and what does it mean for energy companies and their investors?
- The RIU Good Oil and Gas Energy Conference is on in Perth this week
- Set against a volatile and troubled energy industry, it will address numerous issues
- The Market Herald looks at four players in the national and international energy markets
- Investing in the Energy sector offers abundant opportunities to enter the market
Energy security has been on a lot of minds this year, with turmoil in Europe and supply uncertainty conspiring to push up prices and elevate concern.
For investors interested in the energy sector in Australia, the volatility of the market and the pressure of external forces are making it harder than ever to make sound investment decisions.
The Australian Government’s recent decision to extend the Domestic Gas Security Mechanism (DGSM) until 2023 further muddies the water. The DGSM stipulates that some gas producers are required to offer uncontracted gas to the domestic market first, which may reduce their opportunities.
With record gas prices across the world, especially in a European market heading into winter, having gas but being unable to sell it into that market must be frustrating for some producers.
On the other hand, reserving supply for the domestic market can help to cement relationships with energy retailers, and improve the possibility of long-term domestic contracts.
For the investor, as for the local producers bound by the DGSM, the choices may seem limited.
A look at some alternatives
With the RIU Good Oil and Gas Energy conference being staged in Perth this week, The Market Herald looks at the four of the conference’s speakers in light of the current energy supply uncertainty and its impact on investors:
• ADX Energy (ASX: ADX)
• Black Mountain Energy (ASX: BME)
• Calima Energy (ASX: CE1)
• TMK Energy (ASX: TMK)
We found these companies interesting not just because of their participation in the conference, but because they offer local investors an opportunity to escape the limitations and potential consequences of the DGSM in making investment decisions by offering global exposure to advanced energy projects.
Three of these companies operate in other countries, while one is developing a prospect in Western Australia and is therefore not bound by the terms of the DGSM.
Let’s take a dive into each one of these, and see where they’re at.
ADX Energy – on the ground in Europe
Executive Chair Ian Tchacos will have a lot of ground to cover in his Good Oil appearance. ADX is active in Austria, Italy and Romania, with some exciting developments underway in Austria.
In Austria, the company acquired the Zistersdorf & Gaiselberg production facility in 2019, offering sustainable ongoing production and growing cash flow due to increasing oil and gas prices in one of Europe’s longest-lived oil fields.
It is not known to many, but Austria is a substantial oil and gas province in the heart of Europe, where ADX has broken into a 75-year Duopoly.
According to Mr Tchacos, there’s a great deal to be optimistic about in Austria, where ADX is about to commence production from a recent oil discovery in Upper Austria, and there are further development wells planned in 2023.
Also in Upper Austria, ADX is preparing to drill the giant Welchau gas prospect at a time when gas prices in Europe have reached unprecedented levels.
Meanwhile, in Italy ADX has been given an opportunity to apply for its licences in the Sicily Channel to be ratified, opening the way for it to develop a resource promising up to 369 billion standard cubic feet (BSCF) of gas.
The company also operates the Parta exploration permit and Iecea Mare production permit in Western Romania via its 49.2 per cent equity interest in Danube Petroleum Limited.
Black Mountain Energy – an outpost in Australia’s west
BME’s permit in the Fitzroy region of Western Australia covers some 3662 square kilometres of the Canning Basin, the eighth largest ¬non-developed gas reservoir in the world – and Australia’s last such prospect.
The company’s Project Valhalla could realise a massive 11.8 trillion cubic feet (TCF) of prospective gas resources and 1.5TCF of contingent gas resources.
The current plan is to use the gas to help secure WA’s energy future, and it has already received WA government approval for export.
Calima Energy – production and profit in Canada
We await the appearance of Calima’s Finance Director Mark Freeman at Good Oil with interest, following encouraging news from the company recently.
With an almost 20 per cent quarter-on-quarter increase in revenue to $37 million in Q2 CY 2022, the company’s focussed Canadian oil and gas assets appear to be paying off.
Having brought four wells in its Brooks (Alberta, Canada) property online in July/August 2022, and another in Thorsby (Alberta), projected revenue and outputs are sure to be a highlight with H2 projected earnings before hedging of $39.4 million and $34 million post hedges. The Company’s hedge book falls away by 31 December 2022.
We’re also looking forward to Mr Freeman providing detail around Calima’s expanded Brooks holdings – adding some 33,000 acres to reach a huge 69,000 acres – and the potential of the more than 20 new oil and gas drilling locations recently identified on the new land.
TMK – a big discovery, and a big deal with China
Presenting a rare combination of thick shallow coal with high gas content and high permeability, TMK’s Gurvantes XXXV Coal Seam Gas project in Mongolia near the Chinese border should be a relatively simple field to develop.
Its potential certainly attracted the attention of China’s giant PetroChina, which resulted in a deal between TMK and PetroChina subsidiary Daqing Tamsag (DATAMO) to accelerate the exploration, evaluation and development of the project.
No doubt CEO Brendan Stats will provide an update on the quest to prove the commerciality of the project and a timeline for first gas production, at Good Oil.
The takeaway
The energy market is in something of a crisis, but as JFK pointed out, every crisis presents opportunities.
For the diligent investor looking for energy investments based in Australia but not bound by the constraints of the Domestic Gas Security Mechanism, that certainly seems to be the case.
We’ll know more by the end of the Good Oil and Gas Energy Conference. Keep an eye on The Market Herald for more reports.