The question as to why did they sell is/was a good one and is explained below,and at the time it was also discussed that Energy Capture had another potential play in the UK that they wanted to advance.
Queensland acquisition
Elixir Energy Ltd. announced on the 29th of August 2022, that it had acquired a 100% position in the petroleum exploration permit ATP 2044 in Queensland. The exploration permit was acquired through a special purpose vehicle, namely EnergyCapture Pty. Ltd. The company was able to acquire the asset without having to raise any funds, with its strong cash position of AUD$ 22.7 million, as shown in its June Quarterly report, aiding this endeavour. Young describes the company’s rationale as a low n opportunistic move, brought about by the rapid change in the dynamics of the international gas market.
“I think the primary driver is opportunistic. Our technical team are pretty experienced guys, they know the Taroom Trough, which was first drilled by QGC when it was owned by BG. QGC was a company that Richard Cottee took to a USD$5 billion to USD$ 6 billion takeout by BG group. Of course, BG is now owned by Shell, who are still there. The opportunistic driver wasn't really geology; the geology was sort of known, it was the international advance of rising gas prices in Australia and internationally for, in our view, the long term.”
Young further explains that EnergyCapture Pty. Ltd. released the asset to enable the project to be firstly advanced by a larger company with a larger balance sheet, and secondly due to Elixir Energy Ltd.’s ability to acquire the project at a faster rate than a larger corporation like Shell.
“The acreage that we've targeted was held by a private company, and it was opportune for them to sell to someone with a bigger balance sheet and for us to acquire something far more quickly than a company like Shell or its peers could ever do. The defensive aspect is of much less importance, but it is still there. I think it's sensible for any company to have an array of assets that recognize geological and geopolitical risks.”
The petroleum exploration permit ATP 2044 was acquired by the company for AUD$ 500,000 and the issuing of approximately 2.7 million shares of Elixir Energy Ltd. A third of the shares are in escrow for 8 months, another third in escrow for 18 months with the remaining third unencumbered. The company also issued a 3% overriding royalty on the production of hydrocarbon liquids at the asset to EnergyCapture Pty. Ltd. Young explains the terms of the acquisition as follows:
“The acquisition price was USD$ 500,000 in cash, USD$ 3 million in company stock and a royalty over the liquids-only component of any future production, and it is primarily a gas play. It was a pretty good deal and a successful case for the vendor, who is a private company, and for us, one that we could afford and that we can afford to take on through the next stage of an appraisal. If that appraisal is successful, in our view, this asset will ultimately end up in the hands of people like Shell, and I think the key challenge for oil and gas stocks in particular, given ESG and other drivers, is to have an asset that ultimately can attract capital and large company interest.”
Elixir Energy Ltd. will in the future involve a partner to drill an exploration well at the exploration permit. The exploration well will be quite deep according to Young, which will cost a fair amount. The company aims to involve a partner with a larger balance sheet than itself, and with a market cap of USD$ 470 million, the partner it involves will be a large company like Shell. Young explains the ideal partner for the company as follows:
“Certainly, we'd be looking for someone with a considerably larger balance sheet than ours. Technical expertise is not as relevant because we can operate the first few wells here ourselves, and then if successful, the ultimate ownership of the play will work itself out. The type of parties that could be included, given the international market dynamics, could be LNG buyers in the traditional oil markets of East Asia, such as Japan and Korea. In addition, as a potential European leg opened up, you could see, for instance, German buyers, who would never normally look to a country like Australia, they are now very much incentivized to do so.”
(20min delay)