Elixir Energy (ASX:EXR) - Drilling Down Unconventional Gas Prize in Bullish Australian Market

Nov 15, 2024

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Interview with Neil Young, MD & CEO of Elixir Energy Ltd.

Our previous interview: https://www.cruxinvestor.com/posts/elixir-energy-pioneers-major-gas-resource-in-australias-bowen-basin

Recording date: 11th November 2024

Elixir Energy (ASX:EXR) is an Australian gas exploration company focused on developing a large unconventional gas resource in the Grandis Basin of Queensland. The company recently completed a one-year appraisal drilling campaign that, while delivering mixed results, has provided valuable data to guide the next phase of development.

The company's Managing Director, Neil Young, remains confident in the potential of the play despite the final well flowing at a subeconomic rate of 1 MMcf/d. Young attributes this to operational issues rather than reservoir quality, stating, "We are confident that if we had to drill exactly the same well tomorrow without interruptions, we would get a commercial flow rate and above."

Elixir's geologic model points to a potentially multi-TCF gas resource across its acreage. The company has identified multiple prospective zones and Young believes there is significant room for optimization through techniques like horizontal drilling and enhanced stimulation designs. He compares the current state of the play to the early days of the major US unconventional developments.

With the initial appraisal campaign complete, Elixir is now focused on securing an experienced industry partner to help fund the next phase of drilling. The company is in discussions with a range of potential partners from supermajors to large US independents. While Young expects the farm-out process to take some time, Elixir is in no rush with a 15-year license in hand.

In the interim, Elixir is pursuing several smaller-scale deals to generate near-term cash flow. This includes a potential farm-out of a conventional prospect on its acreage and the possible sale of a legacy asset in Mongolia.

A key part of the Elixir story is the company's very favorable macro backdrop. Natural gas prices in Queensland have surged to A$12-15/GJ, around 4x the US benchmark, due to declining local production and strong LNG export demand. With the market expected to remain tight for the foreseeable future, Young sees a significant opportunity for Elixir to help fill the supply gap longer-term.

The key risk to the Elixir story is that the company still has much to prove at the asset level before its acreage can be considered commercial. Further appraisal work is needed to demonstrate the well productivity and cost structure to attract a major partner. This will likely require additional capital, which could prove challenging in the current market.

For investors with a higher risk tolerance, Elixir offers significant upside potential if the company is successful in delineating its unconventional gas resource. The stock could re-rate meaningfully if Elixir is able to secure a major farm-in deal in the coming months. In the meantime, investors should track the company's progress closely with a particular focus on near-term drilling results and partnership discussions.

View Elixir Energy's company profile: https://www.cruxinvestor.com/companies/elixir-energy