Buru shuffles costs to boost cash for WA Rafael gas ramp-up

Buru Energy has rolled out a bold plan to focus attention and capital on its flagship Rafael gas and liquids project in Western Australia's Canning Basin, which is set to begin production in 2027. 

To ensure Rafael’s success as a future cash cow, the company has kicked off a $3 million cost-cutting program and the sell-down of non-core assets, directing capital where it matters most.

Rafael has long held promise as a potential company maker for Buru. However, it appears the recent departure of founder and industry stalwart Eric Streitberg as chairman and the appointment of another industry veteran David Maxwell in his place, may have triggered a refresh and refocus by the executive team.

The decision to accelerate the plan to become a self-funded oil and gas company as soon as possible is unsurprising. Management says when Rafael is fully commissioned and in production the project is forecast to generate annual cash flows over multiple years greater than the company’s $44m market capitalisation within three years.

First drilled in 2021 as a 50:50 joint venture with Origin Energy, Rafael-1 encountered gas in three pay zones but predominantly in the lower Ungani Dolomite reservoir. 

Subsequent pressure testing delivered a constant flow of seven million cubic feet a day, making Rafael one of WA’s most significant onshore conventional hydrocarbon discoveries in the past 20 years. 

A 2022 independent audit by consultants ERCE reported an eye-watering estimated recoverable gas resource of one trillion cubic feet and more than 20 million barrels of condensate – enough to service the needs of the entire WA retail market for 30 years.

Notwithstanding the outstanding success of the wildcat, in 2023 Origin decided to de-risk from upstream exploration altogether and agreed to part ways with Buru in a deal considered a win-win by both parties. 

Origin agreed to contribute $4m towards the cost of a 3D seismic survey. In turn, Buru gave the nod to a delayed payment for Origin’s holding based on project success and $34m in progress payments. The payments comprise $9m when a production licence is issued, a further $5m paid upon a final investment decision and an additional $20m when Rafael is in production. 

After the 3D data interpretation was completed in early 2024, Buru significantly upgraded Rafael’s potential gas in place to a maiden contingent resource of 85 billion cubic feet (Bcf) of gas and 1.8 million barrels of condensate, by combining the 100 per cent owned Rafael EP428 licence with its adjoining 60 per cent owned EP457 grounds. 

The uplift in resources was also extremely timely following the WA Government's decision in 2023 to allow up to 85 per cent of onshore gas in the Canning Basin to be exported and requiring only 15 per cent to be held back for the domestic market.

Buru Energy chief executive officer Thomas Nador said: “As the only proven conventional gas and liquids resource in the greater Kimberley region, developing Rafael is a unique opportunity for the company to build a foundation energy business to supply an established and growing regional energy market.”

In addition to improving the potential of Rafael as a standalone hydrocarbon project, the 3D data survey also helped identify a distinctive seismic signature of the carbonate system that hosts Rafael which has been defined along the basin’s edge using existing 2D seismic data. 

The company says the studies revealed a significant corridor with the potential for multi-trillion cubic feet of gas and condensate in deeper areas and light oil in shallower sections along the southern basin margin.

Coupled with the company’s upgraded volume estimates, Buru believes the project now supports a planned phase one development involving the establishment of a competitive, small-scale LNG facility to meet the energy needs of WA’s Kimberley region, which is currently dependent on diesel or LNG trucked from the Pilbara.

Looking ahead over the next 12 months, Buru is gearing up for a final investment decision later in the year with production slated to kick off in the second half of 2027.

With the Rafael development concept in the bag, the company is busy securing commercial agreements for the project's development funding needs and the sale of its gas and liquids. 

As of the end of December, Buru’s cash at bank stood at a healthy $7.9m. The board has approved an extensive plan to cut non-essential expenditure in the interim to minimise the cash burn and manage the upcoming cost commitments associated with bringing Rafael into production. 

To hit its $3m cost reduction target, the company has shed 40 per cent of its headcount, dropped its directors’ fees and asked its chief executive officer to forfeit his 2024 short-term incentive program. 

The company is also making headway in its efforts to offload assets it considers likely to use up management time or resources, and which may deflect from the main prize of getting Rafael gas flowing as soon as possible.

Its H2 assets are included in the garage sale list. These are a portfolio of 17 hydrogen and helium licences covering 70,000 square kilometres in South Australia, WA and Tasmania. Several domestic and international parties have shown interest and are already doing their due diligence.

The 50:50 Battmin joint venture set up with ASX-listed Sipa Resources is also up for sale. The joint venture aims to explore for base metals at the Barbwire Terrace project southeast of Broome in WA and represents Buru’s only exposure to a non-energy-related asset.

Buru is also thinning out its considerable holdings in WA’s Canning Basin, electing to give up 97 exploration permits and production licence areas, reducing the company’s landholding by almost 60 per cent from 13,200 square kilometres to 5440 square kilometres. The cost savings in annual fees, levies and surcharges from shedding so many grounds are likely to be significant.

Its jointly owned Ungani Oilfield, 50 kilometres west of Rafael, is one project that will survive the company’s “toe clippers”.

Buru resumed 100 per cent control of the oilfield in March last year following Roc Oil’s decision to withdraw from its 50 per cent interest. The 500-barrel-a-day operation was later suspended due to accessibility issues at the Fitzroy River crossing, part of the route to Wyndham and its export market. Buru used the time to seek out a new partnership.

By July Ungani was set for a new lease of life after Canadian-based Sabre Energy stepped up to the plate with a deal to earn a 70 per cent interest for a $6m outlay. 

The joint venture agreement includes $1m towards the cost of restarting production and an additional $5m as its contribution to the upcoming Mars exploration well 9km north of Ungani, which is estimated to hold 2.8 million barrels of oil.

Buru’s 2025 cost-cutting plans appear far-reaching. However, management believes coupling the changes with its self-proclaimed laser-focus on bringing Rafael on stream will deliver a sustainable and exciting period of growth, allowing Buru to play a pivotal role in shaping the Kimberley’s energy future. 

Is your ASX-listed company doing something interesting? Contact: matt.birney@businessnews.com.au