Origin Energy has given Buru Energy a significant shot in the arm by farming into seven of Buru’s oil and gas permits in the onshore Canning Basin in Western Australia. The farm-in significantly strengthens Buru’s planned 2021 exploration program, including drilling of the highly prospective Rafael 1 oil well.
Under an agreement struck between the parties, Origin will secure a 50 per cent equity share in five permits with Buru and a 40 per cent equity share in two permits with Buru and Rey Resources. Origin’s total estimated spend over a two-year period will be approximately $35 million inclusive of a two-well drilling program and seismic work.
Whilst Buru remains the operator of the exploration permits, Origin has the option to assume future operatorship for any significant gas development or carbon capture and storage operation. The transaction does not include the Yulleroo gas field, which is retained 100 per cent by Buru.
The seven permits cover 20,000 square kilometres of the onshore Canning Basin where Buru has been quietly amassing a large portfolio of quality production and exploration assets since around 2008.
Welcoming the new partnership, Buru Energy Executive Chairman, Eric Streitberg said: “This transaction has been concluded after an extensive and competitive farm-out process that has included thorough technical and corporate due diligence during a challenging period for all parties due to the pandemic restrictions,”
Origin Energy Executive General Manager Integrated Gas, Mark Schubert said the farm-in was an opportunity to take an interest in one of Australia’s material onshore exploration and production basins at an attractive entry cost where significant work had already been undertaken, giving it a short timeline to create some value.
Under the agreements, the initial work program includes a commitment to drill two exploration wells – Rafael 1 and Kurrajong 1 - as soon as practicable in 2021 after the end of the current northern Australian wet season. Origin will provide individual carry amounts totalling $16m for the well costs, and will provide an additional $1m payment to Buru in recognition of past costs.
The program also involves the acquisition of extensive regional and prospect level seismic programs across the permits in 2021, with Origin carrying the first $3m of seismic acquisition expenditure. Origin will also carry the first $4m of expenditure if the joint venture decides to acquire a 3D seismic program over the Rafael prospect area after the drilling of the Rafael 1 well.
It’s been a tough year for oil and gas companies across the globe. The oil price was already in a cyclical decline from its highs in late 2018 before it collapsed in April this year with the onset of the Covid-19 pandemic. Stock prices of the world’s oil producers followed oil’s downward spiral.
The price has recovered well in recent weeks however to around US$47 per barrel on hopes the emergency roll out of several COVID-19 vaccines across the world and government stimulus packages will boost consumption.
The oil price typically rises over the northern winter due to increased demand for home heating, however the United States Energy Information Administration expects prices will average US$49 per barrel in 2021.
Buru has weathered the 2020 storm by focusing on production from its Ungani oil field in the Canning Basin, which it operates in 50/50 partnership with Roc Oil. The field produces approximately 1,100 barrels of oil per day.
Buru has shipped three oil cargoes so far in 2020-21, totalling 214,000 barrels worth approximately A$5m to Buru’s bottom line. At the end of the September quarter the Perth based company had a healthy balance sheet sporting some $23.3m in cash and cash equivalents. The company appears well-poised now to take advantage of the anticipated cyclical rise in oil prices in the year ahead.
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