Tamboran Resources has raised $35 million of new equity through a private placement, anchored by a $20 million investment from a US strategic investor. The funds will accelerate the commercialisation of the EP161 and EP136 development and for working capital purposes.
TBN’s development projects are located in the Beetaloo Basin which is approximately 500km south-east of Darwin. The 28,500 square kilometre basin (almost the size of Belgium) contains unconventional gas and is similar in nature to the prolific North American gas basins. Perhaps this is what attracted Bryan Sheffield to put $20 million into TBN as a strategic investor. Mr. Sheffield is a former founder of Parsley Energy, a major independent unconventional oil and gas producer in the Permian Basin in Texas. Mr. Sheffield noted that the Beetaloo Basin “has a number of the key elements of a world class shale play”. Although Mr. Sheffield’s interest in the company will rise to 7.4%, he is a passive investor. However, we would be surprised if TBN’s clever management team did not take advantage of his obvious expertise and knowledge.
The new money will help the drilling program at EP136, providing funding for at least another 1-2 wells in addition to the 3 initial wells over EP161 and EP136.
TBN’s cash balance now sits at $83 million which should last for around 20 months based on the September quarter annualised cash burn of $49 million. We continue to assume that TBN will receive $21 million of government incentives as part of a $50 million Beetaloo Cooperative Drilling Program. The current placement also takes some pressure off a future anticipated equity raising. We still anticipate TBN to be free cash flow positive by FY26f.
Initial flow test results are due from EP161 Tanumbirini before the end of CY21. Testing on adjacent wells has revealed quite strong flow rates.
Investment view
Our valuation of $0.59 per share is based on a total resource of 3.1 Tcf with a risk weighting of 15% to EP161 and 10% to EP136.
We believe TBN is trading on a significant discount to peer companies on a total resource basis, reflecting the low risk weighting currently being applied to the projects. As the assets move towards first production, the risk weighting reduction will reveal much greater investment value for shareholders.
The business is exposed to development and financial risks including the construction of its plant, its reserve life and operational risks such as the joint venture pipeline connecting the Beetaloo Basin to infrastructure to markets in Darwin and the south east of Australia.
News flow on the two development wells will provide the near term catalysts for TBN, but the latest equity raising demonstrates the confidence of investors in the story.
We continue to recommend TBN as a Buy.
