Has Tamboran bitten off more than it can chew attempting to play in the big leagues?

Little known NT gas junior Tamboran Resources (ASX: TBN) was down around -10% after lunch following revelations the company, together with cornerstone investor (7.5%) Bryan Sheffield, will acquire Origin Energy’s (ASX: ORG) 77.5% interest in three Beetaloo Basin permits in the NT through a joint venture (JV) entity.

The joint venture has entered into a binding 10-year gas sales agreement for up to 36.5 petajoules per annum with Origin, which is abandoning plans to frack for gas in the Northern Territory’s Beetaloo Basin.

Interestingly, Origin's decision to exit the Beetaloo Basin found favour with the market, with the shares up 3.3% in late afternoon trade.

Origin wants out

While Origin previously described the Beetaloo Basin as "one of the most promising shale gas resources anywhere in the world" it also flagged the uncertainty associated with projects that are by nature capital intensive, and now plans to allocate capital allocation elsewhere.

The sale will result in a non-cash post-tax loss of $70m-$90m at Origin's interim 2023 financial results.

Meantime, Tamboran management advised investors that the purchase will make the company the leading player in the Beetaloo Basin – where it already owns unconventional gas resources - in terms of net acres, contingent gas resources and prospective gas resources.

How much will it cost?

The stock’s return to trading this morning, after entering a trading halt last Thursday, coincided with announced plans for a sizable capital raise.

It’s understood the (JV) entity will stump up with $60m plus a 5.5% royalty on future production over the life of the field, and this is probably what the market took issue with this morning.

Tamboran has also committed to solely funding an additional $80m required for the remaining Origin stage 3 farm-in commitments, including drilling two horizontal wells.

Funding

The JV plans to fund the acquisition through an institutional placement to new and existing shareholders of up to $138m, which would exceed the Tamboran’s market cap by around $10m.

At $0.21 per share, the deal represents a 22.2% discount to the company’s closing price on September 14.

The raising is split into a $98m private placement to strategic investors and a $35m institutional placement.

Tamboran will also launch a share purchase plan to allow existing shareholders to participate on the same terms as the placement at $0.21 per share, targeting $3m.

Consensus does not cover Tamboran.

Based on Morningstar’s fair value of $0.60 the stock appears to be significantly undervalued.

Tamboran Resources share price over 12 months.