It's go time: Talon confirms development of Perth Basin gas field

Talon Energy’s (ASX:TPD) Walyering Perth Basin project is locked in like the million dollar question, with a positive final investment decision (FID) made to build-out the gasfield. 

Talon Energy sits on Walyering with a 45% stake in partnership with majority interest holder and Operator Strike Energy (ASX:STX). After several years of exploration and flow testing, they expect to start selling gas into WA’s market by Q1 2023.

The Walyering acreage, part of the Perth Basin, is located in close physical proximity to the Parmelia gas pipeline which services industrial customers in the Perth metropolitan area. 

Recently, Talon Energy saw the gasfield independently certified as having 2P reserves of 54.2PJ of gas; equivalent to 48.3 billion cubic feet of gas. 

Also worth noting is the extremely competitive capital expenditure estimate, at only $14.2m (Talon's 45% share gives it a requirement for $6.4m).

Part of that capex will go towards the creation of a production facility capable of processing up to 33TJ/d, as well as a condensate storage facility with a capacity of 1,400 barrels.

A snapshot of the Walyering development with gas flare active on-site (source: Talon Energy)

Near-term earnings and revenue potential 

Management notes the positive FID for the gas field sees Talon move from explorer to producer. Talon Energy CEO Colby Hauser said:

"The project showcases a quick, low-cost development whereby Talon can earn between $23-$33m [per annum] in net cashflows in an environment where access to capital is increasingly difficult."

Strong responses have been observed with tier-1 counterparties suggesting WA domestic natural gas spot prices of between $6/GJ - $7/GJ. Converting Walyering’s 54.2PJ of gas to gigajoules (54,200,000), this implies upper estimate gross sales worth $379.4m. 

Per Talon’s 45% stake, this leaves Talon looking at potential sales of over $170.7m - with a market cap under $65m post-consolidation. 

This revenue potential remains subject to finalising a long term gas sales agreement. But with spot prices sitting around $6 dollars and a projected short fall in production, energy prices in Western Australia appear to be headed even higher. 

A chart displaying gas price spot market movements in Australia up to July (source: GasTrading Australia)

Further Perth Basin Expansion with Condor

The Walyering discovery is known as Jurassic wet gas, meaning it will produce associated condensate (a light oil) with gas. Condensate is considered a premium product in comparison to crude and often sells at a premium.

In the background, Talon has another Jurassic wet gas prospect in the Perth Basin; the Condor play, with a P50 unrisked gas reserve of 408 billion cubic feet of natural gas, and, 20 million barrels of condensate liquids.

"Walyering proves the commerciality of Jurassic wet gas in the Perth Basin and has highlighted the significance of our Condor prospect which we hope can deliver another exploration outcome in the coming years," Talon Energy CEO Colby Hauser said.

Talon has a binding agreement with Macallum Group for 100% assignment of permit blocks 7977, 8049 and 8121 along with SPA 0081 (“Muchea” Project).

Overall, the Perth Basin is set to act as a major gas production province for WA’s domestic energy market, at the same time national energy security has come back onto Canberra’s agenda. 

Mongolian CSG also on the horizon  

While Talon’s Perth Basin Walyering field readies to go online, it has another reason to be optimistic. 

Partnering with TMK Energy (ASX:TMK) in the South Gobi region of Mongolia, Talon also holds a stake in the promising Gurvantes XXXV CSG project.

Relatively close to a huge gas market in China and with attractive infrastructure costs, the Gurvantes Project has been defined by a successful maiden exploration program though H1 of 2022.

The Gurvantes XXXV project has garnered the interest of state-owned Chinese energy heavyweight PetroChina, executing an MOU with TMK Energy towards a possible investment in the gas play.

So far, the partnership has spud three wells within the South Gobi Gurvantes XXXV project envelope: every single well to date has hit thick bodies of free-moving gas bearing coal.

The company is on track to drill its 4th Snow Leopard well on-site after the highly successful first three wells. Once Snow Leopard-4 is complete and a contingent resource can be published, and Talon can elect to undertake a pilot well program with TMK in late 2022.

Snow Leopard - 03 drill site at the Gurvantes XXXV CSG Project in Mongolia

Talon set to realise value, fast

All three exciting projects look poised to see Talon generate further near term revenue, at a time where gas demand is increasing and cash flow is king.

Talon investors should be excited: things are about to get moving, quick smart.