Energy

Meet Elixir Energy: Australia’s next big thing in the smallcap energy sector

Wed 14 Sep 22, 9:14am (AEST)
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This article was written in collaboration with Elixir Energy
A snapshot of Elixir Energy-s digs on-site the Southern Gobi Nomgon IX project in Mongolia
Source: Supplied

Key Points

  • Elixir Energy boasts three key projects: the Nomgon CBM project in Mongolia; the Gobi H2 green hydrogen project (also located in Mongolia), and a more recent addition—the QLD-based Taroom Trough ATP 2044 asset
  • Company’s executive board includes Chairman Richard Cottee, who grew Queensland Gas Company (QGC) from $20m to over $5.5bn
  • Elixir now sits in two high-impact jurisdictions: Mongolia nearby the world’s largest energy importer, China, and Australia’s east coast; with access to both international gas markets and a local market in crisis
  • Elixir's strategy is already supported by SB Energy, a subsidiary of Japan's massive SoftBank Group, as well as being aligned with the policies of the Mongolian and Australian governments
  • The energy crisis around the world has woken up markets to the value of a well located supplier
  • Each of the three projects are potentially valued at more than the company’s market cap at this current time; and all three projects have considerable option value as potential acquisition targets by themselves

Elixir Energy (ASX:EXR) is shaping up to be Australia’s next best thing in the smallcap energy sector, as its world-class management develops three projects across two of the most energy-hungry jurisdictions on the planet.

You probably know Elixir through its ownership of the Mongolia-based Nomgon coal bed methane (CBM – also known as coal seam gas or CSG) project, which sees the company exploring for unconventional natural gas in the southern region of Mongolia’s Gobi Desert, just to the North of China.

The boundaries of Elixir’s Nomgon project, ratified by a Production Sharing Contract (PSC) under Mongolian petroleum law, reflects one of the largest CSG acreages in the world. 

Located relatively near the Chinese border, all Elixir needs is a relatively short pipeline to export coal seam gas directly into China at an extremely competitive low cost.

Located in the same region as the Nomgon project is a more recently established green hydrogen play, the Gobi H2 project, through which the company intends to take advantage of energy transition market dynamics, and forge a path ahead to the sale of hydrogen gas into China.

And now, Elixir is bringing it back home. 

In late August, Elixir revealed it had bought acreage overlying Queensland’s Taroom Trough. Under acquired multinational company BG Group; energy super-major Shell had previously discovered large volumes of gas in the Taroom, but, to date has not yet developed it.  

Elixir will commence drilling in the Taroom Trough in 2023. Speaking recently at RIU’s Good Oil conference in the lofty Hyatt Regency in Perth’s CBD, managing director Neil Young highlighted to the crowd Elixir’s impressive prospective resource estimate in its Taroom asset: a mean case of over 3 trillion cubic feet (TCF) of gas and 75 million barrels of condensate (light oil). 

Flagship Nomgon acreage on-track 

Planning around 20 exploration and appraisal wells in the Nomgon PSC in the 2022 calendar year, and a two-well long term pilot program now being drilled ahead of launch in the immediate future, Elixir’s Nomgon acreage is one to keep an eye on. 

The company, extracting gas in the form of coal bed methane (which is natural gas extracted from coal seams) has one large cost advantage to boast: the coal beds in question are at a mere 450m depth. 

That might sound like a lot, but consider the litany of ultradeep onshore and offshore wells all around the world, where drills can extend for over 4km before hitting the good stuff. 

In that regard, outside of hard rock mining, 450m is demonstrably shallow. 

Elixir’s Nomgon PSC surrounds Rio Tinto’s massive Oyu Tolgoi copper mine in Mongolia, which itself stands as a testament to the attractiveness of foreign investment into Mongolia’s resource-rich south Gobi region. 

But we’ve saved the best for last. The Nomgon acreage is relatively nearby the Chinese border, and it is to this market which Elixir intends to market its Gobi sourced gas. Circumventing the need to export gas using LNG or very expensive multi thousand kilometre pipelines, Elixir offers an unbeatable low cost profile in launching gas sales into China. 

And that’s not the only kind of gas it will be selling to the mainland. 

Elixir Energy MD Neil Young (left) stands alongside a colleague on-site the Nomgon IX CBM project
Elixir Energy MD Neil Young (left) stands alongside a representative from SB Energy on-site the Gobi H2 project

Gobi H2 

As it progresses its Nomgon CBM play; Elixir is also busy developing the Gobi H2 project; which will see the company producing green hydrogen using renewable power. 

The South Gobi region, being a desert, has excellent exposure to high-intensity sunshine throughout the day, and the local region also benefits from the inclusion of wind turbines on-site, with atmospheric dynamics determining wind patterns reflecting a world-class location. 

That renewable electricity will power hydrogen electrolyzers (which turn water into hydrogen,) thereby allowing Elixir to market its product as green hydrogen. Green hydrogen is a key staple of much of the world’s planned decarbonisation initiatives. 

In the short term, Gobi H2 is focused on a pilot plant project with an electrolyser of ~10MW in size, which could produce around 25,000 tonnes of H2 per annum. In the long term, Gobi H2 could be of multi-gigawatt scale, producing hundreds of thousands of tonnes of H2 per annum.

Elixir’s first target for its green hydrogen gas?: China’s Inner Mongolian province, located no great distance away. The area is one of China’s largest steelmaking hubs; a single province that produces more steel each year than the entirety of Australia. 

By selling hydrogen gas to steelmakers in Inner Mongolian cities like Baotou, China will then be able to meet its net zero by 2060 goals by pointing towards the increasing decarbonisation of its most well-known industrial sector (as far as Australians are concerned.) 

The move will also likely stand as a case study in the practical development of green steel for an international audience. 

And that’s fitting, for a company which is now an international player. 

Horses gallop in single file on-site Elixir's Nomgon acreage
Horses gallop in single file on-site Elixir's Nomgon acreage

QLD Taroom Trough play brings it back home

The Taroom Trough play, Elixir’s Managing Director Neil Young notes, is going to be an area of deeper and hence more expensive drilling for the company, but one which is worth it. A worldwide energy shock borne from covid, inflation, and conflict in Europe, has echoed to Australia, where the price of gas is rising dramatically in the hungry east coast. 

Located conveniently nearby Australia’s premium gas hub at Wallumbilla in QLD, Elixir is well placed to sell gas all up and down the east coast, both domestically, and to very high priced international gas markets via the Gladstone LNG export terminal. 

Keen to waste no time, an appraisal well is due in the Taroom Trough asset in 2023. 

Under the former name BG Group, UK-based supermajor Shell has carried out work on-site in the Taroom Trough before, including the Daydream-1 well located only a ~3 kilometres from Elixir’s new licence; which has an estimated 3 TCF of natural gas prospective resources (with an associated 75 million barrels of light oil).

In fact, Shell never left the area. It and Santos hold a number of permits immediately surrounding Taroom in all directions, targeting Permian-age sandstones and coals. 

Elixir Energy has advised Market Index the operators of neighbouring licences covering the Taroom Trough intend to commence adjacent drilling operations by 2024.

DISCLAIMER: Market Index helps small-cap ASX listed companies connect with Australian investors through clear and concise articles on key developments. Elixir Energy Ltd was a client at the time of publishing. All coverage contains factual information only and should not be interpreted as an opinion or financial advice. Consider consulting a qualified financial adviser before making an investment decision.

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Written By

Jonathon Davidson

Finance Writer

Jonathon is a journalism graduate and avid market watcher with exposure to governance, NGO and mining environments. He was most recently hired as an oil and gas specialist for a trade publication.

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