Alex Underwood, CEO of Empire Energy Limited (ASX:EEG), discusses the implications of Australia’s fuel shortage and the conceivable resources of new supply.
Paul Sanger: My caller is Paul Sanger from Finance News Network, and today I’m talking to Empire Energy (ASX:EEG). Empire Energy, trading under the ASX ticker symbol “EEG” with a market capitalization of $135 million, is an Australian Petroleum and Fuel Corporation headquartered in Sydney that owns and operates 100 per cent of assets with unconventional targets in the Beetaloo sub-basin of the Northern and Central Territory. McArthur. Je I joined today through Alex Underwood, CEO of Empire Energy. Alex, welcome to the network.
Alex Underwood: Thank you, Paul, and it’s great to be here today in this healthy environment.
Paul Sanger: I’m glad you like the environment. Alex, let’s start by talking about the ongoing discussion about the looming fuel shortage on the East Coast and what appears to be the government’s reluctant acceptance that fuel is here to stay and is a key pillar of any transition to renewables.
Alex Underwood: Warnings about an impending fuel shortage on the east coast of Australia have been around for a long time, but actually. . . we’re now starting to reach a sort of high alarm stage. Just this week we have the Australian National Gas Outlook Conference, and the industry body, Australian energy manufacturers and Ian Davies, CEO of Senex (ASX:SXY), tell us this scenario is getting pretty serious. critical. Therefore, there has been warning of the possibility of serious shortages during the next two winters. Forecasts from Australian energy market operators show that demand is expected to remain strong for a long time, but the supply is steadily declining and now is the time to move on and introduce new supply to the market. It’s not just a question of fuel affordability, and fuel has a very inelastic source: a callback, where you can have just a slight shortfall and see costs skyrocket. Obviously, those high costs are hurting families and businesses, but so are the viability of this country’s productive sector and ensuring that we can remain competitive on the global platform. And so, you know, it’s very good to see that the federal government, despite everything, is starting to recognize the importance of fuel. As you mentioned, the more renewables we have in the system, the more fuel we will want, because the sun doesn’t shine and the wind doesn’t blow. And if, as a country, we want to eliminate coal-fired electricity from the system, the fuel will become an essential raw material. I would also like to point out that, as you know, I spent a lot of time in the United States during my career in this industry, and in the United States, about 40% of electrical energy now comes from fuel, and in that sense actually leading the world. in terms of emissions reduction because it is part of the emissions intensity of coal, and in the United States they have followed shale fuel and now represent 70% of US production and have the cheapest fuel costs in the world and the cheapest energy costs. globally. global. This literally saves the average American family thousands of dollars a year through affordable fuel costs, which is why we want to move forward now. We need faster approvals and we are lucky to have a lot of natural resources in this country, and it makes sense for the government to finally recognize that.
Paul Sanger: And as you said, the press now knows: fuel is the path to renewable energy. A great article in the AFR, which you discussed earlier, so you can see that there’s a real focus of attention, and when there’s a focus of attention, forces of replacement and acceptance.
Alex Underwood: Absolutely. We’ve noticed in the last few years what happens when there’s a deficit. You know, when the war broke out in Ukraine, Australian fuel costs skyrocketed and the government was forced to step in. I think, in hindsight, we all learned that any intervention in the market had to inspire a new offering, and it took a while for that to come to fruition, but yes, things are on the wall. They gave us to keep going. We want more fuel supply. This will be smart for households. It’s going to bring inflation down. This will affect our productive sector and, ultimately, economic growth.
Paul Sanger: Now, Alex, where do Beetaloo and Empire have compatibility in the East Coast fuel narrative?
Alex Underwood: If we look out over the next few years, to around 2040, there is a huge deficit predicted for the east coast of Australia. So I think right now the East Coast is using about 1,500 terajoules per day. The deficit will more than share in just 10 or 20 years. Therefore we want new source resources. You know, it’s great to see corporations like Senex (ASX:SXY) and Comet Ridge (ASX:COI) and others looking to introduce more coalbed methane materials to the market, but, you know, those coalbed methane fields eventually disappear. to begin to ripen and roll. And then, you know, in Bass Strait, their production falls off a cliff. I think last year it was down 25%. Indeed, Bass Strait has been an incredible blessing to this country. Seven trillion cubic feet produced, two billion barrels of oil produced, but we’re really in their twilight years now, and when you look around, there’s really only two other options. There’s Beetaloo, one of the largest shale fuel fields in the world, and frankly, with some of the effects that we and our neighbors in the basin are causing, I think it’s going to be one of the largest shale fuel fields in the world. the world. shale fuel in the world. most prolific shale basins. The only other option we have is to import LNG. Importing LNG is a terrible way to create energy security for your country. It is literally liquefying fuel from as far away as the United States, putting it on a ship, and then refueling it. This is not so smart for the environment and will directly affect global LNG prices. So I don’t think that in this country we deserve to compete fundamentally with our own LNG consumers to supply our main population centers. And so, if we want to keep jobs related to this industry in the country, retain the royalties, which go, in our case, to the NT Government, with all the facilities that, you know, the Beetaloo can provide, actually. In reality, we are looking for the only significant national source of supply in the medium term to adequately supply our markets.
Paul Sanger: That’s one point, Alex. Alex, the Northern Territory Government has made it clear that the territory is in a precarious position from a fuel source perspective. How can Beetaloo and Empire find a solution?
Alex Underwood: The NT market is relatively small, but I think more than 80% of Darwin’s electrical power comes from two fuel-fueled power stations. Gas is the source of power for mining operations in the Northern Territory, and I have to say that the Northern Territory Government’s help to us has certainly been fantastic. They have invested a lot of cash in setting up a regulatory system. They actively advertise this industry in Australia and around the world. And lately they face a fundamental challenge. There are only a few sources of fuel, and one of them in the Amadeus Basin is working quite well at a fixed rate; however, the production of the other major block supplying the NT market has fallen precipitously. It produces only about 15% of what it should. And this poses a major force security challenge for the NT government.
As a company and as a basin, we are here for the NT and its people. So, you know, we need to go into production as temporarily as possible. Empire plans to be in production very soon. It’s right on the horizon. And, in our first pilot phase of development, we aim to sell fuel in this local market. This will put downward pressure on prices, help existing and new mines, and help feed Darwin and other population centers. So we see a very smart opportunity to work heavily with the Northern Territory to help them get the energy they need.
Paul Sanger: So what I’m hearing there, Alex, is that you’re telling me that the Northern Territory government is more proactive than reactive, which is wonderful to see, to investigate to solve the challenge before it arises.
Alex Underwood: The Northern Territory government has a plan to increase the gross product of their territory, which is the equivalent of GDP at the territorial level, to reach, I think, $40 billion by 2030, and essentially this gigantic fuel field, I think. , it’s at the heart of that. So, as I mentioned, there are a lot of mineral deposits in the territory, yet mines consume a lot of energy, and fuel is the apparent way to supply that energy in those off-grid areas. So they’ve been very supportive of us and we can’t wait to pay them back for the investment they made by getting the fuel flowing soon.
Paul Sanger: And Alex, in closing, I’d like to talk in particular about Empire. Is it realistic to anticipate Empire’s first fuel production in 2025 and, moreover, what point of production Empire may reach in the short term and beyond??
Alex Underwood: Well, I can tell you for sure that it’s surely realistic. I mean, right now we’re working day and night as a team on our high-profile projects to move into pilot production. They are: There’s an oil pipeline that goes through our building. It exits the Amadeus pipeline near Tennant Creek and heads to the McArthur River zinc mine. What’s restrictive in our initial plans is the capacity of this pipeline, which is about 25 terajoules according to You know, that’s not a lot of fuel in the scheme of things, yet when you think, for example, about Darwin employing 40 to 50 terajoules per day, that’s pretty big in an undersupplied market. We are confident that we will be able to be in production in the next 12 months or so, so we expect early 2025, or even later in 2025.
And actually, there are several reasons for this. So, first of all, we got very encouraging flow rates for our first two horizontal wells. We purchased a fuel treatment facility for a small fraction of what it charges us to buy a new building. We’re right on the pipeline. Lately, we have been entering into agreements for the sale of fuel. We’re executing various financing features that I think, based on my past experience as an investor in this space, are actually designed to maximize the price to shareholders and minimize shareholder dilution, we’ve filed all of our regulatory documents and, assuming all goes well, we intend to be on the floor later this year to install the fuel plant, connect the two existing horizontal wells, drill some other horizontal well, and that deserves to allow the fuel. It will flow early next year.
Paul Sanger: So, Alex, I just need to know your point of view, the press is waking up to the fact that fuel is the path to transitioning to renewables, however, from the perspective of investors, there has been genuine opposition from investors who are making an investment in this space. Why do you think this is going down and do you think it will be replaced anytime soon?
Alex Underwood: I think there are several points at play here and, again, if I think back to the beginning of my career, when I was an institutional investor in this space, one of the key points in The Origin of This Phenomenon, What I think is that shale fuel is so new to Australians. And if I go back 15 or 20 years, when I was at Macquarie and we were making an investment in smaller oil and fuel companies, specifically those in Australia, it took us a long time, even as a complicated enough organization to see the coal perspective. . seam methane in Queensland. And those who got into coal methane early in Queensland have made incredible profits. And I have to say that several of them are our main shareholders, because they see the same perspective, however, you know, it was very new, and the industry, the coal and methane industry. At that time, they were moving towards their popular curves, which is the expected production rate. Also, back then, when you drilled one coal methane well at a time, it was quite expensive, unlike today where many are drilled. As a measure, I think a typical coal mine originally costs around $5 million. Today they sell them for less than a million dollars and that is due to economies of scale. And now we have shale fuel. Again, shale fuel is actually a more productive form of unconventional fuel production than coalbed methane, and this has happened in the United States, where we’ve noticed the unconventional start of this thing they call methane. coalbed methane, which we call coalbed methane. . Shale temporarily brought it forward. But once again, the numbers are still quite high today. They are big pots and they charge a lot of money. That’s why I think Australian investors are still thinking. I have to say though, when you go over to the US and tell them about the Beetaloo and show them so quickly the speeds you’re hitting, they get it. And I would tell Australian investors to stick with the money. If you look at the major players that are moving into this basin, they are very complicated and very successful American shale investors, and you can see the inherent price here. So it’s a little frustrating to see investor apathy, but I have to say, from my point of view, I don’t have any concerns. I think we’re on the cusp of something pretty big. And the next time we talk, we can talk about whether or not I was right in that prediction.
Paul Sanger: Alex, I can’t wait to do it. Thank you for your time today.
Alex Underwood: Thanks, Paul, that’s it.
Ends
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