Energy stocks – always in fashion? What we saw in the fourth quarter of 2022

The war in Europe has revealed a continued global appetite for energy commodities, even as the world transitions to renewable technologies.

Generally high energy prices are expected to drive Australian export earnings into 2023.

Russia is a key supplier of energy to the West, and the war has posed the twin threats of damage to infrastructure and supply routes – as we saw when the vital Nordstream gas pipeline was critically compromised last year – and the indirect threat of sanctions against the energy-producing giant for its role in the war.

Enter Australian coal, which is enjoying somewhat of a revival in prospects, being exported to Indonesia – a client of Russian energy, along with so many other countries – and Ukraine itself, as part of the war effort.

Market outlook for energy

If the trajectory of the past two years is any guide, the outlook is still bullish for these three fossil fuel stocks in the near term – or until renewables can reliably take their place.

After a record $422 billion in 2021-22, Australian resource and energy export earnings are forecast to reach $450 billion in 2022-23, before falling to $375 billion in 2023-24, the Resources and Energy Quarterly tells us.

Demand even for coal – which was set to be retired on a short timeline around the country – will remain strong in 2023.

The amount of coal-generated electricity worldwide surged to a new annual record in 2021, followed by another positive year in 2022 – the year that ushered in the current energy crisis.

Earnings from LNG are forecast to reach around $90 billion this year, while thermal and metallurgical coal are expected to earn around $120 billion.

While global oil prices have recently been trending down on the back of weakened demand from a locked-down China, this is likely to be short-lived.

The five-day performance for energy stocks on the ASX is down 3.21%, but the sector is trending weakly up over the course of the first month of the year (+0.49%), and history tells us that it’s unwise to bet against this sector.

“Global energy policies and discussions in recent years have been focused on the importance of decarbonising the energy system and the transition to net-zero,” said Spencer Dale, chief economist at oil giant BP.

“Events of the past year have served as a reminder to us all that this transition needs to take account of the security and affordability of energy.”

A look at small cap energy activity in the quarter

There was no shortage of good news from small cap coal, oil and gas companies during the December quarter, with many reporting strong financials and new exploration developments.

Aspire Mining 

Aspire Mining Ltd (ASX:AKM) is developing metallurgical coal assets in Mongolia, principally its wholly-owned Ovoot Coking Coal Project (OCCP).

The company received three key sign-offs in the quarter, including environmental approval for the planned Ovoot coking coal mine and for feasibility studies for a Coal Handling and Preparation Plant, and for a paved road proposed to be built to support product coal haulage.

Aspire has also completed a small-scale infill drilling program on the Ovoot mining licence, for a total of 11 boreholes and 1,569 metres drilled.

Critically, it ends the quarter with a cash balance of A$29.6 million (including A$28.4 million equivalent held in US dollars), with A$1.5 million of the $A3.1 million reduction in cash balance attributable to 4.2% appreciation of the Australian dollar against the greenback in the December quarter.

Elixir Energy

Elixir Energy Ltd (ASX:EXR) produced Mongolia’s first natural gas flare at the Nomgon pilot production project during a busy quarter for the energy company. The project continues to produce gas at a growing rate.

It also booked 395 billion cubic feet of 2C contingent resources for the Grandis Gas Project in Queensland. The company sees its activities in the quarter as significant de-risking events in natural gas resource plays of ‘very material’ sizes in market-favourable regions in Australia and Mongolia respectively.

Good progress was also made at Gobi H2, where a pre-feasibility study, conducted by global infrastructure consulting firm AECOM, is in its final stages – it is due next month.

Blue Star Helium

Blue Star Helium Ltd (ASX:BNL, OTC:BSNLF) completed an initial plan of development for its world-class Las Animas Helium Project with first helium output and sales targeted for the second half of 2023 from the high-grade Voyager discovery.

The company is also planning to make a final decision on the Galactica/Pegasus plant configuration in this half of the year. It has welcomed further confirmation of a high-concentration helium discovery at the JXSN#4 discovery well on the Galactica/Pegasus prospect.

In other news, four helium wells at Galactica/Pegasus received final COGCC approval, while on the business side, the company is well-funded with a quarter-end cash balance of A$6.827 million and zero debt.

Empire Energy

Empire Energy Group Ltd (ASX:EEG) successfully drilled Carpentaria-3H, which includes a Beetaloo record-breaking 2,632-metre horizontal section, on time and significantly under budget. C-3H flowback has kicked off with 17% of placed fluid recovered so far.

The Carpentaria-4V well targeted and intersected the same stacked Velkerri Formation shales as the offset Carpentaria wells. Empire expects material growth to its EP187 Contingent Resources with the consideration of recent drilling and testing results.

The company received an R&D tax offset of $7.8 million in cash and Beetaloo Cooperative Drilling Program progress payments to the tune of $1.4 million in cash (ex-GST) during the quarter.

Its US arm executed an agreement with solar developer ConnectGen for up to US$850,000 for surface rights access and, post-quarter, received employee retention credits totalling US$429,589 in cash including interest as part of US Government COVID-19 support benefits.

Empire USA reported an EBITDA of US$0.9 million for the quarter, and its cash at the end of the quarter was $24.1 million. A $15 million credit facility with Macquarie Bank remains undrawn.

Emperor Energy

Emperor Energy Ltd (ASX:EMP) focused its energies on the development of the Judith Gas Project, 40 kilometres offshore from the Orbost Gas Plant in the Gippsland Basin, Victoria, during the December quarter.

The project objective is to establish a sales gas capacity of 120TJ per day over a minimum production period of 12 years declining to a production rate of 80TJ per day after 20 years. Projected gas sales volumes and prices would see sales revenue exceeding $400 million per year, while revised dynamic modelling indicates the potential to produce 125mmscf /day from five wells.

Emperor Energy also executed a memorandum of understanding with Cooper Energy in relation to the Orbost Gas Processing Plant, and conversations continue with potential exploration partners to fund Judith-2 Appraisal Well.

On the finance front, the company successfully executed a capital raise of $1.122 million through the issue of 35 million fully paid ordinary shares.

Kinetiko Energy

Kinetiko Energy Ltd (ASX:KKO) ended the year in a strong financial position, with more than $7 million in cash and no debt. It also received funding for roughly $8 million before costs from strategic South African investors during the period.

After successfully completing corehole 271-23C within 5 kilometres of Majuba power station, the company reported significant gas results with gas desorption testing achieving 11 cubic metres/tonne and wireline logging establishing a 131.5-metre sandstone pay zone.

Following exploration of block ER270 near the town of Newcastle, corehole 270-06C was spudded in early November 2022. This continued the company’s 100% strike rate in finding gas from drilling exploration. The 270-06C core well was successfully completed in early December 2022 with gas desorption results anticipated in early 2023.

The company is now set to complete a merger with Badimo Gas (Pty) Ltd following shareholder approval. The move enables Kinetiko to acquire Badimo’s 51% equity interest in Afro Energy by issuing Kinetiko shares to Badimo and resulting in Kinetiko holding a 100% interest in the South African projects.

Core sample from 412 metres showing visible gas emissions using soapy water.

Brookside Energy

Brookside Energy Ltd (ASX:BRK) was cash flow positive in the fourth quarter, with cash and cash equivalents of A$32.9 million, up A$4.17 million quarter on quarter. Fourth quarter receipts from sales were A$16.3 million, with net positive operating cashflow of A$8.6 million.

Gross operated daily production totalled 1,879 BOE per day for the quarter, while group net production (including non-operated production) totalled 1,064 BOE per day.

The company’s second well, the Rangers Well, achieved payout in seven months, with gross production of roughly 174,300 BOE in its first seven months of operation, generating revenues of US$13,243,000. This was the company’s second well to achieve pay-out in record time.

The company’s three operated SWISH AOI wells delivered gross production for the quarter of 158,167 BOE and cumulative production to the end of the quarter of 779,833 BOE. The Flames Well reached a peak rate (IP24) of around 1,500 BOE per day (75% liquids, 25% gas), recording the second-highest IP24 rate for a well producing from the Woodford formation in the SWISH AOI.

In November, the company spudded the Juanita Well, the first well to be drilled and operated by the company in the Bradbury AOI.

Buru Energy

Buru Energy Ltd (ASX:BRU) CEO Thomas Nador said of the company’s fourth quarter: “Buru finished the 2022 calendar year with a focus on protecting and enhancing the value of its hydrocarbon assets whilst building the value of its complementary new energy businesses. During the quarter, Buru supplied around 73,000 bbls of oil into the South-East Asian market from its Ungani Oilfield, contributing $3.7 million in sales revenue to the company.

“Although Canning Basin work was restricted to non-field activities during the quarter, preparations to recommence field activities as and when the situation is resolved were progressed and work has also continued on investigating other commercialisation options for the Rafael discovery.

“The company is providing its geological and commercial expertise to act as an incubator for its integrated energy subsidiaries that are focused on creating value in energy expansion and transition businesses.

“Particularly encouraging is the progress made during the quarter by our 2H Resources subsidiary, focused on natural hydrogen exploration in South Australia. I look forward to an exciting 2023 and thank our shareholders for their continued support.”

Triangle Energy

Triangle Energy (Global) Ltd farmed out a 5% interest in Permits L7 and EP 437 to Talon Energy, which resulted in payment of half of the costs of the first well in L7, 37.5% of the costs of a second well in L7, 25% of the costs of a well in EP 437 and recoupment of the seismic acquisition cost of $1.9 million.

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The Cliff Head JV (CHJV) generated crude sales revenue of US$4.50 million for 50,756 barrels of oil sold. The December quarter saw delivery of around 52,900 barrels of oil to a refinery in Thailand, with payment expected in early February. During this time, average production from Cliff Head was sitting at around 650 barrels of oil per day.

In October the CHJV received oil sales income of US$4.5 million (A$6.6 million) gross. The project has now submitted an application for the declaration of greenhouse gas storage formation.

Back in the office, Triangle Energy banked in $6.68 million from the partial monetisation of its investment in State Gas.