Empire Energy Group Limited (ASX:EEG) Managing Director Alex Underwood discusses NT Government approval for fracking in the Beetaloo Basin, exemptions for small producers, traditional owners, pipelines, government funding and the company's pilot project.
Tim McGowen: This is Tim McGowen for the Finance News Network. This week, the Northern Territory Government announced that it would allow fracking to be permitted within the Beetaloo Basin, five years after a moratorium on fracking was lifted. Now, the Beetaloo Basin, if you don't know, is considered a world-class gas play in the Northern Territory that compares favourably with the large unconventional hydrocarbon basins of the United States, particularly the Marcellus Basin in the northern part of the USA. Now, that basin currently accounts for around 21 per cent of the United States' gross natural gas production. Now, comparisons across the relevant reservoir characteristics show the Beetaloo Basin to be equal or superior to the Marcellus Basin. Now, companies like Santos (ASX:STO), Tamboran Resources (ASX:TBN) and Empire Energy (ASX:EEG) are well positioned in the basin. To discuss further, we are joined today by Mr Alex Underwood, who's the Managing Director of Empire Energy. Empire Energy has a market cap of around $127m and an ASX code of "EEG". Alex, thanks for your time.
Alex Underwood: Great to see you, Tim.
Tim McGowen: Now, obviously, you've had some big news this week. There was a clear relief rally in the Beetaloo names that are listed on the ASX following the Northern Territory Government's announcement. How confident were you that this approval would be forthcoming? I mean, you had a lot riding on this announcement.
Alex Underwood: Yeah, there's been a couple of really big pieces of news on the regulatory space in the last couple of weeks. So, the big news this week was that the Northern Territory Government has formally signed off on the 135 recommendations of the Pepper Inquiry that looked into whether fracking could be carried out safely in the Northern Territory. And the critical development for us in relation to this is that it is now the green light to move into production in the Beetaloo. So, big news for those of us in the Beetaloo.
There was also another pretty important piece of news that came out at the federal level last week, which I don't think got as much attention, which was that there are now exemptions being put in place for both the price cap and the reasonable pricing provision for what they call small producers, which is up to about a billion dollars a year of revenue. So, there's been some really positive developments, both at the NT level and the federal level, in terms of getting more gas into the system.
Tim McGowen: And how confident are you now that the regulatory framework is in place and that it'll support the safe and sustainable development of the gas resources within the Beetaloo?
Alex Underwood: Yeah, very much so. I mean, the Pepper Inquiry was carried out over 15 months, from 2016 to 2018, to address concerns about the safety of fracking. You know, this was one of the most extensive independent scientific inquiries into the issue anywhere in the world, and, you know, an incredibly detailed report was released. And now the Northern Territory has what I would argue is the most robust regulatory regime in the world for onshore unconventional gas. And it really gives us a very clear platform under which we can now operate, you know, safely and efficiently under very clearly established rules.
Tim McGowen: And do you anticipate any further hurdles or delays to Empire's plans? Could there be any additional Greens or traditional owner issues?
Alex Underwood: Well, so I'd categorise those two groups quite differently. I mean, the Greens are fundamentally opposed to the development of Australia's resource wealth. And, you know, they fundamentally misunderstand that hydrocarbons, first of all, are completely integral to our modern lives, and indeed gas is an irreplaceable feedstock for many of the things that we enjoy in our lives.
In terms of the traditional owners, you know, there have been a small number of people who have made comments of concern this week, but that's not our lived experience on the ground level. I mean, I've been to these indigenous communities a lot of times in the last five years. I really value the long-term and productive relationship we have with traditional owners. We have the full and informed prior consent of the traditional owners for all of the activities we have carried out to date. And that's part of a now 12-year relationship. And we will be working very hard with traditional owners through the course of this year with lots and lots of on-country meetings to talk to them about our plans to move into production and to continue to get their support.
So, you know, on the traditional owner side, like with any democratic process, you always have people in favour or against, but we found that there's a very high level of support and mutual trust between us and the traditional owners, built on a very solid platform over a long time.
Tim McGowen: And, of course, now you've got this approval in place, what does it actually mean for Empire's own pilot project?
Alex Underwood: Yeah. So, we've been telling our investors for some time that, first of all, the resource scale of both the Beetaloo and our properties within it are truly enormous. We have over 43 trillion cubic feet of prospective recoverable resource. To put that into perspective, an LNG train for 20 years of supply needs about four TCF of gas. So, it is truly a globally scaled resource. But we as a company recognise that you need to walk before you run, and so we're focused on this pilot project.
The pilot project has a couple of really important value-accretive elements to us. So first of all, to date, when we've drilled horizontal wells and we're testing them, that gas is simply flared because there is no mechanism by which we can sell the gas until now. And so now moving into a pilot project, we can continue to drill wells and get up that learning curve that we're rapidly going up from a technical perspective, but in a way that we can recycle our capital rather than issuing new equity every time we look to drill a well.
So, you know, the pilot project, we've been planning it for quite some time. There's a lot of work going on within our team around front-end engineering and design, what the field development project would look like. Then looking at the indigenous consents, the regulatory approvals and financing with a view to going to our board for a final investment decision later this year. What this week's announcements really do for us is they give us renewed confidence to now really drive through those processes, seek to reach that final investment decision later this year, and then go into the construction phase on the pilot next year.
Tim McGowen: And, of course, what does this all mean for infrastructure development in the Beetaloo, and is there any kind of government funding available for, you know, the infrastructure?
Alex Underwood: So, in terms of infrastructure, there is currently some pipeline infrastructure that connects us to markets. There's the McArthur River Pipeline that traverses right through the middle of our EP187 tenement where we're planning this pilot project. So, it's only about five K's from our drilling pads. And the pilot project is focused on putting gas into that existing pipeline, and that would serve local Northern Territory markets and potentially as far afield as Mount Isa.
In terms of the bigger play here, to really unlock the potential of the Beetaloo, we've been working with APA Group, Australia's largest energy infrastructure provider, for quite some time now to look at the construction of much larger pipes, both to Australia's East Coast, where I've got to say the gas is desperately needed, but also up to Darwin. And just in recent weeks and months, there's been a renewed vigour in that process with APA. And, essentially, we're looking at the construction of much, much larger pipes down to Mount Isa. From Mount Isa, APA has a continuous network of existing pipelines to Wallumbilla, Gladstone, Brisbane, Sydney, Melbourne, and, you know, there'll be some further announcements on that in the not too distant future around the work that we've been doing with APA. But, essentially, again, this week's news really gives us and infrastructure providers the confidence to move forward.
In terms of government funding, you know, I wouldn't want to speak for what the infrastructure providers are planning to do there, because ultimately it would be those parties that would be making those capital investments. But what I would say is that, you know, infrastructure-style return assets are highly attractive to investors. And, you know, with the large volumes of gas coming out of the Beetaloo, and sorely needed down in the southern states and out in the east, you know, I think that these projects should stack up pretty nicely.
Tim McGowen: And, in terms of timing, how soon will Empire commence the application for a production licence itself, and how long is this approval process likely to take?
Alex Underwood: Yeah. So, under the NT Government regulatory framework, there's essentially two paths we can go down in terms of moving into production from a regulatory perspective. So, one is to seek a production licence. The other one is a mechanism that was put into the amending legislation late last year that provides for what they call beneficial use of test gas. And, essentially, what that means is that you can monetise the gas that you're producing as you drill further wells as you go up that appraisal path. Right now, we're running parallel processes on those, and, you know, ultimately, whichever is the most efficient is the way that we'll look to move forward. But, yeah, the work's already started, and, you know, as I mentioned before, the plan here is that we're really looking to spend the duration of this year getting all of those pieces together so that we can get a final investment decision on the pilot by the end of the year and then look to be in construction next year.
Tim McGowen: Alex Underwood, thanks for your time.
Alex Underwood: Thanks, Tim. Great to speak.
Ends
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