Oil and gas company Triangle Energy (ASX: TEG) is pursuing ways to integrate its assets in tomorrow’s world with a strategy aimed at unlocking more oil reserves and gradually leveraging its existing infrastructure to include renewables.
Last week, the company announced it had received firm commitments for a $10 million share placement, citing its Perth Basin expansion strategy as one of the key virtues driving the raising’s “tremendous” investor interest.
The explorer and producer holds the largest acreage position in the Perth Basin, both onshore and offshore Western Australia, with its Cliff Head oilfield currently producing about 800 barrels of oil per day and a wealth of other opportunities at hand.
Along with its 78% operating interest in Cliff Head, Triangle holds 50% of the onshore Mt Horner L7 production licence (and has entered into an agreement to acquire the remaining 50%), and a 45% share in the offshore Xanadu-1 joint venture with Norwest Energy (ASX: NWE, 25%) and 3C Group (30%).
In addition, its circa $25 million investment in State Gas (ASX: GAS), which in turn holds high hopes for its Reids Dome and Cattle Creek gas developments in Queensland, gives Triangle exposure to the east coast gas market.
Speaking with Small Caps, Triangle Energy managing director Rob Towner said a key strategic move was the consolidation of the company’s assets which now allows him to focus on managing expenditure, finding partners and working towards unlocking new oil in the underdeveloped basin.
Unlocking a forgotten oil province
The Cliff Head oilfield, located 270km north of Perth and 12km off the coast of Dongara in WA’s mid-west, was first discovered in 2001 and started production in 2006.
Triangle acquired 57.5% the asset, which includes the offshore platform and onshore Arrowsmith stabilisation plant, from AWE Limited in 2016, then purchased the remaining 42.5% stake from operator Roc Oil in 2017 under a 50:50 agreement with Royal Energy. This gave Triangle a 78.75% operating stake in the project, while Pilot Energy (ASX: PGY), which now 100% owns Royal, holds the remaining 21.25%.
The field currently produces about 800bopd although the Arrowsmith plant has the capacity to treat up to 15,000boepd.
Mr Towner said the lack of further exploration in the last decade was a result of low oil prices and it was better for Triangle to focus on the steady income stream of existing production than on expansion in such an environment.
“It’s a lot easier to manage revenue than it is to manage placements for exploration when no one wants to explore,” he said.
Now as oil prices recover, particularly post-COVID, Triangle is embarking on a three-well priority drilling campaign at Cliff Head with the objective of reaching 3,000bopd by mid-2022.
The first two prospects, West High and South-East Nose, each have exploration targets of 1 million barrels of oil, while Mentelle is targeting 5Mbbls.
“We believe the chance of success is high on the two 1Mbbl targets and bringing them online would take our production to 3,000bopd in around 2025, and could extend the life of the field to 2030,” Mr Towner said.
Mr Towner also noted the opportunity to repurpose the Arrowsmith plant to partially address the emerging energy security issue as refineries around Australia shut down. Part of the proceeds from the recent $10 million capital raising will be allocated to a modular refinery feasibility study on the coast in Dongara, WA.
“It could be a refinery of size that can handle our production and a few others’ production. It’s quite common in regional North America but it’s strange for Australia as all our existing refineries have geographically been nowhere near our oil reserves which have to be trucked or piped.”
He said having this “mini refinery” within only 12km of Cliff Head’s offshore production could be a game changer and trucking companies are examples of businesses that could appreciate locally supplied refined fuels. “
Meanwhile, in a bid to align with new government initiatives and the growing demand for greener energy options, Triangle and its joint venture partner Pilot have been considering ways they can leverage their existing infrastructure to include renewable energy.
According to a recent investor presentation, the partners have identified the offshore WA-481-P licence area including the Cliff Head offshore facility as having “excellent potential for wind and solar projects”.
Although under a new Cliff Head wind and solar joint venture, Pilot has agreed to take an 80% operating interest and free carry Triangle on a renewables feasibility study while Triangle remains focused on the conventional oil aspect of the licence.
Capital raising and the next few months
Triangle’s $10 million placement reportedly received strong support from a mix of new and existing sophisticated, institutional, and professional investors who were attracted to both Triangle’s Perth basin expansion strategy and its investment in State Gas.
Under the terms of the placement, Triangle will issue 454.54 million fully paid ordinary shares at $0.022 each, together with one free attaching option (exercisable at $0.035 each with a two-year term) for every two shares issued.
The placement will be conducted in two tranches with tranche one – the issue of 80.65 million shares representing about 11.5% of Triangle’s share capital – expected to occur around 29 June.
Part of the funds raised are for well workover programs at the Cliff Head oilfield which are scheduled to start in the near future.
Well planning will also begin for the drilling of South-East Nose, West High and Mentelle.
Seismic surveying is planned for the Mt Horner and adjacent EP437 permits, which Mr Towner said will begin when the harvest season in WA’s Mid-West has ended around November onwards with a view to undertake drilling in 2022.
Along with offer costs and working capital, proceeds will also be applied to the modular refinery feasibility study and to establish a ‘Cliff Head infrastructure future fund’ to provide a cash reserve for any planned or unplanned major projects at Cliff Head.
“The company is committed to building a strong balance sheet to demonstrate its ability to implement capital projects to extend the life of its assets, particularly Cliff Head,” Mr Towner said.
“The Cliff Head future fund will ensure that necessary works may be undertaken without delay.”