Talon Energy Ltd (ASX:TPD) is earning into the Gurvantees PSC in Mongolia, which has a world-scale resource on the doorstep of the world’s largest gas consumer, China, according to MST Access’ Michael Bentley.
Bentley also noted in his initiation report that Talon’s “Walyering” gas field (Talon: 45%) in Western Australia is set to enter production in early 2023 and will deliver meaningful free cash flow.
MST Access has assigned a core valuation of A$0.44 per Talon share (current share price: A$0.18) based on the NPV of upcoming gas production, a risked estimate of exploration and prospective resources, and peer company value for Mongolian assets.
The following is an extract from the research report:
Great location, mega-gas resource, cashflow on the way
Talon Energy Ltd is an Australian energy company, with huge prospective gas resources in two regions which are short of gas. Specifically, the Western Australian domestic market, where the “Walyering” gas field (TPD: 45%) is to enter production in early 2023, and in the South Gobi region of Mongolia where successful 2022 exploration resulted in a maiden contingent gas resource of 1.2Tcf (gross, 400 Bcf net to TPD). Walyering production will deliver meaningful free cash flow (FCF) and underpins our core asset value, while the W.A. exploration and Mongolia gas resource provide substantial upside. Our core valuation is A$0.44.
Transition to a producer in WA Perth basin
The Walyering gas field was discovered in 2021, sanctioned in August 2022, and is being developed with production expected the first quarter of CY2023. This is a very profitable project, due to low exploration & development capex of less than $15M. TPD‘s guidance for FCF generation is $25-30M after start-up.
Upside in Perth basin acreage
The Perth Basin is being rediscovered by Talon & others. At Walyering, the total resource is estimated to be 162 PJ or ~3X the current 2P figure, providing upside in the event of more drilling. Elsewhere TPD is working-up the 100% owned Condor prospect, which has a prospective resource of ~400Bcf making this one of the largest undrilled prospects remaining in the basin.
Mega-upside in southern Mongolia
TPD is earning a 33% interest in the 8400km2 Gurvantees PSC by funding a multi-phase exploration program for ~US$5M. The initial exploration phase of 5 wells was completed in September 2022 and was very successful. Reserves assessor NSAI provided a maiden 2C Contingent Resource of 1.2 Tcf (gross), with TPD’s share 401Bcf. The prospective resource in the greater exploration license is 5.3 Tcf (risked, 2U). This is a world-scale resource on the doorstep of the world’s largest gas consumer, China.
Risks & challenges
There is no gas production infra-structure in Mongolia and this needs to be established in order for TPD to commercialise its Mongolian resource. At the industry level, fossil fuel projects globally are facing activist headwinds and this may hinder TPD’s access to capital and constrain its ability to operate longer term.
Valuation: A$0.44/Share
Our core value is A$0.44ps based on the NPV of up-coming gas production, a risked estimate of exploration and prospective resources, and peer company value for Mongolian assets. Risks are to the upside if TPD can convert its substantial contingent and prospective resources to reserves and production.