Twiggy Acquires 4.9% in Buru Energy Ltd: Part of Kimberly Gas Play

Twiggy Acquires 4.9% in Buru Energy Ltd: Part of Kimberly Gas Play

Twiggy Acquires 4.9% in Buru Energy Limited

 

Part of Kimberly Gas Play

The former chief executive and current chairman of Fortescue Metals Group (ASX: FMG) Andrew Forrest, also known as ‘Twiggy’, has been accumulating shares in Buru Energy Limited, with a newfound interest in the Canning Basin oil operations. According to the AFR, Mr. Forrest has been purchasing stock through his private company Squadron Energy.

Shares possessed by his private company are large enough to see him sitting just below the disclosure threshold. Squadron Energy also has holdings in other micro-caps: Vimy resources and Poseidon Nickel.

The apparent interest in Buru Energy seems to stem from its Canning Basin oil operations. The basin is relatively underexplored, however, in a study conducted by the US Energy Information Agency in 2013, the basin has the largest shale gas potential in Australia. Also, the mostly onshore basin area has five discovered oil fields.

Located in the Kimberley region Buru has extensive acreage holdings in the basin and has already had success with its exploration program. The Ungani oilfield represents some of the success which operates as a joint venture with Fosun’s Roc Oil –   profitability threshold at US$30 a barrel.

Mr. Forrest also owns significant gas exploration acreage in the same area as Buru, through a joint venture with Squadron Energy and Goshawk Energy, and Fortescue has also previously been present in the region. However, Buru possesses a dominant acreage portfolio in the region, having full-title rights to extensive tight wet gas resources, also having an aforementioned extensive and highly prospective exploration portfolio covering further oil and gas prospects.

Oil prices in 2018 were expected to surge by market expectations to slight below ~US$100 a barrel due to reimposed sanctions on Iran and declining Venezuelan production amidst political chaos. This market expectation led to a surge in oil prices and unexpectedly was followed by a followed a drop. The underlying reason for this was the Saudis, Russians, and others offsetting potential losses of Iranian oil, along with the Trump administration granting waivers to major Iranian customers. This handicapped Buru’s ability to generate revenue along with the formidable 2017-2018 wet season in the Kimberly.

Financially FY18 hasn’t been of any particular interest with most of Buru’s financials propped up upon the sale of a 50% stake of its Ungani Oilfield operations. This is highlighted through the company’s cash and cash equivalents balance of $64 million at the end of the FY18 period, all of which was generated from the receipt of sale for the Ungani Oilfield which was itself $64 million – almost two-thirds its market cap. The sale also drove comprehensive income into the black after a loss in the previous financial period.

All of this presented investors with a favourable return on equity of 31.5%, and a sustainable debt-equity ratio of 15.6% which is relatively unleveraged for a mining micro-cap.

 Perhaps Mr. Forrest is chasing the potential returns of Buru’s dominant and now profitable holdings of its tight wet gas resources in Western Australia, especially since the lifting of the hydraulic fracking moratorium. Whilst hydraulic fracking remains banned in most of the state, it has been lifted in an area the size of Tasmania conveniently (for Buru) in the Kimberly. This decision came after the release of a 12-month inquiry led by the Environmental Protection Agency (EPA) which found the process, if conducted correctly, posed minimal risk to people and the environment.

Forrest’s 4.9% stake in Buru at market close on the 23rd ($0.24) is approximately $5.08 million, this is pocket change for an individual who is to receive a $654 million special dividend from his Fortescue stake. This poses a question on the motives of the investment and ‘the bigger picture’, whether he will accumulate and play it long or potentially propose an takeover, however currently no definitive action or comment has been made.

Nonetheless, it becomes an interesting development for Buru Energy investors who have experienced the aforementioned bland financials as of recent. Currently, the company is focused on further exploration along the Ungani trend and has a fully funded exploration program underway.

 

By Sydney Robertson

 

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