High Peak Royalties eyes opportunity to increase oil and gas royalty receipts

  • Feb 01, 2019
  • Proactive Investors

High Peak Royalties Ltd (ASX:HPR) is expecting a rise in income from exploration and producing properties where it has royalties rights in the Australian and US oil & gas sector.

In Queensland, High Peak holds a 2.25% royal over the Peat Gas Field production licence 101 area where Origin Energy Ltd (ASX:ORG) drilled the South Burunga-2 deep gas well in April 2018.

Origin recently reported a significant increase in gas prices (both LNG and domestic gas) compared to the same period last year.

This will be reflected in High Peak’s future royalty revenues receipts due to the time lag between production and receipt of royalties.

Importantly, Origin revealed that South Burunga-2 encountered hydrocarbons and will be production tested.

This deep well is testing the large potential gas resource in the Bowen Basin that lies below the shallow coal seams in the Surat Basin.

If the well is productive, it could be quickly brought into production through existing infrastructure.

Origin recently confirmed that the South Burunga-2 well has been cased and suspended, indicating the well drilled merits the cost of casing and has been suspended for future testing and/or production.

Origin also noted significant expenditure ($34 million) on this activity and 3D seismic in the Peat area, together with another deep well drilled to 4000 metres further east.

Gas is now flowing from the Northern Territory to the Eastern States gas market, where prices are at record high levels, through the recently completed NGP pipeline.

Santos continues to prepare to drill the Dukas well, which is scheduled to start drilling in the next few months.

This well will test the very large hydrocarbon and hydrogen resource potential of the sub-salt zones. HPR has a 1% royalty on this permit and several adjacent permits.

Exploration activity is picking up, and High Peak expects that in due course there will be more drilling on permits where it has royalties.

HPR continues to receive revenue from existing multiple royalties in the US.

Whilst oil prices fell in October and November 2018, they recovered in December and have stabilised at over US$50 per barrel.

In December 2018, High Peak’s acquisition of Planet Gas USA, Inc was given formal approval by the shareholders of Planet Gas Ltd (ASX:PGS).

The company’s transformative acquisition of the oil-and-gas royalty recipient for $1 includes the pick-up of a US$2.75 million Macquarie Bank financial facility.

High Peak chairman Andrew Carroll said the company’s Planet acquisition is a “big step in further growing the company”.

“This acquisition provides strong revenue and earnings ahead of the potential for significantly larger revenues from other assets in the portfolio.

“Owning royalties is a proven and highly valued business model and High Peak has enormous potential in the portfolio.”

During the December 2018 quarter, cash receipts from royalties were $137,782 largely driven by the cash received from the newly acquired Planet Gas USA, Inc.

Unlike other companies setting their caps at exploration project success, High Peak has a relatively-modest cash burn.

High Peak chairman Andrew Carroll recently said that the company has moderate corporate costs as it is only involved in acquiring royalties and is not involved in the expensive business of exploration, development or production.

The company’s balance sheet was strengthened during the last quarter with a successful $1.25 million capital raise in October. The cash balance at the end of 2018 was $1.6 million.

High Peak Royalties Ltd (ASX:HPR) is expecting a rise in income from exploration and producing properties where it has royalties rights in the Australian and US oil & gas sector.

In Queensland, High Peak holds a 2.25% royal over the Peat Gas Field production licence 101 area where Origin Energy Ltd (ASX:ORG) drilled the South Burunga-2 deep gas well in April 2018.

Origin recently reported a significant increase in gas prices (both LNG and domestic gas) compared to the same period last year.

This will be reflected in High Peak’s future royalty revenues receipts due to the time lag between production and receipt of royalties.

Importantly, Origin revealed that South Burunga-2 encountered hydrocarbons and will be production tested.

This deep well is testing the large potential gas resource in the Bowen Basin that lies below the shallow coal seams in the Surat Basin.

If the well is productive, it could be quickly brought into production through existing infrastructure.

Origin recently confirmed that the South Burunga-2 well has been cased and suspended, indicating the well drilled merits the cost of casing and has been suspended for future testing and/or production.

Origin also noted significant expenditure ($34 million) on this activity and 3D seismic in the Peat area, together with another deep well drilled to 4000 metres further east.

Gas is now flowing from the Northern Territory to the Eastern States gas market, where prices are at record high levels, through the recently completed NGP pipeline.

Santos continues to prepare to drill the Dukas well, which is scheduled to start drilling in the next few months.

This well will test the very large hydrocarbon and hydrogen resource potential of the sub-salt zones. HPR has a 1% royalty on this permit and several adjacent permits.

Exploration activity is picking up, and High Peak expects that in due course there will be more drilling on permits where it has royalties.

HPR continues to receive revenue from existing multiple royalties in the US.

Whilst oil prices fell in October and November 2018, they recovered in December and have stabilised at over US$50 per barrel.

In December 2018, High Peak’s acquisition of Planet Gas USA, Inc was given formal approval by the shareholders of Planet Gas Ltd (ASX:PGS).

The company’s transformative acquisition of the oil-and-gas royalty recipient for $1 includes the pick-up of a US$2.75 million Macquarie Bank financial facility.

High Peak chairman Andrew Carroll said the company’s Planet acquisition is a “big step in further growing the company”.

“This acquisition provides strong revenue and earnings ahead of the potential for significantly larger revenues from other assets in the portfolio.

“Owning royalties is a proven and highly valued business model and High Peak has enormous potential in the portfolio.”

During the December 2018 quarter, cash receipts from royalties were $137,782 largely driven by the cash received from the newly acquired Planet Gas USA, Inc.

Unlike other companies setting their caps at exploration project success, High Peak has a relatively-modest cash burn.

High Peak chairman Andrew Carroll recently said that the company has moderate corporate costs as it is only involved in acquiring royalties and is not involved in the expensive business of exploration, development or production.

The company’s balance sheet was strengthened during the last quarter with a successful $1.25 million capital raise in October. The cash balance at the end of 2018 was $1.6 million.