‘Now Do Australia’: Shale Royalty

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Third-generation wildcatter Bryan Sheffield founded Permian-focused Parsley Energy Inc. with a handful of vertical wells and turned the E&P in 12 years into a $7.6 billion sale in stock and debt assumption.

Dick Stoneburner, a multidecade rockstar, was part of taking Petrohawk Energy Corp. to the early days of the Haynesville, then the Eagle Ford, selling the E&P in eight years for $15.1 billion in cash and debt assumption.

The pair are now partners in Australian shale. And their combination is winning investment dollars—A$138 million already with A$98 million of that from private U.S. investors. (A$ = US$0.66.)

Stoneburner is chairman of Tamboran Resources Ltd., now the largest acreage holder (1.9 million) in Australia’s Beetaloo Basin. Sheffield, a private investor these days, is founder of Sheffield Holdings LP.

Here’s the deal: Origin Energy Ltd., an interest-owner with ConocoPhillips Co. in the Curtis Island, Queensland, Australia, LNG facility sought to add Australian shale E&P to its portfolio. But it opted this summer to exit that side of the business.

Enter Sheffield and Tamboran—and they’ve brought along more shale royalty too: Helmerich & Payne Inc.

The pair is closing the purchase of Origin’s 77.5% interest in three Beetaloo Basin permits (blocks 98, 117 and 76) for A$60 million, plus 5.5% royalties on future production.

They also agreed to a 10-year deal to sell up to 36.5 petajoules/year (36 Bcf/year) to Origin, which is a top Australian gas retailer, and an option to buy up to twice that amount per year for 10 years.

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H&P has entered on the funding side of the deal—and is bringing The Iron. Born in 1920, H&P rolled out the new-tech FlexRig in 1998 that became the go-to among shale drillers.

H&P also kept its rigs hot-stacked in the Permian during the post-November 2014 downturn as Sheffield was rolling out new IPO capital to convert Parsley from a vertical Spraberry producer in the Midland Basin into a horizontal Wolfcamp developer.

In the deal for Origin’s interest, Tamboran’s A$98 million in private placements includes A$30 million from Sheffield and A$22 million from H&P.

With H&P, Tamboran signed a two-year contract for a super-spec FlexRig that will soon be getting to work on development drilling in the Mid-Velkerri B shale.

Joel Riddle, Tamboran CEO, told investors in a conference call, “They will be bringing in the first of five modern U.S. rigs that will be very critical for our ability to drop well costs and to drill very long horizontal wells in the Beetaloo moving forward.”

The laterals will eventually target up to 4,000 m (13,000 ft) in length.

H&P president and CEO John Lindsay said the Australian entry is toward rolling out the unconventional-rock FlexRigs abroad.

For now, though, an Australia-based rig operator will be drilling Tamboran’s horizontal Amungee 2H and 3H at an estimated combined cost of A$80 million. The frac jobs will be up to 20 stages in 1,000 m each.

Riddle said the target is to get well costs under A$20 million. “This H&P rig really will allow us to do that.”

Netherland Sewell & Associates Inc. (also U.S. oil and gas royalty) is Tamboran’s reserves auditor. It reported estimated prospective gas resources of some 147 Tcf and 2C contingent gas resources of 1.5 Tcf net to Tamboran upon closing with Origin.

Known to date about the Beetaloo property is that the Mid-Velkerri B has a good dry-gas system and data from tests across the holding show properties similar “to some of the highly successful shale gas plays in the United States,” Sheffield said in a statement.

“I believe this multistacked resource play has the potential to replicate the Permian and be one of the solutions to address the global energy crisis.”

In addition to the 50:50 deal with Tamboran on the Origin property, Sheffield has a 9.3% voting interest in Tamboran shares.

Ireland-based Falcon Oil & Gas Ltd., which holds 22.5% interest in Origin’s Beetaloo blocks, waived first dibs on the Origin buyout, letting it go to Tamboran and Sheffield instead.

The pass sounds smartly like what one might say if a couple of Warren Buffett’s want to turn your unimproved property into multibilliondollar real estate for you: “Sure. Go ahead.”