game: spot the odd one out ?, page-81

Hey Dapper,

Appointing family members has not hindered BRU.
Last week there was a 1 page write up on BRU in the AFR.
It is a good story and may give new hope to long(suffering)term KEY holders. Copy now follows -

It might take a stretch of the imagination to picture Australia as a major onshore oil producer when coal seam gas and iron ore grab all the headlines.

But Buru Energy in Western Australia’s Canning Superbasin has been battling scepticism on just that subject for decades and has recently been rewarded with the biggest onshore oil discovery in Australia in 10 years. With its share price up more than fourteen-fold over two years and a newly minted spot in the S&P/ASX 300, it looks like a company about to hit the big time.

Chief financial officer Tom Streitberg – whose geologist father, executive director Eric Streitberg, has been the driving force behind Buru for the past 30 years – says the company has met with disbelief that Australia could produce any worthwhile quantities of onshore oil.

“There’s been a huge amount of scepticism about what we were trying to do and that, to be fair, was justified,” Tom Streitberg tells The Australian Financial Review.

“One of the reasons people haven’t been successful in the past is they’ve drilled one well and said, ‘Oh, the Canning Basin is not prospective.’ But we had the view we might have to spend $100?million to prove this up and at the end of the day we’ll be right. It’s been a long, hard journey for us.”

Buru Energy was spun out of assets previously owned by Arc Energy, also run by Eric Streitberg, when the latter was taken over by oil and gas explorer AWE in 2008. Streitberg senior convinced his son to leave a career in law to join the family business.

Arc picked up its first tenements in the Canning Basin for a song after other explorers gave up on its prospects. The basion covers about 595,000 square kilometres and includes the Kimberley region in WA’s north-west.

As one of many minnows, Buru floated $27.4 million worth of shares on the Australian stockmarket in 2008 at 30¢. Just four years later, the company has a market capitalisation of about $707?million and a share price nearly 10 times higher of $2.84. On Friday, it joined the S&P/ASX 300.

Eric Streitberg is still the biggest single shareholder in the company, with his original 10 per cent stake worth $1.95 million in 2010 now worth $72.5 million.
Buru’s Hail Mary came from an unlikely foreign source – Japanese global investment giant Mitsubishi, which entered a funding agreement with Buru in 2010 for up to $152?million in exchange for a 50?per cent equity interest in the majority of its exploration permits.

“One of the reasons we were able to get the acreage .?.?. was no one else believed in the potential,” says Tom Streitberg. “We were lucky in 2010 that we had Mitsubishi join us as a partner and we were able to talk to them and demonstrate to them what we were going to do in the basin and they began to understand it.”

The general manager of Mitsubishi Corporation’s Australia business unit, Masaru Saito, says in an emailed statement: “From the beginning, Mitsubishi and Buru have had an aligned vision for the Canning Basin.

“This alignment is the basis of our successful relationship. We are very pleased with the initial exploration results.”

Two years later, Mitsubishi’s leap of faith is looking like a perceptive move. The discovery of oil at Buru’s Ungani well, where it was initially drilling for gas, was a big milestone for the company, validating Eric Streitberg’s view that the basin was worth all the money and effort.
The Ungani well, which is still in exploratory stages, could hold up to 20 million barrels of oil, by some analyst estimates.

That makes it smaller than most commercial offshore fields but operating costs will be far lower due to its accessibility.

Since the Ungani discovery in late October, Buru’s share price has quadrupled. Buru’s gas discoveries, including its Valhalla-1 deposit – which is still in exploratory stages – are also giving the company’s share price a leg-up. Valhalla contains “wet gas”, so called because it contains a high liquids-to-gas ratio, meaning extra revenues once production starts up.

Tom Streitberg thinks Valhalla could prove to be an even more significant asset to the company than Ungani.
“The scale of that resource, the orders of magnitude will be bigger than Ungani. It will probably be more expensive and a longer-term development but even our base case of 2 trillion cubic feet is a very substantial accumulation. The upside case is up to 20 trillion cubic feet of gas, which is equivalent to any number of the offshore developments we’ve seen in Western Australia.”

The path from exploration to commercialisation is a tricky one, with high costs and logistical challenges two common issues. Buru is not without its risks but it does have some forms of insurance as it seeks to expand.

In terms of funding, it has a commitment from Mitsubishi to fund $40 million of the first $50?million of further gas exploration this year. It also has an agreement from Alcoa to buy 500?petajoules of gas from discoveries made before 2013, although Buru will be obliged to make a $40 million downpayment to Alcoa should it fail to find enough gas by January 1.

On the logistical front, Buru is involved in planning for a 400-kilometre Great Northern Pipeline between Broome and Port Hedland designed to get its output to key ports.
With his father the prime mover in developing the Canning Basin for drilling activity, Tom Streitberg is keenly aware of Buru’s responsibility to operate sensitively in an area relatively underdeveloped by resource companies.
Negotiating with traditional owners, in particular, is an area where larger resource companies, notably Woodside Petroleum, have encountered difficulties. Streitberg?has no desire to see the Canning develop into the next Pilbara, despite its significant potential.

“I don’t think either ourselves or Mitsubishi has any desire to lead the industrialisation of the Kimberley,” he says.

“We see there is potential there, though there is still a lot of risk. If the potential is fulfilled then there’s an enormous amount of wealth to be generated. Both corporately and personally, our view is that the Kimberley can learn from some of the mistakes of the Pilbara and can be developed in a way which realises real benefits for the existing local communities, the traditional owners and for our shareholders.

“So while we see there is scale there, our view is that we can apply a different model to the way the Pilbara was developed.”

BBY senior energy analyst Scott Ashton, who has been covering Buru since its listing, describes 2010 and 2011 as “watershed years” for the company.

“There is now the possibility that Buru has cracked the code of the Canning and is potentially sitting on a very large resource which has a lot of corporate appeal,” Ashton says. “The question in the back of most investors’ minds is ‘we could have bought this stock last year at 70¢’.”
Even with the stock’s impressive run this year and the risks involved in commercialisation, Ashton believes the company is a longer-term success story.

“In 10 years, if it’s still listed, it’s probably going to be a $10 stock if all the resource is unlocked. But it could be consolidated by a major at a very healthy premium at some stage.”