Yelda, Welcome to Shared Lunch, brought to you by Shares's. My name is Dan Brown Skill. I'll be your host today. We're joined by Andrew Jeffries, the chief executive of Echelon Resources Limited, to talk about being a fossil fuel company and how it fits into the global energy transition. Before we get started, here's some important info.
Investing involves the risk you might lose the money you start with. We recommend talking to a licensed financial advisor. We also recommend reading product disclosure documents before deciding to invest. Everything you're about to see and here is current at the time of recording.
Andrew, Hello, thank you for coming.
Jan thank you very much for inviting me.
Hey, I was having a look at your share register the other day and it looks to me like Sharesy's users are approximately your fourth largest shareholder collectively. Is that right?
Yep, that's about right. And they're also quite an interactive shareholder I think in terms of people are actually watching, you know, watching things and buying and selling the shares.
So we're here in Wellington. Until recently you were an INSIDEX listed company called New Zealand Oil and Gas. You're still headquartered here in Wellington, but I think in May you shifted the company to the Australian Stock Exchange and rebranded as ischelon. Can you talk us through what motivated those twin decisions. I assume they're related, and they are related in a way. The fact is the so there
was a couple of things that drove the timing. One was that we looked to move to the AX because look, exchanges are places where capital comes together to invest in things. The enz X tends to be has been quite successful in things like zero you know is becoming is quite a tech exchange. The AX is very much a resource exchange. There's obviously quite a large capital pool in Australia with their superannuation system. They tend to have a lot of
mining and expiation companies, so there's capital available and people. Also, there's analysts and people who sort of understand our industry. So, for example, in New Zealand, we had no comparable companies, so I was the CEO of the largest and smallest listed oil and gas explorer, which is great, it's quite a fun anecdote, but the reality is that in Australia, I've got around about sixty five comparable companies so there's actually a pool of people who.
Have a better understanding of the oil and gas industry.
So there are just advantages to sitting alongside similar companies. You could be compared to each other. Analysts that understand one will understand another. That kind of thing.
So as we go through the energy transition, that transition is going to need a lot of capital, and I think that the resource market that is the ASX will be one of the markets that provides the capital that builds the projects that do the mining and processing that will build all the machines that are going to make the transition work. So you know, we want to be
very much part of that part of that scene. As we'll come to around the role in the name echelon, so we're a very science based, engineering based company, got a lot of geologists. Echelon is a term that they use for things that we may in a size order, So things like mountains, fault blocks, formations, geological formations are all referred to as on echelon. So it's got a it resonates to that piece. It's also about to me, it's about the you know, where we're putting our focus
in terms of looking at where those rocks are. So we're looking at markets where we see that there will be demand growth, that there's a strong appetite for hydrocarbons, and so we're putting our putting our fit into those areas. The next thing is it's our values we like to look. We have a pretty rigorous scientific team. It's not huge, we're not a big organization. We've got twenty people, but we put some real rigor into our science, and we
have some very robust and experienced engineers as well. So we feel that we're in an operational in terms of the experience, and certainly, having worked globally and I have worked with super majors and the next step down, next level down companies, I don't think I have ever had as experienced and as motivated team as I've got here.
You mentioned in there about wanting to be more focused on the markets where there is more demand and more work to do. There's been a lot of talk recently about how New Zealand labor government banned oil and gas exploration in twenty eighteen, and it seems like there's been a sense from and he's like yours, that there's not that much work for you to do here. In New Zealand. Now is that the case and was that a factor in the move?
Well, there's there's a couple of different sides to that. On the one side, there is certainly a lot of prospectivity in New Zealand. New Zealand has been underappreciated as an exploration venue, mainly because it's what we call a gassy province.
It doesn't sound good, Well, it's a gassy province.
In the past that wasn't good because it was a long way from things and it was predominantly gas that you found. So Maui was a great case in point. It was at the time of its discovery it was the world's largest offshore gas field, but nobody really knew what to do with it, and it took a decade or so. I think it was discovered, I think in about sixty eight, and it was about the end of the I think it was about nineteen eighty that it actually produced.
People still wanted oil back.
People still wanted oil back then it's much easier to transport. Well, the world's moved on, and now actually the world is keen on gas and a lot of countries are trying to reduce their use of coal, in particular by utilizing gas, so it's actually a being a gassy province is no longer a bad thing. So we've got twenty one sedimentary basins in New Zealand. New Zealand's the fifth largest continental
mass in the world. It's most of it's underwater. We've got a huge continental area and of those twenty one basins, we've had wells drilled in five and four of them have had hydrocarbons in them. Now you say, well, you've drilled those basins and you haven't found anything. It took thirty eight wells to find the North Sea. And think you would have a hard time putting a well in the North Sea without hitting something when you look at it.
But the reality is that exploration is a numbers game and you do end up with a lot of unsuccessful wells before you get success. So there is prospectivity. New Zealand is very under explored. Even the Taranaki Basin is under explored in global terms. The other basins Canterbury Great South Basin even more so. They've barely been scratched, So there is prospectivity there. On the flip side, it's the oil and gas industry is like any heavy industry, is
not property development. We do not come in and do something and sell it on and make a big make big bucks and with not a care. We come in and you become involved in a country. You spend tens of millions of dollars obtaining seismic to spend hundreds of millions of dollars doing wells, most of which are going to be unsuccessful. To spend billions and billions of dollars developing infrastructure to then produce those hydrocarbons and to sell them all at the same time as with the government
owning the resource. So at no time does the does your oil and gas company own the resource. It's actually the country owns the resource. It can't be moved. You can't offshore it because it's once you know it is where it is. So you then develop a you know, you develop a multi decade or relationship with the government and with a country, and you know that sort of thing requires a lot of certainty. So for investors to come in and put the money up to do the
expiration requires certainty. So the the and I think that's very long answer to your question. But the offshore ban, while yeah, at the time not a lot of wells had been were being drilled. We just had a big price crash in the twenty fifteen, so not a lot of wells were being drilled. The reality was that it was like putting a big signpost in your front lawn saying bugger off, we're not interested in having you here. What then unfolded so and we knew about this, We
had experience of this. We had a block off Canterbury that had a prospect, the Bark Prospect that we did a report on public report on showing the impact that it would have, which was several thousand jobs export industry. You would have got all the southern dairies off coal, you know, it would have been a You would have produced around about a billion dollars a year in tax revenue, so about enough to run a DHB. We had that block. We were lining up with some international partners to come
and get that. One of those wells stuck in it, and within a week those international partners have gone and they have not they are not coming back. So if they haven't come back at the.
Point, so you did have permission to explore there and work there.
Even though we did have we had a we were coming up to a block decision and the you know there just wasn't wasn't a great deal. Companies can look through, you know, if they see a government setting that says we don't want you around, they can see through that. They can go and spend that hundred million dollars on an exploration. Well, but then you've got to develop, You've got that long relationship you've got to have with the country,
and if you're not welcome, well you're not welcome. So so there is a Look, it's been very well, you know, it's it's been great to see the offshore ban reversed. The problem is that now with the Labor government saying they're just going to whack it back in again. You know, what do you do as an international investor, what do you do? Will you probably say I'm going to go
and spend my money somewhere else. So interestingly enough, at the moment, the country with the highest offshore capital spend in the next this coming year will be Norway, which has a very welcoming exploration regime. Look, it's got very high tax, it's quite prospective place, so people do explore and find things. When they produce, they actually have a very high tax regime, but companies don't mind that because
the risky part is the expiration. So the expiration is supported very strongly by the Norwegian government and has been for decades. So they've had a very stable regime similar too. Up until the offshore band. We would go around the world and say to people how similar the Norwegian and the New Zealand regime were in many ways in terms of stability. So yeah, it's a it's a difficult time and it's one of the reasons why we've also looked at and invested outside of New Zealand.
What would it take to bring you back?
Look, Norway is a pretty good example, you know, there is a The Norwegian government actually do support exploration quite strongly, not just in terms of waving a flag and you know, buying you buying lunches or or whatever. You know, it's real, it's real inducements to do exploration and I think.
Support it across the political spectrum.
It does appear to be because we've had green governments and they still you know, they still support provide the same support. Their regime has not changed over the decades. The UK has a very similar you know, the geology doesn't sort of take any regard to geographical country boundaries. The geology is the same on the UK side of the North Sea. The UK over the last thirty years has played around with its tax system endlessly and they there's virtually no spend in the UK or expiration in
the next year. So you've got Norway biggest spend ever and the UK with virtually none, right next to each other. Same geology, and that's just down to regulatory just down to regular tests.
What you can explore, which parties support what yep? Okay, if you if the band hadn't been put in place, do you think you would have new wells up and running, a new site up and running today? What might an alternate reality look like?
I think, Look, I think there is certainly one, at least I know of one and probably two prospects that would have been drilled. Would they have been online now, Probably not. You need quite a lot of infrastructure to put them online. Would they have been six years further down the track? Absolutely, So it's a game where you've got the oil and gas expiration game is a game where you've got to run to stand still, So you've always got to be drilling more wells because it's a
depleting industry. I know, when I first embarked on my career in the early nineties in oil and gas, I had a lot of people say to me, well, we'll run out in two thousand and it didn't. You know, there's and I would imagine a lot of people. Even more people are probably getting the same message now. And I think we'll come to it potentially later on, but I think there is a large you know, we do need oil and gas in the system, gas in particular through the transition.
Yeah, so I really wanted to ask you about this, and I think lots of OL viewers will be interested in this as well. Obviously lots of that are invested in you. But another thing shares these hears from its investors all the time is that they're really interested in ESG and impact investing. That's like a very popular genre. So it is interesting. I think being a fossil fuel company, you provide a service. People need that service, society needs
that service. But perhaps sometimes you're painted as the villain. And you know, just last week, the UN was two weeks ago, maybe the UN Secretary General was in New Zealand and went on to the Pacific and people asked him about the ban of oil and gas exploration reversal, and he said, the only thing I can tell you is that any oil and gas that will be discovered from now, I am absolutely sure it will never be used. You're exploring new fields. You'd like to explore new fields.
What is the UN Secretary General got wrong there? Why do people have this view when you have quite a different one.
Yeah, Look, so there is notionally there are enough oil reserves if we you know, let's talk to the oil side of the story. First oil reserves in the world to meet potential future demand. Eighty percent of those oil reserves are in Venezuelan and bitchumen and Canadian oil sands. Now, both those resources are going to be very energy intensive
and environmentally intensive to develop. So my question to people is is that really so assuming that you're happy to be covered by that the oil reserves are covered, we
don't have to discover anymore. Are you happy that we produce those reserves because that's what you're going to have to be relying on, and that's going to be producing a lot more CO two because ultimately all of that energy that comes for processing has to come from from burning things at the temperatures that you need, and it's going to be very expensive oil so versus so. To put that into perspective, there's a thing called the energy
return on investment for a barrel of oil. So that's how many barrels of oil you get out for every barrel of oil and energy that you put in. So and oil sands will give you and Venezuelan bitchmen will give you around about four or five barrels of oil out for every barrel of oil invested. Offshore oil and gas will give you around about somewhere between forty and eighty barrels of oil for every barrel of oil of energy invested.
So is it fair to say where people are looking for oil, they're not necessarily looking for more oil net, they're looking for more efficient oil.
To be honest, I would like to see a lot of the Venezuelan bitchmen and a lot of the Canadian oil sands stay right where they are.
Because they're just going to have more emissions associated with them perl correct, are more efficient well correct, And then I guess going back to that idea of displacing dirtier energy, it's better that that is natural gas than it is coal or correct a diesel, which we briefly were burning in New Zealand the other day just some people's horror.
And we are mostly burning coal. So look the So for the EV owners who are really wanting not to burn, not to produce emissions, they really should. Transpower's got a fantastic site that tells you at any given time in the day, what's producing the power. So if the coal fired power station is running, the reality is that you have a choice over when you plug your battery in. If you plug an in moll of power coal fired power stations running, you are the reason the coal fired
power stations running. So those all of those electrons you're producing, it doesn't matter whether who you who you buy your power from. All the electrons that you're using are coming effectively coming from that coal fired power station. Because you are the marginal user.
You're effectively running your tiesler on coal.
You are effectively running the Tesla on coal, which is look and a lot of people if that's really the reason, have a have a bit of a look at that Transpower up and you can you can sort of time when you're when you're actually plugging in.
Because a lot of the time, a lot of the time, we're not burning coal.
At the moment with low lie hydro lake sets, unfortunately we're burning coal most of the time. But you're absolutely right, in normal hydrological year, we are incredibly renewable.
I think you make a good case for exploration finding more more efficient forms of fossil fuels. But let me push back on that a little bit, because every time you find a more efficient well with cheaper, cleaner energy, that makes burning fossil fuels cheaper and cleaner, and therefore like reduces the incentive to invest in these big batteries that the tech's not quite there yet, but maybe people
would invest more in the tech. I think some of the idea of the oil and gas ban was not that we don't need gas, but that by banning it, we would fast track the development of other technologies. Now that's obviously maybe not the smartest thing to do as a tiny country that isn't capable of developing those technologies. But on a global network scale, if you keep finding cheaper, more efficient forms of fossil fuels, won't that keep us on them for longer and delay the transition.
A Look, it's a very good point, Dan, and I think generally, in as humans have moved forward and not for yet, we are part of a very privileged group who enjoy a Western standard of living. There's a couple of billion people who don't have any any you know, who were cooking using stuff powered by dung or charcoal, which causes a lot of health problems as well as probably not being very efficient the you know. So we're
speaking from that. From that end of things, human progress has generally been when things have gotten cheaper and better. So I'm very happy. Look, I will be ecstatic if technology comes along that puts me out of a job. I'm very happy all those folks in those startups that are developing fusion power or better batteries. You know, I am very happy bring it on, because I think that
will be a really positive development for humanity. But you know, we shouldn't be pushing up the price of things simply to try to stimulate something that's you know, that's that's not You could do it more effectively, and one of the most effective ways of doing it would be to put a global price on carbon. You have, full stop. If we could have a global price on carbon. That would be and then everybody or governments would then say, look, we'll put the global price on carbon and will stop
stuffing around with all the other settings. That would be phenomenal and we would embrace that as a I know most of the oil and gas industry folks that I talked to would absolutely love that because it would give you certainty, it would give a level playing field, you know, it would be it would be a really positive, positive thing.
But saying that you will restrict the world from having access to a resource that they actually need and you will push up the world's prices for energy is a pretty hard thing to do, particularly to the people who you know, it is the poorest people who end up bearing the bearing the problem, which is.
I guess you know what. We are to a certain degree witnessing here in New Zealand where we tried to push gas out of the system. It didn't work. We have some manufacturers shutting down. We're bringing it back into the system. Ultimately, we tried to make it move faster, we raise prices, but it didn't end up working. That's the sort of thing you're thinking about there, yep.
And look, it's not it's not this is not a New Zealand a New Zealand thing. Australia has done very much the same thing on the East Coast of Australia. You're saying the same, you know, the same argument play out, and that will that is impacting their energy prices quite
a lot as well. Now we happen to be you you know, you could argue that could be accused of profiteering from that by continuing by we've upped our investment in Central Australia, which is gas that's feeding into that East Coast market, feeds into the Northern term market, but also the East Coast market at the same time that
is allowing us to drill more wells. We will try, you know, so we're trying to bring on more supply to meet that demand because the demand really has to be met otherwise you will shed demand and unfortunately you'll shed the people. It'll be the people who can't afford it that will end up not being able to pay all.
Manufacturer is being forced off suore. So you know, both those things take away the jobs, they take away people's livelihoods, and I think that's not particularly not a fair way to play.
So you've moved to the A SX, you're having a bit more of a focus on Australia. Can you talk us through just some of the projects, some of the stuff you're doing there, what the market opportunities and challenges look like in Australia and elsewhere.
Sure. Look, we've got so we've been investing in Australia over the last three or so years. We've been bought into the Armada, a space in which is right smack in the center of the We've got a couple of gas fields there. We've drilled a we drilled a well in a couple of years ago. That's been it's been a solid producer in a field called Palm Valley. We're about to drill a couple of wells in the Marini field in the towards probably a start very first part
of next year. That we're looking forward to providing extra volumes into that Northern Territory market. The Northern Territory market. So one of the reasons our production has been flat for the last year has been because the Northern Territory has been suffering a gas shortfall which has interfered with the with the flow of gas across into the East Coast of Australia, so we've we've managed to mitigate that, but it has impacted our production in the last year.
But we're looking forward to we're going to put more gas and we've just done it. Had a long term contract signed with the Northern Territory government and a Rare Earth's miner to put gas into that Northern Territory market for the next over the next six years. So we'll be investing in additional wells and we're looking forward to bringing some more gas into that market.
What causes the gas short for is that just lessened the ground so they had difficulty. So they had a field up in Western Australia that feeds across into the Northern Territory had a problem has had a problem with one of its wells, and that's simply meant there's less gas going into the market than was expected. So it's the sort of thing that can happen if you become reliant on only.
A few sources of sources of fuel.
At a similar thing in New Zealand, haven't we where the existing wells haven't produced quite as much as we thought they would or just added to the jury crunch yep.
And look, we've been a part of that. So we have continued to invest in New zeald where by no means turning our back on New Zealand, and we are based. We're based in New Zealand for a start, and that's not that's not changing. We invested in the Coupe gas field. We drilled the well. It was also it was one of those disappointing wells. Hoping that we can get something, you know, get more out of it over time. There's
some things we can do with it. But the long and the short is Coupe gas Field has been a fantastic field over its life. It's it's reserved bases doubled over its field life without putting any new wells in. So it's been a you know, that's a that's a great field to have. It's been producing a lot of the LPG that New Zealanders used for barbecuing and down south for heating comes from the Coupe field. And look,
we drilled one well. And that can happen when you're you're dealing with mother nature your drill and it's and you get a disappointing result. It's one of the reasons why there is a need to make reasonable returns from the wells that do work. Is because and sometimes those returns may seem unreasonable, but that's only because you don't factor in all the other wells that don't work. And it is just a it's a function of the business that one well. It's a data point, it's not you know,
it doesn't write a field off. So now we've just got to circle the wagons and figure out what we do next.
Let me ask you about ESG investing. I feel like that's become really big over the past couple of decades, and almost every fund has some sort of ESG criteria they look at. It differs between funds. What is that like for you as a fossil fuel company? Has it changed the type of investors that are interested in you? What is it like being a listed natural gas company in the era of ESG?
How is that for you? I think, Look, I think it's currently we've gone through a period where it's been viewed pretty negatively.
The fossil fuels.
Fossil fuels so also by the investing community. The look but it's one of those trends sort of the you knows. As we've talked about we see ourselves as actually pivotal in making transition work, and I think that will that is starting to become a bit better recognized. As that becomes better recognized, I'm hoping that some of those funds will start to say, actually, you know, if we really want renewables to work, we're going to have to We're
going to invest in these folks as well. In the meantime, we've been mainly the more retail shareholders who have who have looked at us and gone, right, well, I can see. I mean, if you'd invested in New Zealand oil and Gas over the last year, you would have had a twelve percent cash yield because we've had four point four and a half sense of dividend. Just recently announced the one and a half cent dividend at the end of
the financial year. What do they say? It's the short term it's a voting machine in the markets, and long term it's a weighing machine. I think I'm hoping that the results that we get actually will in the longer term folks. Folks will look at it and say, right, well, this is the place that we should invest because we're part of the transition.
One part of the ESG metrics I guess are about sort of the ethics or about climate outcomes. But another part people talk about just risk that don't want to be left with stranded assets. What's your strategy for avoiding stranded assets or being caught out in the transition? Would you look at going to renewables or what kind of runway do you think you have?
Look, we've tended to focus on assets where we can invest and get results sooner rather than later, which puts you into putting wells into existing fields, increasing reserves in existing fields that are connected to markets where you're not having to put in the long term, decades long investment, and then relying on a market being there in twenty years time. So we're very much investing in a way that says we'll know we'll be producing that gas in a year's time and putting it into a market that
we know is there and we know its healthy. I think some of the strategic planners bigger in bigger companies would definitely you'd start to worry if you were looking at a project that was twenty years in the making, would you do that? Ultimately comes down to what your shareholders want. If you've got shareholders who want to put the money in, well, then away you go. But from our perspective, we've very much focused on things that are near a term and then look, we'll see, We'll wait
and see. I think there's a new Zealand gas market is obviously going to be around for another few decades, the Australian gas market probably for longer still, so that exceeds any reserves life that we've got at the moment. So that's really been the way we've dealt with that well.
Andrew, thanks for coming on. I think you have just reported your financial results.
When was there, Look, it was last week we reported our financial results. We've got some good numbers, you know, the building the business is building along quite well. We're in some good markets, we've got some good long term contracts. We're drilling some else in the next year. So you know, I'd recommend anybody who wants to could certainly have look at our at our website www. Dot Echelon Resources dot com and you know, have a look at the have a look at the results.
Thank you for coming on.
It's great to chat and look to any of those folks out there, you know, very happy. I think to have shareholder questions and things at our AGM. Very happy, happy to be interactive, and it's great to see people investing and to see shares is providing a platform brilliant to come and have a chat.
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