Galilee Energy Limited (ASX:GAL) are a Brisbane-based energy company with a portfolio of interests spanning Australia, Chile and North America. Galilee’s primary asset is the Glenaras Gas Project located in the Galilee Basin near Queensland, Australia. The company’s key activity is oil and gas exploration and particularly the development of coal seam gas (CSG) in Australia.
Last year proved to be a turbulent year for Galilee after indifferent financial results, the discontinuation of all North American operations and operational cost cutting across the company. However a board-led change in strategy has prompted an optimistic outlook going into 2016.
Galilee’s overseas ventures include a partnership with the state-owned oil and gas company, Empresa Nacional del Petróleo, to explore unconventional hydrocarbons in the southern Magallanes Basin, Chile. In the US the company has been exploring shallow oil in Kansas. It acquired a 35 per cent working interest of an exploration target in Lavaca County, Texas and targeted high return, shallow oil prospects in the Illinois Basin too.
In December managing director Peter Lansom announced that the company will no longer operate in the US and is ceasing all North American expenditure in favour of channelling funds into the cost-effective Glenaras Gas Project in east Australia, of which they now have full control after acquiring rival AGL Energy’s 50 per cent stake midway through 2015.
After the Hoffer A1 well in Texas showed no sign of profitable production following drilling, Lansom and the board carried out a strategic review which produced four key targets for the coming year.
Galilee’s key focus will be at Glenaras where it wants to demonstrate the gas flow capability from the R1 seam, through completion of the project. As stated, the company will cease all expenditure on its US projects while actively seeking opportunities for divestment if they make commercial sense. Galilee will continue its work on receiving an exploration permit for the CSG project in Chile, at a very low cost to the company with further review on completion. Finally, the cost cutting procedures have seen non-executive directors agreeing to forgo directors’ fees for six months, a 20 per cent reduction in all executive salaries and an overall reduction in costs where possible.
As the company strategically adjusted to focus all effort on the Glenaras project, an updated Contingent Resource estimation, undertaken and released by MHA Petroleum Consultants in September, showed vast improvement to the resource.
Galilee announced a significant upgrade to all resource categories at the project: the 2C category increased by 868 per cent on the original 2011 figures while the 3C category improved by 387 per cent with an extra 4,000 petrajoules (PJ) available. The huge increases in contingent resource are due to a larger area being taken into account and results from the production testing and exploration wells, since the 2011 SRK assessment, being included.
According to Galilee’s half-year to December presentation, work at the Glenaras project is on target and progressing well as operations at the Australian project begin to smooth over the strategic bumps of 2015.
Galilee completed a workover programme on the site at the beginning of October 2015. The pumps and surface equipment have since been installed and production testing commenced in late October. Lansom is targeting the initial phase of production testing to last between six to nine months due to lower permeability of the R1 seam.
Lansom has also made an operational change at the site by implementing the use of traditional oil field rod pumps in all wells, based on the numerous failures of previous lifting systems at Glenaras. He is very pleased with how these systems have worked so far.
“These systems have operated flawlessly to date, [it’s] a major step forward for well operations and operating costs in this area.”
Looking forward at Glenaras, Lansom is anticipating achieving sufficient gas flow to facilitate the conversion of a portion of the reported Contingent Resource, currently in excess of 5,300 PJ, to reserves by the end of 2016.
More good news is that the company is in a very strong position regarding its balance sheet going into 2016. Lansom has shown how Galilee is actively minimizing existing expenditure with managerial and operational cost cuts. While the board are ensuring that the company remain robust as they carry through a balance sheet with a cash position in excess of $11.0 million from the end of 2015.
David King, non-executive chairman, said: “Galilee remains very strong and whilst, like all shareholders, we are disappointed in the outcome from the US programme, the Glenaras Gas Project leverages the core technical and commercial strength of the management team.”
The chairman also explains that if the testing is successful it will be highly cost effective for the company and will leverage the near $100 million spent to date. He hopes that this in future will unlock ‘enormous value for the company’.
It seems there have been some errors in how Galilee has handled its exploration into the American market, however as it keeps plugging away with the Chilean project and returns to what it does best by putting more resources into the Glenaras Gas Project, it appears there will be a bright future for the company albeit with a return to home soil.