Red Sky Energy (ASX:ROG): Interview with MD Andrew Knox

Red Sky Energy: we spoke to Managing Director Andrew Knox about the upcoming wells to be drilled by Santos at the Yarrow Gas Field on the Innamincka Dome in South Australia and the potential from all the new pay zones that have been identified in the two wells at the Killanoola Gas Field in the Otway Basin.

See full transcription below.

 

Read our most recent article on ROG here

 

Transcription

 

Stuart: Hello, and welcome to Stocks Down Under. My name is Stuart Roberts, and I’m one of the co-founders of our publication. And with me, joining me from Perth today is Andrew Knox, who’s the CEO of Red Sky Energy, ASX:ROG. Andrew, good morning.

Andrew: Yes, good morning, Stuart. Thank you for having me.

Stuart: It’s Thursday the 23rd of September, 2021. Now, Andrew, you’re normally based in Melbourne, but you’ve come over to Western Australia, and done your two weeks in quarantine. The mood is very different in the Western part of the country to what it is over here, right?

Andrew: Oh, most definitely. Most definitely. Yes, I sort of did my two weeks quarantine a couple of months or so ago, and I’ve decided to stay on rather than be caged in the East, as it were. I’d rather be free range over here in the West.

Stuart: Lucky person, you avoided the earthquakes and riots, amongst other things.

Andrew: I have indeed. I have indeed.

Stuart: Now, let’s talk about Red Sky Energy. A year ago, you were a $4 million company that no one knew about, but you just got hold of three very…relatively small, but promising fields that used to belong to Beach, on the Innamincka Dome up in the Northeast of South Australia, in the South Australian side of the Cooper. That was your company maker. You brought Santos on as joint venture partner, and you’ve just laid your hands on your second Beach field. So, the market is now following you very carefully, and you’ve rerouted a heck of a lot.

Andrew: Yes. Yes, thanks for that, Stuart. We actually, basically, are looking to buy production, there’s opportunities out there, or near production assets, as it were, that have near-term cash flow. And the Innamincka Dome assets were, like, six contiguous licenses we picked up in the Cooper from Beach, which weren’t to Beache’s requirements. They sort of bought Drill Search for their Western flank assets that they had, and this was to purpose to their needs. And so, we were able to get this from Beach very, very cheaply, put it that way.

Stuart: That’s right. Innamincka petroleum, the original discoveries had produced from the Flax oil field there for a while, but that’s been shut in. It’s the Yarrow gas field that Santos now is very interested in.

Andrew: Yes, absolutely. So, Yarrow, there’s three fields there, basically, on those six licenses, there’s the Yarrow gas field, which has about 20 BCF gross, the Flax oil field, which has 10 million barrels and 20 BCF of associated gas, and to the east of that, again, is the Juniper field, which has about 600,000 barrels at the moment, probably more. So, we farm these out to Santos for a vertical well in Yarrow, horizontal well in Flax, 3D over the whole Yarrow field, and Santos is going to carry us through the development of that, which part will be repaid out of production. They’re looking, in terms of the gas which you mentioned on the Yarrow gas field, the intent there is Santos have reprocessed the existing 2D there, and there’s also the existing three wells on the field. They’re planning to drill a vertical well, they’ve worked out a drill location, and they’re planning to drill a vertical well there in the fourth quarter this year, November.

Stuart: Yeah, so and of course, you’ve got all the infrastructure available. Moombra isn’t far away from Innamincka, so once that well comes in, it just plugs into the usual infrastructure, right?

Andrew: It gets into the Santos grid at [inaudible 00:03:35.907] which is a field to the southwest of there…

Stuart: Ah, right. Yep.

Andrew: …17 kilometers. So, the game plan there is to build a 17-kilometer 4-inch line, which has a capacity of about 20,000 MCF a day, bring that into the Santos grid, as it were, for gas. And then if that all works, assuming that it all goes well, then we’ll drill the horizontal oil well at Flax, and the associated gas there will then be tied back to Yarrow, which is about four kilometers away. Flax itself actually has existing infrastructure, it’s produced about 180,000 barrels to date when Drill Search shut it in because of oil price collapse, as it were. It’s got six vertical wells in the field, but we think it needs a horizontal. The assets and so forth are in pristine condition, it needs a couple loadout pumps and a starter motor on the flare, but otherwise, it’s looking very good.

Stuart: Yes. Now, so a great deal, but the market didn’t pay attention until you…more recently, when you got hold of your second Beach project, which was Killanoola down in the Otway, right near the Katnook Gas gathering facility that Beach have got down there. Particularly lucrative for you, potentially, given what you’ve discovered about that field.

Andrew: Yes, absolutely. So, that’s just slightly north of Katnook, in the Penola Trough, and it’s an oilfield that was discovered back in ’98 [inaudible 00:05:00.958] drilled it. Reports show it flowed up to about 300 barrels of oil per day, but the crude is a waxy crude. It’s [inaudible 00:05:09.872] for API, but it’s a waxy crude, and it’s got a high paraffin content. So, we’re looking at ways to mitigate that through heating, to make sure it gets a stable oil flow.

Stuart: Now, what’s interesting to me is there was a second well after the discovery well at Killanoola, and you’ve looked at each one of those wells now, and you found a heck of a lot more pay than [inaudible 00:05:29.510] and it’s joint venturers discovered at the time.

Andrew: Yes, that’s correct. So, it’s gone through four ownership phases, I guess, in its life. And there was another well drilled in Southeast-1, Killanoola Southeast-1 in 2011, and that was never tested. It did have oil in it, but it is cased. So, we’ve had some petrophysical analyses done on both these wells, and we think we’ve got more pay than was first intimated.

Stuart: Yeah.

Andrew: We think it’ll be 42 meters that DW-1, and about 16 meters at SE-1. So, we’re working out a program at the moment to get those both wireline tested [inaudible 00:06:11.261]

Stuart: All right. And the opportunity here is if you can work out the appropriate way of doing this, the Killanoola discovery can just be brought back to life, and get you some early cash flow that way.

Andrew: That’s exactly right. So DW-1, we’re actually working on that at the moment, at DW-1. There is actually a surface pump there, and tubing and rods in the well bore, we’ve just made sure that the rods move up and down in that well, which is all fine. And we’re in the throes of completing that back as a producer, and putting that pump back on production. There’s an existing five meters of pay in that well, and we’re going to get a live oil sample out of that to see the quality of the crude, and see how it flows. But eventually, the plan will be to perforate that 42 meters of pay in there, but we are…yes, we will potentially get some early production out of that one.

Stuart: All right. The great part of being Andrew Knox right now is that the two fields that you’ve got hold of are probably not the only ones available in either the Cooper or the Otway, that the bigger companies than yourself are willing to jettison into smaller and more nimble companies like yourself.

Andrew: Yes, we are looking at quite a…several assets, not just wedded to the Cooper, but we are looking at other opportunities. That’s most definitely for sure.

Stuart: Right.

Andrew: I find this decarbonization era is a boon really, in many, many respects to small companies, because you’re finding that larger entities are shedding assets, whether they like it or not [inaudible 00:07:43.727] and we’re here to look at them.

Stuart: Right. So, all in favor of decarbonization, but let’s make hay while the sun shines, in terms of…let them look, while we make the money, right?

Andrew: Yeah, that’s basically right. We actually do a decarbonization angle as well that we’re working on at the moment, as well, on these assets.

Stuart: Right. Now, for investors who don’t know you, possibly they may have encountered you, or encountered your name in Cue Energy Resources, where you were CFO of that company for I think in excess of 20 years?

Andrew: Yes, I was. Yes, I was various roles there, CFO, Director, Company Secretary, yes, for quite some time.

Stuart: All right, so you know your way around the oil patch. What’s the strategy going forward?

Andrew: Basically, the first thing is obviously we’ve got the Innamincka totally free carried, so that well is coming up in the fourth quarter of this year. We’re also going to be shooting 3D seismic over the Killanoola field in the fourth quarter of this year, as well as bringing that existing well, DW-1, back into production, and also do the first set of perforations on the SE-1 well, hopefully by the end of the year.

Stuart: As someone who is bullish on oil and gas in Australia, I’m quite pleased for you to be kicking around the Innamincka Dome. A lot of people don’t realize it, Santos’ first ever well was Innamincka-1, not far away from your Flex and Yarrow fields, right?

Andrew: That’s correct, yes. Yes, way…early ’60s, I think it was.

Stuart: Yeah, so the late, great Reg Sprigg had figured out that the Innamincka Dome was going to be…was going to be special for something, unfortunately, Santos was just really in the wrong place. But you can pick up where a whole lot of other people have done a lot of work in the meantime, and now you’re inheriting all their insights.

Andrew: Yes, yes. Very kind of them, I might add. As the infrastructure, and the wells they’ve drilled.

Stuart: Right. Well, Andrew Knox, well done on what you’ve achieved in terms of the rebirth of Red Sky Energy. No one was paying attention last year. Ever since you discovered all that pay down at Killanoola, people are now paying attention, and as per the coverage we just did in “Stocks Down Under,” we think there’s more where that come from, particularly if that well that Santos is going to drill this year shows any signs of life.

Andrew: Yes, indeed. Yeah, no, very, very exciting. And at Killanoola too, with the extra pay we think we’ve potentially got there, there’s a lot of upside. A lot of upside.

Stuart: All right. Keep up the good work, and we’re following very carefully.

Andrew: Thank you very much.