with Staffan Ever, CEO, Lodestone Energy
Lodestone recently repositioned itself as an integrated energy company. There has been a restructuring and now you are strongly focused on your two new projects, Tambo and Moreton. What factors drove this restructuring? How would you describe the company today to our readers?
Lodestone’s roots were in exploring for mineral ore bodies, however just over two years ago the decision was made to enter the energy area. The first step taken in December 2008 was to sign farm-in agreements both for coal and for gas properties. In June 2010 we increased our stake to 100%. That was the main change. We also have just gone through the government’s tender process, applying for another six areas of coal seam gas and we have a fair chance of getting several of those areas. Currently we are expanding our gas portfolio. The company is still a fairly early explorer of both coal and coal seam gas however with a large footprint in the western Surat Basin.
You became CEO four months ago. What are your biggest objectives and how far you have come?
The company has done a lot of good work in regional geology and has a good understanding of what is considered an extension of Surat Basin. Now it is time to prove the basic concept by drilling. Unfortunately, it is one of the wettest years in the history of Queensland, for this reason we were not able to drill as much as we hoped. However, this is our entire focus for the time being: to prove the resources and show that we know what we are talking about.
Besides coal and coal seam gas assets, you have mineral assets as well. What is the balance in your portfolio today?
The company started with mineral assets before shifting the focus to coal and gas. We still have tenements in two areas, Mount Morgan and Chillagoe. We are still spending some money in there to explore and test our predictions as well as discussing a couple of potential farm-in and farm-out options on our part. However, the main expertise and current focus of the company is coal and coal seam gas.
How does the company translate its expertise from minerals to coal and coal seam gas?
Basically you need to change the whole crew and recruit new employees such as geologists and engineers who specialize in this area. My background is in coal; we have recruited a coal manager with experience across geology, mining and project development and given its size we are engaging consultants to provide relevant expertise where this is not yet within the company. As we grow we will add the right people.
What is the current state of exploration on your assets and what is your time frame for moving forwards with the assets you have today?
We have a footprint with 33 coal leases, many of which are maximum size. We have ATP 1020 on the gas side which is a huge area, ten thousand square kilometres. Even if we go as wild and hard as we can, we will still be exploring 3-4 years from now. Early results support the western Surat story and now we can start moving forward to the ultimate goal of production. However, the aim is to get some early assets. We have approximately ten direct targets, which we hope to hit over the next 18-24 months on the coal side as well as several targets within the ATP. New potential ones are coming soon. Yet, to be realistic we are assuming we will have success at the first target. If we do not have anything positive to report on a 12-month-period, then I would start to get nervous.
As you mentioned, early assets are going to help you to fund your exploration. What is your time frame and when do you want to start seeing your return on these?
We need to hit the target within the next 12 months to show that we have identified worthwhile assets. However, in terms of coal production and infrastructure, the earliest time that anything could be available is 2015. On the gas side, infrastructure is less complicated although there is still a certain timeline to get to production and cash flow. Yet, during this time period, you can see the value building as far as the market gets more comfortable with what you have.
With Lodestone’s gas production, you are also looking at the same time horizon as these LNG projects. Production is going to need to be massively boosted in Queensland at the same time.
This will certainly help anyone involved in the gas business. Currently, gas is being taken for the domestic market as well. There are pipelines to southern states and pipelines that go to the coast. We are also in talks with power companies about potential gas. There is a non-LNG market; however what will make the whole thing fly is the LNG market.
With your coal seam gas focus and applications for new licences and blocks, you are aiming for growth. It is very difficult to become the next BHP, Woodside or Santos overnight and you are going to need partners to help you along the way. Where do you see the biggest opportunities for partnerships?
Given the size and potential of the region, the ideal partner would be someone who has their short-term needs mapped and looking for the longer-term portfolio, 5-10 or 15 years. With such a partnership, cash flow should not be an issue because they would highly likely be producers or close to production. As a company with single focus on exploration, the market will continue to support us.
Where are you looking now for these partnership options?
We are looking at both domestic and international partnerships, currently on a commodity level. This is the best way to get traction since nobody is really interested in looking at combinations of gas, coal and minerals. The parties that we have been talking to so far are either actively working in Australia or actively trying to get into Australia. We hope to offer value as a local partner for those who are looking to put their international focus on Australia.
Earlier this year you took a 100% stake in both the Tambo and Moreton projects. You are also applying for new blocks. Is this the way are looking to grow or will you be saving some equity and looking for new projects to farm into?
We are continuously looking at new attractive assets; for example, we have applied for a new coal lease in further south last month. However we have a very large footprint and we try to keep the balance between having too much ground and ability to raise capital to continue to look at that ground.
How excited are you about the potential of Queensland to develop its gas industry?
It is fabulous for the country and the state. From our point of view, any extra demand for coal seam gas will be positive.
As you plan to grow with these new licences, will you stay in the same area as or look to expand into new geographical locations?
The initial thesis of the company rests on the extension of Surat Basin, which is vastly underexplored. This is what we are currently doing and our main focus is on this area. At the same time, we are looking at other options and parties in the industry to see if anything fits our profile and will be favourable for the company to pursue.
Dealing with stakeholders is an issue for gas companies. How is it different for you as an integrated energy company to deal with stakeholders that are involved in the process?
Dealings with stakeholders affected by our activities are conducted in a non-confronting, open manner which has worked well for us. For ATP1020 we have no overlapping coal tenements except for our own coal tenements; for this reason no outside party is involved.
A lot of the coal companies here were initially involved in the coal seam gas industry but they all sold out their stakes. What does that tell you as a small company?
We will eventually look at splitting up our commodities to separate assets, looking five years ahead since market thrives more than anything and it needs focus. If you are focusing on coal, you do not want to do gold or copper. If you are the size of BHP, you can get away with it but if you are smaller to mid size, the market wants focus. This is going to be a big change for the company. We are looking to make sure all our agreements are in place internally. Because we are talking to potential farming partners per commodity so we have to make sure that it is already set up in a clear way, which will help us when we decide to do the same one overall on a corporate level.
This is a relatively new industry in Queensland. There is a big coal focus, however now the interests are developing for gas as a whole new industry for landowners to deal with. How have you found your experiences so far with the landowners that you have to deal with?
We are predominantly not in areas affected by the coming Strategic Cropping Land guidelines or close to residential centres. By explaining carefully what we are doing, landowners have been supportive so far. It is much easier for people to understand what we are trying to do and they see the potential value for the region as well.
Besides having a long history in Queensland’s coal industry, my main strength is to move things along and that is what needed in any company at this stage, no matter what the industry is. The key is to keep going and moving forward, eventually you will have a good story.
With abundant resources, proximity to existing infrastructure and very competitive management, where do you expect Lodestone to be in ten years of time?
In ten years’ time, Lodestone will have split up to two or three commodities, if the mineral business goes well. We will have a happy shareholder base and Lodestone will be a company of a very different size.
What is your final message for the readers of Oil and Gas Financial Journal?
Lodestone is an early explorer with a great future and as any company at this stage, time is very important. We are working hard and we will get there even though it will not happen overnight.