Echelon Advances Palm Valley Drilling as Cue Divestment Nears Completion

Palm Valley JV Secures Long-Term Gas Supply and Drilling Contract

Echelon Resources (ASX:ECH) and its Palm Valley Joint Venture partners have locked in a new gas supply agreement with the Northern Territory Government extending through 2034. This deal, which includes take-or-pay provisions and inflation-indexed pricing, sets the stage for drilling two new wells with a mid-year spud date following the execution of a rig contract with Ensign 974. Site works are already underway, aiming to restore and expand Palm Valley’s gas production capacity before the end of 2026. The Mereenie wells, by contrast, remain uncommitted under current arrangements, leaving some flexibility in the Amadeus Basin portfolio.

The new gas supply agreement builds on previous momentum, as the JV looks to capitalise on local market demand and improved pricing structures. This initiative is a critical part of Echelon’s strategy to replace legacy contracts with higher-value arrangements, driving a step change in revenue settings. The Palm Valley drilling program, supported by the rig contract, is a tangible demonstration of this strategy in action and is expected to deliver new gas sales by year-end. This progress aligns with Echelon’s broader development plans in the Amadeus Basin, where seismic planning and appraisal activities continue to refine exploration targets.

Cue Divestment Nears Completion Amid Strategic Portfolio Shift

During the quarter, Echelon advanced its planned divestment of Cue Energy Resources shares, agreeing to accept Horizon Oil’s takeover offer. Completion remains subject to customary conditions and regulatory approvals, but upon finalisation, Echelon will deconsolidate Cue from its financial reporting and retain at least a 6.1% stake in Horizon. This move marks a significant portfolio reshaping, enabling Echelon to focus on its core assets and development programs.

The expected proceeds from the Cue sale are set to further reduce Echelon’s debt, which was already lowered by A$6 million during the quarter to A$29.5 million. The company’s disciplined balance sheet management maintains capacity under existing debt facilities, providing financial flexibility to support upcoming development activities, including the Palm Valley drilling campaign. This strategic financial positioning follows a recent trend of debt reduction and dividend payments, reflecting a more robust cash flow profile.

Production and Financial Performance Reflect Operational Challenges and Growth

Production volumes fell 6.5% quarter-on-quarter to 380,648 barrels of oil equivalent (boe), with a daily rate of 4,229 boe. The decline was driven by a mix of planned maintenance and unplanned shutdowns, notably at the Kupe oil and gas field in New Zealand, which experienced two unexpected outages. Meanwhile, the Maari and Mereenie fields maintained stable output. Gas production in the Amadeus Basin increased by 5%, aided by improved liquids handling and offtake arrangements, underpinning the positive cash flow trajectory.

Operating cash flows surged 30% to A$12.1 million, boosted by higher production receipts and reduced production expenditure, although partially offset by increased income tax payments. Production receipts rose 7% to A$27.2 million, reflecting stronger commodity pricing and timing effects, particularly from the Mahato oil field in Indonesia. Investing outflows increased to A$3.5 million, driven by well-planning and development activities at Palm Valley and Mahato.

Exploration and Development Progress Across Multiple Regions

Beyond Palm Valley, Echelon is advancing exploration and appraisal efforts across its portfolio. In the Amadeus Basin, EP145 permit activities focused on seismic planning and stakeholder engagement, with technical work refining subsurface models to guide future drilling. In Indonesia, the Mahato PSC saw oil production impacted by precautionary shutdowns related to a regional pipeline incident, although production levels have since normalised. Compressor installation delays at the Grati gas processing plant are expected to be resolved in the current quarter, aiming to enhance recovery from Oyong and Wortel fields.

In New Zealand, Kupe’s production challenges highlight operational risks, while Maari field is undergoing maintenance and infrastructure remediation planned over coming quarters. These activities occur against a backdrop of evolving regulatory frameworks, including new Financial Assurance regulations for decommissioning liabilities.

Overall, Echelon’s portfolio reflects a balance of stable production, targeted development, and strategic divestment, positioning the company to capitalise on improved pricing and contracted gas sales. The company’s progress on the Palm Valley JV drilling program, coupled with the Cue divestment, will be pivotal in shaping its near-term operational and financial outlook.

These developments build on the earlier gas supply agreement for 10.5 PJ secured by the Palm Valley JV, and follow the decision to exit Cue stake announced in prior months, underlining a period of active portfolio reshaping and growth execution for Echelon.