PGY 1.85% 5.5¢ pilot energy limited

Interesting research from RaaS on PGY price

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    Pilot EnergyReady to power onPilot Energy Ltd is a junior oil and gas exploration company that is transitioning to face the new industry paradigm – renewable energy. The company has commenced feasibility studies over its renewable and carbon capture options, the Mid-West and South-West projects. Pilot is looking to develop an integrated wind and solar power generation with hydrogen manufacture by leveraging its oil production infrastructure and tenements, with multiple commercial outcomes. The company has existing oil production with growth potential and a Tcf scale gas play coincident with its South-West Project area. Although the renewables plays are early-stage, the value proposition is beginning to materialise. There is a portfolio of potential, likely worth more than the sum of the parts especially leveraging its acreage and infrastructure assets. The next 6-12 months could deliver material re-rating outcomes in the success case.Business modelPilot Energy is a junior oil and gas company with a portfolio of emerging opportunities. The critical focus of management will be to pursue its transformational growth opportunities in the renewables and carbon capture space through its Mid-West and South-West project proposals, which are currently undergoing feasibility studies. The company is looking to leverage its acreage and infrastructure base to underpin a strategic blue-print for expansion into the renewable energy and carbon capture space and the diversified revenue streams that could emerge. Financing for the renewable and other downstream opportunities could be provided partly through partnering.Adding pieces to the portfolioThe opportunity set is growing with PGY adding a South-West carbon capture option, whilst securing a farminee to drill its Tcf scale Leschenault gas prospect – that will be a two for one shot with ‘success’ options independent of the well result. The South-West Project would complement the company’s Mid-West renewables strategy adding more diversification to the portfolio and importantly providing investors with exposure across a range of ‘new energy’ options on success. The recent equity capital raising, with the farmout deal and Cliff Head work programme carry, underpins working capital requirements over the next 12 months.Renewables options are early stage but value is crystallisingValuing early phase projects and project proposals is a subjective exercise, particularly when timing. work programmes and financing are somewhat uncertain. We set our base-case asset value against risk-weighted development scenarios and transactional analyses, applying where appropriate, discretionary probability weightings to success factors. The market is now pricing renewables options and we have adjusted our carrying value to reflect these opportunities within the PGY asset base. We assign a risked valuation of $137m (27.2cps – refer Exh. 1) to the portfolio against a reference share price of 6.6cps. We note the renewables and carbon capture options are as yet still early-stage and subject to significant change through the feasibility and evaluation process. Our attributed value should be considered within that context and with the commensurate risk overlay. It’s worth highlighting that a successful, integrated renewables development could deliver an equity value of >2.3Bn across the life cycle, on a 1.5GW project with associated hydrogen manufacture on the basis of our assumptions and reference valuation methodology.Relisting updateEnergy16 August 2021 Share detailsASX Code PGYShare price (13-Aug) $0.066Market Capitalisation $31.5MShares on issue 499MNet cash (est) at 30 Sep $8M 2021Free float ~51.4% Share performance (12 months)$0.09 $0.08 $0.07 $0.06 $0.05 $0.04 $0.03 $0.02 $0.01$- Upside CaseMaterially de-risking the commercial cases for the Mid-West and South-West renewable and CCS projects through finalisation of the Feasibility Studies and securing suitable partners and further defining the greater renewable power opportunities (hydrogen and commercial CO2)Further recovery in commodity (oil) prices.Above model production rates at Cliff Head delivering strong net operating cashflow ). Downside CaseNo material progress on renewable energy development options over the next 12 months and competing projects push ahead.Commodity (oil) prices retracing historical lows.Cliff Head underperforms, generating the risk of earlier than expected abandonmentBoard of DirectorsBrad Lingo Tony Strasser Bruce Gordon Daniel ChenExecutive Chairman Managing Director/CEO Non-Executive Director Non-Executive Director Company contactsBrad Lingo (Exec Chair) +61 408 601 080 [email protected] RaaS Advisory contactsAndrew Williams +61 417 880 680 [email protected] comFinola Burke +61 414 354 712 [email protected] This report has been prepared by RaaS Advisory Pty Ltd (A.C.N. 614 783 363) on behalf of Pilot Energy Ltd and should be read in conjunction with the disclaimer and FSG on pages 15-17. Pilot Energy Limited – Funded to charge forward Pilot Energy Limited (PGY.AX) has been listed on the ASX since 2012. The company holds an upstream portfolio of production and early-stage exploration assets in the mid-west and south-west of WA. Whilst the E&P portfolio provides growth opportunities it’s not the transformational investment driver. With the successful completion of an $8mn capital raising, PGY has relisted and is ready to push the accelerator on its suite of renewable project opportunities. Since the release of our Scoping Report [Dec-2020], the portfolio has expanded and now includes a material carbon capture option to complement its Mid-West renewables project proposal. A listing suspension has not meant a suspension of activity and PGY has a clear and defined development strategy with feasibility studies well underway. Commercial definition (including financing) is still to be delivered but we are drawn to the transformational potential of the project potential. In the last six months, the renewables investment landscape has significantly changed with at least 20 new project proposals emerging at scales up to 50Gw. The opportunity is moving beyond the purely conceptual should now be considered as more strongly based in a new reality. Our confidence levels in the PGY proposals are supported by the quality of the principal contractors conducting the due diligence (Technip, Lautec, Green Fuel Development, 8 Rivers Capital and RISC)...a success case outcome should be considered as underpinned by high quality, arms-length validation. The company’s mid-stream assets provide a significant capital benefit in the pursuit of an integrated development with multiple commercial outcomes. This is not simply a power generation play, in our view. Exhibit 1: The investment proposition lies in the ‘renewables’ opportunities A$mn A$/share $101 $0.203 $10 $0.021 $6 $0.011 $6 $0.013 $4 $0.007 $4 $0.008 $131 $0.262 $8 $0.016 ($3) ($0.006) $136 $0.272 Source: RaaS analysis; Risked values based on look through Probabilities of Success (POS) for drilling and weighted by a RaaS risk overlay. Weightings at RaaS discretion * Assuming completion of farmout to AET. Renewables and carbon captureCliff Head Wind and Solar ProjectSouth-West ProjectOil and Gas UpstreamCliff Head (CH)CH Contingent Resources Other Discoveries ExplorationCashCorporateTOTALShares issued (mn)Pr80% 50% 50%* 5%21.25% 100%Using Deloitte’s methodology as outlinedBased on the lower of the two success case options (gas discovery/CCS proposal)Using commodity price assumptions as outlined in ‘Risks’ section 21.25% 50% Risked weighted against existing operating margins 100% 5% various499Nominal only Estimated as at 30-SepShare base forward adjusted for the current equity issues and anticipated shareholder approval of the second tranche issue Pilot Energy | 16 August 2021Risk adjusted NAV at $137mn...the upside is blowing in the windWe value the PGY base E&P business using estimated unit values on reserves and; contingent and prospective resources adjusted for our discretionary probability weighting (1-risk %), to derive a gross portfolio worth. Probability weightings are subject to change as the company delivers the next drilling results and variations in operating conditions. Where possible we model development outcomes based on broad guidance and historical precedents but note these are adjusted and overlain by a RaaS risk outlook reflecting our views of the technical and commercial uncertainties associated with delivering the projects as modelled.2 We highlight the inclusion of PGY’s renewables plays in our NAV. We deem these options as being more tangible than at the time of our Scoping Report, previously assessing the proposals as being at a very early and conceptual stage.The Cliff Head - Mid-West Wind and Solar Project (‘Mid-West project’) submission has been submitted to the WA State Government and a feasibility study is being progressed independently of the government initiative.Unlike traditional oil and gas projects (per se), the company’s renewable options are not subject to resource definition (ie exploration success) – these are engineering and market opportunity plays.The resource potential has been highlighted by numerous studies from the 2010 Geoscience Australia and ABARE Australian Energy Resource Assessment through to the Blue Economy Cooperative Research Centre’s recent report on the Offshore Wind Potential for Australia ( BP and Arena also recently release the results of a study focused on the Mid West region of WA which further confirmed the regions potential to host large scale renewables delivering energy into green ammonia and green hydrogen production ( study/)Importantly, the market is now beginning to ‘price’ green options, although given the somewhat intangible nature of many of the proposals, ascribed values should be considered as subjective in terms of assumptions and risk weightings, subject to significant change through the forecast period. Pilot Energy | 16 August 20213 More pieces for the puzzleIt’s worth reiterating some of our previous commentary –“We live in a new energy paradigm – there is more pressure and focus on the traditional models of energy supply and companies must adapt.”Driven by an increasing need to address climate change issues related to carbon emissions and the increasing number of proposals being announced encompassing a wide scale spectrum, renewable energy alternatives are now firmly set on the societal agenda as evidenced by initiatives at both the Federal State levels.The Mid-West/South-West Project opportunities – no longer a one-shot playIn our Scoping Report, we have previously outlined the strategy and development plans for the Mid-West Project, leveraging the company’s existing licences and infrastructure to pursue an integrated power generation and hydrogen production outcome. On a practical level, management has indicated that utilising the Cliff Head infrastructure as an anchor point could deliver a capital saving in the order of $150mn. Exhibit 2: Spanning the ends of the Perth Basin – more than a one-shot play Source: Company data (not to scale) Pilot Energy | 16 August 20214 In a similar fashion, PGY is now proposing to repurpose its EP-416 and -480 tenements to support a South- West, carbon capture project. The high-density, agricultural land use of these permits makes conventional oil and gas activity somewhat problematic but CCSU could be pursued with a significantly smaller operational footprint.The Mid-West Project – a brief reviewThe company is well advanced in conducting a detailed feasibility study for the development of an integrated offshore wind/onshore wind and solar project (Mid-West Project). The WA State Government Oakajee Strategic Industrial initiative for the development of up to 1.5GW of renewable electricity and hydrogen generation is a key potential market for Pilot.We highlight the renewables opportunity is not limited to the State Government requirements in that the operating footprint is big enough and sufficiently exposed to a high-quality wind resource to support multiple projects.We note the “...potential to combine a sustaining, high quality offshore wind resource and manufacturing opportunity with existing offshore and onshore infrastructure and if necessary, support from existing gas operations underpins the project premise and strategy”.Source: Company data (not to scale)We suggest the proposal is supported by a tangible pathway to commercialisation.PGY is also investigating the potential for the establishment and integration of a hydrogen production plant using the natural gas resources within the hub. An integrated project provides multiple ways to market and multiple revenue an electricity (power) provider, a hydrogen seller and with commercial potential from the associated CO2 stream.Renewables come with ‘stand-alone’ risk – gas back up can be a good ideaIt’s a fact...the wind doesn’t always blow at the required rate, although in coastal areas that is a rarity and the sun doesn’t always shine ‘as required’. In our view, an energy storage component (battery) or peaking plant (gas fired) will likely be required to support base load supply and smooth the vagaries of the elements.There are practical limitations to the battery option, particularly at the scale being proposed by PGY and required by the WA Government, which has indicated it is open to supporting a renewable power project with gas leveraging the pre-existing infrastructure. The 8 Rivers Capital Blue Hydrogen and CO2 technology study could provide a unique solution through the combination of CCS at Cliff Head with a zero emission gas fired power station. Exhibit 3: A simple schematic – tying the offshore and onshore together Pilot Energy | 16 August 20215 From this perspective, the CH-MWWSP is ideally located with major gas transmission pipelines in proximity (Dampier-Bunbury and Parmelia pipelines) and new, major gas discoveries in development – securing gas is unlikely to be an issue.Hydrogen production adds bolt-on value to power generationWe have previously commented -“Hydrogen manufacture is the emerging product in the move away from fossil fuels. Although there are a number of natural applications for H2 as a transport and generation fuel; and particularly as a source of energy in high-temperature processes (steel, cement and refining sectors), the penetration of the gas on a global basis is small and concentrated.”To put the size of the hydrogen market in context and as a comparison in value terms only, projections as to growth of the industry range from US$165Bn pa by 2027 to US$215Bn pa by 2024 on a CAGR basis of 4.3- 6%, versus the current size of the global oil industry at an estimated US$2.3Tr pa (97.1Mbd at US$65/b – Aug-2021).Source:,, is rising demand for cleaner fuels with increasing government regulations for desulphurisation of transport fuels which is expected to support market growth for hydrogen as merchant facilities are rolled out. Hydrogen is an effective energy carrier and is anticipated to significantly increase penetration into newer markets and end uses.As an important component of the PGY feasibility studies, a hydrogen production facility would provide a critical link between generation and additional (other than H2) end markets.Production of hydrogen (any colour) at scale must be underpinned by a large-scale source of ‘cheap’ energy, whether that be gas (for blue) or renewables (for green). Pilot is in the position to contemplate both options, commencing along the blue pathway, transitioning to green as the development of its wind and solar projects provide scale and base load cost reductions.Any commentary on the potential of the hydrogen component of the proposed development should be read in conjunction with the discussion in Appendix 1 particularly noting the areas of risk and commercial uncertainties at this early stage.Carbon dioxide can add revenue, not just costThe company has indicated the hydrogen plant will likely, initially be blue using a natural gas feed stock and generating CO2 as a by-product. To complete the blue loop, the carbon will need to be sequestered or used. Exhibit 4: Power generation to support hydrogen production (blue to green) Source: All schematics - Company data Pilot Energy | 16 August 20216 PGY is addressing this issue by evaluating some obvious commercial uses for the output -• in a closed loop Enhanced Oil Recovery Project (EOR) at Cliff Head and/or;• the potential of a commercial scale (150tpa plus) plant to generate industrial use CO2, to an expanded,integrated project in a similar fashion to that being evaluated by Vintage Energy (VEN.ASX) and Supagas Pty Ltd in the onshore Otway Basin.Aligning the assetsTo better optimise the Cliff Head infrastructure and associated offshore tenements, Pilot has completed an alignment of interests in the upstream assets and the Cliff Head Wind and Solar Project with the operator of the Cliff Head JV (Triangle Energy – TEG.ASX).The entry of TEG into the Cliff Head Wind and Solar Project aligns the entire opportunity set with common partners across the respective areas of interest and what should be seamless agreements with respect to growth options and infrastructure use. Exhibit 5: Aligning interests should drive upstream and renewables options more efficiently Asset/InterestsCliff Head Production WA-481-PCliff Head Wind-Solar ProjectPGY TEG PGY TEG 100%Before After Consideration 21.25% 78.75%21.25% 78.75% 100%21.25% 78.75% 80% 20% Source: Company data What could the Mid-West Project be worth?We have been here before and can only reiterate the difficulties associated with ascribing a valuation range to this proposal, given the current early-stage nature and potential uncertainties in the commercial market for offtake and pricing in particular. We would also add the potential for significant project changes through the feasibility process...assumptions made today may have limited long-term validity.We have chosen to valuing the Mid-West Project on a sum of the parts methodology, assigning some quantum of economic price on a segmental basis, noting that in an integrated project, the end point is often greater than the sum of the individual components.Where we could attribute the highest confidence estimate, is to a ‘going concern’ offshore wind project as a base case noting the potential for ‘multiple’ Cliff Head sized expansion options and downstream manufacturing which would add upside opportunity to the base case on a longer dated basis.We have previously used Deloitte studies – “A market approach for valuing offshore wind farm assets (Aug- 2017)” and “A market approach for valuing solar PV farm assets (Apr-2016)” as the cornerstone to assigning a potential value to the power generation segments. The methodology and application of the study to the PGY valuation on offshore wind can be referenced in our Scoping Report.Both studies use transactional data to assign EV/MW multiples to the various life cycle stages of offshore wind projects. There are constraints to the study from the limited data sets, to transactions across competing and differing vintages of technologies; and variations in regional commercial attributes. However, Deloitte’s ascribe the ‘explanatory power’ of their models at >90%, so in that respect the conclusions carry a high confidence level particularly given the early-stage development of the industry.The study considers the life cycle of both offshore wind and solar projects across four separate stages with different EV multiples, naturally increasing as a project moves towards completion and operation.For the purposes of assigning opportunity values to the PGY situation, we would equate a base case valuation to Deloitte’s company’s ‘Late-Stage’ category – effectively in a feasibility (pre-FEED) process.PGY to receive $300k in back costs and full carry through the remaining three-year work programme and commitments – estimated at up to $1.22mnNet carry to PGY ~$260kPGY to fully carry the cost of the feasibility study of the CH-WWSP to submissionNet carry to TEG ~$240k Pilot Energy | 16 August 20217 Pilot Energy | 16 August 2021Valuing a bolt-on hydrogen option is somewhat conjectural, with no significant domestic hydrogen market, no defining export market data and only a broad indication of the size of the proposed hydrogen plant at 250tpd (subject to confirmation).There are significant numbers of published theoretical and business case studies on hydrogen production all looking at various plants within a restricted set of commercial assumptions. On balance the articles and studies support the economics of H2 generation citing blue H2 as more economically advantageous then green H2 in the current operating environment.We would add that this is still an evolving industrial segment and the commercial opportunities will continue to be limited by the consumption end of the market and particularly the roll out of ‘merchant’ facilities. Although, in broad terms, as part of an integrated project, hydrogen could likely be generated at cost effective and certainly cost comparative rates to natural gas. In that regard as a replacement for or as a complimentary energy source, the economics should be sufficient to deliver a required rate of return. However, we suggest the economics around a 250tpd production option may remain opaque for some time. Exhibit 6: Indicative economic ranges demonstrate that hydrogen opportunities will have very project specific returns StudyCost of w CCS Plant cost of w CCS Output manufacture add-on construction add-on CapacityFixed Cost A$mn pa A$/mcfe A$mn Bcfe pa base max Platts IEAGHG ‘Roadmap'2020 2017 2018$3.43 $4.79 $5.97 $6.64 - 7.60 $360 $425-585 27.4$12.4 $16.0 $2.14 - 2.74 73.00 Source: various analytical reports, conversions to mcfe and Bcfe using RaaS estimates Platts Online Article: ‘Cost, logistics off blue hydrogen market advantages over green alternative’ [Robinson, J. 19/03/20] IEAGHG Technical report 2017-02: ‘Techno-economic evaluation of SMR based, stand-alone (merchant) hydrogen plant with CCS’ [Feb-2017] Air Liquide technical report: ’Auto-thermal reforming (ATR) – Syngas generation’ Geoscience Australia Record 2019/15; eCat 130930: ‘Prospective hydrogen regions of Australia’, [Feitz, A. et al] CSIRO: ‘National hydrogen roadmap’, [Bruce, S. et al 2018] Norwegian University of Science & Technology (NTNU): ‘Concepts for large scale hydrogen production’, [Jakobsen, D., Atland, V. Jun-2016] Oxford institute for Energy Studies – OIES Paper No. NG 159: Blue hydrogen as an enabler for green hydrogen - the case for Germany’, [Dickel, R] National Renewable Energy Laboratory – Technical Report NREL/TP-5600-51995: ‘Blending hydrogen into natural gas pipeline networks: A review of key issues’ [Mar-2013]Considering the as yet still high level of uncertainty associated with the blue H2 option, we assign only a nominal value to the project of only $10-30mn as representing an early-stage proposal.The manufacture of blue H2 using a natural gas feedstock, generates CO2 as a by-product...and the proposal will need to address this issue either through sequestration or enhanced oil recovery at Cliff Head. The Cliff Head Oil Field has a nominal oil-initially-in-place (OIIP) estimate of around 40Mb with an expected ultimate recovery in the order of 17Mb (production to date plus remaining 2P volumes), or about 42.5%.The Cliff Head operations are already set up for a CO2 reinjection option with bi-directional wells currently used for water injection.It’s too early to estimate the amount of additional oil that could be recovered should this option be undertaken but operating margins on additional, incremental barrels could run at over-50% in our view and that could be conservative.We assign a risked’ equity value range of $101mn to the Mid-West project, reflecting the current stage of progress and weighted to the early stage end of the nominal range.Based on the Deloittes’ metrics the offshore wind aspect of the proposal could be valued at $125mn (in the FEED stage) to >$2.3Bn (as a completed and installed project of 1.5Gw) on an unrisked basis. This value range should be viewed within the context of the parameters of the study and represents an option value of the project potential, not necessarily the value of the opportunity ‘now’. Note this estimate is calculated on a 100% basis and should be considered against the current capitalisation of the company at around A$32mn.8 Exhibit 7: Value in the upstream and downstreamSource: Company data; RaaS commentaryThe South-West Project – lateral thinking drives a multi-purpose modelThe South-West Project will encompass the company’s EP-416 and -480 tenements (PGY 100%). There is a conventional, upstream oil and gas exploration opportunity that can also underpin a Carbon Capture and Storage (CCS) play.PGY plans to address both options through the drilling of the Leschenault Prospect –• as a gas target with a Prospective Resource potential of 725-1,595Bcf (best to high estimate)This is a massive gas opportunity and potentially transformational in its own right. However, we’d rate the risk overlay here as very high (on a gas discovery basis) given the incomplete nature of the 2D seismic coverage, poor well density and lack of any analogue success (compared to the North Perth Basin).In order to offset this risk, PGY has agreed farmin terms with Advanced Energy Transition Ltd (AET) to “...fully fund the drilling of one well” to earn a 50% interest in the Leschenault prospect.Drilling operations are anticipated to commence in the next 12 months at an anticipated cost of ~$5mn.• as a potential CCS project underpinned by the WA Government South-West Carbon Capture and Storage initiative.Drilling works conducted by the Department of Mines, Industry Regulation and Safety (DMIRS) have confirmed a base case CCS option of 24Mt CO2 at a rate of up to 800kt pa over 30 years. As highlighted in Exh. 2, the PGY tenements are ideally situated with respect to the proposed BP hydrogen plant at Kwinana and along exiting pipeline easements.We would highlight also -• PGY is currently the only party with a right to drill in this region• It’s a two-shot operation, a gas discovery if successful, a usable CCS well is ‘unsuccessful’We assign an equity value range of $10-20mn based on a gas discovery and CCS project using a nominal$16/t unit revenue. This is a risked range assuming a 5% pre-drill probability gas success case. Pilot Energy | 16 August 20219 Exhibit 8: Leschenault is a large, transformational gas play – with CCS optionality Source: Company data; RaaS commentary Pilot Energy | 16 August 2021Pilot has a conventional project at Cliff Head as wellThe proposed integrated renewables projects provide the transformational opportunity, but we note the company also has conventional exploration and production growth options focussed on the onshore and offshore north Perth Basin at Cliff Head. The critical aspect of the Cliff Head asset is the leverage the tenements and infrastructure provide to the integrated renewables proposals though there is an earnings growth project to chase.10 There is ‘P’ at Cliff Head (PGY 21.25%)Post the merger with Royal Energy provides the company now holds a 21.25% interest in the Cliff Head Oil Field, which is located in the offshore Perth Basin about 270km north of Perth and 12km offshore in approximately 15-20m water depth. The production platform is connected to the onshore Arrowsmith Stabilisation Plant by twin 14km production and injection pipelines.We have evaluated the Cliff Head plays within our Scoping Report so we will only briefly reiterate the growth potential and optionality here. Exhibit 9: WA-481-P Minimum work programme (gross cost) Source: Triangle Energy The JV is well progressed in planning for a three well drilling campaign, which on success could provide a c.3,000bopd (gross) addition to current production. Successful wells can be tied back and developed through vacant slots on the platform. New discoveries can be brought into production rapidly, extending Cliff Head asset life out to 2030 or beyond.Any and all drilling targets carry intrinsic risk but we understand the JV considers the portfolio and particularly the three target prospects, at West High, SE Nose and Mentelle Up-dip, to be relatively low risk drilling options given the low reserves threshold required to support a commercial development.Against our estimated remaining reserves and and risked adjusted 2C volumes we are comfortable assigning a net value to Cliff Head of ~$12mn.Our value of Cliff Head with upside should be considered as a reasonable base case at this stage.Exhibit 10: Well planning and farmout campaign has commenced Pilot Energy | 16 August 2021Source: Triangle Energy 11 A raising supports a relistingAs part of the conditions for relisting, Pilot Energy has successful completed a two tranche, $8mn equity raising to provide working capital to continue and progress activity across the asset portfolio as per Exh. 11.The placement was conducted at an issue price of $0.06/share, representing a 26.8% discount to the last closing price of $0.082 per Share (10 February 2021). Exhibit 11: Funded for progress Pilot Energy | 16 August 2021Source: Company data 12 Appendix 1 – Revisiting the ‘H’ story (in reality H2)We precis from our Scoping Report -We firstly need to make the distinction between ‘green’ hydrogen- generated using renewable energy sources without no carbon emissions – and ’blue’ hydrogen generated using a natural gas feedstock with carbon capture and storage.At the moment, blue is cheaper than green...and as with all energy products, which direction a company decides to follow ultimately comes down to cost.Blue hydrogen is made from natural gas using either the• Steam Methane Reforming (SMR) process, or the;• Autothermal Reactor (ATR) process.SMR is the most common method for producing hydrogen at large industrial scales, relying on natural gas (CH4) reacting with steam to produce hydrogen (H2) and carbon monoxide (CO). The CO can be treated further to generate more hydrogen and carbon dioxide (CO2).The ATR process uses oxygen, steam and in some cases carbon dioxide, in a reaction with natural gas to form raw syngas (CO/H2).A key difference between SMR and ATR is that SMR does not use oxygen and uses a lower ‘steam to carbon’ ratio (S:C) in the reformer feed resulting in lower volumes of H2.A critical advantage of the ATR process though, is that it doesn’t require external heat input...the heat of reaction is provided by the internal combustion of part of the hydrocarbon feed with all of the O2. The ATR technology is especially beneficial where low cost O2 is available.To be classed as blue hydrogen, CO2 must be captured and sequestered or sold.The price of blue hydrogen is strongly impacted by natural gas prices but an additional critical commercialdriver is the cost of carbon capture and storage (CCS).On a scaled up and standardised basis the process of CCS in blue hydrogen plants is likely to come down, but at this stage remains somewhat of an unknown in terms of plant operating costs.Green hydrogen is produced by water electrolysis. This process consists of running electricity through an aqueous electrolytic solution over a catalyst. The ensuing reaction produces hydrogen, but the entire process uses a significantly amount of energy and (historically) costly resources like platinum.The process, when combined with renewable power generation, produces very few emissions, but the critical cost component is the reaction catalyst limiting the commercial scale of plants.A report by Wood Mackenzie (Jan-2020) highlights that green hydrogen is expensive compared to the production of hydrogen from natural gas. According to their estimates, green hydrogen can be competitive with ‘gas’ based hydrogen in Australia and Europe at “...sub-US$30/MWh electricity prices”.The report cited current, wind and solar PPA (power purchase agreement) prices ranging from “...$53 to $153/MWh in those markets” but in their view Australian green hydrogen can become cost competitive versus blue hydrogen, likely out to (or perhaps, in our view) before 2030.Estimates of the growth of the hydrogen market vary from US$165Bn pa by 2027 to US$215Bn pa by 2024 on a CAGR of 4.3-6%, on a revenue basis.Technology advancement in production and distribution of hydrogen should drive the demand for hydrogen on an economic basis – development and production costs are likely to fall as demand increases and economies of scale impact. Pilot Energy | 16 August 2021It’s worth revisiting the hydrogen manufacture process, particularly given the number of proposals being tabled across all states and competing project claims.13 Exhibit 12: Financial Summary Source: RaaS Advisory Pilot Energy | 16 August 202114 Pilot Energy | 16 August 2021FINANCIAL SERVICES GUIDERaaS Advisory Pty LtdABN 99 614 783 363Corporate Authorised Representative, number 1248415ofBR SECURITIES AUSTRALIA PTY LTD ABN 92 168 734 530AFSL 456663Effective Date: 6th May 202115 About UsBR Securities Australia Pty Ltd (BR) is the holder of Australian Financial Services License (“AFSL”) number 456663. 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All statements as to future matters are not guaranteed to be accurate and any statements as to past performance do not represent future performance.Assessment of risk can be subjective. Portfolios of equity investments need to be well diversified and the risk appropriate for the investor. Equity investments in listed or unlisted companies yet to achieve a profit or with an equity value less than $50 million should collectively be a small component of a balanced portfolio, with smaller individual investment sizes than otherwise.The science of climate change is common knowledge and its impacts may damage the global economy. Mitigating climate change may also disrupt the global economy. Investors need to make their own assessments and we disclaim any liability for the impact of either climate change or mitigating strategies on any investment we recommend.Investors are responsible for their own investment decisions, unless a contract stipulates otherwise. RaaS Advisory does not stand behind the capital value or performance of any investment. Subject to any terms implied by law and which cannot be excluded, RaaS Advisory shall not be liable for any errors, omissions, defects or misrepresentations in the information (including by reasons of negligence, negligent misstatement or otherwise) or for any loss or damage (whether direct or indirect) suffered by persons who use or rely on the information. If any law prohibits the exclusion of such liability, RaaS Advisory limits its liability to the re-supply of the Information, provided that such limitation is permitted by law and is fair and reasonable. Copyright 2021 RaaS Advisory Pty Ltd (A.B.N. 99 614 783 363). All rights reserved.Pilot Energy | 16 August 2021 17
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