Red Sky Energy (ASX: ROG) is hitting its stride in South Australia’s Cooper Basin, with Managing Director Andrew Knox sharing the latest from the company’s portfolio during an interview at the RIU Essential Energy Conference. Fresh from success at its Innamincka project, Red Sky’s cash flow has never looked better. With strategic partnerships, new developments, and potential acquisitions on the horizon, Knox exudes confidence about the company’s direction.
Innamincka: Production, Cash Flow, and Expansion
Innamincka, located in the oil-rich Cooper Basin, has been the focal point of Red Sky’s efforts, and it’s paying off. Knox proudly confirmed that the company, which holds a 20% working interest in the project alongside energy giant Santos, has achieved stable production.
"We're finally in production at Innamincka. We've got six licenses with Santos, and we’re carried through the work program, including seismic and wells," Knox explained. The collaboration with Santos also involved a strategic swap, exchanging one well for a crucial pipeline, further solidifying Red Sky’s operational base.
Since production started late last year, the results have been promising. “We’ve generated close to $3 million in revenue so far from the Yarrow 3 well alone,” Knox stated. The majority of that revenue has come from gas sales under a take-or-pay arrangement with Origin Energy, while the other products—ethane, LPG, and condensate—are sold through Santos and Beach Energy’s Cooper Basin joint venture. The crude is transported to Moomba, processed, and onward sold from there.
What's Next for Innamincka?
While Yarrow 3 has been the primary producer, expansion is on the horizon. Knox outlined plans to re-enter the Yarrow 1 well, aiming to have it producing by the end of the first quarter in 2025. The well was initially delayed due to capacity issues with the pipeline, but those have since been resolved.
“We’ll be re-entering Yarrow 1 in Q4 this year and expect it to be online by Q1 2025,” Knox confirmed. In addition, Red Sky will have the results of its 3D seismic program by the same timeframe, which will provide the basis for full field development. These development wells are slated for late 2025.
Killanoola: High-Potential Crude
Beyond Innamincka, Red Sky holds 100% of the Killanoola project in South Australia’s Otway Basin. Knox expressed enthusiasm about the project’s potential, though he noted the unique characteristics of the crude in the field.
“We think there’s a lot of barrels there,” he said, describing the crude as waxy and paraffinic with a high pour point. Despite the challenges, the quality is excellent, particularly as a gasoil feedstock, and Red Sky is optimistic about fetching a premium price for it.
The company already has an off-take agreement in place with Viva Energy, which can refine the oil at its Geelong facility. However, Knox revealed they’re also exploring other options to avoid the blending required for Viva’s refinery.
“We’re talking to other crude buyers. With some, we might just heat and truck the oil, which would simplify things,” Knox added.
Strategic Vision and M&A Outlook
While Knox is confident about the current portfolio, he made it clear that Red Sky has its sights set on growth through mergers and acquisitions. The company has a proven strategy of acquiring, developing, and optimising assets, as demonstrated with Innamincka and Killanoola.
“We’re keeping an eye out for projects that could be company-makers,” Knox said. He hinted that Red Sky is not limited to Australia, with the company actively pursuing opportunities in Southeast Asia and Sub-Saharan Africa.
“Within the company, we have experience in these regions, and I think we’re very close to securing a new venture,” Knox teased, leaving the door open for a potential game-changing announcement.
The Road Ahead
With production well underway and expansion plans in motion, Red Sky Energy is positioned for a strong future. The combination of cash flow from Innamincka, the promising potential of Killanoola, and a strategic eye on further growth through acquisitions puts the company in a favourable spot.
Knox concluded the interview on a high note: “Exciting times ahead for Red Sky and its shareholders.”
For investors, Red Sky’s focus on both near-term production gains and long-term development projects presents a compelling narrative. The company’s disciplined approach, combined with strategic partnerships and potential new ventures, makes it one to watch in the Australian energy sector.
