Total Energy Services Inc. delivered a solid first quarter 2024, navigating a tricky landscape of declining US drilling activity and unusually wet weather in Australia. However, buried beneath the headlines, a quiet revolution is brewing, and it revolves around Total Energy's strategic play in the Land Down Under. Their recent acquisition of Saxon Energy Services Australia, combined with a series of targeted capital expenditures, points to an intriguing hypothesis: Is Total Energy positioning itself to capitalize on a potential Australian natural gas boom that could rival the transformative impact of the Montney formation in Canada?

While analysts are focused on the near-term impacts of weather and US market fluctuations, a deeper dive into Total Energy's capital allocation and CEO commentary reveals a long game focused on Australian natural gas. It's a bold move, but one potentially justified by a confluence of global trends and strategic foresight.

First, consider the sheer scale of Total Energy's commitment. The Saxon acquisition added 11 drilling rigs, effectively doubling their Australian fleet overnight. They're not stopping there. A newly constructed drilling rig is slated to begin operations in the third quarter, joined by two upgraded service rigs under long-term contracts. This represents a substantial operational footprint and signifies a commitment beyond weathering short-term cycles.

"We are excited about the addition of Saxon to our Australian drilling business. The addition of the 11 Saxon rigs substantially increases the operational capacity of our Australian drilling fleet. For example, during the first quarter, Saxon Rig 185 drilled the longest horizontal coal-seam gas well ever drilled in Queensland at a total measured depth of 5,020 meters. The rig requirements to drill this well were beyond the capacity of our pre Saxon Australian drilling rig fleet. - Daniel Halyk, CEO, Total Energy Services Inc."

The CEO's comments reinforce this strategic intent. He highlights the acquisition's accretive nature, emphasizes the "good fit" with Saxon, and speaks of the "excitement" shared by both existing and newly integrated employees about growing the business. This isn't simply about absorbing a cast-off asset; it's about building a platform for expansion.

This platform, however, requires a catalyst, and that's where the global energy landscape comes into play. As Dan Halyk noted, "extremely high pricing discourages investment in future infrastructure built around using natural gas." This is precisely the situation we've witnessed in recent years, with skyrocketing gas prices causing uncertainty and deterring long-term commitments. However, those prices have now moderated, creating a more stable and predictable environment that encourages infrastructure investment and LNG development.

Australia, traditionally viewed as a challenging jurisdiction for gas development, is now signaling a dramatic shift. The recent pro-natural gas and pro-LNG policy announcement by their national government represents a seismic shift that could unlock vast untapped resources. This, combined with robust Asian demand for LNG, sets the stage for an Australian gas boom.

Total Energy's strategic bet is that they can replicate the success they've enjoyed in the Montney, where they've played a key role in unlocking the formation's immense potential. While no specific Australian play is currently generating Montney-level excitement, the country's vast, less-explored basins offer considerable upside. Total Energy's acquisition of heavier, deeper-drilling Saxon rigs positions them to explore these untapped resources.

Revenue and EBITDA by Region (Q1 2024)

The following table shows the breakdown of Total Energy's Q1 2024 revenue and EBITDA by region.

Projected Increase in Australian Revenue

This graph depicts a hypothetical projection of Total Energy's Australian revenue, indicating a potential surge in the coming quarters.

This hypothesis, of course, requires supporting evidence. If Total Energy is indeed positioning themselves for an Australian gas revolution, we should expect to see continued investment in the region, further rig upgrades, and a focus on deeper, gas-focused drilling programs. Further, Australian revenue contribution should increase significantly over the next several quarters, potentially becoming a dominant factor in Total Energy's overall financial performance.

This Australian gambit is a bold move with the potential to reshape Total Energy's future. While the near-term challenges of weather and US market volatility will undoubtedly grab headlines, savvy investors will be watching Australia closely. If Total Energy's bet pays off, it could be the next Montney in disguise, delivering outsized returns for those who recognize the opportunity before it becomes widely apparent.

"Fun Fact: Australia holds the record for the longest continuously producing coal seam gas well in the world, operating for over 28 years! This demonstrates the long-term production potential of Australian gas resources, a key factor in Total Energy's investment strategy."