Tamboran Resources Corp: Form 10-Q for the period ended Sep 30, 2024

The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by,

our condensed consolidated financial statements, the accompanying notes to the condensed consolidated financial

statements and other financial information included in this report and in our Annual Report on Form 10-K for the

year ended June 30, 2024. For further information on items that could impact our financial condition and operating

performance, see the section entitled “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended

June 30, 2024, and “Cautionary Note Regarding Forward-Looking Statements” in this report.

The following tables present selected financial information for the periods presented (dollar amounts in

thousands):

Quarters Ended September 30, 2024 and 2023

Revenue and other operating income. We have not yet commenced natural gas production, therefore, we

did not earn any revenue and other operating income during the three months ended September 30, 2024 and 2023,

respectively.

Compensation and benefits, including stock-based compensation. Compensation and benefits, including

stock based compensation, increased by $1.0 million during the three months ended September 30, 2024, as

compared to the three months ended September 30, 2023, due primarily to the restricted stock units granted during

the period and increased headcount as compared to the comparative period.

Consultancy, legal and professional fees. Consultancy, legal and professional fees increased by $0.3

million during the three months ended September 30, 2024, as compared to the three months ended September 30,

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2023, due to increased professional fees related to U.S. GAAP financial statements. This scope of work was not

commenced until subsequent to September 30, 2023 in the prior fiscal year.

Loss on remeasurement of fair value of assets classified as held for sale. The Group recognized a loss on

assets classified as held for sale amounting to $0.4 million during the three months ended September 30, 2024, due

to a write down of rig 403 to the fair value less costs to sell in the current period, which did not occur in the

comparative period.

Accretion of asset retirement obligations expense. For the three months ended September 30, 2024, an

expense for accretion of asset retirement obligations of $0.3 million was recognized. The recognition of such an

expense was due to the accretion of asset retirement obligation liabilities in relation to all EPs, inclusive of EPs 76,

98, 117, 136 and 161, as well as SPCF for the new well and related well pads drilled during the period.

Exploration expense. Exploration expense increased by $0.1 million during the three months ended

September 30, 2024, as compared to three months ended September 30, 2023, due to increased activity for

topographical, geographical and geophysical studies and other indirect expenditure.

General and administrative. General and administrative costs increased by $0.9 million during the three

months ended September 30, 2024, as compared to the three months ended September 30, 2023, as a result of

increased expenses related to travel, insurance, and office and administrative fees.

Interest income, net. Interest income, net increased by $0.7 million during the three months ended

September 30, 2024, as compared to the three months ended September 30, 2023, due to interest received from term

deposits during the period ended September 30, 2024.

Foreign currency translation. For the three months ended September 30, 2024, we recognized a foreign

currency translation gain of $12.1 million, primarily due to the strengthening of the Australian Dollar as of

September 30, 2024, as compared to July 1, 2024. In the three months ended September 30, 2023, we recognized a

foreign currency translation loss of $5.3 million, primarily due to the weakening of the Australian Dollar as of

September 30, 2023, as compared to July 1, 2023. Foreign exchange gains and losses resulting from the settlement

of foreign currency transactions and from the translation at fiscal year-end exchange rates of monetary assets and

liabilities denominated in foreign currencies are recognized on our condensed consolidated statement of operations

and comprehensive loss.

Income tax expense. We have no income tax expense due to operating losses incurred for the three months

ended September 30, 2024, and 2023. We have provided a full valuation allowance on our net deferred tax asset

because management has determined that it is more likely than not that we will not earn income sufficient to realize

the deferred tax assets during a foreseeable future period. Management will continue to assess the potential for

realizing deferred tax assets based upon income forecast data and the feasibility of future tax planning strategies and

may record adjustments to the valuation allowance against deferred tax assets in future periods, as appropriate, that

could have a material impact on the condensed consolidated statement of operations and comprehensive loss.

Liquidity and Capital Resources

We are a development stage enterprise and will continue to be so until commencement of substantial

production from our natural gas properties. We do not expect to generate any revenue from production until 2026, at

the earliest, which will depend upon successful drilling results, additional and timely capital funding, and access to

suitable infrastructure. Until then our primary sources of liquidity are expected to be cash on hand, net proceeds

from our IPO, and funds from future private and public equity placements, debt funding and asset sales.

We expect to incur substantial expenses and generate significant operating losses as we continue to develop

our natural gas prospects and as we:

• complete our current appraisal drilling and testing program;
• develop and commercialize our assets, including development of pipelines, the proposed NT LNG

facility and other infrastructure;

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• opportunistically invest in additional natural gas assets adjacent to our current positions; and
• incur expenses related to operating as a public company and compliance with regulatory requirements.

Our future financial condition and liquidity will be impacted by, among other factors, the success of our

exploration and appraisal drilling program, the number of commercially viable natural gas discoveries made, the

quantities of natural gas discovered, the speed with which we can bring such discoveries to production, and the

actual cost of exploration, appraisal and development of our prospects.

For the remainder of fiscal year ended June 30, 2025, we estimate that we will need to invest approximately

$70.0 million to progress our development plans. We expect the additional proceeds from the rig 403 asset sale,

received in October 2024, together with our existing cash on hand, to be sufficient to fund our planned drilling and

flow testing of SS-2H and SS-3H. However, we may require significant additional funds earlier than we currently

expect in order to execute our strategy as planned. Additional funding may not be available to us on acceptable

terms or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our

stockholders. For example, if we raise additional funds by issuing additional equity securities, further dilution to our

existing stockholders will result. If we are unable to obtain funding on a timely basis, we may be required to

significantly curtail one or more of our planned activities. We also could be required to seek funds through

arrangements with collaborators or others that may require us to relinquish rights to some of our assets which we

would otherwise develop on our own, or with a majority working interest.

Cash and Cash Equivalents

The following table summarizes our key measures of liquidity for the periods indicated (in thousands).

As of September 30, 2024, we had $74.0 million of cash and cash equivalents. This balance represents a

decrease of $0.7 million from June 30, 2024, due to incoming funds of $5.3 million from the greenshoe option

exercised in July 2024, and cash calls received of $13.6 million offset primarily by spending on operations,

primarily the ongoing drilling of the SS-2H pilot well during the quarter ended September 30, 2024.

Capital Commitments

We had the following five-year capital commitments as of the periods indicated (in thousands), which are

not recognized as liabilities or payables on the condensed consolidated balance sheet:

Sweetpea

As of September 30, 2024, the Company’s wholly owned subsidiary, Sweetpea committed to spend $24.3

million related to two licenses, EP 136 with total commitments of $14.7 million and EP 143 with total commitments

of $9.6 million over the following five years.

A renewal application for EP 136 was submitted to the Department of Mining and Energy (“DME”)

(formerly the Department of Industry, Tourism and Trade) in September 2023, and approved in July 2024, granting

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a five-year extension for the period July 24, 2025 to July 23, 2030 with a minimum work program commitment of

$14.7 million.

A variation application for EP 143 was submitted to DME in August 2024, and approved in October 2024.

The total minimum work program commitments remain the same at $9.6 million with activity and associated spend

being transferred within the license term.

EP 161

For the McArthur working interest, we are obligated to contribute our share of expenses to uphold our stake in

EP 161. Our commitment through March 2026 is approximately $2.8 million based on the minimum work

requirements. There are no minimum commitment requirements after March 2026.

Beetaloo Joint Venture

The terms of the Beetaloo Joint Venture necessitate specific minimum work obligations through May 2028.

These commitments include an expected spend of $65.5 million related to drilling and multi-stage hydraulic

fracturing of five wells, 2D seismic survey, and subsurface studies, with expenditure across EP 76 of $22.3 million,

EP 98 of $20.9 million, and EP 117 of $22.3 million . An application was submitted to DME on September 26, 2024

to vary the year 2 and 3 work program, and is currently pending resolution.

Midstream

Procurement of the long lead items for the SPCF compressor package and dehydration package were placed in

June 2024 with progress payments of $1.9 million required prior to the end of 2025.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

Net Cash Used in Operating Activities

For the three months ended September 30, 2024, net cash used in operating activities was $4.2 million

during which we incurred a net loss of $6.8 million, compared to net cash used in operating activities for the three

months ended September 30, 2023, of $3.3 million, during which we incurred a net loss of $3.8 million The net loss

for the three months ended September 30, 2024, included the non-cash impacts of depreciation and amortization,

stock-based compensation, loss on remeasurement of assets classified as held for sale, accretion of asset retirement

obligations, and foreign exchange differences. Additionally, in the three months ended September 30, 2024, net

favorable changes in operating assets and liabilities totaled $0.6 million, primarily consisting of a $0.2 million

decrease in accounts payable and accrued expenses due to timing of our pay cycle during the fiscal period, a $0.9

million decrease in trade and other receivables, and a $0.2 million increase in prepaid expenses and other assets.

Net Cash Used in Investing Activities

For the three months ended September 30, 2024, net cash used in investing activities was $14.5 million

compared to $18.9 million for the three months ended September 30, 2023. In the period ended September 30, 2024,

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there was spend on exploration and evaluation activities of $12.2 million in connection with the drilling of the SS2-

H pilot well, expenditure of $2.7 million related to the detailed design of SPCF, offset by the non-refundable

advance payment of $0.4 million for rig 403.

Net Cash from Financing Activities

For the three months ended September 30, 2024, net cash received in financing activities was $16.7 million

compared to $34.4 million received for the three months ended September 30, 2023. This change was primarily due

to the receipt of $7.4million in gross proceeds from the greenshoe option exercised in July 2024, $11.5 million

attributable to contributions from noncontrolling interest holders in connection with investments by DWE, partially

offset by transaction costs of $2.1 million.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations are based upon our

condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The

preparation of our financial statements in conformity with U.S. GAAP requires us to make estimates and

assumptions that affect the reported amounts of certain assets, liabilities and related disclosure of contingent assets

and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the

reporting period. The following critical accounting policies relate to the more significant estimates and assumptions

used in preparing the consolidated financial statements.

The impact of, and any associated risks related to, estimates and assumptions are discussed within

Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as in the Notes to

the Condensed Consolidated Financial Statements, if applicable, where estimates and assumptions affect the

Company’s reported and expected financial results.

There have been no other material changes in critical accounting estimates at September 30, 2024 from those

described in the Company’s Annual Report on Form 10-K for the year ended June 30, 2024.

Evaluation of Disclosure Controls and Procedures

As of September 30, 2024, our principal executive officer and principal financial officer concluded that we

did not maintain effective internal control over financial reporting due to the material weakness that was disclosed in

our Annual Report on Form 10-K for the year ended June 30, 2024.

As discussed in Part II, Item 9A, “Controls and Procedures” in our Annual Report on Form 10-K for the

year ended June 30, 2024, we identified the following deficiencies in our internal control over financial reporting,

which in the aggregate, constituted a material weakness:

i) lack of sufficient evidence retained of the performance of internal controls,

ii) insufficient resources in key accounting and finance roles leading to inadequate segregation of duties,

iii) lack of manage access and manage change IT general controls over the cloud-based enterprise resource

planning system, and

iv) accounting for complex transactions in accordance with U.S. GAAP.

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Status of Remediation Efforts

In response to the material weakness identified and described above, our management, with the oversight of

the Audit & Risk Management Committee of our Board of Directors, will continue to dedicate significant efforts and

resources to further improve our control environment and to take steps to remediate this material weakness. As part

of our plan to address this material weakness, we are performing a full review, with the assistance of external

consultants, of our processes and internal controls. We have implemented, and plan to continue to implement, new

controls and processes. We will also provide training to control owners, supported by external consultants, as

appropriate, in support of an effective internal control framework, including how to sufficiently document and

evidence the operation of internal controls. We will also continue to hire accounting, finance and cyber security

personnel who possess the required technical knowledge to ensure reporting requirements are met and segregation of

duties are maintained. Finally, we have implemented a new enterprise resource planning system to better support our

financial reporting, including any related internal controls.

While we have begun implementing a plan to remediate this material weakness, we cannot predict the

success of such plan or the outcome of our assessment of this plan at this time. If our steps are insufficient to

successfully remediate the material weakness and otherwise establish and maintain an effective system of internal

control over financial reporting, the reliability of our financial reporting, investor confidence in us, and the value of

our common stock could be materially and adversely affected. We can give no assurance that this implementation

will remediate this deficiency in internal control or that additional material weaknesses in our internal control over

financial reporting will not be identified in the future. Our failure to implement and maintain effective internal

control over financial reporting could result in errors in our financial statements that could result in a restatement of

our financial statements, or cause us to fail to meet our periodic reporting obligations. For as long as we are an

“emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be

required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404.

Changes in Internal Control Over Financial Reporting

Except for the implementation of our remediation plans in connection with our ineffective disclosure

controls and procedures described above, there were no changes in the Company’s internal control over financial

reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during the quarter ended

September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control

over financial reporting.

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There have been no material changes in risk factors for the quarterly period ended September 30, 2024 from those

described in the Company’s Annual Report on Form 10-K for the year ended June 30, 2024.