euroz quick comment 15th august

Key points

"Price Target: $1.47/sh

Key Points

· Up to 90% of RFE’s 77,000 net acre ‘Big River’ Mississippian play is underlain by oil prone Woodford Shale;

· RFE’s current operated programme continues to focus on HBP drilling, targeting the Mississippi Lime; never-the-less, RFE’s lease terms and pooling process ensure all existing and planned drilling will secure the mineral rights pertaining to the Woodford Shale;

· Under a development scenario of 4 wells per 640 acre pooling unit, RFE’s acreage package supports at least 650 gross well locations;

· Industry activity, east of the Nemeha Ridge, is increasingly targeting Woodford; RFE has already committed to participate in 7 Woodford tests (av. Working Interest of 12%);

· Six of these will be operated by DVN, who have recently reported (see Q2 earnings call) early results encouraging economic potential at least similar to the Mississippi Lime in this area:

o well capex of US$3-3.5m well

o 30 day-IPs of 400-700boepd (70% liquids)

o Low opex on account of relatively lower produced formation water

o Economics enhanced by utilising existing Mississippian infrastructure.

Investment Thesis

The Woodford Shale is a rapidly emerging industry focus. Underlying up 90% of RFE’s ground and within the oil window, this play offers material upside to the RFE story in time. In the interim, joint venture partner and surrounding industry activity will enhance RFE’s understanding of best development practice for the Woodford, should the time come that RFE begins to focus its operated activity on the Woodford Shale. Additionally, the Company continues to demonstrate improving operational execution and corresponding production and cash flow growth. At an EV of A$176m vs PV10 of US$144m for its 1P Reserves and with the emerging upside of the Woodford, RFE looks compelling cheap and obvious corporate target: Buy."