investment case for wcl - my view only

Key metrics

- $70mil market cap
- $7mil revenue last FY on approx 10TJ/day production (30/6)
- $17mil cash (30/6)
- 247PJ 2P reserves, 885PJ 3P reserves
- Net cash outflow per quarter approx $2-$3mil

Key drivers

- Westside is the operator (51%) of the producing Meridian CSG field (Australia's oldest CSG field). Meridian is the closest gas supplier to the Gladstone LNG projects which are 160km away...expert consensus is that the LNG trains and the eastern seaboard generally are short gas with the LNG projects like giant vacuum cleaners for spare gas capacity; with a footprint on the QLD gas pipeline (WCL gas currently feeds into this) and the GLNG (Santos, Petronas, Total, KOGAS) within 2-3 metres of their current pipeline access, it is "easy for us to link into that (GLNG) gas pipeline" (Westside CEO)

- Westside is currently hamstrung by Meridian's legacy gas contracts which expire in mid 2014 and early 2014. These contracts are based on a gas price of approx $3/GJ; the company expects to negotiate new contracts (GSA's) at gas prices of $7-$9/GJ i.e. close to triple what they currently receive. Note that Beach Energy recently sold Cooper Basin gas to Origin at reportedly $7-9GJ in April

- Repeated talk of discussions with the GLNG stakeholders gave way to the announcement that Westside's new CEO was a former Gas Supply Director for GLNG. This supports my view that any new Gas Supply Agreement (GSA) will be with the GLNG project...Westside are on the GLNG pipeline, GLNG is short gas, Westside's new CEO is a former GLNG Gas Supply Director, Westside have intimated repeatedly that they are in GSA discussions with GLNG ("easy for us to link into that - GLNG - pipeline", "we are currently negotiating GSA with Gladstone LNG players" etc)

- Limited risk of dilution. Current cash balance is $17mil with approx $2-$3mil being burned per quarter. The company is confident that near term GSA's will be used to fund the cost of further field development. The reason why fresh GSA's were not signed earlier is because the terms of the takeover offer from PetroChina prevented this...I see a near term catalyst in the inking of GSA's

- Ramp up on a higher gas price. Company currently sells 10TJ/day, with compression capacity 30TJ/day and pipeline infrastructure capacity at 60TJ/day

- Recent Aust CSG takeover multiples have ranged from $0.28 - $1.23 per GJ of 2P reserves. This indicates that based on current 2P reserves Westside would be worth $100-$400mil. Current market cap is $70mil

Other

- Indicative $0.52/share proposal from PetroChina (was once world's only trillion dollar listed company) was withdrawn May 2013, with the Chinese firm citing changed conditions in the Australian business environment. I believe the offer was dropped as Arrow LNG (the JV between Shell and PetroChina) won't reach FID, and thus PetroChina no longer required Westside's gas reserves. If it were genuinely to do with a hostile regulatory environment/federal government, the recent change of government may alter the weighing machine yet again. Incoming Industry Minister Ian Macfarlane has been extremely vocal in support of CSG

- Key substantial shareholder - New Hope Corporation/Soul Patts - of Arrow Energy fame

- It's a crude and outdated method, but for what it's worth 30 buyers for 1.2mil units face 5 sellers for 200k units...not much for sale

DYOR