broker update -best risk/reward play

Despite the Board changes Harleys have maintained their buy recommendation. Most pertinent are their comments that on any dip they "regard Entek as one of the best risk / reward medium term oil and gas plays on the ASX".



Hartleys Research - Perth ETE.asx
Recommendation: Speculative Buy


Shareholder Displeasure Depletes Board
Entek Energy Limited (?Entek?, ?ETE?, ?Company?) is two Board members lighter after withdrawing the resolution to re-elect Craig David and shareholders voted down the re-election of Russell Brimage. The Company remains compliant with a fully functional board despite this.
Shareholder ructions are rarely positive and this is no exception; however, given the recent appointment of Trent Spry as Managing Director, this may be viewed as completion of the changing of the guard.
Initial Niobrara Results Encouraging, Expectations Higher?
The Company recently reported its initial flow rates from several wells into the Niobrara Formation at its large acreage holding in the Green River Basin (Wyoming and Colorado), onshore USA. The best flow rate amongst these was 25 barrels of oil per day from the Butter Lake 32-10 well. We believe that there was an expectation in the market for higher flow rates and this may have been a contributing factor to the shareholder angst that resulted in the departure of two directors.
Our view is somewhat different as we view these very early stage results as encouraging. Any oil production from the Niobrara is a good result, in our view. Extrapolating a vertical well at 25 barrels of oil per day to a horizontal with 20 frac stage would result in production of >500 barrels of oil per day. This would be considered a good well in shale development terms.
Learning Required Before Success Possible
Entek has not been operating in the Green River Basin for long, and to expect a stellar result from its first well into a shale formation that remains largely untested in this basin is unrealistic. The Company has stated that some of the wells drilled by the previous operator were not completed optimally and similarly, lessons were learned by ETE at its first operated well. Unfortunately, this step in the process cannot be skipped; however, if Entek can ?crack the code? for developing commercial wells at its acreage it has a large exposure and significant leverage. Good examples of this are Adelphi Energy Ltd (acquired by AWE Ltd) and Aurora Oil and Gas Ltd (now capped at A$500m), which struggled in the Eagle Ford for several years before coming good.
Updated Resource Estimate Expected
The Company has flagged that an updated resource estimate is expected prior to year-end. We believe that this will give some indication as to the large potential that exists on the Company?s acreage.
GOM Drilling Before Year-End
The Company remains on schedule to spud the GA-133 well at its shallow offshore Gulf of Mexico acreage prior to year-end. The prospect is considered low risk but is also relatively low impact.
Activity will drop off during the northern hemisphere winter as no drilling can occur in the Green River Basin during this period. It is possible that this may cause the share price to drift in the short term (negative sentiment associated with the departing directors will not help). We view this as an opportunity and regard Entek as one of the best risk / reward medium term oil and gas plays on the ASX.
We retain our Speculative Buy recommendation and price target of 34cps but have pushed out our expected timeframe for the price target from 6 months to 12 months.

26 Nov 2010
Share Price: $0.130
12mth Price Target: $0.34

Brief Business Description:
Oil and gas explorer / producer with assets shallow offshore GOM and onshore USA.


Hartleys Brief Investment Conclusion
Large acreage position / working interest provides leverage to prospective asset portfolio.


Chairman & CEO:
Craig McGown (Chairman)
Trent Spry (CEO)
Top Shareholders:
Top SpeedPty Ltd (7.68%)
National Nominees Ltd (6.13%)
Ian Sandover and Associates (2.44%)
Company Address:
Ground Floor, 15 Rheola St
West Perth, WA, 6005

Valuation: $0.52
Issued Capital: 228.8m
- fully diluted 228.8m
Market Cap: $29.7m
- fully diluted $29.7m
Cash Equiv (29 Oct '10): $9.2m
Debt (29 Oct '10): $0.0m

Valuation Summary
Value risked unrisked
Asset $m cps cps
GRB - Niobrara $15.9m 7 21
GRB - CSG $8.9m 4 12
HI 24L $2.9m 1 2
ATP 269P $1.4m 1 1
Exploration $74.2m 39 347
Cash $9.0m 4 4
Debt $0.0m -
Corp Admin -$11.4m - 5 - 5
Options $4.3m 2 2
Total $105.2m 52 384

Net Acres* 36,300
EV / Acre $566
Source: Hartleys Research
*pending farmout completion





Dave Wall
Oil and Gas Analyst
Hartleys Ltd
AFSL 230052
Level 6, 141 St Georges Terrace.
PERTH WA 6000

T: +618 9268 2826
F: +618 9268 2870
E: [email protected]