bse - coverage of stx

Strike Energy Ltd (STX) – $0.13 / share
Recommendation: BUY
Price Target: $0.23/ share

EVENT
• BSE initiate coverage of Strike Energy.
ANALYSIS
• Landholding and Geology: STX has one of the largest landholdings in the Cooper Basin and with a potential 4.5TCF of prospective resources in its core unconventional coal play.

• Domestic Gas Market: The east coast gas market is tightening due to the increase in LNG exports and STX is well positioned to take advantage of this with its near term production potential and proximity to infrastructure.

• Targeting Gas Saturated Coal Seams: STX’s play is different compared to other Cooper Basin unconventional shale plays in that it is targeting dry thick gas saturated coal seams. Other operators in the basin are also investigating the potential of coal seam gas and both Senex (ASX:SXY) and Santos (ASX:STO) have flowed gas to surface from hydraulically fractured coal seams.

• Potentially Attractive Well Economics: Due to the fact the coal seams STX are targeting are shallower than the deep shale and tight gas being targeted elsewhere in the Cooper Basin, STX’s expected drilling and completion costs will be lower relative to other operators which will enhance well economics.

• Innovative Funding: STX has already inked 3 gas agreements to supply up to 292.5PJ of gas over 20 years. STX will use the prepayments to fund its portion of the PEL 96 pilot production test program and future development.

CATALYSTS
• Fracture and flow testing the deep coals: STX are planning to fracture stimulate the coal seams in PEL 96 in Q2CY14. A sustained flow of a reasonable amount of gas to the surface will be positive.

• Signing up further foundation customers: The east coast is short gas and gas users are struggling to secure long term contracts and therefore STX is well positioned to negotiate further supply agreements to meet this future demand.

• Pilot Production: Once commerciality has been proven it is likely that STX will move to the next stage of pilot production which will require the development of a pilot production plant to enable saleable gas to be put into the nearby Moomba to Adelaide sales gas pipeline.

• FID on full field development: If the planned testing and optimisation phase is successful then a decision will be made to undertake a full field development.

• Sale of US Assets: STX has announced that they intend to monetise its US assets. This will free up capital that can be devoted to unlocking the Cooper Basin play.

BSE RECOMMENDATION
• BUY recommendation and price target of $0.23 / share. (12 month target)

Note - Risked valuation like $1.56 per share
Now that I am waiting for