Highlights:"Development pace is picking up significantly at RFEs...

Highlights:

"Development pace is picking up significantly at RFEs Mississippi Lime asset. 10 new wells are expected to come on stream this Q, doubling the producing well inventory. This should be reflected in material increases to production and cashflow. Growing reserves and production will in-turn increase RFEs funding capacity. Beyond which, upside to the RFE story lies with improved resource recovery through development spacing and Woodford oil shale development. Buy

Key Points

Current rate of ~1300boepd should continue to pick-up particularly for February and March with 6 wells currently testing/completing and 4 more ready for completion.

Assoc. increases to production will drive material reserve increases in the short term, improving RFE's access to debt funding.

Gross production of 1,000boepd av. for Jan was down on Dec (~1300boepd).

The production drop was as a function of only the Warburton well being brought on-line and several wells being taken off-line to optimise surface gathering infrastructure performance.

Improving spud to rig-release times av. 26 days (vs +40 prev.) will have a positive downward impact on gross well capex going fwd.

RFE is demonstrating significant increases to development pace: 6 wells are completing or testing and a further 4 await stimulation.

As a consequence, we expect strong growth in production come February and March.

With continued execution operationally, strong reserves growth will improve RFEs access to low cost debt.

We expect that the Company will have debt funding in-place in the short-term. This will be sized appropriately with increasing availability with on-going development.

Given current costs of capital in the US, any facility will be very low cost.

The drop month-on-month was as a function of only the Warburton well being brought on-line and several wells being taken off-line to optimise surface garthering infrastructure performance.

This is feature of resource oil play development: Timing of bringing on new production can be lumpy on a month-to-month basis.

However, as more wells are brought on-line, month-on-month changes become less evident.

Critically, the overall picture remains one of growth and individual results continue to support an average (at least on 30 av. basis) that is ahead of our type curve assumptions (EZL est 190boepd av).

Combined with on-going optimisation of completion design and improving capital efficiency via improved spud to rig-release times (reducing from 45 to 26 days currently), we remain compelled by RFEs Mississippian economics.

Beyond which, there remains significant upside to valuation upon considering:

1. production out-performance and improved liquids yields;

2. optimization of completions design;

3. tighter development spacing (beyond 3wells/section);

4. the underlying Woodford oil shale potential.