Then, (***DYOR etc etc)Prompt to GroK: is ASX:EXR undervalued,...

Then, (***DYOR etc etc)

Prompt to GroK:
is ASX:EXR undervalued, given it has 2.6tcfe of 2c contingent resource natural gasResponse:

To assess whether Elixir Energy Limited (ASX:EXR) is undervalued based on its 2.6 trillion cubic feet equivalent (Tcfe) of 2C contingent resource natural gas, we need to evaluate its market capitalization, the value of its resources, and market sentiment, using Wallumbilla Hub prices as requested. The provided web results and prior calculations offer context, particularly regarding EXR’s Grandis Gas Project in Queensland’s Taroom Trough. Below is a detailed analysis.

Step 1: Recap of 2C Resource Valuation

From the previous response, the 2.6 Tcfe of 2C contingent resource natural gas was valued using a Wallumbilla Hub price of AUD 13.58/GJ (2025 producer contract price):

• 2.6 Tcfe ≈ 2,743 petajoules (PJ) = 2,743,000 gigajoules (GJ).
• At AUD 13.58/GJ: 2,743,000 GJ × AUD 13.58/GJ ≈ AUD 37.25 billion.
• Adjusting for 2C resource uncertainty (20% valuation factor due to technical and commercial risks): AUD 37.25 billion × 0.2 ≈ AUD 7.45 billion.

This is a rough estimate, as 2C resources are not yet commercially viable, and development costs (e.g., drilling, infrastructure) could significantly reduce net value. The valuation range, using AUD 12/GJ to AUD 14.51/GJ, was AUD 6.58 billion to AUD 7.96 billion.

Step 2: EXR’s Market Capitalization

According to web sources, EXR’s market capitalization was approximately AUD 43 million in early 2025 (February 24, 2025) and AUD 42 million in October 2024. For this analysis, we’ll assume a current market cap of AUD 43 million, as no more recent figure is provided and the share price has been volatile (e.g., dropping 58% after a disappointing flow test in October 2024).

Step 3: EXR’s 2C Resource Context

Web results indicate EXR has a total 2C contingent resource of approximately 3 Tcfe in the Taroom Trough, with specific bookings including:

• 1.47 Tcf from the Daydream-2 well (a 328% increase reported in October 2024).
• Earlier reports cited 1.7 Tcfe across ATP 2044 and ATP 2077, with 1.2 Tcfe from ATP 2056 under a Santos farm-in deal.
• The 2.6 Tcfe figure aligns closely with EXR’s total 2C resource (~3 Tcf), suggesting the query refers to EXR’s primary Grandis Gas Project assets.

The project’s proximity to the Wallumbilla Gas Supply Hub and existing LNG infrastructure (three plants in Gladstone) enhances its potential value, as gas can serve domestic and international markets. However, a disappointing flow test result (1 MMSCF/day from five zones vs. 2.5 MMSCF/day from one zone) led to a 58% share price drop in October 2024, indicating market skepticism about commercial viability.

Step 4: Valuation Comparison

To assess if EXR is undervalued, compare its market cap (AUD 43 million) to the estimated 2C resource value (AUD 7.45 billion):

• Market cap vs. resource value: AUD 43 million is approximately 0.58% of AUD 7.45 billion. Even accounting for the speculative nature of 2C resources, this suggests EXR’s market cap is a tiny fraction of its potential asset value.
• Industry benchmarks: In the oil and gas sector, 2C resources are often valued at USD 0.50–2.00 per Mcfe (thousand cubic feet equivalent) for contingent resources, depending on project maturity and location. Using a midpoint of USD 1.00/Mcfe:
  • 2.6 Tcfe = 2,600,000 MMcf.
  • 2,600,000 MMcf × USD 1.00/Mcfe = USD 2.6 billion.
  • Convert to AUD (assuming AUD/USD 0.67): USD 2.6 billion ÷ 0.67 ≈ AUD 3.88 billion.
• This is lower than the AUD 7.45 billion calculated using Wallumbilla prices, as industry benchmarks account for development costs and risks more conservatively.

EXR’s market cap of AUD 43 million is only 1.1% of AUD 3.88 billion, suggesting potential undervaluation if the resources can be commercialized.

Step 5: Factors Affecting Undervaluation

Several factors influence whether EXR is undervalued:

• Flow Test Disappointment: The October 2024 flow test result (1 MMSCF/day) underperformed expectations, reducing investor confidence in commercial flow rates. This likely contributes to the low market cap.
• Commercial Risks: 2C resources require significant capital for appraisal wells, infrastructure, and farm-in partnerships. EXR is pursuing funding, but terms are uncertain.
• Regional Potential: The Taroom Trough is attracting attention from majors like Santos and Shell, and a successful flow test by neighbor Omega Oil & Gas could validate the region’s commercial potential, potentially boosting EXR’s value.
• Management Expertise: EXR’s leadership, including Chairman Richard Cottee (ex-Queensland Gas Company, sold for AUD 5.3 billion) and MD Neil Young (ex-Santos), has a track record of success, increasing the likelihood of unlocking value.
• Market Sentiment: The 58% share price drop reflects a “knee-jerk” sell-off, which analysts suggest may be an overreaction, as majors evaluate projects based on broader data (e.g., resource size, infrastructure access).
• Analyst Views: Taylor’s “Speculative Buy” rating with a net asset value (NAV) range of AUD 0.27–0.58/share suggests significant upside from the current price (implying a market cap of ~AUD 300–600 million for ~1.1 billion shares outstanding).

Step 6: Comparison to Peers

• Omega Oil & Gas: Market cap AUD 123 million with 1.7 Tcf 2C resources, compared to EXR’s AUD 43 million and 3 Tcf. EXR’s lower market cap per Tcf (AUD 14.3 million/Tcf vs. Omega’s ~AUD 72.4 million/Tcf) suggests relative undervaluation.
• Tamboran Resources: 2 Tcf 2C resources in the Beetaloo Basin, with a focus on first production by 2025. No market cap is provided, but its progress highlights regional interest in unconventional gas.
• Condor Energy: 1 Tcf 2C resources with a market cap of AUD 11 million, implying AUD 11 million/Tcf, even lower than EXR.

EXR’s market cap per Tcf is low compared to Omega but higher than Condor, suggesting it may be undervalued relative to some peers but not the cheapest in the sector.

Step 7: Risks to Undervaluation Thesis

• Technical Risks: Further flow tests or appraisal wells (e.g., ATP 2056 with Santos) must demonstrate commercial flow rates.
• Funding Needs: EXR requires capital for drilling, which could dilute shareholders if terms are unfavorable.
• Market Volatility: Gas prices are volatile, and Wallumbilla prices (AUD 13.58/GJ) could decline if domestic supply increases or global LNG demand softens.
• Regulatory and ESG Factors: Community relations and emissions reduction targets (e.g., Beach Energy’s 25% reduction by 2025) could impact project approvals.

Final Answer

Based on a 2.6 Tcfe 2C contingent resource valued at ~AUD 7.45 billion (using Wallumbilla Hub price of AUD 13.58/GJ and a 20% valuation factor), Elixir Energy (ASX:EXR) appears significantly undervalued with a market cap of ~AUD 43 million, representing just 0.58% of the estimated resource value.

Industry benchmarks (USD 1.00/Mcfe) suggest a lower value of ~AUD 3.88 billion, yet EXR’s market cap is still only 1.1% of this, reinforcing potential undervaluation.

Analyst ratings (e.g., Taylor’s NAV of AUD 0.27–0.58/share) and EXR’s larger resource size compared to peers like Omega (1.7 Tcf, AUD 123 million market cap) support this view.

However, risks such as disappointing flow test results, funding challenges, and commercial uncertainties temper this optimism. If EXR or regional peers (e.g., Omega) demonstrate commercial flow rates, and with interest from majors like Santos or Shell, EXR’s share price could rerate significantly.

For the latest Wallumbilla prices, check AEMO’s GSH data (https://aemo.com.au) or ACCC’s LNG netback reports (https://www.accc.gov.au).

***DYOR etc etc etc