* Font Size: Decrease Increase * Print Page: Print
CRITERION: Tim Boreham | July 15, 2009 Article from: The Australian
UNLESS investors have been hiding under a rock for the past three years, they'll be well aware of the corporate interest in coal-seam gas, which, as land grabs go, would put our early settlers to shame. About 85 per cent of Queensland's proven (2P) CSG reserves are earmarked for liquefied natural gas. Not surprisingly, most of the emphasis has been on supplying the four slated Gladstone-based LNG projects, which sceptics mutter are three too many.
Criterion won't wade into the ins and outs of this bar-room debate. There's ample evidence of burgeoning demand from China, Japan and South Korea, but there are also fears of short-term pricing weakness as the backers rush to sign up customers.
From an investment perspective the LNG export-oriented sector is arguably overheated. But don't forget the emerging plays focused on eastern seaboard gas demand, which too isn't going to abate.
The low-key Icon Energy (ICN) has been making a blip on investor radars after positive flow results at its Lydia prospect, north of Goondiwindi on the NSW-Queensland border. The work is being paid for by Queensland utility Stanwell Corp, which earns a 50 per cent interest by contributing $36 million. The parties have targeted proven reserves of 340 petajoules.
"We have just proven up a new gas province," says Icon chief Ray James, who adds the gas did not need dewatering, as feared.
Stanwell's interest is to amass reserves for a planned 340 megawatt gas-fired station in Queensland. "Our strategy is to align ourselves with the domestic gas market," James says.
"While everyone is trying to justify their position in Gladstone, that means to a large extent the domestic market is left stranded."
James reckons the likes of Icon have an opportunity to prove up reserves before those chasing the LNG market also eye domestic opportunities. "We have a window of opportunity to chase the domestic market and we are doing that with a vengeance," he says.
Stanwell also has a 19.9 per cent stake in Blue Energy (BLU), which has an interest in eight tenements scattered across Queensland's CSG turf. Blue's stated policy is to pursue a two-pronged commercialisation approach of domestic gas generation (within one to three years) and export LNG (three to five years).
It also wants certified reserves within 18 months and to be profitable within three years.
Management can't be accused of not having its bases covered: Blue Energy has an agreement to supply 8.5 petajoules to Stanwell over 25 years.
South Korean LNG importer KOGAS is also a 10 per cent Blue holder and has an option to farm into two LNG-oriented tenements.
Just across the border, Eastern Star Gas's (ESG) Narrabri CSG project has attracted the attention of Santos, which has acquired a 19.9 per cent ESG stake from Hillgrove Resources at the over-the-odds price of $1 a share. ESG has a tie-up with Macquarie Generation and Babcock & Brown Power (yes, it still exists) to supply 1300 petajoules. Its Wilga Park power station is on track to be expanded from 11MW to 40MW. There's also talk that Santos is interested in developing a NSW LNG province, based out of Newcastle.
Also in northern NSW, Metgasco (MEL) is hastening slowly to prove up its reserves, which at 247 (2P) are the biggest in NSW. The gas will supply the proposed 30MW Richmond Valley power station, to service Casino and surrounds. With a $100 million market cap at the time of writing, Metgasco looks undervalued relative to its potential.
Similarly, Blue has a market cap of $130 million and $32 million of cash. Icon (market cap) this month raised $17.5 million in a share purchase plan, taking its cash reserves to $38 million. With Stanwell taking care of Lydia, this can be spent elsewhere.
ESG has a heartier valuation of $700 million and doesn't look a bargain. But management is confident of providing 2P reserves of 1300PJ (from 336PJ at present) by the end of the year and could well exceed this target.
* Disclosure: The writer owns Icon Energy shares.
MEL Price at posting:
47.5¢ Sentiment: LT Buy Disclosure: Held
(20min delay)