Hunter Capital Research Report Real Energy Corporation Limited (RLE:ASX)
Good morning,
We are initiating coverage on Real Energy Corporation Ltd (RLE:ASX) with a price target of A$0.16. RLE closed at A$0.07 when last traded on the ASX.
Please see the full research report by clicking here.
Investment highlights include:
Excellent location: RLE’s permits sit in the Cooper Basin, which is Australia’s most prolific onshore hydrocarbon region and has been recognised as the most likely source of gas to supply the looming eastern Australia gas shortfall. RLE is focused on the rapid appraisal and commercialisation of its gas resource contained within its ATP 927 permit to meet this demand.
Infrastructure: RLE’s existing wells are located next to existing infrastructure and provide access to the eastern Australia gas markets through the extensive gas pipeline network which connect the Cooper Basin to the east coast gas markets providing a quick path to monetisation.
Favorable gas market: Higher price forecasts and current spot pricing illustrate market need for new gas projects and future increases in gas prices.
Discoveries: Real Energy made two tight gas discoveries in the Windorah Trough within its ATP 927 permit drilling two exploration wells: Tamarama and Queenscliff. In recent years, advances in the development of tight gas reservoirs have led to commercialisation of these resources.
Significant gas resources: Independently Estimated Total Mean Gas in place amount to 13.76 TCF and maiden 3C gas resource of 672BCF.
Appraisal of first well progressing: RLE is conducting a series of flow tests at the Tamarama-1 well. Having achieved sustained gas flows to surface further data gathered from ongoing testing will provide information about the optimum combination of well technologies and stimulation required to maximise well productivity and recovery.
Board and management has extensive gas industry experience, a track record of successful commercialisations and substantial shareholding in the Company.
Tight register: The top three shareholders including RLE director & management represent about 33% of the share register.
Recent Share Price Movement: RLE share price has been significantly affected by selling from one of its top shareholders. Asset management group Och-Ziff has fully exited its position selling in excess of 26 million RLE shares (13%) since August 2016. In Sep 2016, Och-Ziff was fined US$412 million for bribery by U.S. courts.
Strong news flow is expected in the next twelve months: We anticipate several share price catalysts including flow rates for Tamarama-1, drilling of two additional wells, fracking results and commercial agreements related to gas sales.
Valuation: Our current valuation of A$0.16/share is based on RLE’s highly risked (15%) 2C contingent gas resource of 276 Bcf. As the company matures its 2C resource into reserves we believe the stock will re-rate with the valuation increasing to A$0.52/share on a 50% risk weighting. Significant further upside is available to the company should it mature its current 3C resource (672 Bcf, which we currently value at A0.38/share) to reserves. RLE has A$6m cash and nil debt.
Risk and Upside: We believe the Basin Centered Gas Play in the Permian Toolachee and Patchawarra formations is low risk with significant material upside.
RLE Price at posting:
7.0¢ Sentiment: Buy Disclosure: Held
