Domestic market heats up

Real Energy 10 November 2015 QuickView

Real Energy

Domestic market heats up

Oil & gas

QuickView

10 November 2015

Price

A$0.13

Market cap

A$27m

Share price graph

Share details

Code

RLE

Listing

ASX

Shares in issue

204.3m

Business description

Real Energy is a Sydney-based, ASX-listed explorer with 100%-owned assets in the Cooper Basin. It has demonstrated a working gas system and nearby activity will continue to reinforce the value of the play.

Bull

Export infrastructure in permit.

Proven gas play in multiple targets.

Gas offtake and further value-add work.

Bear

Overall industry activity slowing.

Softening of LNG prices may affect deals longer term.

Access to cheap debt and equity difficult.

Analysts

Tim Heeley

+64 (0) 4 8948 555

Will Forbes

+44 (0)20 3077 5749

Ian McLelland

+44 (0)20 3077 5756

Real Energy’s principal focus is on developing unconventional and conventional gas and oil resources in the Cooper and Eromanga Basins in Central Australia. With 2C and 3C resources following initial exploration drilling of 276bcf and 672bcf gas respectively, the next steps are to confirm sustainable commercial production. The wider commodity market remains weak, but increasing M&A activity is beginning to unfold.

Firm base being established

The upstream oil and gas industry in Australia continues to be beset by the drop in commodity prices. However, Real Energy has raised A$2.6m through a stock offering and received its A$5.9m R&D tax incentive return. The company further differentiates itself by being a 100% owner and operator of its four permits covering 9,523 sq km in South-West Queensland. Nearby activity on the Windorah development, operated by a Santos, Beach and Origin consortium, continues to produce results “exceeding pre-drill estimates” with further wells to come.

East Coast gas shortages still a factor

Irrespective of the global commodity oversupply, there remains a looming shortage of Australian East Coast gas as the LNG projects come on stream. Earlier in 2015, as part of this, the Queensland government opened up a further 11,000 sq km of tenders for exploration in the region around Real’s licences.

M&A heating up

There appears to be a growing wave of M&A activity in the region as cash-rich players with long-term views of commodities, (in particular gas), look to capitalise on asset-rich companies with depressed share prices, that could find it difficult to access capital to develop projects. Recent activity includes the pursuit of Armour Energy by Westside Corporation (part of the Chinese owned Landbridge Group), whose current bid is at a 94% premium to the recent share price. This all-cash offer is competing with a bid from Aubrey McClendon’s (cofounder of Chesapeake) new vehicle American Energy that has tabled a US$100m farm-in. At the other end of the scale Santos is in the sights of a Middle Eastern/Asian syndicate and has rejected an initial A$7.1bn bid, in what is widely seen as an opening salvo to acquire the company. What does this mean for Real Energy shareholders? At the very least it shows that there remains international interest in Australian E&P. Real needs to show that stimulation efforts can produce sustainable commercial production, its assets could provide long-term value.

Historical financials

Year
end

Revenue
(A$m)

PBT
(A$m)

EPS
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/13

0.30

(1.0)

(0.92)

N/A

N/A

N/A

06/14

0.56

(1.0)

(0.68)

N/A

N/A

N/A

06/15

6.61

4.0

(0.68)

N/A

N/A

N/A

Source: Real Energy

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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