Real Energy Corporation Limited
ASX:RLE

RLE has delivered positive outcomes in line with its strategy of becoming a significant producer.

Real Energy has made further progress towards its goal of commercial gas production from its very large gas resource in the Windorah Trough, Cooper Basin. This report updates for results from RLE’s latest wells Tamarama #2 & #3 which were successfully drilled late 2018 and being evaluated with highly encouraging results to date. Next steps are reserve bookings, gas sale agreements and determination of funding options for a scaled‐up project all of which, if delivered, would create substantial value.
RLE has achieved many pre‐development objectives:
- Four wells drilled to date all encountered gas reservoir and three flowed gas to surface when tested, with the most recent wells T2 & T3 flowing at 2 and 2.5 mmcfd respectively in February 2019.
- DeGolyer & MacNaugton assign contingent resources of 276 Bcf of 2C and 672 Bcf of 3C. This is a very large resource but the equity market ascribes low value to resources and RLE needs 2P and 3P reserves for a market re‐rating.

The elements are in place to book commercial reserves. These are:
- Reservoir data from four wells relatively closely spaced and gas flow rates from three wells, which have been broadly in line with pre‐drill modeling and there are no apparent negative geological or drilling surprises to date.
- A binding agreement with the Santos JV for gas processing and transportation enabling RLE’s connection to the eastern gas market, via a short spur‐line to the Santosoperated gathering network 14 km to the south.
- Gas sale agreements. RLE reports “strong buyer interest” from its expression of interest to sell, 5PJ over three years. If so, it would establish revenue from the existing wells and provide data for scale‐up to a larger project in time.
There is a gas shortage in eastern Australia and prices remain very high despite efforts by the E&P industry to introduce new supply. RLE is well placed geographically to access the market, and has achieved success to date in line with stated goals.

RLE is undervalued compared to some peers on EV/resource multiples and our updated DCF modeling of small scale production generates a valuation of 37c.

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