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Real Energy Corporation Limited

RLE has made significant progress its Windorah gas project and is at an important juncture, with a move to commercial production dependent on test results expected within weeks. Breakaway Research has a buy recommendation on Real Energy and a revised price target of 41cps.


  • Real Energy has completed drilling at its flagship Cooper Basin Windorah trough acreage, at Tamarama #2 and #3, and a critical flow test phase is underway. Positive flow rates could trigger a commercial development in 2019, catapult RLE from explorer to producer and drive a share price re‐rating.

  • RLE has achieved many pre‐development objectives: 
    • 4 wells drilled to date all encountered gas reservoir and two flowed gas to surface on test last year.
    • DeGolyer & MacNaugton estimate a prospective resource of 13.7 Tcf in place, with 5483 Bcf recoverable. Contingent resources are 276 Bcf of 2C and 672 Bcf of 3C.
    • A binding agreement was signed on 15 October 2018 with the Santos JV for gas processing and transportation enabling RLE’s connection to the eastern gas market.
    • A gas‐sale MOU with Weston Energy for 15 PJ over 5 years, including a provision for a pre‐payment of A$6M is in place providing initial revenue opportunity.
  • A gas flow‐rate testing program is underway: 
    • Tamarama 2 & 3, step‐outs either side of Tamaram1 were successfully drilled and stimulated in 3Q this year, and confirmed lateral extent of the gas zones.
    •  Flow testing has commenced on both wells. RLE’s reservoir models predict flow rates of >3 mmcfd are achievable.
    • If test rates confirm this, then we expect RLE to tie the existing wells into the Santos infrastructure and begin commercial production in 2019.
    • Following drilling and testing, cash reserves will have depleted and additional funds will be required for development. Options include farm‐down of equity, gas pre‐payment, equity issuance or early option exercise.

  • There is a gas shortage in eastern Australia, and prices are expected to move higher in 2019. RLE is well placed to supply this market and has processing and gas sale agreements already in place.
  • RLE is the smallest of peers trying to commercialize gas and offers the greatest leverage in the event of success. EV/resource multiples are lower than peers and DCF modeling of small scale production generates a valuation of 41c .
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Markets: Gas, Oil