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Real Energy Corporation Ltd

RLE has not delivered a “knock-out” at Windorah but the capital invested and knowledge gained advances the project. Qld is a low cost, high -upside option and Cooper Basin oil acreage is a sleeper. Our valuation is 19c with considerable upside if RLE can move to a development phase. Our rating is a speculative buy.

  • RLE has advanced its east coast gas strategy with upgraded resource bookings in the Cooper Basin “Windorah Trough” and award of prospective CSG acreage in Qld aka “Project Venus”. The resource potential is very large and offers huge leverage given RLE’s small market capitalization but ongoing appraisal and development activity is capital constrained. Processes are underway to resolve this and provide funds and to take RLE to a production phase.
  • RLE has achieved much in the Windorah Trough:
    • Four wells drilled all encountered gas reservoir and three flowed gas to surface however flow rates over an extended period, from wells T2 &T3 were lower than hoped. Work continues to identify better extraction techniques.
    • Resources have been independently re-assessed after the test results and revised upwards to 330 PJ (2C) from 276 Bcf (2C) and 770 PJ (3C).
    • Regulatory approval has been received for pipeline construction to tie production into the Mt Howitt facility 14 Km south and RLE intend to connect the existing wells.
    • MoU from gas customer for initial supply of 5 PJ of gas over 3 years. This could provide initial small cash flows and provide geological data to inform future development.
  • Project Venus is a large gas resource in a great location.
    • Prospective for coal seam gas from the regionally prolific “Walloon” CSG fairway.
    • Awarded in October 2019 by the Qld Government in a 50/50 JV with Strata-X (ASX: SXA)
    • Best estimate of resource gas volume 347 PJ (Net).
  • The gas shortage in eastern Australia continues and prices are high despite efforts by the E&P industry to introduce new supply because this all takes time and capital. RLE is key player.
  • RLE’s valuation impounds uncertainty related to results of a farm-out in return for capital for future development or alternative sources of funds. Even so it’s not hard to generate high valuations and RLE is the smallest of peers many of whom face similar challenges.

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Markets: Gas, Oil