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Real Energy Corporation Ltd

This is a sensible consolidation of managerial and financial resources to deliver a greatly expanded gas resource of 11.8 Tcf (Prospective) and a strategy focused on gas commercialization. Unlocking value requires applying the right development technologies to discovered resources. The combined management teams have a strong track record of doing so in previous companies, ultimately creating ~$5B of value through subsequent M&A. Our rating is withheld until the merger is implemented.

  • RLE and SXA have agreed to a nil-premium merger, to create a larger and more diversified gas-focused entity, Pure Energy Corporation. Execution of the merger requires various shareholder and Court approvals. The purpose of this report is to profile the assets of Pure Energy, consider the rational, and outline the opportunities and risks, on the assumption that the merger is successfully executed.
  • Compelling rationale for merger of equals:
    • Diversifies the asset base, with Pure exposed to 3 core gas assets and a hydrogen initiative.
    • Eliminates overlap and consolidates the Venus CSG project.
    • Pooled financial resources total ~$10M in cash and carried expenditure to fund current field activities.
    • Combined management teams with complimentary skills and a track record of developing and selling companies.
  • Strategically focused on gas commercialisation.
    • Portfolio of discovered resources, with plans to test and appraise leading to reserves and gas commercialization.
    • Prospective gas resource of 11.8 Tcf and 770 Bcf (3C) offers huge upside in the event of commercial success.
    • Assets are in gas markets which require new supply at attractive prices, in Eastern Australia and Botswana.
    • RLE has established a Hydrogen subsidiary to capitalize on the emerging hydrogen theme in a de-carbonizing world.
  • Post merger, Pure Energy’s expanded asset base and scale of potential resources justifies a market re-rating and a valuation at least in line with larger peers.
  • The merger has been recommended by the Boards of both companies but requires court and shareholder approvals. There is a risk the merger is not approved.

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More details about Real Energy Corporation Ltd

Official website: https://www.realenergy.com.au/

ASX on Hotcooper: http://hotcopper.com.au/asx/RLE

Markets: Gas, Oil