RLE 0.00% 2.0¢ real energy corporation limited

Upgraded valuation >350% @ 41c

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    http://www.realenergy.com.au/images/2018/v5/Real_Energy_Limited-26_October_Report_2018.pdf

    "● 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 .
    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."

    The recent Breakaway research report has placed a conservative valuation of 41c, on a fully diluted basis, if sufficient flow rates are achieved at T-2/T-3 to underpin phase 2. RLE is the last of the peer group to re-rate, yet has the potential to become the first to reach production....by a long shot. RLE's MC is approximately 1/4 of the average of this group and is in the box seat to achieve a commercial outcome.



 
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