East coast gas explorers well positioned amid shortages, says expert
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There is growing interest in gas explorers following recent capital raisings and asset transactions says expert Edwin Bulseco of Xcel Capital.
In recent years the Australian gas market has experienced rising prices, potential shortages and government intervention. What is the outlook for listed gas explorers?
Although we have seen a challenging number of years for listed and gas juniors on the ASX we believe the market is taking interest in the sector again which has been supported by a number of successful capital raisings and asset transactions in the sector.
Some key transactions include Cooper Energy’s $400m finance package (debt and equity) and Beach Energy’s $1.585 billion acquisition of Lattice Energy from Origin Energy.
In addition, juniors Strike Energy (ASX:STX) and Real Energy (ASX:RLE) were successful in raising $9.1m and $2.34m in oversubscribed placements recently.
Oil and gas juniors with exposure to East Coast gas exposure in particular have had a lot of investor interest lately.
This has been due to rising energy prices in the East Coast being caused by a tight domestic gas supply. This has been highly publicised by Government and industry.
How have gas prices affected explorers in recent times?
Gas juniors had a particularly bad time in 2015-16 when the oil price went down to as low as $30 per barrel. Now it’s up as much as $55 and exploration is much more attractive.
Consequently, most of the gas found here is exported but government restrictions have changed the way it’s traded internationally.
The federal government is examining a trans-continental pipeline to ease gas shortages on the east coast. What impact would that have on gas explorers?
Although a number of solutions are being debated we believe the only long-term solution would be to encourage more aggressive exploration and development on east coast — which would mean lifting certain drilling bans currently in place on the east coast.
All of this creates opportunities for investors in companies with east coast gas exposure.
We like companies with gas assets in the Cooper Basin as they are well positioned to supply the east coast. The Cooper Basin is a well-established production hub with an abundance of infrastructure.
Xcel Capital has been supporting Real Energy (ASX:RLE) for these reasons and although the company still has challenges ahead to convert its resources to reserves — two additional wells are planned to be drilled in 2018 — the company has flowed gas from its Tamarama-1 well and has secured a gas sales deal with Weston Energy.
In addition, RLE has kept its focus on the Cooper Basin and maintained a 100 per cent interest in its assets, making the company attractive in our view as a corporate takeover target if further consolidation in the Cooper Basin takes place.
Edwin Bulseco, is the founder and Director, Corporate Finance of Xcel Capital, a boutique corporate advisory specialising in growing and funding emerging companies
More information: www.xcelcapital.com.au.
Edwin has significant financial markets experience working with several leading boutique corporate advisories across Australia and had equity research experience before moving into corporate finance. He has experience working across a broad range of sectors, transactions and also has ASX board experience.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.