RESEARCH: Real Energy, Expanding Across The East

FYI | Apr 23 2020

Pitt Street Research has identified two sources for potential upside to the investment case for Real Energy

By Pitt Street Research

As mentioned in our initiation report, Real Energy ((RLE)) is expanding its operations across the Australian East Coast to address the highly lucrative market opportunity.

In addition to its legacy acreage – the Windorah Gas Project in the Cooper Basin – RLE was also awarded a tenement in the Surat Basin in October 2019. Recently, an independent study revealed substantial prospective resource play of 694PJ in this permit area.

In our view, this presents a further upside potential to RLE if it is able to convert substantial resources to reserves at the acreage.

Windorah has potential partners

Ever since it received the licence for pipeline construction, the Windorah Gas Project has been attracting potential partners to the tenement. Currently, RLE is in talks with two prospective funding partners, both of which are presently conducting due diligence.

We believe that this funding will substantially de-risk the project by supporting the development of the acreage. If RLE is able to secure the funding, it can accelerate the development of the gas pipeline to Mt. Howitt.

In addition, RLE can undertake horizontal fracking, which could substantially boost the production potential.

Reiterating valuation of $0.15–0.25 per share

We reiterate our valuation for RLE at $0.15 per share base case and at $0.25 optimistic case using a DCF approach for the Windorah Gas Project.

We have retained our basic assumptions from the time of initiation. For conservatism’s sake, we have not included Project Venus in our estimations.

However, given the promising nature of the tenements adjacent to Project Venus, we believe it presents a potential source for further re-rating of RLE in the medium term.

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