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Blue Energy Ltd: Uniquely exposed to Eastern Australia Gas opportunity

Stuart Baker - Breakaway Research - 22-Oct-2017

KEY POINTS

  • Eastern Australia faces a large and extended gas supply shortfall and gas prices have risen 300% in 5 years. This justifies a new wave of investment in production and infrastructure, predominantly in Qld and NT. Blue Energy has the largest undeveloped resource in Eastern Qld and enormous prospective acreage in the NT, which it plans to monetize via asset transactions. The size of this resource and commercial strategy differentiates BUL from peers.
  • BUL's principle assets are:
    • 2P gas reserves of 71 PJ, 3P of 298 PJ and 3C of 3942 PJ al in the Qld Bowen and Galilee basin. Blue's reserves are independently audited by Dallas based reserves certifiers Netherland, Sewell and Associates (NSAI)
    • 55,000 km2 of prospective gas acreage in the NT, an area greater in size than the UK, and near the Origin Energy-Falcon JV's world scale Beetaloo Basin 2017 gas discovery.
    • All acreage is operated giving Blue full control over capital spending, and the majority of permits are 100% owned
    • The Bowen Basin reserves of 3000 PJ 3C are high quality & adjacent to substantial production resources operated by Shell-Petrochina. BUL's acreage is "development-ready" and BUL has submitted development plans and has an MoU with the APA Group for pipeline infra-structure to bring this gas to the Eastern Australia gas market.
  • BUL does not have production or earnings. The investment case is underpinned by transaction and enterprise value for reserves, resources and prospective acreage.
    • Development assets and 2P gas reserves are trading for >A$3/GJ (for 2P). Equity market value and recent deals for 2C & 3C resources average A$0.72/GJ and 58c/GJ respectively. These are all greater than BUL's current market value of 13c/GJ for 2C resources, and 3c/GJ for 3C.
  • BUL strategy is to monetize this resource via an asset transaction, with a gas-short producer or customer, and return a substantial amount of the proceeds to shareholders.
  • On current market and transaction benchmarks, we estimate BUL's asset base is worth 55 cps in the central case, but with a very wide range between 19c and 153c.
Blue Energy is unique with its large undeveloped resource in a gas market that is short. The investment case hinges in management's ability to execute a transaction and the timing and quantum are speculative. However the strategy is clear, the reserves are real and management credentials and track record are first rate. Hence, Breakaway Research has a BUY recommendation on Blue Energy Ltd.

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