Stocks’ Details

Cooper Energy Limited

COE and APA working jointly to boost performance: Cooper Energy Limited (ASX: COE) is an upstream oil and gas exploration and production company. It produces revenue from the supply of gas to south-east Australia and from the sale and marketing of oil produced in the Cooper Basin. The market capitalisation of the company as on 06 April 2021, stood at ~$440.37 million.  Recently, the company and APA Group extended to work jointly to increase the plant’s performance. The Orbost Gas Processing Plant’s (OGPP) two sulphur absorbers in Q2FY21 reported improved rates at 42 TJ/day in March 2021 versus 39 TJ/day in February and 28 TJ/day in January. OGPP is expected to generate 45 TJ/day with six-weekly cleans for each absorber.

Strategic performance in Otway and Cooper Basin in H1FY21: Otway Basin: Gas production from the Casino Henry field was in line with company’s expectations, amid existing volumes of ~15 TJ/day, while the gas volumes are being traded into customer contracts and the spot market.    

Cooper Basin: The company and Beach Energy (75% and operator) completed drilling of the Callawonga-13 horizontal oil development well to the depth of 3,226 metres with a lateral section of 1,106 metres in McKinlay Member. First oil production is expected in late May 2021.

H1FY21 Results Update: The company reported an improved performance during the period with a growth of ~82% in sales volume to 1.2 MMboe versus pcp, driven by increased production from the Sole gas field. Further, the sales revenue grew by 24% to $48.6 million versus $39.1 million in H1FY20.  Meanwhile, underlying EBITDAX reported at $9.7 million, down 40% versus $16.3 million in H1FY20. The statutory loss after tax stood at $23.1 million versus profit after tax of $6.3 million in H1FY20 due to rise in other expenses, Patricia Baleen field and Minerva field rehabilitation provision.

H1FY21 Financial Performance (Source: Company Reports)

Key Risks: COE is present in the exploration of Oil and Gas, so there is always a risk of high operational cost which may impact the financials of the company severely. Secondly, it operates under a highly regulated environment and requires government permissions for any expansions; therefore any delay in permissions may impact the financials of the company accordingly.  

Outlook: With improved volume and production, mainly from OGPP, the company has cemented its position for future growth. It has guided production volumes in the range of 2.7 – 2.9 MMboe, sales volumes between 2.9 – 3.1 MMboe, and capital expenditure between $45 – 50 million.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As per ASX, the stock of COE is trading below its average 52-weeks’ levels of $0.265-$0.515. The stock of COE gave a negative return of ~19.1% in the past six months and ~42.7% in the past one year. On a technical analysis front, the stock of COE has a support level of ~$0.265 and a resistance level of ~$0.325. Considering the aforesaid facts, we have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price which reflects a rise of low double-digit (in % terms). We believe the company can trade at a slight premium to its peer EV/sales (NTM Trading multiple) as the company is showing an increased Sole cash flows following commencement of gas sales agreements, and an improvement in Orbost Gas Processing Plant (OGPP) output performance, along with long term objective to reach capacity of 68 TJ/day from OGPP. For the purpose, we have taken peers such as Karoon Energy Ltd (ASX: KAR), Beach Energy Ltd (ASX: BPT), Santos Ltd (ASX: STO), to name a few. Considering the price correction in the past months, valuation, and the current trading levels, we are of the view that stock can bounce from current levels due to its improved operational performance. Hence, we give a ‘Buy’ rating on the stock at the current market price of $0.275, up 1.851% as on April 06, 2021.   

Elixir Energy Limited

New Identification for Output to be Drilled in 2021: Elixir Energy Limited (ASX: EXR) operates as an oil and gas exploration and development company in Australia and Mongolia. The company has 100% holding of a CBM production sharing contract (PSC), located to the North of the Mongolian/Chinese border. The market capitalisation of the company as on 06 April 2021, stood at ~$283.90 million.

As per the company, based on just ~240 km of 2D seismic and field work - there are 6+ new potential basins identified that will be drilled in 2021. Further, it is increasing prospective inventory in Cracker, TT South West, TT North, Khaar Sult, Temee, Richcairn, and Bag areas. In H2FY21, the company is scheduling to undertake a pilot production test on the Nomgon sub-basin coal seams, which will be the first test to provide key data points for defining commerciality.

H1FY21 Results Update: The company recorded a lower net loss from continuing operations after tax of $990,638 versus $1,211,060 in H1FY20. The Group has a 100% interest in the Nomgon IX CBM PSC, where the work program for 2021 has freshly been accepted by the petroleum regulator, the Mineral Resources and Petroleum Authority of Mongolia (MRPAM). Further, the company acquired 106km of 2D seismic; drilled one fully tested core-hole; and drilled five strat-holes.

H1FY21 Financial Performance (Source: Company Reports)

Key Risks: The company is highly dependent on output from PSC Area in Mongolia, which is on the Mongolian Chinese border, ~400 km North of China’s main gas transmission grid. Any unfavourable results from this region will adversely impact the performance of the stock and financials. On broader side, the company is open to political risk, geological risk, price risk, supply and demand risks and cost risk.

Outlook: The company has multiple projects in the pipeline in Wells, Seismic, Commercial, Field Work and G&G Studies sphere. Further, the work program of the company is steadily increasing with the establishment of ‘Rinse & repeat’ model, which is consistently expanding each year with a focused on more test, additional wells, and other developments.

Stock Recommendation: As per ASX, the stock of EXR is trading near its 52-weeks’ high levels of $0.390. The stock of EXR reported triple-digit return of ~188.0% in the past six months and a phenomenal return of ~1,536.4% in the past one year. On a technical analysis front, the stock of EXR has a support level of ~$0.155 and a resistance level of ~$0.365. Considering the constant positive return in the stock over one year period and movement of the stock in one direction, and the current trading levels, we are of the view that most of the positive factors have been discounted at the current juncture and we are of the opinion that the stock is overvalued. Hence, we suggest investors to wait for a better entry-levels and give an ‘Expensive’ rating on the stock at the current market price of $0.350 as on April 06, 2021.

Red Sky Energy Limited

 Acquisition Update: Red Sky Energy Limited (ASX: ROG) is an Australian based oil & gas company which is engaged in the business of acquisition as well as drilling and developing oil & gas resources. As per a recent update released on 11 February 2021, the company has confirmed that Red Sky Killanoola Pty, ROG’s wholly owned subsidiary has completed the acquisition of Petroleum Retention License 13. This was acquired from a subsidiary of Beach Energy Ltd. ROG will hand over the license for Petroleum Retention License 13 to Red Sky Killanoola Pty post getting the approval. It is awaiting the approval from the South Australian Minister in terms of energy and mining activities. Apart from this, it is also applied for the registration of the sale and purchase agreement as well as other related agreements for approval towards the Petroleum Retention License 13.

Killanoola Oil Project Update: ROG provided an update for its Killanoola Oil Project on 22 March 2021, wherein it stated that the completion of the petrophysical evaluation of Killanoola Southeast-1 project. Notably, the petrophysical identifies a net pay of 16 meters for Killanoola Southeast-1 project as against earlier estimates of 1.5 meters of net pay. Thus, the company is currently re-looking at the geological and geophysical interpretations in order to revise the quantity of oil there.

A look at FY20’s Key Results: The company has logged a significant improvement in in its revenue from continuing operations during the year ended 31 December 2020 to $97,961 from $122 in FY20. The company has witnessed marginal increase in its net operating loss after income tax to $1.78 million in FY20 from $1.72 million in FY19. The company has a healthy position on its books with cash and cash equivalents increased to $786,926 at the end of FY20, as compared to $119,329 at the end of FY19.

Financial Snapshot (Source: Company Reports)

Outlook: The company continues to pursue new acquisition opportunities with respect to oil and gas prospects, which will not only provide growth but will also aid in economies of scale. Besides, with the recent completion of license transfer of Petroleum Retention License 13 to Red Sky Killanoola Pty, the company is aiming at developing the Killanoola oil field which will provide growth opportunities, going ahead.

Stock Recommendation: ROG has a healthy liquidity profile and is also well funded considering the recent rights issue as well as placements. However, the stock has delivered a significant positive return of ~800.04% in the past six months and a positive return of ~1,100.05% in the past one year. The stock is currently trading above the average of its 52-weeks’ high and low trading range. On a technical analysis front, the stock of ROG has a support level of ~$0.011 and a resistance level of ~$0.02. Considering the sharp rally in the stock price in the past months, current trading levels, low market capitalisation, and net loss, we give an ‘Avoid’ rating on the stock at the current market price of $0.012, down by 14.286% as on April 06, 2021.

Brookside Energy Limited

 Project Update: Brookside Energy Limited (ASX: BRK) is in the business of oil & gas development and exploration with projects spread on the mid-continent region of the United States. On 1 April 2021, it updated that its subsidiary Black Mesa Energy, LLC has completed the application for IADC drilling bid and agreement for daywork drilling with Latshaw Drilling Company. The scope of the work is for the drilling of Jewell Well.

Acquisition Update: On 16 March 2021, the company declared that it has managed to complete the discussions with Drilling Joint Venture to obtain 11 producing wells and related PDP reserves in the STACK Play. This particular acquisition will boost the company’s net daily production by four times to around 110 net barrels of oil equivalent.

FY20 Results Performance: The company has reported a weak performance in FY20 with royalty revenue declined to $365,881 in FY20 from ~$2.2 million in FY19, primarily impacted by lower realised prices of oil as well as gas. Notwithstanding the pressure in pricing, BRK has garnered a healthy sales price of US$22.00 per net barrel of oil equivalent. The company reported lower gross profit for the year at $207,000 as compared to $1.73 million in FY19, owing to the impact of sale of stake in the Bullard and Henry Federal wells in FY19. Further, owing to lower gross profit as well as impact of loss on sales of assets, among others, the company has posted an operating loss of $2.44 million in FY20.

FY20 Financial Performance (Source: Company Reports)

Outlook: The company is witnessing a significant rebound in demand in FY21 till date led by acceleration in commodity prices and improvement in investment sentiments across the sector. Further, the company is anticipating a transformational FY21 with the development work at its first operated well, under progress.

Stock Recommendation: Robust liquidity position along with rebound in demand environment with traction in commodity prices augurs well for growth of the company, going ahead. The stock has delivered a significant positive return of ~450.00% in the past six months and a positive return of ~1,000.00% in the past one year. As per ASX, the stock of BRK is trading near its 52-weeks’ high levels of $0.038. We believe that most of the positives have already been factored in the stock price, taking into account the sharp rally in the stock price in the past months and the current trading levels. Hence, we suggest investors to wait for a better entry-levels and give an ‘Expensive’ rating on the stock at the current market price of $0.034, up by 17.241% as on April 06, 2021. The recent rally in the stock can be attributed to the project and acquisition update.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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