Byron Energy Limited

BYE Details

Business Update: Byron Energy Limited (ASX: BYE) is engaged in natural gas exploration and production that operates in various blocks located in the shallow waters of the Gulf of Mexico and the United States. The market capitalisation of the company as of 31 May 2021 stood at $109.23 million. As per a recent announcement, the company has made developments on a non-binding refinancing proposal from a potential lender, with an exclusivity period of 90 days. It has also entered into a contract with Enterprise Offshore Drilling that will provide a rig to commence drilling the SM69 E2 well on or before the 1st of August 2021.

Q3FY21 Financial Performance:  During the period, the company has reported increased revenue of US$11.8 million, compared to US$9.2 million in December 2020 quarter. The company has recorded net sale volume of oil at 132,621 barrels and gas at 1,309,513 mmbtu in Q3FY21, compared to previous quarter sales of oil at 111,516 barrels and gas at 1,742,124 mmbtu. The cash position of the company stood at US$3.1 million and borrowings at US$20.4 million as of 31 March 2021.

Q3FY21 Cash Flow from Operations Statement (Source: Company Reports)

Outlook: The company has been following a defensive hedging strategy to smooth out the oil price volatility. The company hired professional staff to minimise the risk and expect to deliver good results. It intends to drill the SM69 E2 well, utilising its free cash generated from operations. As per the company, the E2 well is in a ready to drill position with all the permissions in place.

Key Risks: The economic slowdown due to the COVID-19 breakdown has contributed to a sharp fall in oil prices that could affect the earnings of the company. The company also could face challenges in operations due to change in regulatory measures.

Stock Recommendation: The company has appointed financial advisors, Seaport Global Securities LLC, for its refinancing bid and it intends to repay existing loans and raise funds for future development of projects. As per ASX, the stock of BYE is trading below its average 52-weeks’ levels of $0.099-$0.315. The stock of BYE gave a negative return of ~13.04% in the past one month and a negative return of ~33.33% in the past three months. On a TTM basis, the stock of BYE is trading at a P/B multiple of 1.1x, lower than the industry median (Oil & Gas) of 2.2x Considering the current trading levels and valuation on a TTM basis, improved price realisation, decent cash balance, surge in production of oil, optimistic outlook and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.100, down by ~4.762% as on 31 May 2021.

BYE Daily Technical Chart, Data Source: REFINITIV 

Pure Hydrogen Corporation Limited

PH2 Details

Commencement of Project Serowe: Pure Hydrogen Corporation Limited (ASX: PH2) engages in the exploration of hydrogen, gas businesses and petroleum projects. The company has  5 Hydrogen projects under development and three gas projects- Windorah Gas Project in the Cooper Basin, Australia's most prolific onshore producing petroleum basin, Project Venus CSG and the Serowe Project CSG in Botswana. The market capitalisation of the company as of 31 May 2021 stood at $80.03 million. As per a recent update, the company has announced a drilling campaign on Project Serowe within the next few days with its joint venture partner BotsGas Pty Ltd. The project has high –grade CBM gas resource of 2.38 Tcf

Q3FY21 Financial Performance: During the quarter, the company has announced an MOU with Hyzon motors to collaborate on the development of a network of hydrogen refuelling points and the integration of a 'wet hire' of Hyzon's vehicles to customers. The cash position of the company stood at $11.25 million as of 31 March 2021.

Q3FY21 Cash Flow from Operations (Source: Company Reports)

Outlook: The Federal government recently announced new clean energy initiatives, including hydrogen totalling $539 million, which is welcome news for the company. There is an expectation of an increase in demand for ammonium from China, India, Malaysia and this is likely to propel the market for hydrogen storage.

Key Risks: Due to COVID-19 disruption, the company was impacted on the availability of the workforce. Moreover, the volatility in gas prices in the international market could impact the operating performance.

Stock Recommendation: As per a recent announcement, the company has signed a Term Sheet with Pure Haul Pty Ltd ('Pure Haul'), for the transport of hydrogen to potential customers. The stock of PH2 is trading close its average 52-weeks' levels of $0.050-$0.440. The stock of PH2 gave a positive return of ~287.09% in the past one year and a positive return of ~321.05% in the past nine months. On a technical analysis front, the stock of PH2 has a support level of ~$0.229 and a resistance level of ~$0.265. Considering the current trading levels, recent rally in the stock price, low demand for hydrogen as fuel in global markets and the key risks associated with the business, we suggest investors to book profit and give a 'Sell' rating on the stock at the current market price of $0.240, down by ~5.883% as on 31 May 2021.

PH2 Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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