Tuesday, July 19, 2011

Shale Gas Boom!

There's a lot of companies with strong balance sheets following capital raisings during the GFC.  These companies have also been very prudent with their spending.  The market has been weak with the S&P/ASX 200 (XJO) dropping 10% since it's high in April leaving many share prices battered especially for the small to mid cap companies.

These two factors are a great cocktail for Mergers & Acquisitions (M&A).  The acquirers have excess funds whilst the targets have a weak share price.  This has proven true with announcements of Santos (STO) making an all scrip offer for Eastern Star Gas (ESG) whilst Hanlong Mining Investement Pty Ltd launching a conditional takeover bid for Sundance Resources (SDL).

The takeover announcement that has piqued my interest is the $USD15.1 billion takeover offer by BHP Billiton (BHP) for shale gas play Petrohawk.  The announcement comes after BHP advised the market earlier in the year that they were aquiring Chesapeake Fayetteville USA Shale Assets.  BHP is signalling that this is going to be an area of great value in the future.

Shale Gas is in it's infancy in Australia but that is about to change.  The big boys are about to make their move and ConocoPhilips has done so first by way of a non-binding farm in agreement with New Standard Energy (NSE).  The agreement is hoping to see ConocoPhilips spend up to $USD109.5 million on four stages of exploration work on the Goldwyer Project in the Canning Basin.  See: A Fracking good deal on Aussie shale gas (The Australian).

 Some of the different shale gas plays on the ASX and their respective basins include:

Adelaide Energy (ADE) - Cooper

AWE (AWE)- Perth
Baraka (BKP) - Georgina
Beach Energy (BPT) - Cooper
Buru Energy (BRU) - Canning
Drillsearch (DLS) - Cooper
Emerald (EMR)- Canning
Empire Oil (EGO) - Perth/Canning
Exoma (EXE) - Galilee
Icon Energy (ICN) - Cooper
New Standard (NSE) - Canning
NorWest (NEW) - Perth
Oil Basins (OBL) - Canning
Origin Energy (ORG) - Cooper/Perth
Santos (STO) - Cooper
Senex (SXY) - Cooper
Strike Energy (STX) - Cooper
Transerv (TSV) - Perth

Rather than reinvent the wheel and discuss these companies I did manage to locate an excellent report published by Morgan Stanley titled 'Australia Oil & Gas - Shale Gas: Grab a Surfboard...' It is definitely worth a read.

Interestingly enough, today the share price of EGO shot up $0.003 to $0.029 on large volume of 146 million units.  The company responded to an ASX speeding ticket advising that there was no explanation to the share price action.

Whilst there is still much risk in Australia for Shale Gas there definitely is great reasons to have an exposure to this promising sector.

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