Strike Energy Ltd (STX)

Transcription

1 Analyst Peter Arden Authorisation Stuart Howe Recommendation Buy (unchanged) Price $0.115 Valuation $0.26 (previously $0.23) Risk Speculative Expected Return Capital growth 126% Dividend yield 0% Total expected return 126% Company Data & Ratios Enterprise value $95m Market cap $96m Issued capital 833.3m Free float 83% Avg. daily val. (52wk) $0.2m 12 month price range $ $0.16 GICS sector Price Performance Energy (1m) (3m) (12m) Price (A$) Absolute (%) Rel market (%) Strike Energy Ltd (STX) 4 February 2015 Speculative Getting ready to determine gas flow rates Gas flow testing underway at Le Chiffre and Klebb wells Strike Energy (STX) continues to advance its Southern Cooper Basin Gas Project (SCBGP) in South Australia, with sustained gas flows now being achieved from the Le Chiffre 1 and Klebb 1 wells in PEL 96 (STX 66.7% and Operator). Although the testing has recently been interrupted by local flooding, the results confirm earlier testing in the nearby Davenport 1 well in PEL 94 (Beach Energy 50% and Operator; STX 35%) Path to commercialisation now much clearer Now that STX has been able to achieve sustained gas flows from its four wells in PEL 96, it can progress to drilling and completing the necessary offset wells around the Le Chiffre 1 well for production optimisation. Additional wells can then be drilled to enable reserve definition. The initial 2P Reserve certification is expected to be undertaken for the Phase One area in PEL 96 during the latter part of STX will then finalise arrangements for commercialisation. With a projected growing shortage of domestic gas in Eastern Australia over the next few years and the expectation of higher gas prices, development of the SCBGP by STX should be well timed. Investment thesis Speculative Buy, valuation $0.26/sh STX has begun to demonstrate that its SCBGP, which contains some of the thickest and most highly gas-saturated coals in Australia, can achieve sustained gas flows. The improved understanding of the gas saturation of the coals indicates that with their high permeabilities, they are capable of delivering significant gas flows. STX s testing has shown that the gassy coals need limited de-watering and commercial gas production could occur at reduced cost and in a shorter time than previously expected. STX has not yet released any specific results from its gas flow testing. Based on reduced risk weightings for the SCBGP and lower $US/$A foreign exchange rate estimates, we have revised our valuations for the SCBGP and the company. We have also revised our estimate of the additional equity to be raised to fund STX s share of the SCBGP development. Absolute Price $0.16 $0.14 $0.12 $0.10 $0.08 $0.06 $0.04 $0.02 $0.00 Feb 13May 13Aug 13 Nov 13 Feb 14May 14Aug 14 Nov 14 Feb 15 SOURCE: IRESS STX S&P 300 Rebased Earnings Forecast Year end 2014a 2015e 2016e 2017e Sales (A$m) EBITDA (A$m) (24) (24) (10) 27 NPAT (reported) (A$m) (26) (25) (11) 3 NPAT (adjusted) (A$m) (6) (10) (11) 3 EPS (adjusted) ( ps) (0.9) (1.1) (1.0) 0.3 EPS growth (%) na na na na PER (x) na na na 44.4x FCF Yield (%) -21% -25% -83% -17% EV/EBITDA (x) -1.7x -1.7x -4.1x 1.5x Dividend ( ps) Yield (%) Franking (%) ROE (%) na na na 6% BELL POTTER SECURITIES LIMITED ACN AFSL DISCLAIMER AND DISCLOSURES THIS REPORT MUST BE READ WITH THE DISCLAIMER AND DISCLOSURES ON PAGE 11 THAT FORM PART OF IT INCLUDING THE FOLLOWING DISCLOSURE: BELL POTTER SECURITIES ACTED AS LEAD MANAGER FOR A $12.7M PLACEMENT IN MARCH 2014 AND RECEIVED FEES FOR THAT SERVICE. Page 1

2 Current SCBGP gas flow testing SCBGP favourably located near infrastructure STX s SCBGP involves major interests in a cohesive group of exploration tenements in the southern part of the Cooper Basin to the south of Moomba in South Australia (Figure 1). STX s net interest in the SCBGP cover 3.7 million acres. The SCBGP is very favourably located near major infrastructure as it is about 50km south of the regional town of Moomba. The Moomba to Adelaide gas pipeline runs through the project area. Moomba is a key energy hub that is connected to the Eastern Australian gas markets. Flow testing of four wells yields sustained flows STX has been operating a flow testing program on the four PEL 96 wells (Klebb 1, 2 and 3 and Le Chiffre 1) over the past few months that has yielded sustained gas flows and well performance information. This testing program is an important step forward in demonstrating the presence of significant gas resources and their economic potential. One of the main results of the drilling and associated testwork on STX s wells in the SCBGP is that it has given the company a good understanding of the nature of the thick, gassy coal in the area, where STX has identified three main coal units, Vu Lower, Vu Upper and Vm3, shown pictorially in Figure 2. Figure 1 Map of the Southern Cooper Basin Gas Project (SCBGP) Figure 2 - Representation of gassy coals in STX's PEL 96 SOURCE: STRIKE ENERGY LTD Water no longer a major problem After encountering significant water flows in the early stages of the testing of the SCBGP wells, STX has investigated the nature of that water and now has a far better understanding of it. The company does not believe the water represents a serious impediment to potential commercial gas production in the SCBGP. STX believes the water associated with the coals can be readily managed by standard operating procedures. Gas flared from highly saturated coals in Le Chiffre 1 well Gas flows were recorded almost immediately after pumping operations at Le Chiffre 1 began in November Gas volumes increased as the testing progressed to the point where the volumes were sufficient for STX to commission a separator and ignite a flare. Prior to production being temporarily suspended in mid-january 2015 because of localised flooding, STX had achieved 31 days of cumulative production data with sustained gas flows to surface being established and gas flowing to the flare stack. Test data on the well Page 2

3 pressures and production to date indicates gas saturation is over 90% of the storage capacity of the coals at this location. Klebb gas flows from wells including some not fracced The Klebb 1 well achieved sustained gas flows during 45 days of cumulative testing until the middle of January 2015, when operations at the Klebb well sites were temporarily suspended because of localised flooding. Only limited production of gas was achieved from the Klebb 2 well after it was commissioned late in December 2014 before it was shut in because of the localised flooding. Commissioning of the Klebb 3 well was completed upon recommencement of operations after the delay in mid-january 2015 because of the flooding. The Klebb 1 well was fracced but neither Klebb 2 nor Klebb 3 has been fracced, thus providing valuable information on the production potential of unfracced wells in the area. The Klebb 2 and Klebb 3 wells have been designed to be fracced at a later date, if required. Test data to date indicates gas saturation is over 60% at the Klebb location. Demonstration gas processing facility being planned STX has begun the planning and design work for a small scale demonstration gas processing facility that is designed to produce sales gas. Feed gas will most likely come from a multi-well production pilot at the Le Chiffre location. The deployment of a modular demonstration processing and compression facility will provide much valuable information to support development of an initial commercial gas project within the SCBGP. Large adjacent new acreage position added to SCBGP STX was recently awarded 100% of the large permit (PELA 640) immediately adjacent to PEL 96 in the SCBGP area (Figure 2). The additional permit covers an area of 3,443km 2 (850,786 acres) on the edge of the Weena Trough. The additional area is expected to give STX considerable additional resource potential as the highly gassy coals targeted in PEL 96 are believed to extend into PELA 640. Key features of the gas deposits in the SCBGP The gassy coals in the SCB Project are ideally suited for the extraction of natural gas to supply the growing demand in Eastern Australia. Key attributes of these coals include: Occurring in very uniform, thick seam packages ranging up to 105m thick and containing net gassy coal zones up to 50m thick. The gassy coals have high permeabilities (25md in Le Chiffre 1 and up to 16mD in the Klebb wells), significantly higher than originally expected and indicating they are potentially capable of delivering strong gas flow rates. Occurring at relatively shallow depths of 1,800 to 2,100m (compared to the depths at which most of the current commercial natural gas deposits occur in the Cooper Basin of around 3,500m). The coal is highly gas saturated, with saturation of at least 60% in the area of the Klebb wells and over 90% in the area of the Le Chiffre well. The gas is contained in the coal cleats and coal fabric in a way that is similar to coal seam gas, so it is expected that SCBGP gas will essentially be produced in the same way, namely by pumping out sufficient water to reduce the reservoir pressure to the point where the gas flows. The coal does not seem to require extensive dewatering to enable gas production. Large fracs may be optimal in maximising overall production rates and individual well performance. The coals occur under the path of the Moomba to Adelaide gas pipeline, which is capable of taking additional gas to the major Eastern Australian markets Page 3

4 Funding for SCBGP taking shape Project finance and additional equity required We have assumed that STX will issue additional equity over the next few years to assist with the funding of its development of the SCBGP, a portion of which is assumed to come from project finance with significant development assistance from Orica under the terms of the off-take agreement. As shown in Table 1, we have assumed that STX raises further equity capital over the next few years. We have conservatively assumed this raising will be done at the same share price as the current share price, even though we would actually expect the development studies will significantly progress the company over the next few years towards production. A successfully de-risked project provides the potential for a higher share price over time. Table 1 - Forecast additional equity to be raised over the next few years Year to June 2015e 2016e Net amount to be raised1 ($ M) Share price assumed ($) Number of shares to be issued (M) Total number of shares on issue at year end(m) ,298.3 NOTE 1. AFTER CAPITAL RAISING COSTS Receipt of R & D refund sees STX funded for flow testing work STX received a Research & Development (R & D) refund of $5.8m in the December 2014 quarter and it had cash at the end of December 2014 of $8.1m and debt of $6.2m, some of which is not interest bearing. The company is fully funded to meet the costs of its current flow testing program. Near term funding boosted by innovative R & D funding facility During the latest quarter, STX agreed the form of an innovative R & D funding facility with the Macquarie Group Ltd. The new funding facility will have an initial limit of $4.5m that can be drawn down by STX after eligible R & D expenditure for the prior period has been validated by STX s R & D advisors in accordance with the prescribed ATO guidelines and requirements. STX made an initial draw down of $4.0m at the end of January The Macquarie facility is collateralised against the proceeds of STX s 2015 Australian Taxation Office R & D refund, which is expected to be received by November Further off-take related funding unlikely in near term We believe STX is not likely to do any further funding agreements related to off-take agreements for gas at this stage given the progress of the flow testing. After the success of the previous agreements for such sales via supportive off-take agreements with Orica, Orora and Brickworks, that method remains an avenue for consideration if needed. Under the Orica off-take agreement, STX may receive near term funding assistance of up to $10m with a further $40m for development of the SCBGP after the FID. Page 4

5 Revised valuations after SCBGP progress Risk weighted valuation lifted by 13% We have reviewed the valuations and in particular the risk weightings applied to STX s assets in light of: The progress STX has made in the SCBGP; Our downward revisions to forecasts for the world oil price and the $US/$A exchange rate; and A modified consideration of our forecast for additional equity likely to be needed to fund STX s share of the development costs for the SCBGP. These revisions have resulted in a 13% increase in our overall risk weighted valuation of STX (Table 2). Table 2 - Summary valuations for STX Assets Unrisked Case $ M1 $/share (1,2) Risk Weightings Risked Case $ M1 $/share (1,2) Oil & gas assets - Australia SCBGP 1, % Other % USA % Total 1, % Corporate (41) (0.02) (41) (0.02) Net Cash/(Debt) Future Equity TOTAL ASSETS 1, % NOTES: 1. MAY NOT ADD DUE TO ROUNDING AND DILUTION EFFECTS 2. BASED ON TOTAL EQUITY ADJUSTED DILUTED CAPITAL OF 1,332.2M SHARES 3. CARNARVON BASIN AND KINGSTON COAL PROJECT 4. BASED ON CASH BALANCE AT 31 DECEMBER INCLUDES UNLISTED OPTIONS AND PERFORMANCE RIGHTS AND FORECAST EQUITY TO BE RAISED IN FY15 TO FY17 Page 5

6 The Southern Cooper Basin Gas Project Initial focus of SCBGP to be in PEL 96 Activities in the SCBGP will be focused initially in PEL 96 on the southern flank of the Cooper Basin. STX s equity in PEL 96 is 66.7%, which gives it control of the JV. This high equity level means STX will not require agreement from their JV partner, Energy world corporation (ASX - EWC, not rated) to commence development of the field. This flexibility and control ensures speed to market for STX. SCBGP set to become a major Australian gas producer To date STX has secured, on a 100% basis, conditional gas sales agreements (GSAs) for 307.5PJ of Phase-1 project gas for sale to industrial customers on the East Coast of Australia. These GSA s are conditional upon declaration of the final investment decision (FID), which again does not require the approval of EWC. During a Phase-1 development, STX initially plans to build a $150m (net $100m) gas plant capable of producing sales gas at the rate of 26PJ/year. To meet increasing contracted quantities in 2020, the plant will be expanded towards 40PJ at an incremental gross cost of $94m (about $62m STX share). Project costs could be higher if CO 2 levels exceed levels of around 20%. CO 2 levels in excess of 3% will need to be removed to meet pipeline transport specifications. We have summarised our estimates of the gas production from the SCBGP in Figures 3 to 5 below. Figure 3 - Phase 1 SCBGP contracted gas volumes (PJ) Figure 4 - Phase 1 SCBGP total gas production potential (PJ) 30 PJ 30 PJ Orica Tranche Orica Tranche-1 15 Uncontracted Gas 10 5 Austral Bricks Orora 10 5 Contracted Gas 0 0 SOURCE: STRIKE ENERGY LTD, BELL POTTER SECURITIES ESTIMATES Figure 5 - SCBGP sales revenues at $6/Gj 250 $m Uncontracted Gas Contracted Gas 50 0 Page 6

7 US operations washing their face STX has minority, non-operating positions in three USA oil and gas operations, which are all in the state of Texas (Figure 6). These interests continue to produce modest amounts of oil and gas but they are now essentially neutral positions that are estimated to be generating sufficient revenue to cover operating costs. As minority positions, these assets do not consume significant STX management time. STX has indicated that although its USA operations generate net positive operating cash flows, it has no plans for new investment in them and STX continues to investigate opportunities to monetise its USA exploration and production assets. Figure 6 - Map of location of STX's USA interests Permian Basin production still low cost The MB Clearfork Project (STX 25% working interest) produces oil and gas from 20 conventional wells in the Permian Basin in Martin County, Texas on a reasonably low cost basis. The results of the recent Erwin Eoff No3 well, which achieved initial production rates of up to 110 barrels per day, are encouraging and indicate upside potential within the project area, but no further drilling is likely to be undertaken until there is an improvement in the oil price environment. STX has recently made a US$1.1m non-cash impairment charge against the carrying value of its Permian Basin interests, which is expected to be reflected in its FY15 accounts. Eaglewood mainly produces gas SOURCE: STRIKE ENERGY LTD The Eaglewood Joint Venture (STX 40% working interest) produces conventional gas and minor oil from the Wilcox Formation in the Louise Field in Colorado County, Texas. STX successfully reduces interests in the Eagle Ford Shale STX has a 27.5% working interest in the Eagle Landing Joint Venture which is focused on the gas-condensate fairway in the Eagle Ford Shale within the northern part of Lavaca County and the southern part of Fayette County, Texas. The joint venture produces a very modest amount of oil and gas from its interests there. STX completed the sale of its interest in 1,617 acres in the Eagle Ford Shale for US$4.6m in August STX has recently made a US$10.8m non-cash impairment charge for the full amount of carried forward capitalised exploration costs associated with its interest in the Eagle Ford Shale project, which is expected to be reflected in its FY15 accounts. Page 7

8 Strike Resources Ltd (STX) Company description STX is an oil and gas company. Its principal assets are major exploration areas containing thick and highly gassy coals located in the Cooper Basin, which is Australia s major onshore oil and gas producing region. STX s areas in the Cooper Basin are collectively called the Southern Cooper Basin Gas Project (SCBGP). The SCBGP is located about 50km south of Moomba in South Australia, where it is transected by the Moomba to Adelaide gas pipeline and comprises PEL 96 (STX 66.67% and Operator); PEL 95 (STX 50%, Beach Energy is Operator); PEL 94 (STX 35%, Beach Energy is Operator); and PELA and PEL 515 (STX 100% and Operator in both). STX also has minority interests in three oil and gas production and exploration areas in Texas, USA comprising a 25% working interest in the MB Clearfork Project in the Permian Basin; a 40% working interest in the Eaglewood Joint Venture in the Wilcox Formation; and a 27.5% interest in the Eagle Landing Joint Venture in the Eagle Ford Shale. Investment thesis Speculative Buy, Valuation $0.26/sh STX has begun to demonstrate that its SCBGP, which contains some of the thickest and most highly gas-saturated coals in Australia, can achieve sustained gas flows. The improved understanding of the gas saturation of the coals indicates that with their high permeabilities, they are capable of delivering significant gas flows. STX s testing has shown that the gassy coals need limited de-watering and commercial gas production could occur at reduced cost and in a shorter time than previously expected. STX has not yet released any specific results from its gas flow testing. Based on reduced risk weightings for the SCBGP and lower $US/$A foreign exchange rate estimates, we have revised our valuations for the SCBGP and the company. We have also revised our estimate of the additional equity to be raised to fund STX s share of the SCBGP development. Risks The key risks include the following: 1. Lack of exploration success: The nature and early stage of STX s main activities makes its exploration and development activities in the areas where it is operating, particularly in the SCBGP, very high risk. Even after having made significant gas discoveries in the SCBGP area and demonstrating that there is greatly increased prospectivity and potential for commercial development, the exploration of nearby areas or prospects remains high risk until adequate exploration, appraisal and ultimately production has been carried out to effectively de-risk STX s areas. 2. Gas and oil prices and exchange rate risk: Domestic gas prices and international oil and gas prices and foreign exchange rates are affected by various economic and geopolitical factors that make them volatile and liable to relatively sudden change. The oil and gas prices and foreign exchange rates that apply to any of STX s projects may be different from our forecasts. 3. Production risk: In new production areas such as the SCBGP where STX operates, there have been few wells drilled and there has been little or no hydrocarbon production of the type STX is seeking and from the zones STX is targeting to indicate how the reservoirs behave in a production regime. Until reliable production data is established for an area, there is a risk that various production aspects may adversely impact on commerciality. Page 8

9 4. Political and community risk: STX generally operates in well-developed and politically stable countries where there is generally perceived to be very low political risk. The communities in the areas where STX has operations are generally very supportive of the type of activities STX is involved with because STX seeks to operate to the highest industry standards and in a responsible and fully compliant manner. As some of STX s activities may involve fraccing, which has been regarded by some sections of the community as controversial, STX always ensures its activities are in accordance with all its legal and statutory requirements and when it is an Operator, it engages appropriately with and supports the communities in which it operates. 5. Funding risk: By its nature, the exploration activities of STX are expensive and the company needs to ensure that it has adequate funding to maintain its interests and is able to fund its share of what are sometimes more expensive exploration wells because of unexpected drilling or other related operational complications. 6. Inappropriate acquisitions: The acquisition of other assets can divert management effort from the current focus and may yield inadequate returns. Other significant risks include regulatory, environmental and commercial ones, which are typical for natural resource projects. These aspects are usually well understood and readily managed by STX and the competent and well experienced operators of the joint ventures in which STX is a participant. Page 9

10 Strike Energy Ltd as at 4 February 2015 Recommendation Buy, Speculative Price $0.115 Valuation $0.26 Strike Energy Ltd (STX) 4 February 2015 Table 3 - Financial summary PROFIT AND LOSS FINANCIAL RATIOS Year ending 30 June Unit 2013A 2014A 2015E 2016E 2017E Year ending 30 June Unit 2013A 2014A 2015E 2016E 2017E Revenue $m VALUATION Expenses $m (17) (23) (27) (10) (28) NPAT (adjusted) $m (9) (6) (10) (11) 3 EBITDA $m (13) (24) (24) (10) 27 EPS (adjusted) c/sh (1.5) (0.9) (1.1) (1.0) 0.3 Depreciation & amortisation $m (2) (2) - - (23) EPS growth % 43% 42% -27% 13% 127% EBIT $m (14) (26) (24) (10) 4 PER x -7.6x -13.1x -10.4x -11.9x 44.4x Net interest expense $m 0 (1) (1) (1) (1) DPS c/sh Profit Before Tax $m (14) (26) (25) (11) 3 Yield % Tax expense $m EV/EBITDA x -3.3x -1.7x -1.7x -4.1x 1.5x NPAT (reported) $m (14) (26) (25) (11) 3 PROFITABILITY RATIOS Abnormal items $m (5) (20) (15) - - EBITDA margin % -274% -562% -814% -1988% 49% NPAT (adjusted) $m (9) (6) (10) (11) 3 EBIT margin % -312% -599% -814% -1988% 8% Return on assets % -16% -12% -18% -10% 2% CASH FLOW Return on equity % -17% -14% -25% -23% 6% Year ending 30 June Unit 2013A 2014A 2015E 2016E 2017E LIQUIDITY & LEVERAGE OPERATING CASHFLOW Interest cover x 124.6x -41.3x -48.8x -9.9x 4.4x Receipts $m (Net debt) / cash $m (1) 4 4 (27) (52) Payments $m (5) (7) (6) (1) (28) ND / E % 5% 14% 29% 77% 114% Other $m 0 (1) ND / (ND + E) % 5% 12% 23% 43% 53% Operating cash flow $m (0) (1) INVESTING CASHFLOW VALUATION Net PP&E $m (7) (5) (18) (103) (45) Unrisked Risk Risked Exploration & evaluation $m (10) (12) (9) (9) (10) NPV ($m) $/sh 1 Rating NPV ($m) $/sh 1 Other $m 0 (0) USA Assets % Investing cash flow $m (17) (17) (23) (112) (56) Southern Cooper Basin - PEL 96 1, % FINANCING CASHFLOW - PEL % Share capital $m PEL % Interest bearing debt $m Total 1, % Financing cash flow $m Other Australia - Carnarvon % Change in cash $m (15) Kingston % Total % BALANCE SHEET Total Exploration Assets 1, % Year ending 30 June Unit 2013A 2014A 2015E 2016E 2017E Corporate (41) (41) (0.03) ASSETS Net cash/(debt) Cash $m Future equity Customer prepayments $m Equity value 1, Accounts receivable $m Diluted Share Capital 1 (M) 1,332 1,332 Oil & gas production $m Value per share ($/sh) % 0.26 Exploration & evaluation $m Note 1. Based on diluted share capital including exercise of options and future capital raisings Other $m At current share price Total assets $m VALUATION SENSITIVITIES LIABILITIES Gas Price US$/bbl $m $/sh % diff Accounts payable $m Initial price then $7/GJ post 2020Base Deferred tax liablities $m % Low % Borrowings $m % High % Deferred revenues $m SCBGP Risk Rating % $m $/sh % diff Provisions $m Base 50% Total liabilities $m Low 10% % Net assets (9) High 100% % SHAREHOLDER'S EQUITY WACC (post tax) $m $/sh % diff Share capital $m Base 12.0% Retained earnings $m (49) (76) (101) (111) (108) Low 13.0% % Reserves & outside equity $m (2) (1) (1) (1) (1) High 11.0% % Total equity $m Weighted average shares m ,136 1,298 Equity Gas Production Forecast (assuming FID on Southern Cooper Basin Gas Proj EQUITY PRODUCTION Year ending 30 June Unit 2013A 2014A 2015E 2016E 2017E Oil & Gas - Texas - Permian boe/d Eagleford boe/d Eaglewoo boe/d Gas - SCBGP Millioncf/d 20 Total oil equivalence boe/d , PJ Uncontracted Gas ASSUMPTIONS Year ending 30 June Unit 2013A 2014A 2015E 2016E 2017E PRICES US natural gas US$/mcf Eastern Australian natural gas A$/GJ NGLs US$/bbl CURRENCY USDAUD $US/$A Contracted Gas Source: Bell Potter Securities Estimates. Note. Includes US Production Page 10

11 Recommendation structure Buy: Expect >15% total return on a 12 month view. For stocks regarded as Speculative a return of >30% is expected. Research Team Staff Member TS Lim Sam Haddad John O Shea Title/Sector Head of Research Phone tslim shaddad joshea Hold: Expect total return between -5% Chris Savage csavage and 15% on a 12 month view Jonathan Snape jsnape Sell: Expect <-5% total return on a 12 month view Sam Byrnes Bryson Calwell John Hester Associate Healthcare sbyrnes bcalwell jhester Speculative Investments are either start-up enterprises with nil or only prospective operations or recently commenced operations with only forecast cash flows, or companies that have commenced operations or have been in operation for some time but have only forecast cash flows and/or a stressed balance sheet. Such investments may carry an exceptionally high level of capital risk and Tanushree Jain Financials TS Lim Lafitani Sotiriou Resources Peter Arden Stuart Howe Fred Truong Quantitative Tim Piper Healthcare/Biotech Banks/Regionals Diversified Resources Resources Resources Research Assistant tnjain tslim lsotiriou parden showe ftruong tpiper volatility of returns. Bell Potter Securities Limited ACN Level 38, Aurora Place 88 Phillip Street, Sydney 2000 Telephone The following may affect your legal rights. Important Disclaimer: This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or in part to any persons in the two specified countries. In Hong Kong this research is being distributed by Bell Potter Securities (HK) Limited which is licensed and regulated by the Securities and Futures Commission, Hong Kong. This is general investment advice only and does not constitute personal advice to any person. Because this document has been prepared without consideration of any specific client s financial situation, particular needs and investment objectives ( relevant personal circumstances ), a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the representative of such licensee, who has provided you with this report by arraignment with Bell Potter Securities Limited) should be made aware of your relevant personal circumstances and consulted before any investment decision is made on the basis of this document. While this document is based on information from sources which are considered reliable, Bell Potter Securities Limited has not verified independently the information contained in the document and Bell Potter Securities Limited and its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility for updating any advice, views opinions, or recommendations contained in this document or for correcting any error or omission which may become apparent after the document has been issued. Except insofar as liability under any statute cannot be excluded. Bell Potter Limited and its directors, employees and consultants do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this document or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this document or any other person. Disclosure of interest: Bell Potter Securities Limited, its employees, consultants and its associates within the meaning of Chapter 7 of the Corporations Law may receive commissions, underwriting and management fees from transactions involving securities referred to in this document (which its representatives may directly share) and may from time to time hold interests in the securities referred to in this document. Disclosure: Bell Potter Securities acted as lead manager for a $12.7m placement in Strike Energy Ltd in March 2014 and received fees for that service. Exploration Risk Warning: The stocks of resource companies without revenue streams from product sales should always be regarded as speculative in character. Since most exploration companies fit this description, the speculative designation applies to all exploration stocks. The fact that the intellectual property base of an exploration company lies in science and is generally only accessible to the layman in a limited summary form adds further to the riskiness with which investments in exploration companies ought to be regarded. Stocks with Speculative designation are prone to high volatility in share price movements. Exploration and regulatory risks are inherent in exploration stocks. Exploration companies engage in exploration programs that usually have multiple phases to them where positive results at some stages are not indicative of ultimate exploration success and even after exploration success, there is often insufficient economic justification to warrant development of an extractive operation and there is still significant risk that even a development project with favourable economic parameters and forecast outcomes may fail to achieve those outcomes. Investors are advised to be cognisant of these risks before buying such a stock including Strike Energy Limited (of which a list of specific risks is highlighted within). Analyst Certification Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner; (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report; and (3) the Analyst responsible for the preparation of this report does not hold any interest in the securities of Strike Energy Limited at the date of this report. Page 11