Regular readers will know I'm a sceptic when it comes to resource companies, despite the success of outliers such as Liquefied Natural Gas Limited (ASX: LNG), which has seen its share price jump 350% in the last three months (and over 700% in the last six months). In part, the share price appreciation is due to American hedge fund managers scrambling to buy into one of America's first LNG export terminals.
Closer to home, Australian gas prices are set to rocket once our own export terminals get up and running, and we're going to beat the Americans to it. One little pre-production gas company I have my eye on is set to benefit from this. After all, Strike Energy Limited (ASX: STX) has just begun fracking in the southern Cooper Basin.
Indeed, this little company reminds me of the second stock I ever bought (in 2009), the then-speculative gas company, Sundance Energy Australia Ltd (ASX: SEA). At the time, Sundance was merely planning to frack shale formations in the US. I paid 5.8c per share. Today, those shares trade at $1.13 – a (hypothetical) return of about 1,800% – more, even, than LNG has returned. For the record, I sold my shares for no significant gain, because I decided to be an ethical investor and I had concerns about fracking. Shucks.
Strike Energy will be fracking, but it won't cause as much damage as the east-coast CSG companies like Metgasco Limited (ASX: MEL) do, because their tenements, in the Cooper Basin, are not under quality farmland. Although I wouldn't buy myself, I outlined my arguments for Strike in an email to Motley Fool guru Bruce Jackson back in February, simply because I'm always keen to improve my stock analysis. I pointed out that:
a) The preliminary results from Le Chiffre (Cooper Basin) confirm the presence of an extensive, gas saturated coal system in PEL 96 – exceeding Strike's pre-drill expectations.
b) Both Le Chiffre, and the company's other Cooper Basin drill site Klebb 1 are quite close to the Adelaide to Moomba pipeline.
c) Strike has granted an option to Orora for the supply of 30PJ of gas, to be delivered at 3PJ per annum, at a fixed price over a 10-year term from 2017, as well as an agreement with Orica Ltd (ASX: ORI) to supply 150PJ over 20 years.
d) Two directors bought $150,000 of shares on market and in a placement.
What I didn't mention in that email was that Strike has a joint venture with the two Cooper Basin heavyweights, Beach Energy Limited, (ASX: BPT) and Senex Energy Ltd (ASX: SXY).
It's worth noting that since then, director buying on market has continued, up to a price of about 13c per share. As I write, Strike Energy is trading just under 15c per share. If I was a gas stock speculator (and I certainly am not) then I would probably be holding Strike shares. However, as a long-term investor, I appreciated Bruce reminding me that the safer resource investments are usually companies that are already producing, or about to produce.
