Why the Blue Energy (ASX:BLU) share price rocketed 44% this morning

The Blue Energy (ASX: BLU) share price is soaring today following a positive update with Origin Energy (ASX: ORG). Here are the details.

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Blue Energy Limited (ASX: BLU) shares have been among the best performers on the ASX this morning, rocketing by as much as 44% in early trade. This comes after the company announced a Heads of Agreement (HOA) with Origin Energy Ltd (ASX: ORG).

Since leaping to an intraday high of 11 cents soon after market open, some quick profit taking has seen the energy producer's shares retreat to 9.1 cents apiece, up 19.74%.

What's driving the Blue Energy share price?

Investors were scrambling to get a hold of Blue Energy shares after the company provided a positive update to the market.

According to its release, Blue Energy has executed a non-binding HOA with Origin Energy for the supply of up to 300 petajoules of gas at Wallumbilla, Queensland. One petajoule is equivalent to 278 gigawatt hours, or enough energy to power 19,000 homes for a year.

Under the agreement, the gas will flow from Blue Energy's Northern Bowen Basin ATP814 coal seam gas tenure. The contract will commence in 2024 and run for a period of ten years, providing 20 to 30 petajoules annually.

This is the second HOA involving supplying gas to the east coast domestic market implemented by the company. In early December, a similar deal was signed between Blue Energy and EnergyAustralia to deliver 100 petajoules of gas from the North Bowen basin into Wallumbilla.

Blue Energy hopes that the latest agreement will help push forward plans for a new gas pipeline between the two sites. The Queensland Government is behind a pre-feasibility study to connect the gas reserves for domestic consumption and exports.

The company's wholly-owned permit, ATP814, around Moranbah, has been evaluated by Netherland Sewell and Associates (NSAI) to hold 3,248 petajoules of contingent resource. Furthermore, Blue Energy stated there are 71 petajoules of 2 petajoules reserves and 298 petajoules of 3 petajoules reserves nearby. This is considered to be in close proximity to the existing gas field infrastructure in the North Bowen Basin.

Management commentary

Blue Energy managing director John Phillips touched on the North Bowen Basin, saying:

The momentum for development of the North Bowen Basin gas resource for domestic east coast gas consumers continues to build, following the high grading of this significant gas resource by both Federal and State Governments. This prioritisation continues to give east coast gas buyers the confidence to secure long term gas supply agreements from this producing gas basin.

The Blue Energy share price has accelerated by 355% over the past 12 months but by only around 4% year to date.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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