If you are wanting exposure to the energy sector, then Goldman Sachs thinks you should skip Woodside Energy Group Ltd (ASX: WDS) shares and buy Strike Energy Ltd (ASX: STX) shares instead.
The broker currently has a neutral rating on Woodside but has just reiterated its buy rating on its smaller rival.
Let's see what the broker is saying about this energy producer.
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Time to buy this ASX 200 energy share
Goldman Sachs highlights that the West Australian Government has released an update to the state's domestic gas policy. This will allow up to 20% of gas production from new onshore projects to be exported as LNG up to the end of 2030.
Goldman believes the update will primarily benefit Strike Energy, enabling access to higher gas prices for pre-FID projects West Erregulla and Ocean Hill.
According to the note, in response, the broker has retained its buy rating on the ASX 200 energy share with an improved price target of 28 cents.
Based on its current share price of 22 cents, this implies potential upside of 27% for investors over the next 12 months.
Why is it bullish on Strike Energy?
There are three key reasons why Goldman thinks investors should be buying this ASX 200 energy share. The first is its attractive valuation. It explains:
Trading at a ~10% discount to our risked NAV, we see long-term value in STX's West Australian gas resources also highlighted by recent acquisitions of Perth Basin explorers and developers over the past year.
Another reason is that the broker believes Strike Energy is now at an earnings and cash flow inflection. It adds:
Now generating cash flow from Walyering, we consider STX lower risk and well positioned to execute an ongoing drilling campaign and development of Perth Basin fields, growing production to ~20 kboe/d over the next 5 years.
A third reason to consider buying the energy producer's shares is the company's potential exploration upside. The broker said:
STX is set to flow test the 139 PJ net 2U prospective resources at Erregulla Deep which we do not include in our base case, with further upside potential across Perth Basin acreage.
But there are some risks to consider. Goldman highlights the following risk factors:
Lower gas prices, lower gas demand driven by higher coal or renewable generation, unsuccessful exploration and appraisal drilling, development schedule delays and cost increases.
However, it appears to believe the risk/reward is favourable at current levels and feels Strike Energy could be a top ASX 200 energy share to buy now.
