If you are looking for exposure to the energy sector outside giants like Santos Ltd (ASX: STO) and Woodside Energy Group Ltd (ASX: WDS), then read on!
Bell Potter has just named one ASX energy stock that it believes could rise over 60% from current levels.
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Which ASX energy stock?
The stock that Bell Potter is recommending to clients is Comet Ridge Ltd (ASX: COI).
It is an energy exploration and development company focused on coal seam and conventional gas projects in eastern Australia.
Bell Potter notes that the company has announced a deal to acquire Santos' 42.86% interest in the Mahalo Joint Venture coal seam gas project. This takes its ownership to 100%.
Comet Ridge is paying $40 million on financial close and a further $20 million on meeting production milestones.
The broker is positive on the deal and believes it will simplify its structure. It explains:
The transaction will vastly simplify COI's Mahalo acreage, increasing development optionality and overall project funding capacity. COI previously held ground in the Mahalo JV and 100%-owned positions in adjacent permits; COI will move to owning all of the coal seam gas permits 100%. The acquired Mahalo area is fully permitted, FEED is nearing completion and Jemena is working on pipeline FEED.
Mahalo is expected to initially produce up to 60TJ/day into the east coast gas market with FID targeted for mid-2026. STO viewed the asset as non-core and not a near-term priority; COI will now have control to progress that asset under its own timeline. COI is in discussions with the Northern Australia Infrastructure Facility for debt financing and the simplified structure could now attract a strategic partner and gas prepayments.
Big potential returns
According to the note, the broker has responded to the news by retaining its speculative buy rating and 21 cents price target on its shares.
Based on its current share price of 13 cents, this implies potential upside of 61% for investors over the next 12 months.
Overall, the broker feels that Comet Ridge could be a good option for investors with a high tolerance for risk. It concludes:
Our COI valuation is underpinned by COI's Mahalo projects; we are yet to apply the acquisition of STO's Mahalo JV interest. The Mahalo JV was awarded a Petroleum Lease in mid-2020, making it one of the few development-ready gas projects capable of delivering near-term supply.
We are positive on Australian east coast gas markets, with supply shortfalls likely to support higher prices. COI is a gas development company with prospective operations and cash flows only. Our Speculative risk rating recognises this higher level of risk and volatility of returns.
