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ASX:EXR

Elixir Energy

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ASX:EXR
- Elixir Energy
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$0.045

Last Price

Investment Memo:

Elixir Energy (ASX:EXR)

- LIVE

Opened: 29-Mar-2023

Shares Held at Open: 2,795,000


What does EXR do?

Elixir Energy (ASX: EXR) is advancing three projects: a coal bed methane gas project, a green hydrogen project, both in Mongolia, and a Queensland onshore gas project.

What is the macro theme?

Decarbonisation via natural gas energy production and green hydrogen technology.

As the world looks to cut greenhouse gas emissions, natural gas and green hydrogen may prove to be major building blocks towards a net zero economy.

Our Big Bet for EXR

EXR to achieve a $1BN market cap through successfully advancing one or more of its three projects: its Mongolia gas project, Mongolia green hydrogen project, and/or its Queensland gas project.

Why did we invest in EXR?

Strategic project locations

Two of EXR's projects are in Mongolia, on the border of the clean-energy hungry China which is seeking transitions to cleaner, nearby energy sources. This location provides many market options, both local and export.

The third project is in Queensland, on the east coast of Australia, which is in need of gas.

East coast gas exposure in Australia

EXR is gearing up to drill its QLD gas project where it has a 395 Bcf contingent resource (which sits inside an initial 3.3 Tcf unrisked mean prospective resource).

The project is right next to existing infrastructure, and acreage held by Shell and Santos. EXR plans to drill the well this year, providing a near term catalyst.

Strong board & management team

A history of success in gas in Queensland, with many years experience operating in Mongolia.

Green-Hydrogen potential

There is a strong case for a green-hydrogen project over EXR’s project area (Nomgon PSC) in Mongolia. A partnership with SB Energy, a subsidiary of Japan’s 12th largest listed company Softbank Group, is exploring the project’s potential.

What do we expect EXR to deliver?

Objective #1: Start drilling at Queensland Gas asset

We want to see EXR drill its maiden appraisal well at its 100% owned Queensland gas project where it already has a 2C (contingent resource) of 395 billion cubic feet (BCF).

Objective #2: Progress the Nomgon CBM Project in Mongolia

We want to see EXR progress its Nomgon CBM project in Mongolia.

Milestones

complete Drill four appraisal wells (Big Slope and Yangir)

complete Drill five exploration wells

in-progress Prepare for pilots in new area [if drilling successful]

not done Proof of concept for commercial development

not done Progress with government and review possible private sector offtake

not done Consider delivery options for liquefied natural gas (LNG) and compressed natural gas (CNG)

Objective #3: Evaluate the Commercial Viability of a Hydrogen Project

The Term Sheet with SB Energy, signed in February, provides a pathway to a formal joint development agreement and a 50/50 joint venture once a FEED (Front End Engineering and Design) entry decision is made regarding a green hydrogen pilot project.

Milestones

in-progress FEED (Front End Engineering and Design) entry decision made (mid-2023)

not done Sign binding joint development agreement with Japan’s SB Energy

What could go wrong?

Exploration risk

There is risk that EXR does not achieve a reasonable flow rate from appraisal drilling at its Daydream-2 appraisal well at its Queensland gas project.

Production risk

PIlot production testing is underway at EXR’s Mongolian coal seam gas project, but it must still be demonstrated to be commercially extractable. CSG is more complex in nature as compared to conventional gas deposits.

Commercial risk

Commercial success of the Mongolian gas project will rely on regional customers buying EXR’s eventual gas product.

Green hydrogen project economics depend on governments putting in place mechanisms to support net zero goals.

Geographic risk

There is country-risk, primarily in Mongolia, where any regional political instability might put the production sharing contract at risk. But is perhaps a risk in Australia too, which is facing talk of gas market price caps.

Funding risk

To drill its Queensland appraisal well, EXR must still secure funding, which it is now pursuing but is not guaranteed.

What is our investment plan?

We have been holding EXR since 2019, while we free carried and took profit during 2020 and 2021, we added to our position on market at 16.5c in January 2021.

We have been Invested in EXR for over 3 years now - EXR is in our “long term hold” basket, where we retain a Free Carried position to hopefully see our EXR “Big Bet” come true.

This year we may consider Taking Profit by selling up to ~15% of the position IF the EXR share price has a decent run in the lead up to the QLD drilling result (including flow tests).


Disclosure: Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 2,795,000 EXR shares, and the Company’s staff own 100,000 EXR shares at the time of publishing this memo. The Company has been engaged by EXR to share our commentary on the progress of our Investment in EXR over time.

Our Investment Summary

Date of Initial Coverage

11-Jul-19

Inital Entry Price

$0.041

Returns from Initial Entry

10%

High Point

412%