Oilex (ASX:OEX, LON:OEX) could potentially re-rate as it begins commercial production in India, which is hungry for gas, reckons private investment firm PAC Partners in a recent research note.
Analyst Andrew Shearer notes that production at the group's Cambay field is expected to begin in the first half of 2016 and then ramp up from the middle of the same year.
He has started covering London and Australia listed Oilex shares with a 'buy' rating and risked net asset value based price target of A$0.12 per share (60p), which is around a 70% premium to the current share price of A$0.07 (4p).
"India imports significant quantities of LNG to meet demand as domestic production is limited.
"This creates an opportunity for OEX as the import cost creates a premium price market for gas sales," he said, adding he expected the price premium to remain in place "for the foreseeable future".
India, the fourth largest energy consumer in the world, imports around 30% of its gas, which ensures that Oilex will achieve a price premium for gas it delivers of around $8+/MMBtu compared to a government gas pricing policy of around$5/MMBtu, noted the analyst.
"OEX successfully completed a proof of concept well in late 2014 and now is tendering for long lead items. Production is expected to commence in 1HCY16, then ramp up from mid-2016.
Shearer notes that Cambay is an advanced asset in a proven field that has existing infrastructure.
Oilex also benefits from having an experiences team in India, while the joint venture partner is the Gujarat State Petroleum Corporation, which has a significant presence in the gas transmission and distribution, enhancing the ability to access infrastructure and markets, said the analyst.
In a recent note from SP Angel, the broker said Oilex's move towards the start of production was good news not just for the company but also for shareholders.
“Now that the near term cash flow has been shored up, we believe that the next stage is for management to focus on how to maximise the benefits from its ownership of Cambay to generate further value for shareholders,” it said.
PAC Partners is for 2016 forecasting revenues of $9.6mln for Oilex with EPS growth at 15% rising to revenues of $116.1mln in 2018 with 115% EPS growth.
