Report

Initiation: Emerging South Africa shale story

Challenger Energy (CEL) offers pure-play exposure to a frontier shale area, South Africa’s Karoo basin. The Karoo, the world’s eighth largest shale gas deposit, is estimated to contain 390tcf of recoverable gas by the EIA and has attracted interest from supermajors Shell and Chevron. South Africa’s worsening energy shortage implies significant latent gas demand, and President Zuma has described shale as a “game changer” for the country. CEL was first mover in the basin, applying for a licence surrounding a key well that flowed gas in the 1960s. Its EV of A$29/acre is consistent with Australian pre-feasibility farm-out valuations, though CEL is arguably more advanced given the original well success. On 26 October the government announced it was proceeding with the licence applications. A licence award, expected in Q115, would remove timing uncertainty and pave the way for a farm-out. These milestones could lead to a near-term re-rating, with longer-term upside based on drilling success.
Underlying
Challenger Exploration

Challenger Energy is engaged in the exploration and production of oil and gas. Co. is also engaged in securing, finding, developing, producing and selling of hydrocarbons.

Provider
Edison Investment Research
Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisors and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting.

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