Why do we continue to hold in 2022?
- Strategic location: EXR’s project is on the border of the clean-energy hungry China, seeking transitions to cleaner, nearby energy sources.
- Strong board & management team: A history of success in coal seam gas.
- Green-Hydrogen potential: A research report indicated a strong base for a potential Green-Hydrogen project over EXR’s Nomgon PSC.
- Fully funded exploration: Drilling planned across giant landholding seeking to open up new sub-basins and add to existing prospective gas resource.
- Strong balance sheet: EXR’s $28.4M in cash (at 31/12/2021) can fund its existing business lines for the indefinite future, plus allows for potential acquisitions.
What do we want EXR to deliver in 2022?
Objective #1: Pilot production program at the Gas project
Design, costings, and permitting leading to a maiden pilot production program this year.
Objective #2: Exploration drilling
In addition to the pilot production program, Elixir will continue its exploration program across the Nomgon PSC, with ~20 wells planned for 2022.
Objective #3: Evaluate the Commercial Viability of a Hydrogen Project
- Updates on MOUs signed with the government, and other stakeholders, exploring the potential for a Green Hydrogen project over the project area.
- Other key ‘studies’ undertaken including legal, environmental, and commercial evaluation of the project.
What could go wrong?
- Production risk: EXR is drilling for “Coal Seam Gas”. There is a risk that while there are gas shows, they may not be commercially extractable. CSG gas is more complex in nature as compared to conventional gas deposits.
- Commercial risk: Green hydrogen project economics depend on governments putting in place mechanisms to support net zero goals.
- Geographic risk: There is country-risk. Any political instability might put the production sharing contract at risk.
What is our investment plan?
We have been holding EXR since 2019, while we free carried and took profit during 2020 and 2021, we recently added to our position on market at 16.5c.
Our plan with EXR is to hold to see the company achieve our 2022 objectives, but will look to de-risk our position by selling 20% if the share price significantly re-rates on achieving our 2022 objectives OR based on the strong macro theme of global gas shortages and green energy.
Disclosure: The authors of this article and owners of Next Investors, S3 Consortium Pty Ltd, and associated entities, own 3,500,000 EXR shares at the time of publication. S3 Consortium Pty Ltd has been engaged by EXR to share our commentary and opinion on the progress of our investment in EXR over time.
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