Elixir Energy (ASX:EXR) Research Initiation

Arrowhead is initiating coverage on Elixir Energy (Elixir, EXR, or the company) with a fair value bracket of AUD 0.27 to AUD 0.35 per share (share price on March 21, 2024: AUD 0.073) derived using a Relative Valuation methodology.

• Elixir Energy is a gas exploration and development company based in Australia. It is focused on the exploration and appraisal of natural gas, particularly coal-based methane (CBM), known as coal seam gas (CSG), in Australia. The company is currently engaged in three projects: the Grandis Gas Project, the Nomgon IX CBM Production Sharing Contract (Nomgon Project) and the Gobi H2 Project. 
• Elixir’s flagship project is the Grandis Gas Project with a 100% interest in the petroleum exploration permit ATP 2044 in Queensland. It spans 1,000 square km near the Wallumbilla gas hub and holds a current contingent resource (2C) of 395 billion standard cubic feet (bcf) of gas. The company drilled the Daydream-2 appraisal well in late 2023 and will stimulate and flow-test it in H1 2024, aiming to significantly expand the existing contingent resource base.
• The company successfully drilled an appraisal well, Daydream-2, in Queensland in Q2 2024. Recent laboratory analysis of cutting samples revealed the presence of clay coatings encircling quartz grains for the first time in Queensland at depths below 4,200 metres (m).
• EXR acquired coal desorption samples from drill cuttings while drilling unconventional targets at Daydream-2 well, increasing prospective resources in ATP 2044 to 3.6 trillion cubic feet (tcf) (2U). These resources will be key targets in the upcoming stimulation and testing program that will commence in mid-April 2024 and is expected to be completed by Q2 2024. Diagnostic Fracture Integrity Tests (DFITs) will commence in March 2024.
• In November 2023, Elixir entered an information-sharing agreement with Origin Energy Limited (Origin) for the Daydream-2 well. This collaboration is a mutually beneficial partnership, leveraging drilling expertise to secure financial backing for exploration activities.
  • Under the agreement, Origin has paid AUD 1 mn in non-dilutive funding in H1 2024, supporting EXR’s exploration efforts.
  • The agreement involves Elixir acquiring crucial data for Origin’s greenhouse gas license, aligned with Origin’s carbon capture and storage (CCS) initiatives.
  • Additionally, Origin covered incremental costs incurred to gather the information apart from the AUD 1 mn.
• EXR’s second project is the Mongolian Gas Project—Nomgon Project, the company’s most advanced asset. The project is in the South Gobi region of Mongolia, and the risked recoverable resource in the expansive license area is estimated at 14.6 tcf in a best-case scenario. The project possesses exceptional infrastructure advantages, with access to power lines, well-maintained roads, a rail network, a local workforce and support from the service sector.
• The company’s third project is the Gobi H2 Project, a green hydrogen project located in the Gobi region of Mongolia. The project has been jointly advanced by Elixir and the Japanese firm Terras Energy (an 85% owned subsidiary of Toyota Tsusho Corp). In FY 2023, a global consulting firm, AECOM, completed a pre-feasibility study on the project, showing the potential of the Gobi region in the combined capacity factor of the available solar and wind resources when compared to other similar regions in the world.
• In December, Elixir raised AUD 6.5 mn (before costs) through the issue of new shares and placement to institutional and sophisticated investors for multiple-stage stimulation and flow testing at Daydream-2 well. 
• Additionally, the company received AUD 415k in tax credits from the Federal Government for the research and development of the Daydream-2 well in 2023. It has further tax credits worth AUD 4.9mn available from the government for the same purpose, which will cover up to 48.5% of the total costs of the well exploration.
• The company is listed on the Australian Securities Exchange (ASX) under the ticker EXR.