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Great Eastern Energy

Great Eastern Energy

Questor says Buy

BG Group’s hostile and increasingly nasty bid for Origin, coupled with Shell’s deal with Arrow, has demonstrated the value of new and unconventional sources of gas as well as the profits to be made from moving said gas from low-cost countries to high-value markets.

So far, most of the interest has been in the coal seam methane assets in Australia, but there are other areas around the world that look just as attractive. One of them is India, where Great Eastern Energy was one of the first movers in the coalbed methane sector. Its Raniganj South asset is viewed as one of the best projects in the country and estimated reserves have recently risen by around 40 per cent.

Recent activity shows that the company is beginning to deliver on its promises of drilling 30 wells this year and laying the necessary pipelines.

Great Eastern is expected to move into profit next year, thanks to sharp rise in the prices it can command – five times those in the US. It is also understood to be close to a sales agreement with a leading industrial customer.

The company’s listing in London is in the form of Global Depository Receipts, which may not suit all investors, while the free float is limited thanks to the stakes held by insiders.

Nevertheless, the current share price of 252.5p is far below the multiples placed on the likes of Origin, even once that company’s other assets and track record are taken into account.

Early-stage oil and gas exploration plays always carry an inherent risk, but for investors willing to take it, Great Eastern could deliver far greater rewards than some of its peers. A listing in India is expected within the year, which would boost demand and liquidity. All things considered, a speculative buy, but one based on sound fundamentals.

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