Australian Stocks to Buy Nexus Energy (NXS)


Nexus Energy NXS AXSNexus Energy (NXS) is an emerging oil and gas producer, with operations focused on the Gippsland Basin, offshore Victoria and the Browse Basin, offshore Western Australia.

In 2009, NXS transitioned from explorer to producer with the start-up of the Longtom gas project.

A lot of interest currently surrounds NXS’s 85% stake in the Crux liquids project (15% Osaka Gas-owned), which is Shell-operated and has a reserve estimate of around 75 million barrels of oil.

With liquefied natural gas (LNG) seeing global demand as an alternative fuel source, NXS and its peers are in good standing owing to the LNG boom and recovering commodities market.

Nexus saw its share price slump last Friday and this Monday, on heavy volumes. The selling was revealed on Tuesday as coming from a key shareholder that was forced to liquidate its holdings, allaying fears about a breakdown in the company’s fundamental outlook.

The Crux of it all

NXS is renowned for its involvement in the Crux liquids project, just off the coast of North Western Australia.

Over FY10, floating LNG (FLNG) technology in Australia highlighted the potential for FLNG to accelerate a gas and liquids development at Crux.

FEED work has been completed and the site has three production-ready suspended wells.

Crux is Shell-operated and if it is not developed, Shell will not have any legal title to the licence until the handover date.

However, NXS is confident of Crux success and last month confirmed that Shell had granted it an option for a three-year extension of the gas rights handover for Crux to the end of 2023, from 2020. The final investment decision is expected before the end of 2011.

First production

FY10 was a landmark year for Longtom, with first gas production on 21 October. Cumulative production of 6.2PJ of gas and 78,400 barrels of condensate have been sold to Santos.

NXS is aiming to acquire further Longtom production to underwrite a gas/electricity strategy, based on a tightening electricity market post-2014.

NXS also conducted a lot of exploration work over the year, including at the Echuca Shoals gas discovery (NXS 100%).

Revenue revealed

For FY10, NXS clocked a profit after tax of $1.03 million, swinging from a prior-year loss of $50 million.

Whilst there were no revenues in FY09, in FY10 NXS reported revenue from ordinary activities of $28.6 million.

As expected by the market and in line with the previous year, NXS did not declare a dividend for FY10.

Since the FY10 update, NXS has revealed its September quarterly results. Production and sales ceased from the Longtom field on 23 April 2010 following the detection of low levels of mercury in the delivered gas.

Therefore, there was no production or sales for the quarter, though NXS and Santos are working on removing the mercury for condensate to be in place later this month.

Shareholder selldown

Nexus was one of the shares to sell recently, plummeted almost 14% from its 26 November intra-day high before closing the session with a 7% loss, at 46.5 cents.

The stock continued to fall on Monday, dropping to a low of 42.5 cents, before closing the session down 6.5% at 43.5 cents.

Over the two days the stock fell 13%, on heavy volume.

The company announced the source of the selling on Tuesday, revealing that major shareholder Viking Shipping Limited had sold most, if not all of its holdings.

According to Nexus, Viking was forced to sell the shares by its financiers. The forced nature of the selling allayed fears about a breakdown in the company’s fundamental outlook.

Outlook

NXS has finally made the transition from explorer to producer with the start-up of the Longtom gas project, which after a mercury scare is almost back to production.

A lot of interest currently surrounds NXS’s 85% stake in the Crux liquids project, which is Shell-operated and has three production-ready suspended wells. If Crux is pursued, NXS stands to benefit from majority participation in a major liquids project.

We are not overly concerned about the recent selldown, with forced selling of shareholder or directors’ holdings often leading to artificial price drops that are not sustained.

With liquefied natural gas (LNG) seeing global demand as an alternative fuel source, NXS will be one of the stocks to watch in coming months.

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