Empire Oil and Gas (ASX: EGO) - Small Cap Resource Stock Trade Recommendation
Empire Oil and Gas (ASX: EGO) - Small Cap Resource Stock Trade Recommendation
Empire Oil and Gas (ASX: EGO) engages in the exploration, development and production of oil and gas in the Perth, Carnarvon and Canning Basins in Western Australia, has rocketed 43.08% over the last month on discovery of significant hydrocarbon reserves in its Red Gully prospect located in the Perth basin.
A drill report issued by EGO indicated that at a depth of 3529-3585m "a very significant gas charged interval of [sandstones]" is present, which, according to conservative industry estimates could equate to potential recoverable resources of 40.7-58.7 billion cubic feet of gas and 2-3 million barrels of condensate. Accordingly, a find of this magnitude, once accounting for reserve adjustment factors and long term price trends, could be valued between US$245 million and US$375 million. EGO's intraday market capitalisation stands at just over AU$61.46 million.
Empire Oil and Gas is currently negotiating costs and tariffs for the use of the Parmelia or Dampier to Bunbury National Gas pipelines, which are located 2.4km from the Gingin West reserves. EGO aims to construct a gas and condensate plant capable of processing 10MMcfd of gas and 500bdp of condensate with the provision for an addition train to increase capacity to 20MMcfd and 1000bpd. Given EGO's small market capitalisation, magnitude of its potential reserves, and its close proximity to other larger players such as ARC Energy, Origin Energy, ROC Oil, Royal Dutch Shell and PetroChina, who have constructed significant infrastructure in the region, a takeover by a larger player is very likely if not imminent.
Looking at recent stock price trends, EGO has recently broken out to the upside of a lose range trading pattern to close at $0.016. The previous heavy resistance at $0.015 should now act as strong support and as such, we recommend that investors without exposure to EGO to BUY on any respected retest of the $0.015 support level. For investors with current exposure, we recommend selling up to 50% of holdings at $0.022 given any evidence of declining momentum or for those with short term trading timeframes. For longer term exposure, we would recommend that investors target the all time high of $0.030. If reserves are proven probable, then we would recommend targeting a fair value of around $0.052.
Source: www.EquityDissector.com
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