Will Comet Ridge (ASX: COI) be a rising or just a shooting star in 2023?

Marc Kennis Marc Kennis, October 18, 2022

Comet Ridge (ASX: COI) shares spiked 40% after the company announced a major success with its pilot well in its Mahalo Gas Project, situated near the Bowen Basin, Queensland. The project is a Coal Seam Gas (CSG) play, similar to that of TMK Energy’s Gurvantes CSG Project in Mongolia. 

We wrote about TMK Energy’s highly prosperous Mongolian CSG Project last week and briefly explained what Coal Seam Gas is and why we are bullish on gas in general.


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Let’s take a look at Comet Ridge’s chart and see what moved its share price since mid-2021. 


Comet Ridge

Comet Ridge, Daily Chart in Semi-log Scale (Source: Metastock)


Comet Ridge acquires APLNG’s 30% interest in the Mahalo Gas project. (See the announcement) 

Comet Ridge’s share price rises on the back of strong gas prices. 

Comet’s share price spikes on the success of Maholo North’s pilot well and drops after the company raises capital at a significant discount and Santos exercises its Maholo Project option, which reduced Comet Ridge’s interest in the project. (Mahalo North pilot gas production exceeds 1.7 MMcfd), (Successful $24 million placement to advance Mahalo blocks), (Santos exercises option for Mahalo Gas Project). 


Comet Ridge acquired worthy gas reserves at a low price  

Comet acquired the Mahalo East and Mahalo North blocks from Australia Pacific LNG (APLNG) in August 2021 for $20m and increased its share in the Mahalo Joint Venture to 70%. The company paid 25 cents a GJ for the 2P and 15 cents for the 3P, which was low at the time, let alone now that gas prices have soared following Russia’s invasion of Ukraine in February 2022. 

Comet Ridge largely funded the acquisition with a loan from Santos (ASX: STO) at a 5.25% interest rate and an option for Santos to acquire 12.86% of the Mahalo JV from Comet.  


Mahalo North’s pilot well was a total success 

Comet Energy commenced drilling operations at Mahalo North in October 2021 and in August announced producing over 1.7 million cubic feet of gas per day from its Mahalo North Pilot well. It was the highest recorded gas flow from a pilot well in the Mahalo Gas Hub area to date and confirmed that the gas reserves in the adjoining Mahalo Gas Project fairway extend into Mahalo North, which improves the project’s economics. 


Santos exercised its option for the Mahalo Gas Project 

Soon after the successful result of the pilot well in the North Mahalo block, Santos exercised its option to acquire 12.86% of Maholo’s project from Comet for a cheap price of only $5.14m. The transaction reduced Comet Ridge’s interest in the Mahalo Gas Project from 70% to 57.14% and increased Santos’ interest in the Project from 30% to 42.86%. 


Comet Ridge raised $24m equity capital at 17.5 cents per share 

Less than a fortnight after the announcement of significant success with its Maholo North pilot well, Comet Ridge raised $24m through a placement of 137 million new shares to a number of institutional investors at 17.5 cents per share, representing a 20% discount to the 5-day volume weighted average trading price. 

The nearly 15% dilution from the issuance of new shares and the loss of almost 13% interest in the Mahalo Project took down Comet’s share price below the level it was trading at before the announcement of the successful pilot result. 


Things are moving in the right direction at the Mahalo Gas Project 

Comet Ridge plans to use the newly raised funds to drill new core holes and a new pilot well in its Northern Mahalo blocks to extend the project’s gas reserves and conduct production testing to drive a Final Investment Decision for the Mahalo Gas Hub. The new core holes drilling is scheduled for 4Q22 and the new pilot well drilling is scheduled for 2Q23. 


Gas to remain critical for Australia’s energy market 

According to Australian Energy Market Operator’s Gas Statement of Opportunities report, South Eastern gas production will drop significantly from 2023 as gas fields in the Bass Strait, that have been the long term supplier to the East Coast, start to run out of gas. 

The report also forecasts gas to maintain a critical role in Australia’s energy system as gas-fired electricity plants will replace coal generation to support variable renewable energy generation to meet the national electricity market needs. Gas-fired electricity generation will support grid security and stability and provides an additional source of capacity to meet extreme demand conditions. 


How to play Comet Ridge’s stock 

Comet Ridge’s share price has been on a primary uptrend since mid-2021 (the blue trendline on the chart) on the back of strong gas prices and successful developments at the company’s Mahalo Gas Project.  

However, the recent equity capital raising and the reduction in Comet’s interest in the Mahalo Project have taken the momentum out of the share price. Based on the company’s timeline for new core and pilot well drillings, we don’t expect any exciting announcements from the company in the next few months.  

Therefore, we think it will be possible to buy Comet Ridge shares close to the support level at 15 cents (the green line on the chart) in the next couple of months. Our price targets are 20 cents for short-term traders and 25 cents for longer-term investors with the catalysts being the continuation of strength in gas prices and possible good news from the Mahalo Gas Project early next year. 


Stop loss at 15 cents 

A confirmed break below the support level at 15 cents would mean the uptrend is broken and it would be an indication of bearish sentiment on the stock that can open the way down to lower price levels. 


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