Calima Energy Ltd (ASX: CE1): Asset sale not proceeding. High free cash flow in 2Q23.
• While Calima received three unsolicited offers from Canadian entities to acquire assets from the company at a premium to Calima’s current market cap, the preferred transaction could not complete due to the volatility of the equity market.• Calima indicated that the rationale for Canadian entities to consider Calima’s assets as an attractive target was the disconnect between the earnings multiples at which Calima shares trade in Australia (~1.5x P/E for 2023 on our forecasts) and similar Canadian multiples (2.5-3.5x according to Calima).
• 2Q23 production is estimated at 4,125 boe/d, close to the company’s previous indications (4,200 boe/d) but ~100 boe/d above our more conservative forecasts. Calima also anticipates 2Q23 free cash flow of A$7.5 mm, which is also well above our latest forecasts (~A$5 mm).
• The high free cashflow reflects very low WTI/WCS differentials of just ~US$14/bbl. This is well below our forecasts of US$20/bbl.
• Calima has confirmed a second dividend distribution of A$3 mm payable during 3Q23.
• We re-iterate our target price of A$0.50/sh.
Resilient production in 2H23. Assuming lower spending in following years
2H23 production is estimated at ~4.0-4.3 mboe/d with Calima’s capex programme focusing on maintaining stable production. We are now conservatively assuming the same strategy for following years and forecascast ~C$30 mm capex per year to maintain production at 4.1-4.3 mboe/d rather than assuming growth capex to increase peak production to 5.1-5.2 mboe/d.
Valuation
While we have reduced our production and capex forecast over 2024 2027, we have also reduced our expected WTI/WCS discount by ~US$2/bbl to reflect recent market movements. We now forecast overall FCF of >A$40 mm over 2023 and 2024 (almost unchanged versus our previous forecasts). This represents ~65% of the current market cap. Our Core Nav based on the company’s 2P reserves only is A$0.29 per share (~3.0x the current share price) while our ReNAV is A$0.50/sh.
Calima Energy and its subsidiaries are engaged in investing in oil and gas exploration and production projects internationally and more specifically in West Africa.
Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector.
The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy.
Auctus has been set up at the beginning of a new decade in which we see significant opportunities in the Energy space. Globally, demand for energy is at record levels and continues to grow. Conversely, investment in traditional energy sources has been severely constrained. We believe this imbalance creates opportunities for both companies and investors.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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