Calima Energy Ltd (ASX: CE1): High production guidance in 1Q23
• 1Q23 production is expected to be 4,378 boe/d. This is above our forecast of ~4,100 boe/d and reflects the very strong performance of the new wells (3xGemini + 2xPisces). On 10 January, Calima had reported production of 4,500 boe/d but we had estimated a steep decline over the quarter. Current production is above 4,700 boe/d.• 4Q22 production of 3,727 boe/d including 1,132 boe/d at Thorsby and 2,595 boe/d at Brooks was below our expectations of 3,970 boe/d. Brooks production was impacted by third party shutdowns, workovers, power outages and repairs and maintenance. This downtime included Calima having to shut-in and then limit production on the Pisces #5 well due to a third-party sales gas compliance issue. This is now resolved.
• 4Q22 capex stood at A$15.1 mm which is above expectations (A$8.9 mm). This reflects bringing forward the costs associated with drilling Pisces #6 and #7 along with costs overruns due to a down hole tool being lost in a Brooks well as well as additional workover costs.
• 1Q23 capex of A$9.7 mm plus A$2.8 mm for the Montney programme is close to our forecast (total of A$11.4 mm).
• Operating costs have increased to A$21.7/boe in 4Q22 (A$18.66/boe in 3Q22). This reflects inflationary pressures and incremental trucking costs as Calima trucked more production to sell its production at higher prices (see below).
• We have reduced our target price to A$0.50/sh as we incorporate (1) the impact of a weaker US$ versus A$, (2) higher opex, and (3) higher 4Q22 capex.
Other important take aways
As previously indicated, the WCS/WTI differentials continue to be high (US$25/bbl expected in 1Q23 and US$21.71/boe over 2Q-4Q23). However, Calima is proactively moving oil production to different delivery points. This has resulted in additional sales revenue of ~C$7.80/boe in 4Q22. We have not factored in the impact of a similar strategy in 2023. The capex to maintain flat production is estimated at A$25-35 mm/y. At current production levels and assuming ~US$93/bbl for WTI, we forecast an annualized operating cash flow of ~A$70 mm, implying a free cashflow run rate of at least A$35 mm per year.
Adding a high impact event to the cashflow story
We now forecast overall FCF of >A$55 mm across 2023-2024, which represents ~60% of the market cap of the company. Our valuation for the business based on its 2P reserves only is A$0.30/sh which represents over 100% upside. Re-testing the Montney wells could increase the chance to monetize the Montney assets. On an unrisked basis, we estimate that this asset could be worth A$45 mm (see our note dated 19/01/2023) or ~A$0.11/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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