Condor Energies Inc. (TSX: CDR): Initiating Coverage

Condor Energies is a ~US$75 mm market cap TSX-listed company focused on low carbon and energy transition opportunities in Central Asia. Condor was transformed in 2024 by the acquisition of >10 mboe/d production of natural gas in Uzbekistan. The key value driver for the shares is the imminent sanction of Condor’s 1st liquefaction plant in Kazakhstan to convert low-cost natural gas into high value LNG to displace expensive diesel for rail and mining haul truck transportation. This is a scalable and high margin business and Kazakhstan is following China’s ongoing program to rapidly “gasify” long distance transportation. Vehicle LNG consumption in China represents ~50% of total LNG consumption. LNG offers important efficiency, range, transit time and cost benefits and 30% lower GHG emissions. Condor also holds a large Lithium licence in Kazakhstan. Our C$5.80/sh target price reflects our ReNAV and implies ~3.2x the current share price.

First mover in Uzbekistan upstream gas…
In 1Q24, after 4 years of negotiations, Condor took over >65 mmcfe/d of production from 8 gas condensate fields previously operated by the national company. While Uzbekistan is a gas exporter, limited western technology has been deployed and natural gas production is now declining at ~5-10%/y. The geology is very similar to Western Canada and, in just 3 months, Condor has arrested its fields’ decline. The plan is to deploy proven technologies widely used in Canada to increase production by ~50% over the coming 3-4 years. We estimate that the program will recover 40-50 mmboe. There are additional low hanging fruit at deeper undrilled horizons and untapped prospects. Condor is the only independent western E&P in Uzbekistan and it could be awarded other large fields.

… and in Kazakhstan LNG for the transportation sector
Natural gas in Kazakhstan is sold at US$6-7/mcf. Condor has already signed a contract to buy enough feed gas to produce up to 340 t/d of LNG. Another agreement for a further 400 t/d is expected to be signed in 2H24. The phased construction of the 1st LNG plant is expected to start in 4Q24. Phase 1 (~170t/d of LNG) has an estimated capex of US$41 mm and generates US$25 mm/y of free cash flow (FCF) one year later. This funds Phase 2 (~170 t/d) in 2027 plus a new plant (400 t/d) in 2028. Both plants could generate total FCF of US$110 mm/y (=135% of the current market cap).

Value build-up
Our NPV15 for the company based on Uzbekistan production (base case) alone is ~C$1.20/sh. Sanctioning Phase 1 of the 1st LNG plant adds ~C$2.20/sh. Phase 2 adds C$2.00/sh and the 2nd plant ~C$4.10/sh. Our ReNAV is >C$5.80/sh with an unrisked NAV of C$9.70/sh.