Criterium Energy Ltd (TSX-V: CEQ): Further improvements on Mont d’Or transaction terms
• The completion payment by Criterium on the closing of the Mont d’Or acquisition has been reduced by 60% to US$4.5 mm.• The pro forma working capital held by Mont d’Or is estimated at ~US$8 mm.
• Only US$4.1 mm will now be repaid to Mont d’Or debt holders on completing the acquisition (US$9.6 mm previously) with US$0.5 mm being written down (US$4.3 mm previously).
• With these improved terms, Criterium no longer requires the expensive and dilutive ~US$9 mm (C$12.2 mm) convertible funding (US$8 mm net of costs).
• The terms of the C$6.7 mm of new equity are unchanged but the overall funding transaction is much less dilutive than previously. While the share count on closing is unchanged (~139 mm shares), the omission of the C$12.2 mm convertible debt results in a fully diluted share count of only 277 mm shares (assuming C$0.14/sh for the conversion price of the existing residual Summit debt) versus 433 mm previously. In addition, interest payments over 2024-2026 will be reduced by ~US$5 mm. The participants in the new equity issue will hold 45% of issued share capital on closing (post money).
• On completion of the acquisition, Criterium is expected to hold US$25 mm of debt and US$8 mm in cash (including US$4.5 mm of new equity) resulting in US$17 mm in net debt (excluding US$3.0 mm of Mont d’Or residual debt to be converted into equity in 2025).
• Criterium holds an option to paying down a further US$5.5 mm of debt (triggering a further US$3.8 mm debt write down) in Q1 2024. This payment is anticipated to be funded from cash on hand and will reduce net debt to ~US$8 mm (excluding the Mont d’Or residual debt). This compares very favourably to the previous expectation of net debt of US$20 mm.
• We are increasing our target price to C$0.50 per share.
Valuation build-up
We have now incorporated the gas development in our forecasts (estimated US$20 mm capex in 2025) but assume the low capex scenario for oil. We estimate the value of the company based on the low case oil development programme at ~C$0.21/sh. Developing the gas adds C$0.17/sh. The oil enhancement oil programme and the 2C development add C$0.14/sh each for a total of C$0.66/sh. By YE27, we forecast that Criterium’s net cash will be 3x post money market cap at the issue price. Once the gas development is on stream during 2025, the company generates free cash flow representing ~2x the post money market cap at the issue price and assuming US$70/bbl for Brent every year.
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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