Criterium Energy Ltd (TSX-V: CEQ): Initiating Coverage
South East Asian focused growth storyCriterium is a new Toronto listed ~US$10 mm market cap company focusing on South East Asia. In very short order, Criterium raised >C$5 mm of new equity in 2H22 and subsequently acquired 42.5% WI in the Bulu PSC (308-420 bcf field offshore Java) for ~US$1.6 mm. With many sellers looking to reduce their exposure to hydrocarbons, a management team with extensive experience in the region and limited competition, Criterium is poised to rapidly assemble a production portfolio with visibility on 2-3 mboe/d by YE23 increasing to 8-10 mboe/d by 2026. The eye-catching acquisition by Valeura Energy of ~20 mbbl/d production in Thailand for just ~US$10 mm and the A$45 mm IPO of Conrad Asia Energy (Indonesia gas assets) in 2022 highlight the attractiveness of the region for Junior E&Ps.
South East Asia: Successful breeding ground for E&Ps
South East Asia has historically been dominated by large oil and gas companies (majors, large independents or NOCs). With the region maturing, less appetite for exploration and ESG pressures to reduce exposure to hydrocarbons, the traditional asset holders such as Mubadala, Repsol, Shell, OMV and ConocoPhillips have been divesting properties, sometimes at very low prices. Junior E&Ps such as Jadestone Energy and Valeura Energy have each acquired ~20 mboe/d in just a few years. With a renewed focus on these assets, new owners are able to arrest production decline and sometimes reversed it. This has generated excellent returns for investors. Jadestone’s share price has multiplied by 2.5x while Valeura’s has increased by 400% in six months.
Criterium differentiators
Criterium’s management has been active in the region for decades, which should provide access to non-marketed deals. Criterium’s CEO, COO, CFO and commercial manager were with Talisman/Repsol in South East Asia with specific experience in Vietnam, Indonesia and Malaysia. Criterium’s Chairman was responsible for Shell in Malaysia and North East Asia and the Director for Indonesia held GM and CEO roles within multiple Pertamina upstream and midstream subsidiaries. The competition that Criterium will face for the first acquisitions is likely to be limited; the few competitors in the region are now much larger than Criterium and can be expected to chase more material assets than those which Criterium is initially looking at.
Valuation
Since Criterium’s current assets are its cash position and its development asset in Indonesia, we are not proposing a target price until the company executes a production transaction. Net cash at the end of 3Q22 was ~C$0.025/sh. Our ReNAV based on Bulu is ~C$0.100/sh. The readthrough value of Criterium based on Conrad Asia’s market cap is ~C$0.410/sh.
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.
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