Criterium Energy Ltd (TSX-V: CEQ): Initiating Coverage
• The C$22 mm offering for the acquisition of Mont D’Or Petroleum has been priced at C$0.20 per subscription receipt. Each subscription receipt will convert into a unit comprising one share and one warrant with an exercise price of C$0.25 per share valid for 36 months.• On completion of the acquisition, Criterium will hold 1,050 bbl/d long life and high netback production and 4.7 mmbbl 2P reserves across 2 PSCs in Indonesia (Tungkal in South Sumatra and West Salawati in Southwest Papua).
• On closing, the company will have ~US$17 mm in cash (excluding the proceeds from the exercise of the warrants) and US$19.7 mm of debt. The post money market cap will be ~US$26 mm (~US$50 mm when including warrants and options, most of which are currently out of the money or priced at or very near the current share price).
• As we incorporate the pricing of the transaction, which reflects the current difficult market conditions and is lower than we anticipated, we have reduced our target price from C$0.95 per share to C$0.55 per share, which is close to our new ReNAV per share.
• With line of sight on production of 8.5-9.6 mboe/d (incl. Bulu) by 2026, the story continues to be about cashflow growth and significant reserves and exploration upside.
Cashflow and netbacks
Mont D’Or’s key asset (Tungkal) is located onshore with very low costs. With minimal obligations, this allows Criterium to develop the fields at a pace that can be adjusted according to oil price and balance sheet limitations. With operating netbacks of ~US$38/bbl at US$75/bbl Brent, the assets are very low risk and very resilient to a low oil price. The acquisition is immediately free cash flow generative. Net of growth capex, we forecast that the company’s aggregate free cash flow from 2023 to 2025 will be equal to the company’s market cap.
Valuation build-up
As we incorporate the pricing of the offering, we now estimate the value of the company based on its development programme at ~C$0.33/sh. Drilling the 2C contingent oil resources adds C$0.11/sh unrisked while sanctioning the gas aggregation project adds a further C$0.04/sh to C$0.48/sh. Drilling success at the Cerah prospect would add a further C$0.11 per share. The unrisked value of Bulu stands at C$0.12 to C$0.14/sh. Our ReNAV is C$0.53/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.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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