Criterium Energy Ltd (TSX-V: CEQ): Results of work-over campaign above expectations. New drilling to start in August
• The work-over programme has delivered a production increase of 180 bbl/d from six wells at a total cost of US$0.36 mm. This represents an average increase of ~30 bbl/d, which is 50% above management’s expectations (20 bbl/d). The overall costs are on budget.• One of the worked-over wells, MGH-07, is now producing 40 mcf/d of natural gas (no natural gas production previously). The produced gas is used as fuel for power generation, directly reducing diesel consumption by 50%, resulting in an annualized operating cost savings of ~US$0.25 mm and reducing emissions (0.5ktpa) associated with Criterium’s operations at the same time.
• The payback period for five out of the six work-overs is estimated to be only 15-85 days and the aggregate program will have paid back by end of June.
• Production has now increased from 802 bbl/d in 1Q24 (and 870 bbl/d in late May) to ~910 bbl/d with two additional work-overs on stream compared to the end of May.
• A further 6-9 workovers are planned in 2024. The next work-over programme will start in July. Criterium has also identified follow-on workovers targeting gas zones within the field to ensure gas production can support power generation needs, reducing operating costs.
• Drilling operations are expected to start in August with two wells expected to be completed by the end of 3Q24.
• Criterium continues to anticipate the completion of the divestment of Bulu for US$7.75 mm by the end of August. This would have a very positive impact on the company’s balance sheet and its ability to increase production. Including the divestment of Bulu, we forecast YE24 net debt of US$14 mm, which could be reduced further by paying down the existing debt in return for additional write-down.
• With the divestment of Bulu on track to complete by the end of August, we re-iterate our target price of C$0.35 per share in line with our ReNAV.
Re-iterating the FY24 guidance
The company has re-iterated its YE24 production guidance of 1.2-1.3 mbbl/d with US$4.8-5.5 mm capex. We forecast 1,250 boe/d production in 4Q24. This would lead to >C$2 mm operating cashflow (after amortization payments) in 4Q24.
Valuation
Our Core NAV and ReNAV are unchanged at respectively C$0.23 per and C$0.33 per share.
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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