Criterium Energy Ltd (TSX-V: CEQ): Signing a binding sale agreement for Bulu for US$7.75 mm. Initial US$0.5 mm already received
• Criterium has signed a binding sale agreement for its interest in the Bulu PSC for US$7.75 mm in cash. The price is in line with previous indications.• This is a very important announcement as it provides more clarity on the divestment, the proceeds of which will boost the company's balance sheet and allow it to accelerate its investment program and grow production faster.
• The total proceeds from the divestment are greater than the company's current market capitalization.
• Pending the completion of the transaction, we are keeping our capex and production profile unchanged. Criterium could decide to repay some additional debt in exchange for a write-down. This could reduce the amount of cash interest by a significant amount (the debt currently carries an 8.6% interest rate per annum). As an illustration, Criterium had previously indicated that repaying US$5.5 mm of debt would trigger a US$3.8 mm additional debt write down and therefore reduce interest payments by US$0.8 mm per year (representing >10% of the current market cap).
• The FY24 capex could also be increased from the current guidance of US$4.8-5.5 mm. US$10 mm capex could boost production from 1.2-1.3 mbbl/d to 2 mbbl/d.
• As we incorporate the proceeds from the divestment of Bulu into our financial forecasts, we are revising our target price from C$0.30 per share to C$0.35 per share in line with our new ReNAV.
Timing of the transaction
The proceeds of the sale consists of (1) US$0.5 mm that has already been paid, (ii) US$1.5 mm prior to closing , and (iii) US$5.75 mm on closing. Closing is expected before August 31, 2024
Valuation
We have incorporated the proceeds of the divestment of Bulu into our financial forecasts (we previously treated the asset as a risked upside with a 50% chance of success). We are increasing our Core NAV and ReNAV from C$0.22 per share and C$0.32 per share, respectively, to C$0.25 per share and C$0.35 per share. Keeping everything else unchanged for the time being, we now forecast that the company's year-end 2027 net cash will exceed the market capitalization.
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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