Criterium Energy Ltd (TSX-V: CEQ): Transformational acquisition in Indonesia

• Criterium is delivering on its plans by acquiring Mont D’Or Petroleum with long life and high netback production of 1,050 bbl/d and 4.7 mmbbl 2P reserves across 2 PSCs in Indonesia (Tungkal in South Sumatra and West Salawati in Southwest Papua).
• With important spare capacity in existing infrastructure and very low drilling costs (US$1.5 mm per well) at Tungkal, Criterium plans to increase production by ~50% by the end of 1Q24 and to ~3 mbbl/d by YE25 within cashflow. Criterium is also exploring the possibility of monetizing 20 bcf (~3.3 mmboe) contingent resources at existing gas discoveries through underutilized gas infrastructure to add ~1.5 mboe/d production. These resources would be converted into reserves on FID.
• The two PSCs offer important sources of potential further upside. The recovery factor to date at the main field at Tungkal is only 6% and the 2P reserves imply only 11%. The 3P case adds a further 2 mmbbl at a 14% recovery factor. Step out drilling and waterflood could increase recovery factor to 30% (in line with analog fields) and add a further 14 mmbbl. P50 prospective resources of 27 mmboe have been mapped at Tungkal.
• Recompleting an onshore well at West Salawati could add 200 bbl/d by YE23 with the opportunity to add 2 mmbbl in nearby structures. There are also many large leads offshore that Criterium plans to farm-out.
• With line of sight on production of 8.5-9.6 mboe/d (incl. Bulu) by 2026, the story is about cashflow growth and large reserves and exploration upside. We are setting our target price at C$0.95/sh close to our ReNAV.

Transaction details
The consideration for the acquisition is the assumption of US$32.5 mm of debt plus US$1 mm in Criterium shares. The US$32.5 mm represents a write down of US$4.3 mm to face value. Of the debt, a further US$4.9 mm will be converted into Criterium shares (US$2.5 mm on closing and US$2.4 mm in 2025). Criterium is raising US$16 mm of new equity, US$7.9 mm of which will be used to pay down debt and the balance to grow production. Including existing cash of ~US$9 mm in Mont D’Or and ~US$2 mm at Criterium, Criterium will hold ~US$17 mm in cash and US$19.7 mm in debt on closing. The transaction is expected to close in July.

Valuation
The acquisition is immediately free cash flow generative. Assuming US$75/bbl for Brent and an equity raise priced at C$0.40/sh, we forecast that the company’s net cash will be approximately the current market cap by YE26. We estimate the value of the company based on its development programme at ~C$0.51/sh. Drilling the 2C contingent oil resources adds C$0.24/sh unrisked while sanctioning the gas aggregation project adds a further C$0.09/sh to C$0.84/sh. The unrisked value of Bulu stands at C$0.27 to C$0.31/sh. Our ReNAV is C$0.94/sh.