Longboat Energy plc (AIM: LBE): Accretive acquisition of producing assets transforms the profile of Longboat

• Longboat Norge (50.1% owned by Longboat) is acquiring ~300 boe/d production and 1.55 mmboe of 2P reserves (~77% liquid) across 2 assets (4.8% unitized interest in the Statfjord Øst Unit and a 4.32% unitised interest in the Synga Unit) from INPEX Idemitsu for US$12.75 mm.
• Longboat Norge will also pay a further deferred, post-tax consideration of US$1.75 mm in equal stages over the next 18 months as a decommissioning security, which will be returned at the time of decommissioning in late 2030s.
• The acquisition triggers the additional US$4 mm contingent cash equity injection into Longboat Norge (US$2 mm net to Longboat) by JAPEX.
• This transaction transforms the profile of Longboat as it becomes a producer in line with the company’s stated goals. The business will now be underpinned by cashflow. As a producer, the standing of the company as a counterparty in Norway is significantly enhanced.
• The transaction is accretive as it unlocks trapped 6.2% tax losses that were not recoverable under the 71.8% cash exploration refund (versus a total tax rate of 78%). Based on Longboat’s historic capex programme (until YE23), we estimate that this unlocks an additional ~US$5 mm of value. Overall, the transaction adds ~US$24 mm of NPV to Longboat Norge (US$15.3 mm NPV for the asset as estimated by the CPR + US$5 mm of tax synergies + US$4 mm from additional JAPEX equity) at an acquisition cost of US$12.75 mm. Net to Longboat’s 50.1% stake, this adds ~US$5.5 mm of net value. Importantly, this transaction is entirely funded through the deal with JAPEX (expected to complete imminently).
• We re-iterate our target price of £0.90 per share. The key near-term news flow includes the drilling of Velocette (3Q23) with an unrisked NAV of £0.72 per share.

Potential upside at acquired assets
The transaction has an effective date of 01/01/2023 and is expected to complete in late 2023 with a cash payment at completion similar to the headline price given the FY23 five well infill programme at Statfjord Øst (250 boe/d net current production). Longboat indicated that this could double the overall net production to 600 boe/d in 2024. This could be too conservative given that the independent reserves auditor forecasts >800 boe/d net production in 2024 in the 2P reserve case with an upside of ~1.2 mboe/d in the 3P case.

Valuation
The positive impact of the transaction on our NAV is offset by the strengthening of the £ versus the US$. Our Core NAV stands at £0.33 per share with a ReNAV of £0.90 per share.