PetroTal Corp (AIM: PTAL): Opening a new export route to maximize production
• Production continues to be impacted by the reduced barge movements to/from Brazil during the low river dry season. The river levels are lower compared to the 2022 dry season. 3Q23 production was 10,909 bbl/d, below our forecast of ~12 mbbl/d. Current production is ~12.5 mbbl/d.• 4Q23 production is now expected to be 14-14.5 mbbl/d, below our forecasts of ~16 mbbl/d. Assuming the river levels recover in December, FY23 production is expected to be near the lower end of the 14-15 mbbl/d guidance.
• PetroTal will start a pilot 0.1 mmbbl oil sales shipment through the OCP Ecuador pipeline to the Esmeralda’s port in November. This involves 1,000 km of river barging and 115 km of trucking. Netbacks are expected to be similar to the Brazil route (~US$44/bbl at US$85/bbl for Brent).
• With the ONP (Northern Peruvian Pipeline) still shut down, the OCP route provides risk diversification by providing a route for 2-4 mbbl/d initially and then up to 5 mbbl/d. The barges used for this route are similar to the barges used for the Iquitos route and are different from the barges for the Brazil route. The rainy season though the Ecuador route is opposite to Brazil’s, allowing PetroTal to divert exports during the 3Q-4Q period when river levels are low through Brazil. PetroTal’s sales have been historically constrained by lack of export capacity and the well head production had to be chocked back. The well head production capacity was recently ~20 mbbl/d.
• PetroTal is considering three other potential export routes that could add a further 15 mbbl/d: (i) reaching directly station 5 (+5 mbbl/d), (ii) through Yurimaguas (+5 mbbl/d) and (iii) directly to Lima (+5 mbbl/d).
• The current quarterly dividend of US$0.025 per share (US$0.10 per share per year) continues to represent a dividend yield of >17%. The ongoing share buyback programme represents a further return of >2% per year. We re-iterate our target price of £1.50 per share.
Strong balance sheet
PetroTal held US$113 mm in cash at the end of September including US$19 mm of restricted cash. This is US$30 mm above our expectations and reflects large reduction in receivables that have been paid during 3Q23 (US$67 mm at the end of September vs US$101 mm at the end of June).
Valuation
Our Core NAV of ~£1.10 per share and ReNAV of ~£1.50 per share are broadly unchanged. Assuming US$90/bbl for Brent from 3Q23, we forecast that PetroTal will have returned >US$100 mm (~20% of the current market cap) in dividends and share buybacks by YE24 and still hold ~US$220 mm in working capital (and no debt) by then.
PetroTal is an energy company engaged in the exploration for, and development of, crude oil and natural gas in selected areas of the world outside Canada. Co. has interests in four countries, the United Kingdom (offshore and onshore), Romania (offshore and onshore) France (onshore) and the Netherlands (offshore). Each country has established hydrocarbon basins, extensive infrastructure and attractive contractual and fiscal terms. As of Dec 31 2010, total gross proved plus probable reserves for light or medium oil consisting of 0.010 million barrels, natural gas consisting of 186.101 billion standard cubic feet and natural gas liquids consisting of 0.757 million barrels.
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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