PetroTal Corp (AIM: PTAL): Acquisition in Peru – More than meets the eye
• PetroTal is acquiring Block 131 onshore Peru including the Los Angeles field from CEPSA for US$5 mm. The field produces ~900 boe/d from 4 existing wells and holds 4.9 mmbbl of 40-45 deg API oil 2P reserves.• We estimate that 3 new wells (at ~US$12 mm per well) could increase production to 2-3 mbbl/d. There are also opportunities to develop bypassed oil with horizontal wells drilled high on the structure.
• The oil is currently sold at the Iquitos refinery and passes by the Bretana field (in barges). Although the oil commands high realizations, given the current low production and high royalty (23.9%), we estimate that the netbacks are currently ~US$20-25/bbl. Doubling production could increase these netbacks to ~US$40/bbl. Potential cost reduction initiatives could improve the netbacks further.
• We view this acquisition as very accretive on a standalone basis. It also offers important area of synergies that will boost the value of Bretana.
• The light oil from Los Angeles can be blended with the heavier oil from Bretana enabling a lower discount to Brent for Bretana crude. We currently assume an improvement of US$1/bbl. This blend would also allow the Iquitos refinery to handle more crude from Bretana. We have assumed that 1 bbl/d of Los Angeles crude blended with Bretana crude allows Iquitos to process 1 bbl/d of extra crude from Bretana. 2 mbbl/d production from Los Angeles would therefore result in 3 mbbl/d production from Bretana (~1 mbbl/d currently) to be processed at Iquitos irrespective of the dry season restrictions. This has positive impact on overall average netbacks as the Iquitos route commands US$6/bbl premium compared to the Brazil route.
• The location of Block 131 is of strategic importance, as it is connected by a 130 km highway to the company’s Block 107.
• We have increased our target price from £1.45/sh to £1.50/sh to capture some of the impact of the acquisition. Given the effective date of 01 January 2024, we anticipate that there will be no cash consideration due on closing that we assume at YE24. This is partially offset by higher capex.
Reflections of the 1Q24 update
The 1Q24 production of 18,518 bbl/d and unrestricted cash position of US$62.5 mm were in line with expectations. PetroTal continues to target ~19 mbbl/d production in 2Q24. Bretana continues to experience riverbank erosion, which has surpassed initial expectations. The estimated project cost to protect the riverbank has increased by US$15 mm. The rig could not be released as expected and PetroTal will drill an additional water disposal and an additional oil well increasing FY24 capex by a further US$15-25 mm.
Valuation
Our ReNAV is increased to £1.45/sh to ~£1.50/sh.
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.
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