PetroTal Corp (AIM: PTAL): Another (probably short lived) river blockade
• The Indigenous Association for Development and Conservation of Bajo Puinahua (AIDECOBAP) has started a violent blockade in the Puinahua Canal against all ships providing services to PetroTal, preventing the monetization of oil production.• This has happened several times in the past and has historically been resolved quickly. During social activism-related downtime, over US$50,000 per day is forfeited from future social trust allocations. Already US$8 mm has been accumulated in a social fund by PetroTal in a restricted bank account.
• This river access disruption coincides with planned production reductions to tie in previously installed infrastructure. Production in June to date has therefore been only 10 mbbl/d. From 8 June, the field will be shut in for ~5 days for field installation work.
• The story continues to be about significant free cash flow generation, production and reserves growth with generous shareholders returns through a share buyback programme of ~US$3 mm per quarter and a US$0.015 per share quarterly dividend (~11% annual dividend yield).
• We are not changing our forecasts for the time being and we re-iterate our target price of £1.50 per share.
Who is AIDECOBAP and what do they want?
AIDECOBAP was behind the blockade that occurred in 4Q22. They represent a small portion of the communities in the Loreto area. Together with two other community groups, they are part of the working table to decide on the allocation of the social fund and they have proportional voting rights on the committee. The current blockade appears to have been triggered by their desire to have enhanced rights beyond the proportion of the population they represent.
Valuation
Our Core NAV of £1.08 per share and ReNAV of ~£1.50 per share are unchanged. Assuming US$75/bbl for Brent from 3Q23, we forecast that PetroTal will have returned ~US$50 mm in dividends and share buybacks in 2023 and will still hold ~US$145 mm in net working capital at YE23. At YE24, the net working capital would be ~US$165 mm net of a further dividend distribution of US$55 mm in 2024.
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