PetroTal Corp (AIM: PTAL): Generous capital return: 10% buyback plus ~13% dividend yield
• YE22 net cash and 4Q22 production had already been reported.• Production continues to be very high with 20,500 bbl/d production to date during March.
• PetroTal expects to sell >19 mbbl/d through Brazil in March and >18 mbb/d in April. This would be the highest level achieved though that route. This is important because the net backs through Brazil are higher than through the ONP.
• PetroTal has re-iterated its FY23 production guidance of 14-15 mbbl/d. There is however an upside case of 17 mbbl/d for 2H23 depending on river levels. We only assume 14.9 mbbl/d in 2H23.
• With the bond now fully repaid, PetroTal is launching a generous capital return programme with a share buyback programme for up to 10% of the share capital over a period of 12 months from 2Q23 and a US$0.015 per share quarterly dividend. On an annualized basis, this represents ~13% dividend yield, one of the highest in the sector.
• We re-iterate our target price of £1.50 per share.
Comparing dividend yield across the sector
PetroTal’s dividend yield of ~13% is one of the highest of the sector. Only Diversified Energy and Ithaca Energy (21%) offer a higher yield (~15% and ~21% respectively) with Genel Energy and Gulf Keystone Petroleum offering ~13% (based on declared dividends so far in 2023 for Gulf Keystone). These two names have assets in Kurdistan and with the export pipeline to Turkey now shut-in and renewed challenges in collecting payments for produced oil, these levels might not be sustainable. The other highest dividend payers (Alvopetro Energy, Tethys Oil, Aker BP, Canacol Energy, Energean, Serica Energy, Harbour Energy and Panoro Energy) offer annual dividend yield of 7-11% while Parex Resources (Colombia)’ yield is only ~3.7% and Jadestone Energy (Thailand, Malaysia and Australia), ~2.3% (expected). PetroTal’s proposed dividend compares favourably with the European super majors having a dividend yield of ~3-4%.
Valuation
Our Core NAV based on the 2P reserves is unchanged at ~£1.10/sh with a ReNAV of ~£1.50/sh. Assuming 50% WI and 80% drilling success, Osheki Kametza could produce ~35 mbbl/d production et to Petrotal in 2031. We are not including this prospect in our valuation yet. We forecast that the company will generate ~US$125 mm free cash flow including the payment of receivables by Petroperu in 2023 (pre capital return) and ~US$160 mm in 2024. Assuming U$80/bbl for Brent from 2Q23, the free cash flow for 2023 would be US$95 mm and US$100 mm for 2024.
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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