PetroTal Corp (AIM: PTAL): Preserving capital in the context of drilling delays impacting FY26 production
• 3Q25 production and net cash figures as of end-September have already been disclosed.• Bretana field output averaged 14,983 bbl/d during the first 10 days of November. Only one of the five wells previously shut due to tubing leaks has been worked over and returned to production so far.
• Drilling activity is now postponed to mid-2026, following further delays with PetroTal’s own rig (previously expected to restart in 1Q26). This materially impacts the production trajectory and operating cash flow. With minimal activity expected until summer, we now anticipate a decline in output through 1H26, followed by a gradual recovery. FY26 production is forecast at 12–15 mbbl/d. The lower end of the range reflects no activity in 2026. We were previously assuming ~19.5 mbbl/d.
• In light of reduced production and Brent assumptions of US$60–65/bbl, PetroTal has opted to suspend its dividend until further notice.
• Greater clarity on the 2026 development programme is expected in January. PetroTal may prioritize expanding water handling capacity, which would enable the reactivation of high water cut wells currently offline due to water handling constraints. Bretana wells can reach water cuts of up to 98%. For context, producing 15–20 mbbl/d of oil from such wells would generate ~750–1,000 mbbl/d of total fluid, while current water handling capacity stands at just ~170 mbbl/d.
• Ahead of the FY26 budget release, we have revised our production forecast to ~14 mbbl/d, while maintaining our capex assumption at ~US$100 mm.
• We have changed our target price to £0.80 per share.
Reflection on dividend distributions and balance sheet
PetroTal reported a cash balance of US$141.5 mm at the end of September. With only ~US$15 mm in capex expected during 4Q25, the company’s year-end cash position is projected to exceed US$150 mm. The suspension of dividend payments provides additional flexibility, saving approximately US$55 mm annually. For 2026, we forecast operating cash flow of US$60–75 mm, at US$65–70/bbl for Brent. Even under a FY26 capex scenario of US$100–120 mm (inclusive of erosion control investments) and ~US$15 mm in debt principal repayments, PetroTal would retain US$75–110 mm in cash by year-end. Assuming ~US$15 mm remains restricted, the company would still hold a comfortable unrestricted cash buffer of US$60–95 mm.
Valuation
Our 2P Core NAV now stands at £0.61 per share, representing a multiple of the current share price, with a ReNAV of £0.80 per share.
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