Columbus Energy Resources (LON:CERP)
Columbus Energy Resources (LON:CERP) has provided a significant update announcing the signing of a sale and purchase agreement for the acquisition of producing oil assets in Trinidad as well as a positive operational update for Q2 2018 with gross revenue in H1 2018 of US$5.65m and operating netbacks of US$1.64m. This demonstrates the successful achievement of positive operating cashflow while the announcement highlights in no uncertain terms management’s ability to deliver on the ambitious growth strategy necessary to deliver the further positive returns for shareholders we expect. Indeed, CERP now has rising production from Goudron and BOLT as well as potential additional production from onshore Trinidad properties alongside the considerable exploration potential at the South West Peninsula.
The SPA covers the acquisition of Steeldrum Oil Co. which has three assets and total current production of 200-250bopd with recoverable 2P reserves of 5.6mmbbl; 100% owned Innis Trinity field (120-150bopd with reserves of 4mmbbl), 100% owned South Erin field (80-100bopd with reserves of 1.6mmbbl) and an 83% operated interest in Cory Moruga development project expected to have recoverable reserves of 1.1mmbbl. The initial consideration for Steeldrum is £4.4m (US$5.8m), based on last close, to be paid via the issuance of 92.7mn Columbus shares (12.5% of the current share capital). A further 49.8m shares may be issued to the vendors should certain contingent actions be realised. The total potential value of the consideration is £5.8m, close to US$1.38/bbl which appears attractive, in our view. The full issue would give the vendors, who have significant expertise in the oil and gas industry, 18% of the enlarged share capital of the company which we believe will align their interests with existing shareholders, enabling CERP to pay a lower up front fee which allows the vendors to benefit from future upside. Furthermore, by transacting in shares rather than cash this is beneficial for CERP’s balance sheet.
Q2 2018 Update
In Q2 2018, CERP achieved average monthly oil production of 574bopd, 532bopd and 553bopd in April, May and June respectively with a peak of 648bopd. Significant progress has been made in relation to sand production issues which can be replicated on other wells and the increased availability of water volumes indicates the waterflood programme can be ramped up further in H2 2018. This is in line with our revised estimate of an average of 675bopd for the full year. Gross revenue of US$3.01m in Q2 2018 was up 14% QoQ while operating netbacks of US$0.94m were up 35% QoQ confirming CERP’s return to positive operating cashflow. Although only gross dollar revenues are presented in this update we believe that this demonstrates significant progress for CERP.
In light of the SPA for Steeldrum the management team has agreed a new Lind facility which CERP could drawdown should it need to. This facility lasts just six months and is a contingency which could be utilised in the event of unforeseen circumstances (particularly in relation to the Steeldrum acquisition), we do not currently anticipate that the facility will be utilised but the flexibility is highly beneficial to CERP, in our view. However, we believe that the terms of the deal are indicative of the strong progress the team has made and the further potential that Lind themselves see in CERP. The prior facility’s outstanding balance now stands at US$0.59m.