Proactive Investors - Run By Investors For Investors

VSA CAPITAL MARKET MOVERS - Colombus Energy Resources

VSA CAPITAL MARKET MOVERS - Colombus Energy Resources

VSA Morning Flow Test, 18/04/19

Click here for PDF version

Keep reading VSA research for free – Click here for our position on MIFID2


Columbus Energy Resources (LON:CERP)

Columbus Energy Resources (CERP LN)# has provided Q1 2019 quarterly operational update demonstrating significant progress in progressing the SWP exploration programme with a well location chosen for Q3 2019 and advanced discussion in relation to the acquisitive growth strategy in South America.

Production for the quarter averaged 602 bopd, up 20% YoY, but down 10% QoQ to an average of 670 bopd. Although Q4 2018 had been impacted by severe weather conditions in the last quarterly update we highlighted management’s focus on producing profitable barrels. Given the production contracts under which CERP operates and relationship between the contracts, Special Petroleum Tax (SPT) and the relationship to benchmark oil prices CERP is now demonstrating this strategy effectively, in our view.     Price variation in the WTI US$50-60/bbl range is particularly important in this regard given the taxation thresholds.

In order to avoid negative impacts from this step change in taxation CERP reduced well work activity to a single workover rig being used continuously in Q1 2019 compared to up to four units being operated in Q4 2018. Gross revenues were therefore down 14% QoQ to US$2.78m (Q4 2018:US$3.23m), partly due to reduced production and a 3.3% decrease in realised sales price from operations in Q1 2019 at US$55.67 (US$57.58/bbl in Q4 2018).

However, we highlight two crucial points from this quarter; despite the decline in production and lower revenues CERP increased operating cashflow 8% QoQ to US$0.4m demonstrating the effectiveness of the strategy. Secondly, with peak production of 1,000 bopd achieved in late January and production exceeding 860 bopd on three occasions during the quarter this indicates that under more favourable economic conditions the option to increase production remains intact. Technical progress was also made with regard to the waterflood programme.

As a consequence, cash at the end of the quarter decreased to US$2.06m (Q4 2018: US$2.60m) while the Lind debt facility reduced to US$0.26m (Q4 2018: US$0.40m.  The Lind US$3.25 million loan facility which was established in July 2018, expired in early January 2019 without any drawdown as expected.

South West Peninsula

Operations in the South West Peninsula (SWP) have progressed with detailed technical studies providing information to conduct an exploratory drilling programme in the region and a well site has been identified for Q3 2019. The SWP has identified over 12 shallow and deep prospects ranging in size from 20mmbbl up to 400mmbbl with the potential for stacked vertical targets. The drilling programme will be funded from available resources and is intended to commence in Q3 2019, subject to receiving Government approvals. We previously highlighted the beneficial rig access arising from the Steeldrum acquisition which is partly why the well cost can be funded from existing cash resources. The first well will test the Middle Cruse, covered by existing environmental permits and technical consultants are supporting management with finalising preparations for the initial hole and ongoing campaign. We highlight that whilst the IPSC at Goudron has hampered recent performance, one of this management teams initial successes was to renegotiate the relevant contracts enabling more attractive returns arising from exploration success.

At the Inniss-Trinity CO2 project, the company continued to work with the relevant Trinidad authorities and partner Predator Oil & Gas (PDR LN).  Following the receipt of approval for conduct of the CO2 Enhanced Oil Recovery pilot project from Heritage Petroleum Company, PRD will commence first injections in late Q2 2019 or early Q3 2019, subject to the receipt of the remaining regulatory approvals. 

Acquisitive Growth Strategy

The company remains committed to sourcing additional M&A opportunities and CERP is in exclusive discussions for the award of a concession in a South American country, following a tender process.  The company reports the potential opportunity would involve a low cost discovered onshore oilfield in an established hydrocarbon province and management expects to be able to follow up with further detail in mid-2019. 

Although absolute production numbers have perhaps disappointed in Q1 2019, the positive QoQ impact on financials underpins our confidence in the near-term production strategy. With exploration at SWP now approaching, where the potential is significantly greater than the existing production assets, this indicates near term catalysts for the shares as this represents the realisation of the broader strategy that management has been laying the groundwork for in recent months.

We reiterate our Buy recommendation and 21.4p target price.





Disclaimer: This research report has been prepared by VSA Capital Limited and is solely for, and directed at, persons who are Professional Clients as defined under Annex II of the Markets in Financial Instruments Directive, Directive 2004/39/EC, or as defined in the FCA Handbook. Persons who do not fall within the above category should return this research report to VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD, immediately.
This research report is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. It is being supplied to you solely for your information and may not be reproduced, forwarded to any other person or published, in whole or in part, for any purpose, without out prior written consent.
This research report is exempt from the general restriction on the communication of invitations or inducements to enter into investment activity and has therefore not been approved by an authorised person, as would otherwise be required by Section 21 of the Financial Services and Markets Act 2000 (the "Act"), as amended by The Financial Services and Markets Act 2012.
Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities.
The information and opinions contained in this research report have been compiled or arrived at by VSA Capital Limited (the "Company") from sources believed to be reliable and in good faith but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. All opinions and estimates contained in the research report constitute the Company's judgments as of the date of the report and are subject to change without notice. The information contained in the report is published for the assistance of those persons defined above but it is not to be relied upon as authoritative or taken in substitution for the exercise of the judgment of any reader.
The Company accepts no liability whatsoever for any direct or consequential loss arising from any use of the information contained herein. The company does not make any representation to any reader of the research report as to the suitability of any investment made in connection with this report and readers must satisfy themselves of the suitability in light of their own understanding, appraisal of risk and reward, objectives, experience and financial and operational resources.
The value of any companies or securities referred to in this research report may rise as well as fall and sums recovered may be less than those originally invested. Any references to past performance of any companies or investments referred to in this research report are not indicative of their future performance. The Company and/or its directors and/or employees may have long or short positions in the securities mentioned herein, or in options, futures and other derivative instruments based on these securities or commodities.
Not all of the products recommended or discussed in this research report may be regulated by the Financial Services and Markets Act 2000, as amended by The Financial Services and Markets Act 2012,  and the rules made for the protection of investors by that Act will not apply to them. If you are in any doubt about the investment to which this report relates, you should consult a person authorised and regulated by the Financial Conduct Authority who specialises in advising on securities of the kind described.
The Company does and seeks to do business with the companies covered in its research reports. Thus, investors should be aware that the Company may have a conflict of interest that may affect the objectivity of this report. To view our policy on conflicts of interest and connected companies, please go to:
Investors should consider this report as only a single factor in making their investment decision.
The information in this report is not intended to be published or made available to any person in the United States of America (USA) or Canada or any jurisdiction where to do so would result in contravention of any applicable laws or regulations. Accordingly, if it is prohibited to make such information available in your jurisdiction or to you (by reason of your nationality, residence or otherwise) it is not directed at you.

© Proactive Investors 2019

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use