Reabold Resources PLC (AIM:RBD)'s recent strides in its Italian gas development project have caught the attention of many, not least finnCap, the corporate broker. Drawing from its research note, here's an analytical breakdown of the developments:
Regional support
The Abruzzo regional government's intention to approve the Early Production Programme (EPP) for the Colle Santo gas field is a significant development. According to finnCap, this move will allow Reabold to convert gas to power for the grid, potentially generating revenue even before the full-scale development of the field.
Operational readiness
LNEnergy has initiated the operational phase of the Colle Santo gas field development. The company's approach, as highlighted by finnCap, is to source and rent much of the required equipment locally, which could be a strategic move to manage capital expenditures.
Reabold's stake in LNEnergy stands at 16.2%, acquired for £2.0m in cash and shares. Furthermore, finnCap's note mentions that Reabold retains an option, expiring at the end of November 2023, to increase its stake by 10.5% in LNEnergy for an additional £1.8m.
Gas resource potential
LNEnergy's primary asset, as detailed by finnCap, is its option over a 90% interest in the Colle Santo gas field in Italy. This field is considered Western Europe's largest undeveloped onshore gas resource.
With two flow-tested wells in place and no further drilling required, LNEnergy estimates the field's potential annual post-tax free cash flow at €11-12m.
Valuation insight
Based on finnCap's research, the Colle Santo is valued at approximately US$25m (0.2p/sh) considering Reabold's current 16.2% stake in LNEnergy.
However, a 33% commercial risk has been applied at this stage, adjusting the valuation to US$8m (0.07p/sh). This is reflected in finnCap's 1.2p per share risk-adjusted Net Asset Value (NAV) based price target. To put this into perspective, the current share price is 0.091p.