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Columbus Energy Resources PLC: THE INVESTMENT CASE

Columbus Energy builds on presence in Trinidad with Steeldrum deal

Columbus’s own production averaged 553 barrels per day over the quarter to June
oil wells
Steeldrum has 5.6mln barrels in reserve

Columbus Energy Resources PLC (LON:CERP) is steadily building a significant portfolio in the south/south-west of Trinidad.

The group has just agreed on another substantial expansion through the acquisition of local producer Steeldrum for £4.4mln in shares.

Leo Koot, Columbus’s executive chairman, said Steeldrum’s addition gives it a large well-balanced portfolio of assets strung across the south and south-west of Trinidad.

"Until now we've been focused on production from the onshore field at Goudron in Trinidad, but now we can use its cash to focus on the SW Peninsula."

Relatively unexplored

What particularly excites Koot is that the area is relatively unexplored.

Columbus has two small fields there already – Icacos and Bonasse.

Crucial, though, is that Venezuela is just a few km away from the tip of the SWP and the acreage is right in the middle of the East Venezuelan basin, the richest hydrocarbon basin in the world says Koot.

“We’ve already got good data. 3-D seismic with geochemistry and tons of gravity data that has already been interpreted.

"As a result, we have identified more than a dozen prospects, each of which has the potential to hold between 20mln and 400mln barrels individually.

"For us, that is really huge, really big, and materially different from where we were playing before," he adds

Steeldrum already a producer

Steeldrum is producing at a rate of 200-250 barrels oil daily currently and has reserves of 5.6mln barrels at the Innis-Trinity and South Erin fields and 1.1mln within the Cory Moruga development project.

Columbus will also get access to two rigs, which can be used to explore its other assets in Trinidad’s South-West Peninsula.

A US$3.25mln convertible loan facility has been set up with finance group Lind to cover unforeseen integration costs.

Columbus’s own production averaged 553 barrels per day over the quarter to June, with a peak of 648 barrels.

The company was cashflow positive during the three months with gross revenues of US$3.01mln and a US$0.94mln operating netback.

Koot said it is addressing sand production issues at the Goudron and still expects output from the field to reach 1,000 barrels a day during the remainder of the year.

Oil should also start to flow from Bonasse over the second half with a workover rig on stream from next week.

Testing is scheduled to start at Icacos.

VSA maintains punchy target

Broker VSA added that Columbus now has rising production from Goudron and BOLT (acquired earlier this year)  as well as potential additional production from onshore Trinidad properties alongside the considerable exploration potential at the South West Peninsula.

The total potential value of the consideration is £5.8m, which is expected to be signed off in the fourth quarter, is close to US$1.38/bbl which appears attractive, said the broker.

"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."

VSA repeated its punchy share price target of 25p, which compares to a price today of 5.05p up 9%.

The broker also points out that the Lind convertible loan facility converts at 8.1p per share compared to a 3p conversion price for a previous facility set up in 2016.

Currency benefit

Another incentive for Columbus to get production up and running from the SWP area is the currency benefit.

“At Goudron, we get paid in Trinidad dollars and we have to supply to a refinery. Any crude we produce from the South-West Peninsula we are free to trade ourselves and get paid in US$.”

At 5.05p, Columbus is valued at £30mln. 


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