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Columbus Energy Resources (LON:CERP)

Columbus Energy Resources (LON:CERP) has announced that it has received a Certificate of Environmental Compliance (CEC) for the Goudron field Waterflood programme from the Environmental Management Authority of Trinidad. The approval will enable CERP to commence work on the Goudron Field Water Injection Pilot Programme which is intended to increase reservoir pressure consequently sweeping oil towards production wells resulting in an increase in production rates. The forecast increase is from the current 30BOPD to in excess of 150BOPD which will require an injection of 450 barrels of water per day.

CERP intend to commence the programme immediately and crucially, as the new management team have reviewed the project they have concluded that the first of the four pilot programmes can be completed from internal cash. Costs committed to date for the first programme for pumps, filters, tanks and pipework etc, total just US$300k. These have been tested during well injectivity trials and the system is expected to be running with continuous water injection within the next few weeks. Ongoing operating costs will be minimised by the fact that the source of injection water is already produced water from the Goudron field.

The data on recovery and incremental production rates will be key to determining the extent of the waterflood expansion, with a decision now expected in 18 months’ time. Proposals for the next three programmes will be submitted shortly and will target two areas in the shallow Goudron Mayaro well and the GY-670 well. 

The application was submitted in late June and has been approved far quicker than expected bringing project commissioning forward by around a year. This reflects three key positives for CERP going forward which underpin our positive view on the stock. Firstly, as with the improved Lind facility terms it demonstrates the new management’s proactive approach to restoring profitability at the core CERP operations. Secondly it demonstrates that despite the changes in senior management, strong relationships with the Trinidad authorities have been maintained. Thirdly, it highlights the attractiveness of Trinidad as an operational jurisdiction.

We reiterate our Buy recommendation and 22p target price.

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