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VSA CAPITAL MARKET MOVERS - Columbus Energy Resources

Published: 09:11 03 Jun 2019 BST

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Columbus Energy Resources (LON:CERP)

Columbus Energy Resources (CERP LN) has announced full year results for 2018 demonstrating operational progress through improved financial results. Revenue of £7.6m was up 58% YoY as higher Trinidad production of 541bopd, up 47% YoY, significantly offset the closure of the Spanish operations. This was, however, complicated by the range bound oil price environment around the Special Petroleum Tax (SPT) threshold meaning royalties paid by CERP increased 88% YoY to £2.2m with revenue 12% below our estimate.

As a result of stronger revenues and careful cost management, CERP achieved gross profit of £1.45m, up from £0.08m YoY. As previously indicated, there were a number of one off charges in relation to the closure of the Spanish Operations along with post acquisition costs in relation to Steeldrum totalling £1.47m. Consequently, CERP achieved a net loss of £2.7m, narrowed from £5m in 2017 marginally higher than our estimate of £2.4m which included more conservative assumptions for the one off costs.

As a result of the operational improvements and stronger top line, CERP, was in a position to weather these one off issues and finished the year with a cash position of £1.2m having substantially reduced its debt position to just £0.3m. Capital spending of £1m was modestly lower than £1.7m in 2017. This highlights, in our view, the benefit to shareholders of the prudent operational strategy designed to cope with the challenges of the SPT in a range bound oil price environment in which simply raising production might result in higher net expenditure.  

CERP has highlighted that when the WTI oil price exceeds US$50.01/bbl an 18% sales tax is payable (the SPT) at the end of each quarter. This also takes into allowance capital spending but whilst the oil price is in a range of US$49.95/bbl and US$61.00/bbl the benefits of raising production are tightly aligned to the company’s capital spending. Q1 2019 was also affected by this with an average WTI price of US$54.83/bbl, however, the closure of the refinery in Trinidad simplified the regional supply chain and CERP received a small premium to WTI in Q1 2019 rather than a modest discount. It is not clear yet whether this is part of a sustainable change in the pricing environment given the substantial changes to the oil industry in Trinidad.  

We believe that with the significant progress made in 2018, CERP is now well placed to deliver on major milestones in 2019. We have previously highlighted the plan to drill the South West Peninsula, due in H2 2019, where despite the significant potential, given the more favourable fiscal terms of production it would only require a modest discovery to transform the company’s earnings profile. Furthermore, CERP is also making additional progress with enhanced oil recovery projects.

At Goudron, the waterflood pilot programme is due to continue after pressure communication was achieved between wells GY-665 and GY-667 following injection rates of up to 960bwpd and cumulative injection of 104,000 barrels. GY-209 is set to be converted to support the GY-664 well this year.       
Workovers were carried out across Inniss Trinity, Cory Moruga, South Erin and Bonasse and site preparations are underway for the CO2 injection programme at Inniss Trinity. While at Icacos CERP as of January 2019 now has operational control of the asset.
 
With ongoing remedial and optimisation across CERP’s now diversified production base there are a number of smaller opportunities to enhance profitability in 2019 and we believe that the strengthening of the producing asset base is central to supporting the major objectives for 2019 including the SWP well and advancing the M&A strategy.
 
We reiterate our Buy recommendation and 21.4p target price.  

 

 

 

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