VSA Capital Market Movers - Columbus Energy Resources

Columbus Energy Resources (CERP LN) delivered robust H1 2019 results, continuing its steady progress in earnings improvement despite sluggish WTI oil prices which traded within a narrow range averaging US$58.24/bbl in H1 2019.

Columbus Energy Resources PLC - VSA Capital Market Movers - Columbus Energy Resources

Columbus Energy Resources#: H1 2019 Interim Results

Earnings Performance

Columbus Energy Resources (LON:CERP) delivered robust H1 2019 results, continuing its steady progress in earnings improvement despite sluggish WTI oil prices which traded within a narrow range averaging US$58.24/bbl in H1 2019. In H1 2019 CERP received an average price of US$57.6/bbl (down 6% YoY) which was partially offset by a 3.7% YoY increase in sales of 92kbbl resulting in net revenues after royalties of £3.4m, a 6% decline YoY.

However, as we have previously highlighted the impact of the Supplemental Petroleum Tax (SPT) in the current US$50-60/bbl WTI trading range has resulted in a keen focus on costs and despite the reduction in the top line a reduction in COGS resulted in a 61% YoY increase in gross profit to £691k. Furthermore, the impact of one off costs which impacted SG&A in 2018 in relation to Spain and the Steeldrum acquisition has been significantly reduced meaning that EBIT improved from a loss of £2.4m to £1.3m YoY while the loss from net income narrowed from £2.5m to £1.7m YoY.

Set for Stronger H2 2019  

As can be seen from the interim results CERP has continued to progress towards positive cashflow and profitability, however, the combination of the SPT impact and rising rig rates in Trinidad necessitated a significant reduction in workover activity. To combat this CERP, as announced at the recent AGM, have purchased a second rig which was shipped from the USA during Q3 2019 and is now in country and due to be operational later in the quarter alongside the other company owned workover rig. This will mean that CERP can carry out workover activity at a much lower cost meaning that despite ongoing rangebound oil prices an increase in CERP’s H2 2019 output and earnings performance remains our base case. 

Recommendation and Target Price

Although the interim results demonstrate the ongoing improvement in earnings performance the major activity in H2 2019 relates to the drill programme on the South West Peninsula and with CERP on track to commence in September we continue to see a successful well as the primary driver for transformational earnings growth going forward whilst we expect additional catalysts from the CO2 project and new country entry.

We reiterate our Buy recommendation and our target price of 21.6p.

Oliver O'Donnell, CFA, Natural Resources & China | T: +44 (0)20 3617 5180 | E: [email protected]
Sam Green, Equity Analyst | T: +44 (0)20 3005 5010 | E: [email protected]

VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | www.vsacapital.com

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