Calima Energy Ltd (ASX:CE1) continued its strong run in July, prompting Hannam & Partners to increase its risked NAV (Net Asset value) to A$0.0255 per share from A$0.0245 per share, implying 155% upside from the current share price.
Calima also increased its guidance to C$27.3 million in July, upgraded from June guidance of C$21.1 million (including hedging losses of C$4.6 million).
The solid performance can in part be attributed to the production of an average 2,959boe/d (barrel of oil equivalent per day), primarily from Calima’s Brooks and Thorsby assets.
Calima is an Australian listed exploration and production company, focused on Canada, an established energy market with a supportive energy policy.
It has exposure to a large-scale wet gas play in the Montney and - with the completion of its C$61.5mm acquisition of Blackspur on May 3 - low-cost, high-return, oil-weighted assets in Alberta.
The Blackspur acquisition has been integral to Calima’s performance over the past two months, giving it near-term cash flow and production growth.
Blackspur contributes to Calima’s performance
Calima exited the quarter with June production of 2,883boe/d: Brooks (~70%) and Thorsby (~30%).
Production and revenue from the four Gemini wells drilled at Brooks will flow through to the September quarter results.
Net debt was A$16.4 million at the end of the quarter but has now fallen to A$15.5 million, with Hannam estimating that it will fall to ~A$12 million by YE’21.
Calima’s debt is falling despite a heavy investment program, which augers well for its financial position moving forward.
Further, Calima has A$10.9 million of liquidity, giving it a solid financial outlook made better by the fact that adjusted EBITDA was approximately A$4.5 million for just 61 days of Blackspur contribution.
Oil price leads to higher EBITDA
While the oil price has been volatile over the last few weeks, with the average crude oil price currently sitting at US$73.28/bbl and the Brent Crude Oil (LSE:BRENT) spot price at US$69.95, the higher price is contributing to upgraded EBITDA guidance.
In July guidance increased to C$27.3 million, implying H2'21 EBITDA of ~C$23 million or C$46 million annualised.
According to Hannam analyst Anish Kapadia, Calima is “trading on 2.5x EV/EBITDA or adjusted for the value of the Montney (not generating EBITDA) implied in the share price prior to the Blackspur deal of ~C$25 million, it is trading on <2x EBITDA.
“Furthermore, with significantly higher Canadian gas prices and deal activity in the Montney, the market value of these assets should be significantly higher than C$25 million.
New wells in 2021
Calima is set to spend C$15.4 million on the Brooks and Thorsby asset areas between July and December 2021.
Costs include drilling, completion and equipping costs for Gemini 3 and 4 wells, the three wells planned at Thorsby in Q3’21, as well as waterflood, workover, and maintenance capital on existing assets.
A three-well (net) drilling program will begin this month in the Thorsby area. The development wells are expected to be on stream early in Q4’21.
End-’21 exit production is guided to be >4,500 boe/d, with average production for the 8 months of 3,700 boe/d.
Key catalysts on the horizon
There are several key catalysts on the horizon for Calima.
- Results from Gemini wells are due in early September.
- Small bolt-on acquisitions around existing assets are expected shortly.
- In the Montney, Calima continues to evaluate strategies to unlock shareholder value through development, partnerships, farm-out or outright sale of Calima Lands.
- Consolidation of the Montney in North East British Colombia has started. With rising gas prices, currently above US$4/mcf in North America, the Calima Lands provides significant optionality (Calima’s closest comparable in the Montney, Saguaro, sold a 50% interest in its production and facilities to Tourmaline for ~C$205 million (9,000 boe/d, 25% condensate/NGLs).
Valuation increases expected again
Kapadia says, “There is 6% upside to our Core NAV of A$0.0106 per share, which only includes the 1P reserves.
“Using the ~C$25 million valuation for the Montney implied pre-Blackspur, sees it trading on just 2.1x EV/CFFO in 2022 at a conservative US$60/bbl Brent.
“On operational metrics, we see Calima trading on EV/2P reserves of C$5/boe and on a flowing barrel basis on $24k per boe/d in 2022.
“We expect C$24/boe of post-tax cashflow per barrel in 2022. Cash distributions will be driven by market conditions and achieving sustainable production of >5kboe/d, which we expect in 2022.”