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Research: Energy & Resources
Kolibri Global Energy (KEI) reported its operational and financial guidance for FY24. The company expects average production of 3,500–4,000boepd and 6–7 well completions this year. Earlier, Kolibri provided FY23 production guidance of 2,800–3,000boepd. Both FY24 output and well completions are somewhat lower than our previous assumptions, which lead us to revise downwards our estimates. As a result, our valuation of KEI falls to US$7.1/share from US$7.5/share. On the positive side, we note strong oil price momentum supported by geopolitical uncertainty, which bodes well for KEI given its high share of oil in the production mix, and the company’s intention to implement a shareholder return policy this year.
Kolibri Global Energy |
FY24 guidance points to slower near-term growth |
Guidance update |
Oil and gas |
2 February 2024 |
Share price performance
Business description
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Kolibri Global Energy is a research client of Edison Investment Research Limited |
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Kolibri Global Energy (KEI) reported its operational and financial guidance for FY24. The company expects average production of 3,500–4,000boepd and 6–7 well completions this year. Earlier, Kolibri provided FY23 production guidance of 2,800–3,000boepd. Both FY24 output and well completions are somewhat lower than our previous assumptions, which lead us to revise downwards our estimates. As a result, our valuation of KEI falls to US$7.1/share from US$7.5/share. On the positive side, we note strong oil price momentum supported by geopolitical uncertainty, which bodes well for KEI given its high share of oil in the production mix, and the company’s intention to implement a shareholder return policy this year.
Year end |
Net revenue (US$m) |
EBITDA |
EPS* |
DPS |
P/E |
Yield |
12/21 |
15.0 |
9.3 |
(0.02) |
0.0 |
N/A |
N/A |
12/22 |
37.6 |
28.9 |
0.47 |
0.0 |
9.1 |
N/A |
12/23e |
53.2 |
41.3 |
0.61 |
0.0 |
7.0 |
N/A |
12/24e |
72.7 |
58.7 |
1.07 |
0.0 |
4.0 |
N/A |
Note: *EPS is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
FY24 guidance: Temporary operational challenges
KEI expects average production of 3,500–4,000boepd in FY24, an increase of 25–33% on FY23 guidance, based on 6–7 new well completions. One of the reasons for the lower-than-expected operational guidance is the performance of the Emery wells commissioned in late 2023. The three-well pad delivered the initial 30-day production rate of 960boepd, with more fracture stimulated fluid recovered, resulting in a different flowback and early production profile compared to other wells. The fracture stimulation of the three wells has also affected the surrounding wells more than initially expected. While KEI is analysing data on the Emery wells, prioritising Caney drilling in the meantime, we understand that the main impact on other wells is already behind, and these operational issues are unlikely to recur.
Lower estimates but growth potential is intact
We have updated our estimates to reflect lower production in FY24 due to a reduced number of wells and temporary operational challenges. We maintain our FY24e WTI price at US$80/bbl but cut our Henry Hub expectation from US$3.3/mmbtu to US$3.1/mmbtu on current price weakness. As a result, our FY24 EBITDA estimate falls from US$73m to US$59m. KEI guides to FY24 adjusted EBITDA of US$46–51m based on more conservative commodity prices. We note that the company achieved an impressive reduction in well costs to US$5.6m for the three Emery wells vs the FY23 budget of US$7.2m per well.
Valuation: Supportive oil price
We have updated our valuation of KEI from US$7.5/share to US$7.1/share (C$9.5/share) on lower FY24e production and reduced earnings estimates. The oil price remains favourable for Kolibri, which has a relatively high share of oil in its production mix, and should provide additional support to the shares. Despite the recent operational setback, KEI’s growth story remains intact as the company boasts a large proved undeveloped reserve base in the Caney formation alone, without taking into account any potential upside from the T-zone.
FY24 guidance and estimates update
Kolibri expects FY24 average production in the 3,500–4,000boepd range, which implies a 25–33% increase compared to the earlier revised FY23 guidance of 2,800–3,000boepd, although it is c 25% lower than our previous production estimate. One of the reasons for the weaker than expected operational guidance is the performance of the three Emery wells completed in late 2023. As was reported earlier, more fracture stimulation fluid has been recovered from these wells. Kolibri believes this is due to the increased natural fracturing in some areas of the oil field that results in fracture stimulation communication between the Caney and T-zone formations, causing different flowback and initial production profiles of these three wells. The company reported that the three well Emery pad delivered the initial 30-day production (IP30) rate of 960boepd (c 75% oil). In addition, the fracture stimulation of these wells has a more pronounced impact on the surrounding wells than previously anticipated. While KEI expects the full recovery of the nearby wells to take several months, we understand that the main operational issues are already behind, and no similar effect should be expected for the upcoming wells. The company is conducting further analysis on the performance of the Emery wells before drilling T-zone further. Our take on the operational update is that the deeper T-zone formation remains economical, but the near-term drilling may need to be more selective, with the main focus remaining on Caney with the T-zone wells potentially backloaded in some areas of the field.
KEI expects to complete 6–7 wells in FY24, with two Velin (Caney) wells already drilled. The company plans to complete two wells in Q2, drill 2–3 wells later in the year, then fracture stimulate these wells together with the Velin wells. Completions are therefore likely to be second-half weighted. We have previously modelled that KEI would commission eight wells in FY24 and have now lowered this assumption to seven. As a result of this and lower modelled IP30 rates from the Emery wells, our production expectations for FY24 now stand at 3,921boepd vs 4,921boepd before. Although it is difficult to quantify the earlier impact on the nearby wells from the Emery fracture stimulation, we have subjectively taken this into account in our model, as well as the 9–14-day shut down of the Tishomingo field due to the below-freezing temperatures in January. We note that KEI’s plan to moderate drilling, and therefore reduce capital spend, in 2024 is also partly due to its intention to potentially implement a shareholder return policy this year.
Exhibit 1: Revised financial estimates
|
FY23e |
FY24e |
FY25e |
|||
|
New |
Old |
New |
Old |
New |
Old |
Number of wells drilled |
8 |
8 |
7 |
8 |
6 |
6 |
Average production, boepd |
2,881 |
3,034 |
3,921 |
4,921 |
4,260 |
5,130 |
Average basket price, US$/boe |
64.4 |
62.6 |
65.2 |
64.6 |
60.9 |
60.5 |
Net revenues, US$m |
53.2 |
54.4 |
72.7 |
90.5 |
73.9 |
88.4 |
EBITDA, US$m |
41.3 |
42.4 |
58.7 |
73.1 |
58.6 |
70.2 |
Net income, US$m |
21.8 |
23.0 |
38.2 |
51.5 |
33.8 |
43.1 |
Source: Edison Investment Research
The company guides for FY24 revenue of US$60–65m and adjusted EBITDA of US$46–51m. This guidance is based on the WTI price of US$72bbl and Henry Hub price of US$2.6/mmbtu. Our FY24 net revenue and EDITDA estimates fall to US$72.7m and US$58.7m, respectively, on reduced production expectations. We keep our FY24 WTI price assumption unchanged at US$80/bbl, lower our FY24 Henry Hub price from US$3.3/mmbtu to US$3.1/mmbtu on current weakness and slightly increase the NGL price to bring the NGL/oil price ratio closer to KEI’s own expectations. If we assume commodity prices are in line with company’s expectations, our revenue and EBITDA estimates for FY24 would be at the top end of guidance.
The company expects FY24 capex of US$33–39m and net debt of US$25–27m. In its earlier update, KEI guided FY23 capex of US$47–49m and net debt of US$29–31m. We have brought our estimates closer to these expectations. However, our more optimistic commodity price assumptions result in some cash flow variations versus KEI’s guidance. We note that Kolibri has recently achieved a significant reduction in well costs, with the three Emery wells completed for about US$5.6m compared to the FY23 budget of US$7.2m per well.
Exhibit 2: Financial summary
US$'000s |
2021 |
2022 |
2023e |
2024e |
2025e |
||
Dec YE |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Gross revenue |
|
|
19,128 |
48,376 |
67,735 |
93,239 |
94,703 |
Royalties |
(4,156) |
(10,816) |
(14,563) |
(20,513) |
(20,835) |
||
Net revenue, including other income |
14,972 |
37,560 |
53,172 |
72,726 |
73,868 |
||
Production costs |
(2,962) |
(4,904) |
(6,604) |
(9,302) |
(10,106) |
||
SG&A |
(2,697) |
(3,494) |
(4,519) |
(4,723) |
(5,131) |
||
Share based payments |
0 |
(277) |
(731) |
0 |
0 |
||
EBITDA |
|
|
9,315 |
28,931 |
41,319 |
58,701 |
58,632 |
D&A |
(3,594) |
(7,581) |
(15,524) |
(17,406) |
(18,584) |
||
EBIT |
|
|
5,721 |
21,350 |
25,795 |
41,296 |
40,047 |
Exceptionals |
71,403 |
0 |
0 |
0 |
0 |
||
Net interest |
(906) |
(1,067) |
(2,299) |
(2,299) |
(2,299) |
||
Other |
(5,216) |
(3,640) |
(1,718) |
(839) |
(150) |
||
Normalised PBT |
|
|
(401) |
16,643 |
21,778 |
38,158 |
37,598 |
Reported PBT |
71,002 |
16,643 |
21,778 |
38,158 |
37,598 |
||
Tax |
0 |
0 |
0 |
0 |
0 |
||
Reported profit after tax |
71,002 |
16,643 |
21,778 |
38,158 |
37,598 |
||
Normalised profit after tax |
|
|
(401) |
16,643 |
21,778 |
38,158 |
37,598 |
Average Number of Shares Outstanding (m) |
23.3 |
35.6 |
35.6 |
35.6 |
35.6 |
||
EPS - normalised (US$) |
|
|
(0.02) |
0.47 |
0.61 |
1.07 |
1.06 |
EPS - reported (US$) |
3.05 |
0.47 |
0.61 |
1.07 |
1.06 |
||
Dividend |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
147,114 |
176,602 |
217,135 |
239,961 |
256,110 |
PP&E |
147,076 |
176,554 |
215,607 |
238,433 |
254,582 |
||
Rights of use assets |
38 |
48 |
1,528 |
1,528 |
1,528 |
||
Current Assets |
|
|
9,902 |
7,480 |
7,305 |
19,687 |
39,257 |
Cash |
7,316 |
1,037 |
1,120 |
13,127 |
32,611 |
||
Receivables |
1,999 |
5,773 |
5,091 |
5,466 |
5,552 |
||
Deposits and prepaid expenses |
587 |
670 |
1,094 |
1,094 |
1,094 |
||
Current Liabilities |
|
|
(6,079) |
(14,049) |
(20,496) |
(20,546) |
(22,427) |
Payables |
(3,145) |
(12,596) |
(17,462) |
(17,330) |
(18,827) |
||
Loans |
(1,000) |
0 |
0 |
0 |
0 |
||
Leases |
(43) |
(32) |
(1,052) |
(1,234) |
(1,617) |
||
FV of commodity contracts |
(1,891) |
(1,421) |
(1,982) |
(1,982) |
(1,982) |
||
Long Term Liabilities |
|
|
(17,849) |
(19,835) |
(31,340) |
(31,340) |
(31,340) |
Debt |
(15,866) |
(17,799) |
(28,809) |
(28,809) |
(28,809) |
||
Leases |
0 |
(17) |
(364) |
(364) |
(364) |
||
Other |
(1,983) |
(2,019) |
(2,167) |
(2,167) |
(2,167) |
||
Net Assets |
|
|
133,088 |
150,198 |
172,604 |
207,762 |
241,601 |
Shareholders' equity |
|
|
133,088 |
150,198 |
172,604 |
207,762 |
241,601 |
CASH FLOW |
|||||||
Profit after tax |
71,002 |
16,643 |
21,778 |
38,158 |
33,839 |
||
D&A |
3,594 |
7,581 |
15,524 |
17,406 |
18,584 |
||
Working capital |
551 |
(2,140) |
2,282 |
(506) |
1,411 |
||
Other |
(68,844) |
(42) |
1,426 |
150 |
150 |
||
Net operating cash flow |
|
|
6,303 |
22,042 |
41,010 |
55,207 |
53,984 |
Capex |
(696) |
(37,097) |
(49,600) |
(39,200) |
(33,600) |
||
Lease payments |
(74) |
(54) |
(920) |
(1,000) |
(900) |
||
Other |
4,252 |
8,016 |
(1,304) |
(3,000) |
0 |
||
Net Cash Flow |
9,785 |
(7,093) |
(10,814) |
12,007 |
19,484 |
||
Opening net debt/(cash) |
|
|
19,939 |
9,593 |
16,811 |
29,105 |
17,279 |
FX and other |
561 |
(125) |
(1,480) |
(181) |
(383) |
||
Closing net debt/(cash) |
|
|
9,593 |
16,811 |
29,105 |
17,279 |
(1,821) |
Source: Kolibri Global Energy accounts, Edison Investment Research
|
|
Research: Metals & Mining
Endeavour released its customary operational and financial update to the market on 22 January, showing Q423 production of 280koz and FY23 production of 1,072koz (cf prior guidance of 1,060–1,135koz) – the 11th consecutive year in which it has achieved or exceeded guidance. Notwithstanding an increase in Burkinabe royalty rates in November, all-in sustaining costs (AISC) were very close to our previous expectations at an industry low of US$964/oz (cf a prior guidance range of US$895–950/oz). Simultaneously, Endeavour announced a net debt position as at end-December of US$555m (excluding leases) and a final dividend of US$100m, to take the total FY23 distribution to US$200m, which was 14% above the minimum committed level. This note updates our forecasts for both Q4/FY23 and FY24 in the light of Endeavour’s announcement.