Kolibri Global Energy — FY24 guidance suggests slower growth

Kolibri Global Energy (TSX: KEI)

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Research: Oil & Gas

Kolibri Global Energy — FY24 guidance suggests slower growth

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.

Written by

Andrey Litvin

Energy and Resources Analyst

Kolibri banner

Oil & Gas

Kolibri Global Energy

FY24 guidance points to slower near-term growth

Guidance update

Oil and gas

2 February 2024

Price

C$4.30

Market cap

C$153m

US$/C$1.34

Net debt (US$m) at end Q323

24.8

Shares in issue

35.6m

Free float

100%

Code

KEI

Primary exchange

TSX

Secondary exchange

Nasdaq

Share price performance

%

1m

3m

12m

Abs

(15.7)

(27.2)

(43.3)

Rel (local)

(16.4)

(34.2)

(44.3)

52-week high/low

C$7.40

C$4.29

Business description

Kolibri is a junior unconventional exploration and production company operating in the Tishomingo oil field in southern Oklahoma. It earned the right to ‘hold by production’ in over 96% of 17,163 net acres in the Caney/Upper Sycamore formations through historical drilling and participation in the Woodford shale. Kolibri’s total gross reserves stood at 77mmboe as of December 2022.

Next event

FY23 results

March 2024

Analysts

Andrey Litvin

+44 (0)20 3077 5700

Andrew Keen

+44 (0)20 3077 5724

Kolibri Global Energy is a research client of Edison Investment Research Limited

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
(US$m)

EPS*
(US$)

DPS
(US$)

P/E
(x)

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

General disclaimer and copyright

This report has been commissioned by Kolibri Global Energy and prepared and issued by Edison, in consideration of a fee payable by Kolibri Global Energy. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for ‘wholesale clients’ within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are ‘wholesale clients’ for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a ‘personalised service’ and, to the extent that it contains any financial advice, is intended only as a ‘class service’ provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the ‘FPO’) (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the ‘publishers' exclusion’ from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Kolibri Global Energy and prepared and issued by Edison, in consideration of a fee payable by Kolibri Global Energy. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for ‘wholesale clients’ within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are ‘wholesale clients’ for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a ‘personalised service’ and, to the extent that it contains any financial advice, is intended only as a ‘class service’ provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the ‘FPO’) (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the ‘publishers' exclusion’ from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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