Kolibri Global Energy — New approach to drilling; potential share buyback

Kolibri Global Energy (TSX: KEI)

Last close As at 19/07/2024

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Research: Oil & Gas

Kolibri Global Energy — New approach to drilling; potential share buyback

Kolibri Global Energy (KEI) has provided an update on operations and revised guidance. It now guides to FY24 revenue of US$57–62m and EBITDA of US$43–48m on average production of 3,200–3,700boepd. KEI plans to start drilling its next three wells in the first half of August. These wells will have longer lateral lengths, which should result in better well economics. We have revised our estimates to reflect the latest guidance and operational update. Our valuation of KEI falls slightly to US$6.8/share. The announced intention to initiate a share buyback, as well as the recent inclusion in the Russell Microcap Index, should provide additional support to the shares.

Written by

Andrey Litvin

Energy and Resources Analyst

Oil & Gas

Kolibri Global Energy

New approach to drilling; potential share buyback

Project update

Oil and gas

10 July 2024

Price

C$4.6

Market cap

C$164m

US$/C$1.36

Net debt (US$m) at end Q124

32.8

Shares in issue

35.6m

Free float

100%

Code

KEI

Primary exchange

TSX

Secondary exchange

Nasdaq

Share price performance

%

1m

3m

12m

Abs

(5.8)

(2.1)

(26.2)

Rel (local)

(5.9)

(0.7)

(33.6)

52-week high/low

C$6.52

C$3.92

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 more than 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

Q224 results

August 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) has provided an update on operations and revised guidance. It now guides to FY24 revenue of US$57–62m and EBITDA of US$43–48m on average production of 3,200–3,700boepd. KEI plans to start drilling its next three wells in the first half of August. These wells will have longer lateral lengths, which should result in better well economics. We have revised our estimates to reflect the latest guidance and operational update. Our valuation of KEI falls slightly to US$6.8/share. The announced intention to initiate a share buyback, as well as the recent inclusion in the Russell Microcap Index, should provide additional support to the shares.

Year end

Net revenue (US$m)

EBITDA
(US$m)

EPS*
(US$)

DPS
(US$)

P/E
(x)

Yield
(%)

12/22

37.6

28.9

0.47

0.0

13.3

N/A

12/23

50.6

39.7

0.54

0.0

11.6

N/A

12/24e

62.7

49.9

0.69

0.0

9.1

N/A

12/25e

65.2

52.0

0.71

0.0

8.8

N/A

Note: *EPS is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Change in drilling to improve well economics

The recently completed Nickel Hill 35-1H and 35-2H wells, where KEI has a 62.9% working interest, had 30-day production rates of 495boepd (376bopd) and 511boepd (400bopd), respectively. The two wells were previously classified as possible reserves and will now be upgraded to the proved category. KEI plans to start drilling its next three wells in the first half of August. Based on the recently completed study, these wells will have longer lateral lengths of 1.5–2.0 miles, which should result in better well economics but will take longer to drill. As such, we now assume KEI will complete six wells this year against our previous expectations of seven wells and KEI’s guidance of six to seven wells. Less drilling should allow the company to free up resources to implement the proposed share buyback.

Updated guidance and estimates

KEI’s updated FY24 guidance is for revenues of US$57–62m and EBITDA of US$43–48m on average production of 3,200–3,700boepd. We have updated our estimates, which now point to FY24 revenues of US$63m (-6%) and EBITDA of US$49.9m (-7%). With a slight adjustment to the timing of the now assumed six well completions, we expect average production of 3,402boepd. Of note is that KEI’s guidance is based on a benchmark WTI price of US$75/bbl; we maintain our FY24 WTI price estimate of US$80/bbl. The company expects to end the year with net debt of US$29–32m versus US$33m at Q124.

Valuation: Buyback to further support shares

We have updated our valuation of KEI from US$7.0/share to US$6.8 (C$9.2/share) on lower production and earnings estimates. That said, the potential improvement in well economics is yet to be incorporated in our estimates and valuation as we await more details from the company. Despite increased volatility, the oil price remains generally favourable for KEI, while its intention to initiate a share buyback, as well as the recent inclusion in the Russell Microcap Index, should provide additional support to the shares.

Changes in guidance and estimates

KEI’s updated FY24 guidance is for revenues of US$57–62m and EBITDA of US$43–48m on average production of 3,200–3,700boepd. This implies an increase of 14–32% in production, 13-23% in revenues and 8-21% in EBITDA compared to FY23. However, the main reason behind the reduction in guidance (Exhibit 1) is the company’s decision to drill wells with longer lateral lengths which, based on the recently completed study, should result in better well economics but will take longer to complete. Consequently, the company now expects that new production will be added later than originally anticipated. Having recently completed two Nickel Hill wells with lateral lengths of one mile, KEI plans to start drilling three new Alicia Renee wells (97.8% working interest) in the first half of August (ie four to five weeks from the announcement on 8 July). These wells will have lateral lengths of 1.5–2.0 miles. At present, there is no indication as to how long it will take to complete these wells and what the improvements to well economics might be.

Exhibit 1: FY24 updated guidance

US$m

New FY24 guidance

Previous guidance

FY23

Production (boepd)

3,200–3,700

3,500–4,000

2,796

Revenue

57–62

60–65

50.6

EBITDA

43–48

46–51

39.7

Capex

33–39

33–39

53.2

Net debt

29–32

25–27

30.2

Source: Kolibri Global Energy

We have updated our estimates to reflect the recent operational update and revised guidance. We now assume that KEI will complete six wells this year compared to our previous estimate of seven wells. Having put two Nickel Hill wells into production in June, we expect the company to complete three Alicia Renee wells and the Velin well, which was drilled at the end of 2023, later this year. As a result of these changes and slight adjustments to the timing of well completions, we now model FY24 production at 3,402boepd versus 3,623boepd before. As we maintain our commodity price assumptions, our revenue and EBITDA estimates for FY24 reduce slightly to US$63m and US$50m, respectively. We note that KEI’s guidance is now based on the WTI price of US$75bbl (from US$72/bbl) versus our unchanged assumption of US$80/bbl (ytd average of US$79/bbl). At the company’s assumed commodity prices, our revenue and EBITDA estimates for FY24 would be c US$59m and US$46m. Similarly, our FY25 financial estimates are down on lower average production forecasts.

Exhibit 2: Estimates revisions

FY24e

FY25e

US$m

New

Old

New

Old

Average production (boepd)

3,402

3,623

3,719

4,131

Realised basket price (US$/boe)

64.7

64.8

61.6

60.9

Net revenues

62.8

66.9

65.2

71.6

EBITDA

49.9

53.3

52.0

57.1

EPS (US$)

0.69

0.76

0.71

0.82

Net debt/(cash)

29.8

30.1

22.6

17.3

Source: Edison Investment Research

Given the above changes to production and earnings, our valuation of KEI edges down from US$7.0 to US$6.8/share (C$9.2/share) at an unchanged WACC of 10%. Note that our forecasts and valuation do not take into account any potential improvements in well economics from the change in drilling approach as we await more details from the company. Despite the increased volatility of the oil price, at c US$82/bbl spot, it generally remains supportive of KEI’s share price. In addition, we expect the company’s intention to initiate a share buyback in the second half of the year to have a positive impact on the share price. Details of the programme will be provided later in Q3. Similarly, KEI’s recently announced inclusion in the Russell Microcap Index bodes well for its shares, allowing for broader investor exposure. As of December 2023, some US$10.5tn in assets was benchmarked to the Russell Index.

Exhibit 3: Financial summary

US$'000s

2021

2022

2023

2024e

2025e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

19,128

48,376

64,390

80,410

83,613

Royalties

(4,156)

(10,816)

(13,793)

(17,690)

(18,395)

Net revenue, including other income

14,972

37,560

50,597

62,720

65,218

Production costs

(2,962)

(4,904)

(5,895)

(7,824)

(8,150)

SG&A

(2,697)

(3,494)

(4,243)

(4,471)

(4,618)

Share based payments

0

(277)

(790)

(600)

(500)

EBITDA

 

 

9,315

28,931

39,671

49,884

51,950

D&A

(3,594)

(7,581)

(15,009)

(15,397)

(16,632)

EBIT

 

 

5,721

21,350

24,662

34,487

35,318

Exceptionals

71,403

0

0

0

0

Net interest

(906)

(1,067)

(2,366)

(3,055)

(3,155)

Other

(5,216)

(3,640)

343

(735)

(100)

Profit Before Tax (norm)

 

 

(401)

16,643

22,639

30,697

32,063

Reported PBT

71,002

16,643

22,639

30,697

32,063

Tax

0

0

3,359

6,139

6,733

Reported profit after tax

71,002

16,643

19,280

24,557

25,330

Normalised profit after tax

 

 

(401)

16,643

19,280

24,557

25,330

Average Number of Shares Outstanding (m)

23.3

35.6

35.6

35.6

35.6

EPS - normalised (US$)

 

 

(0.02)

0.47

0.54

0.69

0.71

EPS - reported (US$)

3.05

0.47

0.54

0.69

0.71

Dividend (US$)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

147,114

176,602

217,351

238,071

257,062

PP&E

147,076

176,554

216,161

236,881

255,872

Rights of use assets

38

48

1,190

1,190

1,190

Current Assets

 

 

9,902

7,480

6,928

10,839

18,525

Cash

7,316

1,037

598

3,121

10,540

Receivables

1,999

5,773

5,492

6,880

7,147

Deposits and prepaid expenses

587

670

838

838

838

Current Liabilities

 

 

(6,079)

(14,049)

(18,844)

(16,318)

(17,165)

Payables

(3,145)

(12,596)

(17,648)

(15,005)

(15,629)

Loans

(1,000)

0

0

0

0

Leases

(43)

(32)

(1,068)

(1,186)

(1,408)

FV of commodity contracts

(1,891)

(1,421)

(128)

(128)

(128)

Long Term Liabilities

 

 

(17,849)

(19,835)

(31,740)

(33,740)

(33,740)

Debt

(15,866)

(17,799)

(29,612)

(31,612)

(31,612)

Leases

0

(17)

(162)

(162)

(162)

Other

(1,983)

(2,019)

(1,966)

(1,966)

(1,966)

Net Assets

 

 

133,088

150,198

173,695

198,852

224,682

Shareholders' equity

 

 

133,088

150,198

173,695

198,852

224,682

CASH FLOW

Operating Cash Flow

71,002

16,643

19,280

24,557

25,330

D&A

3,594

7,581

15,009

15,397

16,632

Working capital

551

(2,140)

1,714

(4,031)

357

Other

(68,844)

(42)

2,644

700

600

Net operating cash flow

 

 

6,303

22,042

38,647

36,624

42,919

Capex

(696)

(37,097)

(53,173)

(35,100)

(34,500)

Lease payments

(74)

(54)

(903)

(1,000)

(1,000)

Other

4,252

8,016

3,305

0

0

Net Cash Flow

9,785

(7,093)

(12,124)

524

7,419

Opening net debt/(cash)

 

 

19,939

9,593

16,811

30,244

29,838

FX and other

561

(125)

(1,309)

(118)

(222)

Closing net debt/(cash)

 

 

9,593

16,811

30,244

29,838

22,642

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.

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

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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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