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Research: Energy & Resources
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.
Kolibri Global Energy |
New approach to drilling; potential share buyback |
Project update |
Oil and gas |
10 July 2024 |
Share price performance
Business description
Next event
Analysts
Kolibri Global Energy is a research client of Edison Investment Research Limited |
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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 |
EPS* |
DPS |
P/E |
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
|
|
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