Elk Petroleum is to acquire a 63% operated interest in the Aneth Rocky Mountain CO2 EOR project, transforming the company into one of the largest producers on the ASX. Management forecasts 2018 net production of 11,000boe/d. At US$160m, the deal is priced at a material discount to management’s estimates of 1P (NPV10) at US$288m, with the consideration to be funded through a combination of new equity and debt. An equity placement to raise A$27.5m was priced at A$0.062 (a 22% discount to last close and 10% below the six-month trading average), with the balance funded through a US$98m debt facility from Riverstone Credit Partners and institutional lenders and up to US$55m in preferred equity provided by the AB Energy Opportunity Fund.
Written by
Elk Petroleum |
Operator of Aneth CO2 EOR project |
Asset acquisition |
Oil & gas |
19 September 2017 |
Share price performance
Business description
Analysts
ELK Petroleum is a research client of Edison Investment Research Limited |
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Elk Petroleum is to acquire a 63% operated interest in the Aneth Rocky Mountain CO2 EOR project, transforming the company into one of the largest producers on the ASX. Management forecasts 2018 net production of 11,000boe/d. At US$160m, the deal is priced at a material discount to management’s estimates of 1P (NPV10) at US$288m, with the consideration to be funded through a combination of new equity and debt. An equity placement to raise A$27.5m was priced at A$0.062 (a 22% discount to last close and 10% below the six-month trading average), with the balance funded through a US$98m debt facility from Riverstone Credit Partners and institutional lenders and up to US$55m in preferred equity provided by the AB Energy Opportunity Fund.
Year |
Revenue (US$m) |
EBITDA |
PBT |
Net (debt)/ |
Debt |
Capex |
06/16 |
0.0 |
(4.5) |
(4.5) |
(2.7) |
(16.1) |
(2.2) |
06/17e** |
6.3 |
(2.4) |
(4.5) |
(61.7) |
(76.9) |
(57.9) |
06/18e** |
31.0 |
14.0 |
(2.9) |
(73.9) |
(82.9) |
(7.5) |
06/19e** |
49.7 |
29.4 |
7.2 |
(55.9) |
(64.9) |
(1.8) |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, share-based payments. **Current forecasts do not include the impact of the Aneth acquisition.
Aneth oil field and CO2 EOR production project: the Greater Aneth oil field is one of three largest CO2 EOR projects in the US Rocky Mountains alongside Salt Creek and Rangely; oil initially in place is estimated at 1.5bnbbls, with 31% recovered to date. Remaining 2P reserves (net 58.8mmbbl) imply recovery of 37%.
Headline deal metrics: the announced acquisition will add 58.8mmbbls of 2P reserves and 6,500bopd effective October 2017, with potential to increase to more than 14,000bopd. Headline deal metrics are US$5.13/boe (1P), US$2.72/boe (2P) and EV/EBITDA of 4.9x in 2018e. Management expects rapid debt paydown from producing asset operational cash flow.
Last published valuation A$0.09/share: we will be updating our valuation of Elk Petroleum to reflect the Aneth transaction. Please refer to our last published note (14 August 2017) for details of our Grieve and Madden valuations.
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