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VSA Capital Market Movers - Columbus Energy Resources PLC Independent Oil & Gas PLC

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Columbus Energy Resources (LON:CERP)

Columbus Energy Resources (LON:CERP) has announced interim results for H1 2017 which with operational changes enacted in late H1 2017 are likely to mark a turning point in the company’s development. CERP has set out the strategy to restore profitability at the core operations which will provide stable cash flow for unlocking CERP’s exploration potential.

Group oil sales of 108k barrels of oil were down 32% YoY as production in Spain ended in January 2017. While in Trinidad production was disrupted by Tropical Storm Bret alongside declines in well pressure in the Goudron field. However, higher average oil prices and favourable timing of sales more than offset the decline in production and revenue of £2.5m was up 28% YoY. The operating loss of £1.88m was in line YoY, as although CERP has made significant progress and reduced SGA by 16% YoY to £1.4m, cost of sales were higher as a result of one offs relating to Spain while a positive non cash gain in H1 2016 benefitted earnings in the prior period. We note, however, a 33% YoY reduction in operating costs at Trinidad to £700k. The net loss of £1.96m was therefore broadly in line YoY.

However, we believe that H1 2017 is likely to mark a turning point for CERP. With the new management team in place from May 2017, CERP has indicated the early success of its low cost initiatives to restore profitability and positive cash flow at its core operations. In line with previous experience the performance of the first two wells drilled as part of the Mayaro infill programme (GY-682, GY-683) resulted in strong initial production of 55bopd and 65bopd, however, this declined to 8bopd and 18bopd respectively within a few months as pressure declined. Consequently and with 160 historic wells of which around 90 are shut in, management has decided to utilise the existing wells and address the issue of declining pressure via well stimulation rather than continue with the Mayaro sand infill programme.

Yesterday, CERP announced that it had received a CEC enabling the first programme of the waterflood pilot injection to commence. This is planned to increase production from 30bopd to over 150bopd on a stable and consistent basis at a cost of just US$300k compared to US$500k for each Mayaro well. On a larger scale the potential is therefore likely to be significant and by utilising water injection and other well stimulation techniques such as smart pumping systems CERP is targeting over 550bopd by year end. Early injectivity tests have resulted in tenfold increases in production rates so far.

CERP’s cash position at the end of H1 2017 was £1.7m and on Monday CERP announced an additional US$750k in Lind funding due in Q4 2017. CERP have guided that the turnaround strategy based on well stimulation and the waterflood injection programme will be achievable using existing cash resources and are targeting positive cash flow generation by Q4 2017.

While restoring profitability at the core Goudron operations in the near term is in itself highly positive we highlight the announcement that based on the existing cash resources and the projected cash flow from Goudron, CERP intend to bring forward development of the significant exploration potential at the South West Peninsula (SWP). CERP intend to drill SWP in mid-2018 using existing cash resources. This is subject to completion of permit approval and completion of commercial negotiations which have begun following the acquisition of the BOLT license and production of 200 barrels of oil sold to Petrotrin in May 2017. SWP represents CERP’s transformational growth opportunity and the ability to develop the asset internally is a significant positive step, in our view.

We reiterate our Buy recommendation and target price of 25p/sh.

Independent Oil & Gas (LON:IOG)

Independent Oil & Gas (LON:IOG) has announced changes to management as James Chance, previously IOG’s Commercial Director, has been appointed Chief Financial Officer with immediate effect. James has not been appointed to IOG’s Board of Directors. Hywel John, has stepped down from CFO and resigned as a Director with immediate effect to pursue other interests. The IOG project team has been strengthened by the addition of Ian Pollard as HS&E Manager and Jonathan Walker as Engineering Manager.

We reiterate our Buy recommendation.


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