Relaunched, reborn or just refreshed?
The difference between the old company and the new is clear for all to see. After digging a little deeper into the all new CERP.L (having been a past investor to the former company LGO.L) the assets are just as good as they have ever been. The problem with LGO was confidence. This was lost due to poor management and an approach to treat shares/equity like confetti. The former owners, (inc Mr Lenigas) promised a lot and delivered very little. It is no surprise to see investors greet the reborn LGO… now called Columbus Energy Resources with a critical eye and for long term holders, plenty of distrust and disdain.
The new owners/management team look lean and mean. Issuing confetti shares seems the last thing on their minds although funding plans are without a doubt on the horizon further down the line. Management have issued a clear plan and have outlined targets. These all look doable and with minimal cash outlay and fast pay back. The target is 1000bopd. That’s a near 300% increase in current production. If achieved and more importantly… sustained, then the company will move to increase production further in 2018. It’s possible the company could exit 2018 with circa 1500bopd to 2000bopd. That would bring in considerable cash and still barely put a dent in the 12mmboe reserves. The company has plenty of other catalysts to drive the stock higher. Spanish assets are suspended at present and a conclusion to this licence issue should be sorted soon.
Whilst the business is cash generative and has the means to pay down the pre-arranged funding via LIND (previous /current convertible bond holder) cash is instead being focused on raising production volumes with debt payments/draw downs being paid in shares. Today’s announcement of 20.3m shares being issued to LIND comes with a caveat / lock in of 6 months. That should be enough time for the company to deliver sizable production increases and cash flows which in turn should bring in new investors and increase liquidity. Hence, perfect time for LIND to exercise/profit from their new shares.
The assets are plentiful and mainly focus on Trinidad although there are added interests in South America (Colombia) which may see progress in 2018. For the moment, it’s all about boosting the productivity of each well via an infill drilling programme. It’s low cost and pays back swiftly. If you forget about the current production of circa 350bopd and instead look at the 2p reserves of circa 12mmboe and cost per barrel at circa $5pb, you soon realise that there is a large disconnect between the £21m market cap and the company’s full potential.
Should the company boost production to levels near 1000bopd or 1500bopd in next 6 months, the cash generation alone (using $55pb) could be $50pb+. Compared to most other operators, cost per barrel is close to $25pb (and that’s the good ones!). Profit points are closer to $10pb to $20pb at best. Hence, 1000bopd net to CERP, is a bit like 3000bopd to a higher cost per barrel player. Of course, that’s a rough comparison and tax /decom costs should be considered too. As should WTI / Brent pricing with $5pb difference at present.
For the here and now… CERP is doing around 350bopd. The new management team will know all too well how dangerous it is to over promise and under deliver. Hence, when the Exec Chairman Mr Leo Koot says he thinks production can boosted considerably, you have to take the man at his word. Should the company succeed, the cash flow funds coming in may go towards drilling a deep prospect on the Icacos Oilfield (Columbus, 50%) located in the extreme southwest of Trinidad. Resources are estimated in the ‘billions’ and any success there would be talked about for decades to come. Seismics are limited to date so there’s a bit of work to do before the deep prospects get explored. Currently, the licence is producing 25bopd from shallows with plenty of room to improve on that level on a low capex basis.
In summary, CERP’s assets were never the problem. It was past management that was the problem. The new team, new company name and new funding arrangement all points to a very new company. At 3.9p per share, it has all the potential to multibag on production success. Certainly one to watch over the next few months.
As always, important to read about risks and warnings in the sidebar to the right.