Published On: June 29th, 2023
Figure 1: CALIMA ENERGY LIMITED ASSETS
Calima Energy Limited (ASX: CE1 / OTCQB: CLMEF) has ended the ongoing asset sales negotiations. On May 29th, the Company announced a trading halt for its listed securities on the ASX (ASX: CE1); the same was reinstated. The discussions and potential agreement to sell assets will no longer proceed. The energy price volatility impacted the final terms of the negotiations.
Calima Energy Chairman Glenn Whiddon clarifies that Canadian entities have expressed interest in acquiring Calima Energy’s assets at a premium due to a notable difference in valuations between Calima Energy on the Australian Securities Exchange (ASX) and comparable companies listed on the Toronto Stock Exchange (TSX).
The Canadian entities perceive Calima Energy’s assets as potentially undervalued in the Australian market. By acquiring these assets at a favourable price relative to their perceived value, Canadian entities aim to capitalise on the potential for increased value.
He said,
“Calima has received three unsolicited confidential non-binding offers from Canadian entities to acquire certain assets at a material premium to the Company’s current market valuation. These entities identified the substantial disconnect between the valuations attributable to Calima on the ASX and those peer group companies trading on the TSX. While Calima trades at ~1.5x earnings ratio, similar Canadian companies are trading at 2.5 – 3.5x.
Calima granted exclusivity to one party; however, the final terms could not be agreed upon, resulting in the negotiations being terminated.
Based on interest to date, we would not be surprised to receive new inbound approaches for the assets; however, the current focus of the Board and Management is to optimise the reserve base, revenue and operating profits to narrow the valuation gap between Canadian E&Ps and Calima; thereby maximising value creation for stakeholders. Should a transaction occur in the future, the Company intend to reward shareholders via a distribution of proceeds from the asset sale.“
About Glenn Whiddon
Figure 2: CALIMA ENERGY CHAIRMAN GLENN WHIDDON
Glenn Whiddon is an experienced professional with a diverse background in investment management and executive leadership roles. He is the Principal and Founder of Lagral, a family Company focused on investment management activities in the mining, energy, and property sectors.
Glenn is the Chairman of Calima Energy Limited (ASX: CE1), where the Company invests in oil and gas exploration and production projects, primarily focusing on Canada and potential international opportunities. Under Glenn’s leadership, the energy company aims to maximise value for its shareholders through successful exploration, development, and production activities in the energy sector.
Previously, Glenn held executive positions such as Executive Chairman of Rialto Energy Limited (now Azonto Petroleum Limited) and CEO and Chairman of Grove Energy Limited, which Stratic Energy acquired later. He also co-founded Pinnacle Associates, which undertook direct investments in the Russian natural resource sector and provided advisory services for foreign companies investing in Russia and the CIS region.
Glenn’s extensive experience also includes establishing the Moscow operations of Bank of New York – Inter Maritime Bank, focusing on correspondent and corporate banking, resource investments in the oil industry, and consulting.
He holds a Bachelor of Economics in Accounting from Macquarie University.
Distributions to Shareholders and Potential Share Buy-Back
Calima Energy Limited intends to execute its second distribution of AUD 3 million to shareholders, as announced in the third quarter of FY2023, with the record date to be announced. The objective is to increase the frequency of shareholder distributions, subject to prevailing market conditions and commodity prices.
If needed, Calima Energy may restart a share buy-back program. However, the main emphasis will be prioritising continuously delivering distributions to supportive shareholders.
Updates on Montney Operation in British Columbia, Canada
Figure 3: Montney Operations Location
Calima Energy is reviewing the Montney asset in detail, including reservoir analysis, operations, and planning. Considering associated economics, this review will be incorporated into the upcoming field development model.
- The production tests conducted in February 2023 align with expectations and evaluations, and activities during the past winter have refined cost and productivity expectations as anticipated.
- Initial risk-adjusted development economics support the continued progress of the Project, which involves a condensate-rich gas reservoir with significant potential
- Pressure recorders in previously drilled two horizontal wells (Calima #2 and #3) will be retrieved in late 2023 or early 2024 to improve deliverability forecasts and estimated ultimate recoveries
- The analysis of PVT (Pressure/ Volume/ Temperature) data collected from the wells aligns with the Company’s understanding of the reservoir and will help validate predictions and reduce uncertainty
- Collaboration with a midstream company is ongoing to explore transportation and processing capacity, options and cost for >50 MMscf/d of gas processing
- Solutions with appropriate capital and operating costs have been identified
- Funding options, including joint ventures and alternate funding, are being continuously reviewed to support the Project, which the Company believes is competitive globally in gas condensate plays, subject to suitable pricing
Plans to Optimise Drilling and Operational Expenses
Calima Energy Limited faced a significant increase of 20-30% in capital and operating costs over the past 18 months. However, there has been recent stabilisation or slowing of inflation, leading to more settled prices.
The Company plans to improve efficiencies by reducing activity during the Canadian winter and standardising operations. These measures aim to maximise value and achieve greater returns on investment in future drilling programs.
Investor Outlook and Financials
- Based on the interests received, Calima Energy anticipates that it may receive additional inquiries or proposals from external parties regarding the acquisition or potential utilisation of its assets
- The forecasted Q2 production, as mentioned in the March 2023 quarterly report, is on track and currently averaging around 4,125 barrels of oil equivalent per day (boe/d)
- The Company expects to generate approximately AUD 7.5 million in free cash flow for the quarter
- With regards to the new well drilling in the second half of 2023, the Company anticipates that the average daily production will range between 4,000 and 4,300 boe/d for the rest of the year
- The Company is trading at a 1.5X earning multiple, which makes the Company undervalued as compared to its peers trading on TSE
- Calima Energy’s share price is AUD 0.094 per share as of June 28th, 2023, with a 52-week range of AUD 0.093 – AUD 0.175
- The Company’s market capitalisation stood at AUD 57.6 million as of June 28th, 2023
- Calima Energy has 612.7 million shares issued as of June 28th, 2023
About Calima Energy Limited
Calima Energy Limited (ASX: CE1) is a Canadian oil and gas-producing energy Company focusing on responsible development of high-quality assets in Western Canada. It generates stable production from its Thorsby and Brooks assets, primarily conventional oil and gas, with a low decline rate of around 65%. These assets offer significant growth potential as production doubles within 18 months.
In addition to the Thorsby and Brooks assets, Calima Energy holds over 34,000 acres of Montney rights in the “liquids-rich” fairway. The Montney assets, known for their abundant liquids, provide an upside opportunity in domestic gas and global LNG markets.
With a substantial acreage position, Calima Energy is well-positioned to capitalise on the potential of the Montney formation and leverage the growing demand for liquid-rich natural gas.
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