Kolibri Global Energy — Longer laterals are a potential game changer

Kolibri Global Energy (TSX: KEI)

Last close As at 27/12/2024

4.25

0.05 (1.19%)

Market capitalisation

152m

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Research: Energy & Resources

Kolibri Global Energy — Longer laterals are a potential game changer

Kolibri Global Energy (KEI) reported Q224 results that saw double-digit increases across all financial and operating metrics on a y-o-y basis, with production and EBITDA up 37% and 40%, respectively. Sequentially, EBITDA fell 7%, while netback was 5% higher at US$40/bbl. KEI has started drilling three new 1.5-mile lateral wells, slated for completion in early Q4. If successful, these wells could potentially see an up to 1.5x increase in production rates and lead to a change in the field development plan. We have updated our valuation to US$6.9/share as we await more details about the performance of the new wells and KEI’s next steps. The potential change in field development strategy is yet to be priced in by the market.

Written by

Andrey Litvin

Energy and Resources Analyst

Energy & Resources

Kolibri Global Energy

Longer laterals are a potential game changer

Results update

Oil and gas

19 August 2024

Price

C$4.4

Market cap

C$157m

US$/C$1.36

Net debt (US$m) at end Q224

34.2

Shares in issue

35.6m

Free float

100%

Code

KEI

Primary exchange

TSX

Secondary exchange

Nasdaq

Share price performance

%

1m

3m

12m

Abs

(6.2)

5.5

(20.3)

Rel (local)

(6.4)

2.1

(31.2)

52-week high/low

C$6.48

C$3.92

Business description

Kolibri is a junior unconventional exploration and production company operating in the Tishomingo oil field in southern Oklahoma. It earned the right to ‘hold by production’ in more than 96% of 17,163 net acres in the Caney/Upper Sycamore formations through historical drilling and participation in the Woodford shale. Kolibri’s total gross reserves stood at 77mmboe as of December 2022.

Next event

Q324 results

November 2024

Analysts

Andrey Litvin

+44 (0)20 3077 5700

Andrew Keen

+44 (0)20 3077 5724

Kolibri Global Energy is a research client of Edison Investment Research Limited

Kolibri Global Energy (KEI) reported Q224 results that saw double-digit increases across all financial and operating metrics on a y-o-y basis, with production and EBITDA up 37% and 40%, respectively. Sequentially, EBITDA fell 7%, while netback was 5% higher at US$40/bbl. KEI has started drilling three new 1.5-mile lateral wells, slated for completion in early Q4. If successful, these wells could potentially see an up to 1.5x increase in production rates and lead to a change in the field development plan. We have updated our valuation to US$6.9/share as we await more details about the performance of the new wells and KEI’s next steps. The potential change in field development strategy is yet to be priced in by the market.

Year end

Net revenue (US$m)

EBITDA
(US$m)

EPS*
(US$)

DPS
(US$)

P/E
(x)

Yield
(%)

12/22

37.6

28.9

0.47

0.0

12.8

N/A

12/23

50.6

39.7

0.54

0.0

11.1

N/A

12/24e

61.6

46.8

0.57

0.0

10.5

N/A

12/25e

68.8

53.4

0.70

0.0

8.6

N/A

Note: *EPS is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Q224 results

KEI’s Q2 results showed a strong increase in almost all operational and financial metrics on a year-on-year basis, with average production up 37% y-o-y to 3,128boepd and revenue increasing by 41% to US$13.9m. Despite the high double-digit increase in both opex and G&A (albeit from a low base), EBITDA grew 40% y-o-y to US$9.9m (Edison). The results were affected by the reduction in realised gas and natural gas liquids (NGL) prices, yet KEI achieved a 2% q-o-q increase in basket price, which partly offset a 5% fall in production and led to a 3% reduction in revenues. On the cost side, operating expenses fell by 6% q-o-q in absolute terms, while G&A increased 21%, driving EBITDA down by 7%. Despite higher unit costs, more favourable basket price drove operating netback 5% higher to US$39.6/boe.

Longer lateral wells could change field economics

KEI announced it has started drilling its three Alicia Renee wells that will have 1.5mile lateral lengths, compared to the 1 mile before. While not without risks, a 1.5x increase in horizontal well length could lead to a similar increase in production at a reduced capital cost per foot. KEI may revise its current field development plan should the three wells be successful. Having updated our estimates for FY24, we await more details about initial production rates from the new wells, which are expected to be completed in early Q424, and the potential subsequent update to the reserves statement.

Valuation: New drilling is yet to be priced in

We have slightly increased our valuation of KEI from US$6.8 to US$6.9/share (C$9.5/share). While the new approach to drilling and potential change in field development plan still lack clarity, if implemented, it could result in significant improvements in well economics, bringing forward cash flows and increasing returns. This is especially important given the current commodity price pressures. These potential developments are not yet reflected in our longer-term estimates and we believe are yet to be discounted by the market.

Q224 results review and changes in estimates

KEI’s Q2 results showed a strong increase in almost all operational and financial metrics on a yearon-year basis. Average production was up by 37% y-o-y to 3,128boepd, while revenue increased 41% to US$13.9m. Despite the high double-digit increase in both opex and G&A, albeit from a low base, EBITDA grew 40% y-o-y to US$9.9m.

Sequentially, average production was down by 5% but this reduction was partly offset by slightly higher realised basket price, resulting in revenues sliding 3% q-o-q. Despite a visible reduction in realised gas and NGL prices in Q2, which is likely a function of market weakness, the overall basket price increased 2% q-o-q, with oil contributing 94% to gross revenues compared to a 74% share in quarterly production. On the cost side, operating expenses fell by 6% in absolute terms, while G&A increased 21%, driving EBITDA down by 7% (3% on a company basis). Production expenses in Q2 were still affected by the reassessment of prior year’s gathering and processing costs, which added US$0.5/boe, while well reworks contributed another US$0.3/boe. Adjusted for these items, Q2 operating and compressor costs were US$7.7/boe. Despite the increase in unit costs, the more favourable basket price drove operating netback 5% higher to US$39.6/boe. The company ended the quarter with a net debt of US$34m, compared to US$31m at end Q124.

Exhibit 1: Q224 results summary

 US$m

Q224

Q124

q-o-q (%)

Q223

y-o-y (%)

Average production, boepd

3,128

3,305

-5.3

2,415

36.9

Realised basket price, US$/boe

62.1

60.7

2.4

58.0

4.6

Net revenues

13.9

14.3

-2.6

10.1

41.2

Opex

2.1

2.2

-6.1

1.1

95.8

G&A

1.5

1.3

20.8

1.0

23.9

EBITDA - Edison

9.9

10.6

-7.3

7.6

40.3

EBITDA - Company

10.0

10.4

-3.2

7.6

35.6

Netback, US$/boe

39.6

37.8

4.6

38.6

-2.1

Net debt

34.2

31.0

10.4

18.1

71.1

Source: KEI, Edison Investment Research

Longer lateral wells could transform field economics

In tandem with the results announcement, KEI reported it has started drilling three Alicia Renee wells. These wells will have lateral (horizontal) lengths of 1.5 miles compared to 1 mile for previous wells. While not without their risks, the longer laterals, in general, allow for better contact with hydrocarbon formations, improving recovery and increasing production rates. Typically, production benefits per foot diminish gradually with longer lateral lengths. However, for smaller lateral increases (ie moving from 1 to 1.5 mile, compared 2- or 3-mile laterals) incremental production gains are likely to be more pronounced. KEI believes that a 1.5x increase in lateral length could bring a similar increase in production but internally conservatively assumes a 1.35x improvement per well. We have updated our FY24 estimates to reflect the new approach to drilling. It is likely that the company may revise its field development plan should the new wells be successful. We await more details on the initial production rates from the wells, which are expected to be completed in early Q4, and the potential subsequent update to the reserves statement.

Overall, we now expect slightly higher average production of 3,468boepd in FY24, with Q3 performance likely to be flat-to-slightly lower, followed by a visible increase in Q4. While we now assume five well completions this year (from six before), we expect higher production rates from the new wells to compensate for the reduction in the number of completed wells and potentially result in much higher exit rates for the year. For now, we assume that the Alicia Renee wells will have initial 30-day production rates of c 800boepd at a capital cost of c US$7.5m per well. While opex is mostly variable, we could see some reduction in unit costs on the back of higher production rates.

Despite slightly higher production estimates, due to a number of small adjustments to pricing and costs, our FY24e EBITDA is now c 5% lower at US$47.2m. Although we keep our FY25 well completion and drilling projections unchanged for now, the next year could shape very differently for KEI should it adopt a new development approach. We also note that the company currently sits on two drilled but not yet completed Caney wells, which could also be fracked next year.

Exhibit 2: Estimates revisions

FY24e

FY25e

US$m

New

Old

New

Old

Average production (boepd)

3,468

3,402

3,964

3,719

Realised basket price (US$/boe)

62.6

64.7

61.0

61.6

Net revenues

62.2

62.7

69.2

65.2

EBITDA

47.2

49.9

53.8

52.0

EPS (US$)

0.58

0.69

0.70

0.71

Net debt/(cash)

35.1

29.8

28.0

22.6

Source: Edison Investment Research

The above changes to production and earnings estimates increase our valuation slightly of KEI from US$6.8 per share to US$6.9 per share (C$9.5/share) at an unchanged weighted average cost of capital of 10%. While the new approach to drilling and potential change in field development plan still lack details and visibility, if adopted it could result in significant improvements in well economics, bringing cash flows forward and increasing internal rates of return. This is especially important given the volatility and downward pressures on the oil price. These potential developments are not yet reflected in our longer-term estimates and we believe are yet to be priced in by the market. We are waiting for more details from KEI to update our model and valuation.

Exhibit 3: Financial summary

US$'000s

2021

2022

2023

2024e

2025e

Dec YE

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

19,128

48,376

64,390

79,228

88,311

Royalties

(4,156)

(10,816)

(13,793)

(17,113)

(19,075)

Net revenue, including other income

14,974

37,606

50,599

62,174

69,236

Production costs

(2,962)

(4,904)

(5,895)

(8,862)

(9,405)

SG&A

(2,697)

(3,494)

(4,243)

(5,190)

(5,354)

Share based payments

0

(277)

(790)

(900)

(700)

EBITDA

 

 

9,315

28,931

39,671

47,222

53,778

D&A

(3,594)

(7,581)

(15,009)

(15,774)

(17,011)

EBIT

 

 

5,721

21,350

24,662

31,449

36,767

Exceptionals

71,403

0

0

0

0

Net interest

(906)

(1,067)

(2,366)

(3,195)

(3,435)

Other

(5,216)

(3,640)

343

(745)

(100)

Profit Before Tax (norm)

 

 

(401)

16,643

22,639

27,509

33,232

Reported PBT

71,002

16,643

22,639

27,509

33,232

Tax

0

0

3,359

6,877

8,308

Reported profit after tax

71,002

16,643

19,280

20,632

24,924

Normalised profit after tax

 

 

(401)

16,643

19,280

20,632

24,924

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

0.58

0.70

EPS - reported (US$)

3.05

0.47

0.54

0.58

0.70

Dividend, c

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

147,114

176,602

217,351

236,617

255,081

PP&E

147,076

176,554

216,161

235,427

253,891

Rights of use assets

38

48

1,190

1,190

1,190

Current Assets

 

 

9,902

7,480

6,928

8,687

16,580

Cash

7,316

1,037

598

695

8,155

Receivables

1,999

5,773

5,492

7,154

7,588

Deposits and prepaid expenses

587

670

838

838

838

Current Liabilities

 

 

(6,079)

(14,049)

(18,844)

(13,538)

(14,270)

Payables

(3,145)

(12,596)

(17,648)

(12,139)

(12,497)

Loans

(1,000)

0

0

0

0

Leases

(43)

(32)

(1,068)

(1,271)

(1,645)

FV of commodity contracts

(1,891)

(1,421)

(128)

(128)

(128)

Long Term Liabilities

 

 

(17,849)

(19,835)

(31,740)

(36,540)

(36,540)

Debt

(15,866)

(17,799)

(29,612)

(34,412)

(34,412)

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

195,226

220,851

Shareholders' equity

 

 

133,088

150,198

173,695

195,226

220,851

CASH FLOW

Operating Cash Flow

71,002

16,643

19,280

20,632

24,924

D&A

3,594

7,581

15,009

15,774

17,011

Working capital

551

(2,140)

1,714

(7,171)

(75)

Other

(68,844)

(42)

2,644

1,010

800

Net operating cash flow

 

 

6,303

22,042

38,647

30,244

42,659

Capex

(696)

(37,097)

(53,173)

(33,947)

(34,200)

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)

(4,703)

7,459

Opening net debt/(cash)

 

 

19,939

9,593

16,811

30,244

35,150

FX and other

561

(125)

(1,309)

(203)

(375)

Closing net debt/(cash)

 

 

9,593

16,811

30,244

35,150

28,065

Source: Kolibri Global Energy accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Kolibri Global Energy and prepared and issued by Edison, in consideration of a fee payable by Kolibri Global Energy. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for ‘wholesale clients’ within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are ‘wholesale clients’ for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a ‘personalised service’ and, to the extent that it contains any financial advice, is intended only as a ‘class service’ provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the ‘FPO’) (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the ‘publishers' exclusion’ from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Kolibri Global Energy and prepared and issued by Edison, in consideration of a fee payable by Kolibri Global Energy. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for ‘wholesale clients’ within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are ‘wholesale clients’ for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a ‘personalised service’ and, to the extent that it contains any financial advice, is intended only as a ‘class service’ provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the ‘FPO’) (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the ‘publishers' exclusion’ from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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