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VSA Capital Market Movers - Columbus Energy Resources PLC

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Columbus Energy Resources (LON:CERP)

Columbus Energy Resources (CERP)# presented to investors yesterday evening to officially launch its rebranding and gave an outline for its strategy going forward. Having spoken to the almost entirely new management in place we now view this as a materially different company. In short, we are extremely impressed by CERP’s new leadership and the significant progress that has been made both in Trinidad and London in the 5 weeks since Leo Koot was announced as CEO. Our key takeaways from the event are summarised below.

Management

Leo Koot - CEO

In the coming years we will probably view 10 May 2017 as the day that realistically transformed LGO Energy into CERP upon the appointment of Leo Koot as CEO. We view Leo’s appointment as an extremely positive step made by the company for a number of reasons and, in truth, the announcement was a very welcome surprise to us at the time.

Primarily we are excited by LEO’s wealth of experience, not just his 28 years of expertise in the oil and gas industry but by the fact he has built an oil company effectively from scratch before as Managing Director of TAQA (Abu Dhabi National oil Company) UK. In this role he built the organisation from a few people to an organisation of over 2,000 staff and contractors and delivered a mature E&P operating company that managed 60kboepd production with US$1.7 billion in annual revenues. Further to this he has been a board member of AIM listed Sterling Energy (SEY), Managing Partner of MENA Gulf Investment Partners (Abu Dhabi), whilst prior to TAQA he was CEO of Energy Development Partners an oil and gas business creating ways to match capital and resources with developing production, for which he helped raise a US$350 million private equity fund. Leo has a Master in Petroleum Engineering and a business degree from Harvard Business School.

Gordon Stein – CFO

Further to Leo’s appointment Gordon Stein was announced as the new CFO on 15 June 2017. Gordon has already made his influence felt in the very short time he has been appointed as at the briefing yesterday it was announced CERP was moving its London office, which is estimated to be saving the company c£20,000 per month.

Gordon has over 24 years of international experience in the oil and gas sector and was most recently CFO of Madagascar Oil. Prior to this, he was CFO at Cadogan Petroleum, Vanguard Energy Limited and Regal Petroleum. Gordon is a member of the Chartered Institute of Public Finance & Accountancy.

Stewart Ahmed – Managing Director, Trinidad

Stewart Ahmed’s appointment as effectively country manager in Trinidad is another appointment we view as being important in turning the company around. Previously under the old management CERP did not have a board member in country, however, Stewart will be based in Trinidad to oversee operations and as outlined at the briefing has already made a number of operational improvements at the field to make it more productive at minimal cost. Significantly by having Stewart both on the board and working on site in Trinidad we believe this will remove any disconnect between the two and will bring his wealth of technical and commercial expertise from his international career.

Stewart has 32 years oil industry technical, commercial and management experience, most recently as Chief Operating Officer and General Manager of Madagascar Oil in Antananarivo from 2013-2016. Operating the Tsimiroro Field steam flood pilot, he gained the first Field Development License in Madagascar’s history.

Geological Potential

From the presentation made to investors yesterday it is clear that Leo is extremely enthusiastic about the potential in CERP from a geological and technical perspective. The first point he makes is that the quality of the oil is particularly good (38° API) i.e. the oil is light. This is particularly unusual when considering that the reservoir depth at Goudron is shallow (c500m), ordinarily at these shallow depths one would expect the quality of the oil to be much lower and viscous due to biodegradation of the oil and interaction with bacteria. However, as this is not the case this would indicate that the oil is leaking and, therefore, migrating from a deeper and much larger source which the management indicated it will be targeting to exploit.

 

Strategic and Operational Improvements

CERP has already moved on from the days of LGO and its strategy has moved accordingly and it plans to implement a 3-5 year strategy to add incremental value to the business. Previous management indicated it wanted to drill 45 new wells into the Goudron Field which were expected to produce c50bbls/d initially before gradually tailing off. The new management has now confirmed this strategy will not be followed and will be implementing a new one. Whereby, instead of drilling new wells CERP plans to increase the pressure in the reservoir through water injection in order to encourage the existing wells to produce at or close to their initial production rates. Indeed the field has produced c2000bbls/d in 2014 and these are the sort of numbers that the new management is targeting.

Management are confident by implementing these changes and a number of other cost cutting measures this will allow it to become cash flow positive in a matter of months. CERP will then use some of this cash to build up production further.

 

South America

Finally CERP indicated its intention to export its expertise into South America, therefore, we expect it to announce M&A activity in this region in due course.

Summary

We have summarised the key points of the meeting below and we now view CERP as an entirely different investment proposition to LGO and we are excited to see the new management follow through on these plans.

• CERP plans to implement a 3-5 year strategy to add incremental value to the business

• The first part of its strategy is to grow its production organically from its currently producing assets in Trinidad to allow it to become cash flow positive through a number of cost cutting measures

• CERP then intends to invest part of this free cash flow into its exploration portfolio in the South West Peninsula where it is targeting several large prospects

• CERP plans to build on its asset base in Trinidad with a portfolio of assets across South America
 


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