Columbus Energy Resources (CERP) has announced an all-share agreement to acquire Steeldrum Oil Company Inc, with Executive Chairman Leo Koot emphasising it “provides the company with an excellent opportunity to exploit our existing and new assets through operational excellence and also grow organically through exploration and the Cory Moruga development project”. This is with Steeldrum's assets all located in southern Trinidad and close to Columbus's existing assets. The acquisition will add current oil production of approximately 200-250 bopd and reserves of 5.6 mmbbl and the Cory Moruga development project expected to have recoverable reserves of approx. 1.1 mmbbl – with it added “near term value opportunities to exploit existing and new assets through exploration, the Cory Moruga development project and growing production and revenues at Innis Trinity and South Erin with the adoption of a similar operational strategy to our existing fields”.
Further benefits are access to a drilling rig suitable for planned exploration activities, a production rig and an oil and gas team experienced in drilling wells in Trinidad - and it is also updated that “we have seen steady production performance in Trinidad in Q2 2018 with production averaging 553 bopd, peaking at 648 bopd during the quarter… cash balance of US$2.4 million at the end of Q2 2018 after $1.11 million of capex investment, abandonment fund contributions, M&A and Spain legacy costs during quarter”. The cash compares to $4.1 million at 31st March but Koot emphasises “we would hope to see gross production across all of our fields grow continually throughout 2H 2018 and continue to grow well beyond that… the company believes it will be able to assimilate Steeldrum into Columbus using our existing cash resources and the revenues we are generating from our ongoing operations”. However, as insurance, an up to $3.25 million finance facility has been put in place.
The consideration is initially 92,743,775 shares - £4.4 million (approx. $5.8 million) at the prior closing price – with the announcement seeing house broker VSA Capital update including “the total potential value of the consideration is £5.8m, close to US$1.38/bbl which appears attractive, in our view… We reiterate our Buy recommendation and target price of 25p”. We concur on the attractiveness of this deal in seeing the company towards a core exploration, appraisal, development and production hub in the south and south-west of Trinidad – as it also “continue to consider a number of other M&A opportunities in Trinidad and elsewhere in South America”, emphasising “we continue to have ambitious growth plans and are hugely excited by our increasing potential as our footprint expands”.
We noted on recommending at the end of last month, risked NAV-derived hopes of a 20p+ share price, but shorter-term - with work programmes suggesting news flow aplenty - targeting the shares just regaining levels reached last year. The shares had slipped below 5p, but this latest should again spark them and, now with additional potential, with further confidence the stance remains buy at up to 5.5p. The target to sell is increased to 8.5p+.
Filed under: Columbus Energy, Plant Health Care, David Scott, Minoan, HotStockRockets
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