By Dr. Michael Green
Coro Energy was one of Align Research’s top 10 recommendations for 2022. With the growth in electricity demand in South East Asia being amongst the fastest in the world, we saw Coro as being a really compelling play based on the huge opportunity in rapidly developing interests in both renewables and gas. With gas prices spiralling ever higher, the latest news is that the company is to relaunch its Italian gas portfolio.
Over the last 12 months, Italian gas prices have risen by 700% and have now reached something like €1.55 per standard cubic metre of gas (scm). Investors have just learnt that Coro now expects to generate more than €5 million of free cash flow annually from its Italian portfolio once Sillaro is brought back into production, which is expected in March 2022.
Coro was in the midst of selling its Italian portfolio to Dubai Energy Partners but with the rapidly improving economic outlook for the business, has resulted in the team terminating the previously agreed sale process and ceasing to market this portfolio.
It should be pointed out that Coro’s strategic focus remains on pursuing energy transition opportunities in South East Asia. However, the board sees these Italian interests as being able to provide some very useful cash flow to be invested by the company into energy transition opportunities in South East Asia. It all looks like a matter of maximising shareholder value.
Looking more closely at the portfolio, Coro has six production concessions in its gas producing portfolio in Italy with six production concessions. Current production comes from Rapagnano, which is around 6k scm/d. Apparently, once back in production (expected in March 2022) this will add around a further c.18k scm/d initially.
The figure of €5 million of free cash flow that could be generated by the Italian portfolio over the next 12 months assumes a price of €1 per scm. Here it is worth highlighting that current geo-political conditions have seen gas prices climb over €1.50 per scm. In fact, they just peaked at €1.90 this morning. Certainly, as Europe transitions to a low carbon economy, gas is expected to play a vital transitional role and gas prices are projected to remain strong for the foreseeable future.
Moving ahead in Italy, the current year will now see a number of planned low risk operations to further boost gas production. these will include the potential producing zone reperforation at Rapagnano, recompletion of Casa Tiberi, which would provide access to a lower horizon, along with the initiation of development activities at the Sant’ Alberto concession. It is worth nothing that Sant’ Alberto is an existing 55 Bcf discovery which historically successfully tested above 75k scm/d and so represents a highly attractive prize.
At the time, CEO Mark Hood pointed out that “I am delighted to report that recent market changes have provided a clear opportunity for the re-spawning of our Italian portfolio with a view to providing solid near-term cash flows to support our South East Asian growth strategy.”
Going back a bit, these non-core gas assets in Italy were used as a platform to grow in South East Asia. The operational track record and production of these assets provided Coro with the credentials to successfully become involved in hydrocarbon projects elsewhere in the world. Now they are coming back into play to serve as a cash cow.
Looking back at our old notes, there were four main projects in this portfolio. The Sillaro Gas Field lies within the Sillaro Licence, which is located in the Emilia Romagna region, 30km east of Bologna, in northern Italy. Production commenced in 2010 from two wells (one dual completion and one single completion) and daily gas production of gas from this field had been around 9,000scm/day (318Mcf/day). The level of production could be increased by a workover on one of the existing wells, which would probably involve a side-track.
The Bezzecca Gas Field is located within the Cascina Castello Licence which lies 35km east of Milan. An enlargement of the existing Cascina Castello Licence led to the Bezzecca Field being awarded production concession status in 2014. Gas production commenced in 2017 and this field had been producing at a rate of 16,000scm/day (550Mcf/day).
The Sant’ Alberto field is located on the San Vincenzo permit that lies in the Email-Romagna region. October 2017 saw the awarding of the production concession and the current development plan involves seeing the first year’s production delivered via a low-pressure connection which is located just 260m from the well head. Meanwhile, the Rapagnano Gas Field is in the Fermo Province, in the Marche region, and was producing at a rate of 8,000scm/day (275Mcf/day). Apparently, Sant’ Alberto is drill ready and what’s more there is equipment sitting on a another well pad nearby that could be moved across.
This does sound like old news nowadays, but a collapse in the gas price a couple of years ago in Italy led to these operations becoming shut in. That is with the exception of Rapagnano which was profitable even at low gas prices.
Talking to Mark Hood this morning who was in Manila, it does look as though 24k scm/d could be achieve relatively soon. Casa Tiberia is rather small fry but with Sant’ Alberto in play a total from the Italian portfolio of 80k scm/d or more could be achievable once the environmental clearance at Sant’ Alberto is completed.
By any yardstick, Coro is seriously undervalued in our view. We are very excited about the company’s big opportunities in solar and wind energy production as well as the vast gas project in South East Asia. But Italy now has the scope to generate €5 million of free cash flow annually, which roughly equates to £4 million. That is £4 million a year of additional growth investment funding to accelerate growth. Also, it is worth comparing that number against the market cap which currently sits a derisory £8 million, which just highlights the value on offer.
It is rather an understatement to suggest that Coro is in for a busy year with oodles of newsflow expected. First off will either be news of Sillaro coming online or the debt being renegotiated. This year will see the first renewable energy project in Vietnam and then the team bringing on a series of other assets in that country, to be followed by the start of the similar procedure in the Philippines. Also, this year will see further news from Dujung which is looking better by the second given the buoyant gas prices.
We initiated coverage on Coro Energy with a Conviction Buy stance and a target price of 1.50p when the shares were trading at 0.275p. At the current price of 0.375p following the latest moves, we are more than happy to reiterate our stance.
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