Coro Energy – cash flow from Italian assets to drive the development pipeline

May 24, 2022 | Posted by

By Dr. Michael Green

Coro Energy, the South East Asian energy company that is focused on supporting the regional transition to a low carbon economy, has brought investors up to speed with developments. Recent weakness in the small cap resources industry has caused the stock price of Coro to undeservedly drift back, so with this latest news the company is assuring investors that its impressive progress is continuing.

There looks to be cracking news from the four key current plays. Following the recommencement of Sillaro in March 2022, gas production in Italy seems to be going great guns, with gas production averaging 20,000 standard cubic metres of gas (scm) a day in April 2022 which generated some €580,000 in revenue. On top of that, Coro’s Italian subsidiary received a VAT reclaim last month of the order of €200,000.

Italian gas prices are remaining strong, with an average price of €0.98 per scm received in April 2022. So, the board expects to continue to generate significant free cash flow from its Italian portfolio. Over the coming months, further work is planned to boost production.

If that wasn’t enough the 85%-owned Vietnam Solar business looks set to achieve maiden revenues before the end of 2022 from its 3MW solar rooftop pilot project; and then net cash flow of US$0.3 million per annum. This follows the entry into a 25-year Power Purchase Agreement (PPA) with Phong Phu,  one of Vietnam’s leading clothing manufacturers. Currently, Coro is completing permitting and procurement activities and intends to place equipment orders in the coming weeks.

This is a pilot project and once it is up and running, the teething problems resolved, the project bedded in and the company’s assumptions proven, then the roll out will begin. The plan is to develop up to 150MW of rooftop solar in Vietnam with 3MW every couple of months which will result in a rapidly growing healthy annual cash flow stretching many years well into the future based on these 25-year PPAs.

In the Philippines Coro’s 80%-owned Solar & Wind business seems to be making great strides with its two development stage renewables projects – a 100MW solar project and a 100MW wind project. Apparently, allowing for permitting timelines, these projects are 6 and 12 months away from achieving ready-to-build status. Already, the all-important wind data gathering exercise has begun with Lidar equipment onsite and Met Mast equipment under contract. Currently, Coro’s team is focused on securing land access as well as pushing these projects through the permitting process.

There has been little let up in global gas prices, which has also been excellent news for Coro’s 15%-owned Duyung PSC Gas Project in Indonesia. The Directors reckon this is the largest confirmed undeveloped resource in the area. They may be right as the Mako gas field is one of the largest gas discoveries (495 Bcf gross, full field) 2C (contingent recoverable resources) in the West Natuna Basin.

So, the timing is pretty near perfect for negotiating a binding Gas Sales Agreement as regional gas prices in South East Asia remain strong and the macro environment is creating the incentive for the positive negotiations.

The current schedule suggests a Final Investment Decision (FID) in 2023 with first gas production and sales targeted for 2025. Coro’s share of pre-FID expenses are estimated to be around the US$1 million mark. Post-FID, the company would be required to fund some US$38 million, assuming a leased processing facility.

To speed up the first gas sales, the partners at the Duyung PSC might sensibly order the long lead time items prior to FID, where Coro’s share would probably be US$2 million. As with other large gas development projects around the world, the company is seeking to fund the development capex through a mix of Reserve Based Lending and farm-in transactions.

At the time of this latest announcement the board was able to draw attention to Coro’s strong funding position from a combination of its cash position of c.US$2.8m (as at 12th April 2022). Plus, there is the free cash flow now coming in from its Italian assets and also that from the Vietnam solar pilot once operational later this year. All of this gives the company a growing war chest to support the further development of the South East Asian portfolio.

CEO Mark Hood commented that, “Pleasingly, as the constraints imposed by COVID are further eased in the region, momentum is building for the Company’s development assets. Notably, the opportunities presented by our Italian assets leave us in a strong financial position as we look to generate revenues from our blended portfolio of gas and renewables assets.”

We believe that Coro is seriously undervalued and are very excited about the company’s big opportunities in solar and wind energy production. There is also the vast gas project in South East Asia, and Italy which has the scope to generate €5 million (£4 million) of free cash flow annually. That is £4 million a year of additional investment funding to accelerate growth.

That’s not to mention the Bezzecca field which could come back online by the year-end and is potentially much bigger than Sillaro. 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).

This announcement clearly shows that there is a lot going on at Coro, which is currently capped at derisory £7 million. Just on the current Italian production alone, we believe the company is undervalued. Then you add in all the other stuff – it is truly mind blowing in our view. With so much going on a healthy news flow looks to be assured.

We initiated coverage on Coro Energy in January 2022 with a Conviction Buy and a target price of 1.50p when the shares were trading at 0.275p. Quite rightly since then the stock has been over the 0.45p mark but recent stock market weakness has taken the shares back down to the current price of 0.335p. As such, we are more than happy to reiterate our stance.


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