Energy Company Unlocks Premium Gas Partnership

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NG Energy International Corp. (GASX:TSX.V; GASXF:OTC; 56P:FRA) announced it has signed a letter of intent (LOI) to sell 40% operating working interest in the Sinu-9 gas block in Colombia to Paris-headquartered upstream energy company Maurel & Prom SA for total cash consideration of US$150 million.

According to the company, the transaction "significantly derisks the development of Sinu-9, one of Colombia's largest onshore natural gas fields."

"Bringing on an operational partner such as Maurel & Prom at Sinu-9 is a game changer for NGE," NG Chairman and Chief Executive Officer Brian Paes-Braga said. "It allows NGE to maintain a significant 32% stake in Sinu-9 while at the same time welcoming a distinguished operational partner with in-country expertise, which we expect will increase both speed and certainty in unlocking the full potential of this giant oil and gas field."

The company noted that Maurel & Prom is supported by its controlling shareholder, Pertamina, the state oil company of Indonesia, and has almost two centuries of operating experience across Africa, Latin America, and Europe.

Analyst Stephen Kammermayer of Clarus Securities wrote in an updated research note the day after the release on January 21 that the transaction "illustrates significant undervaluation of GASX shares."

"Using the sale price of US$150 million for a 40% stake values the total block at US$375 million," wrote the analyst. "NG Energy will retain a 32% stake which would value its portion at US$120 million, or US$0.47 per share (CA$0.68 per share). Adding the cash value of US$0.59 per share (CA$0.85) equates to a total value of CA$1.53 per share for NG’s Sinu-9 stake alone, 31% above its current trading price of CA$1.17."

The stock was even lower, at CA$1.14, at the time of writing Monday. Kammermayer rated the stock a Buy with a target price of CA$3.50 per share, a more than 200% increase.

Block Fully Permitted, Has Environmental Approval

The Sinu-9 block covers about 311,353 acres in the department of Cordoba, Columbia. GASX said it is fully permitted, with environmental approval granted by the country, to drill 22 wells from 11 locations.

NG Energy said that as of the end of 2023, the block had 26.7 billion cubic feet of developed and proven natural gas reserves, 114.36 billion cubic feet of proven and probable reserves, and 245.3 billion cubic feet of proven probable, and possible reserves.

Analyst Stephen Kammermayer of Clarus Securities wrote in an updated research note the day after the release on January 21 that the transaction "illustrates significant undervaluation of GASX shares."

In addition, the company said the block has gross un-risked best estimate contingent resources (development pending) of 130 billion cubic feet and gross un-risked best estimate prospective resources of 131 billion cubic feet.

Maurel & Prom will assume its proportional share of NG Energy's carry commitments related to Sinu-9 on closing of the transaction, which is subject to negotiation and execution of a definitive agreement and the receipt of regulatory approvals.

M&P will have a 12-month option from closing of the transaction to increase its working interest by an additional 5% for a cash payment of US$18.75 million.

"The transaction allows us to maintain exposure and unlock value from what we view as world-class assets in Colombia while providing cash proceeds to support our continued evaluation of opportunities, both domestically and internationally, in addition to providing a meaningful return to our shareholders in the near term," Paes-Braga said.

Cash Could Pay Off for Investors

The transaction puts the company in "an excellent position" to advance its Maria Conchita Block, where Beacon Securities Analyst Kirk Wilson wrote that an expansion of the infrastructure is underway "that should capacity increase to 25-30 mmcf/d (gross)."

Wilson, who rated the stock a Buy, noted "additional capacity is possible depending on the results of the Aruchara-4 well that is to spud later this quarter. If that well has similar results to the Aruchara-3 well that tested 64 mmcf/d, GASX may take MC to another level that is not in our valuation."

The transaction puts the company in "an excellent position" to advance its Maria Conchita Block, where Beacon Securities Analyst Kirk Wilson wrote that an expansion of the infrastructure is underway "that should capacity increase to 25-30 mmcf/d (gross)."

The incoming cash from the transaction means GASX "should have a large surplus throughout the forecast period," Wilson wrote on January 21.

"With this transaction, we believe GASX has lowered its risk profile while maintaining considerable growth," Wilson wrote. "The large net surplus will provide many options (e.g.: acquisitions, dividend, share buybacks). We have increased our price target to CA$2.00, which is derived from a 3.0x EV/DACF multiple of our 2026 forecasts."

Kammermayer with Clarus also noted the possible upside for shareholders from the deal's cash.

"We believe the company can use the proceeds to reward shareholders through dividends or share buybacks, while also pursuing growth through acquisitions," he wrote.

The Catalyst: Market Paying Close Attention to Weather

Maurel & Prom is a global, publicly listed oil and gas exploration and production company with almost two centuries of operational history, including over 20 years as an oil and gas operator, GASX noted. It currently holds exploration and production interests in Latin America and Africa and has a strong technical and operating record in these jurisdictions.

"Maurel & Prom is a world-class company founded in the 1800s and supported by

Pertamina, the state oil company of Indonesia," Paes-Braga said. "It is with great honor and excitement that NGE will be partnering with such a well-managed and operated business, which has an extensive track record of developing energy assets across the globe as well as deep experience in Colombia."

Natural gas markets "gapped lower to kick off the trading session on Monday, as it looks like we are going to continue to see a lot of volatility in this market," wrote Christopher Lewis of FX Empire on Monday. "Market participants are going to be paying close attention to the weather and the weather does look like it is starting to break to the upside a little bit, as far as temperatures are concerned in America. That will drive down demand, and that will obviously have a major influence on the price of natural gas."

According to a post on World Bank Blogs by Paolo Agnolucci and Nikita Makarenko last month, global natural gas demand was projected to grow by an estimated 2.5% in 2024. After the pandemic and the Russian invasion of Ukraine, growth in global natural gas consumption in 2024, 2025, and 2026 is expected to return to its 2015-19 average.

"Consumption growth is expected to be similar in 2025 and 2026, with Eurasia demand expected to moderate and European and North American demand to stagnate," the authors wrote. "As a result, European countries will not be able to rely on shrinking consumption in 2025 and 2026, as they did in 2022 and 2023, to reduce exposure to global natural gas markets. As European substitution away from Russian natural gas has increased the bloc’s competition with Asia Pacific for LNG shipments, the strong increase in demand for natural gas from this region in 2025 and 2026 represents a clear upward risk to prices in Europe."

Ownership and Share Structure

According to Refinitiv, about 22% of the company is owned by insiders and management, about 18% by strategic entities, and about 4% by institutions. The rest is retail.

Top shareholders include Lutry Investments Ltd. with 18.29%, Paes-Braga with 12.83%, Co-Chairman Serafino Iacono with 6.87%, and Gordon Keep with 1%, Refinitiv reported.

NG Energy has 255.01 million shares outstanding with 153.19 million free float traded shares. It has a market cap of CA$292.43 million and trades in a 52-week range of CA$1.23 and CA$0.77.