No Asset Sale, But Oil and Gas Co. Sees High Free Cash Flow
Research Report

While unsolicited offers to acquire assets from Canadian oil and gas producer and explorer Calima Energy Ltd. (CE1:ASX; CLMEF:OTCPK) could not complete, the company's second-quarter 2023 production and cash flow is estimated to beat forecasts, according to a research note by Actus Advisers analyst Stephane Foucaud.

The company received three offers from Canadian entities for the assets at a premium to Calima's current market cap, but the transaction could not complete because of the volatility of the market, Foucaud wrote on June 26.

Production for 2Q 2023 is estimated at 4,125 barrels of oil equivalent per day (boe/d), close to the company's previous indications but above Foucaud's more conservative forecasts.

The company also anticipates free cash flow of AU$7.5 million in that quarter, also well above the analyst's forecasts.

"The high free cash flow reflects very low WTI/WCS differentials of just ~US$14/bbl (barrel of crude oil)," the analyst wrote. "This is well below our forecasts of US$20/bbl."

Foucaud reiterated his target price of AU$0.50 per share on the stock.

'Resilient Production' in 2H23

The company said its assets were an attractive target for the Canadian entities that made the unsolicited officers because of the disconnect between the earnings multiples at which Calima shares trade in Australia (~1.5x P/E for 2023, according to Actus' forecasts) and similar Canadian multiples (2.5-3.5x according to Calima).

Calima also has confirmed a second dividend distribution of AU$3 million payable during the third quarter, Foucaud wrote.

The analyst predicted "resilient production in 2H23," with an estimated "~4.0-4.3 mboe/d with Calima's capex program focusing on maintaining stable production. We are now conservatively assuming the same strategy for following years."

"While we have reduced our production and capex forecast over 2024-2027, we have also reduced our expected WTI/WCS discount by ~US$2/bbl to reflect recent market movements," Foucaud wrote. "We now forecast overall FCF (free cash flow) of >AU$40 mm over 2023 and 2024 (almost unchanged versus our previous forecasts)."

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Disclosures for Actus Advisors LLP, Calima Energy Ltd., June 26, 2023

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