New Oil Assets Transform Energy Co. Into Producer
Research Report

New acquisitions across two assets from INPEX Idemitsu have helped Longboat Energy Plc (LBE:AIM) to reach a stated of goal of becoming a producer, analyst Stephane Foucaud of Actus Advisors wrote in a July 3 research note.

"The business will now be underpinned by cashflow. As a producer, the standing of the company as a counterparty in Norway is significantly enhanced," Foucaud wrote.

The analyst said the positive impact of the transaction is offset by the strengthening of the pound vs. the U.S. dollar, so its target price of £0.90 remained unchanged.

Details of the Transaction

Longboat Norge (50.1% owned by Longboat) is acquiring about 300 barrels of oil equivalent per day (boe/d) production and 1.55 million boe of proven and probable reserves (about 77% liquid) across two assets (4.8% unitized interest in the Statfjord Øst Unit and a 4.32% unitized interest in the Synga Unit) for US$12.75 million, Foucaud wrote.

Longboat Norge will also pay a deferred, post-tax consideration of US$1.75 million over the next 18 months as a decommissioning security, to be returned when the assets are decommissioned in the late 2030s, the analyst wrote.

The acquisition also triggers a US$4 million contingent cash equity injection into Longboat Norge (US$2 million to Longboat) by JV partner JAPEX, Foucaud noted.

The effective date of the transaction is 1/1/2023. It's expected to complete later this year with a cash payment.

Acquisitions Unlock New Value

While the company has said the transaction could double overall net production to 600 boe/d in 2024, Foucaud wrote that estimate "could be too conservative given that the independent reserves auditor forecasts >800 boe/d net production in 2024 in the 2P reserve case with an upside of ~1.2 mboe/d in the 3P case."

The transaction unlocks trapped tax losses, and based on the company's historical capex program, Foucouad estimated an additional US$5 million of value.

"Overall, the transaction adds ~US$24 mm of NPV to Longboat Norge (US$15.3 mm NPV for the asset as estimated by the CPR + US$5 mm of tax synergies + US$4 mm from additional JAPEX equity) at an acquisition cost of US$12.75 mm," the analyst wrote. "Net to Longboat’s 50.1% stake, this adds ~US$5.5 mm of net value."

Longboat announced in May that it had reached an agreement with Japan Petroleum Exploration Co. Ltd. (JAPEX) to invest in Longboat Norge and form a joint venture. Under the agreement, JAPEX will make a cash investment of up to US$50 million for 49.9% of Longboat Norge. JAPEX is also providing the JV with a US$100 million acquisition financing facility.

Important Disclosures:

1. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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