LGO Energy — Update 8 April 2016

LGO Energy — Update 8 April 2016

LGO Energy

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LGO Energy

Refinancing required to accelerate progress

Oil & gas

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8 April 2016

Price

0.27p

Market cap

£11m

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Share details

Code

LGO

Listing

AIM

Shares in issue

3,954m

Business description

LGO Energy specialises in the reactivation of mature oil and gas fields. Its largest asset is in Trinidad where it operates the Goudron Field with a 100% interest. It also has interests in three additional assets in Trinidad, along with the Ayoluengo oil field in northern Spain.

Bull

11.4mmboe of booked 2P reserves with the potential for additional volumes through EOR.

Low-cost workover options available to improve production.

Improving royalty terms with state partner Petrotrin.

Bear

Limited funds available due to senior creditor restrictions on company funds.

2014/15 wells exhibited higher than expected decline rates, which could have an impact on reserves.

Refinancing deal required to service debt in the long term.

Analysts

Ian McLelland

+44 (0)20 3077 5756

Will Forbes

+44 (0)20 3077 5749

LGO Energy is a research client of Edison Investment Research Limited

LGO Energy (LGO) is an E&P company specialising in the reactivation of mature oil fields in Trinidad and Spain. Its main field in Trinidad, Goudron, has both low lifting costs and longer-term potential through enhanced oil recovery (EOR). However, LGO needs to find a refinancing solution to alleviate current funding constraints in Trinidad, allowing it to progress low-cost workover solutions and ultimately develop 2P reserves.

Trinidad short-term focus on workovers

In Trinidad, LGO has a 100% interest in the Goudron field. This field has booked gross 2P reserves of 11.4mmboe along with the potential for further recovery through EOR (most likely water-flood); however, we note that well results during 2014/15 may adjust these numbers once an updated CPR is prepared. While the development of the full 2P reserves requires a larger exploitation programme than is currently funded, the near-term focus for LGO is development of the shallow Goudron and upper C-sand horizons.

Low-cost development, improving terms

The Goudron field benefits from low operating costs, with LGO reporting incremental barrels being cash flow positive even at oil prices lower than $20/bbl. Furthermore, royalties to state partner Petrotrin have been further reduced, with the majority of barrels produced incurring royalty rates of less than 10%. Funding constraints dictate that only workovers are possible at present on the Goudron and upper C-sand horizons, but the company is confident it can increase production by 100bopd (a likely 25% increase in overall production for the group) through a modest $150k programme on two wells producing from these. A second rig has recently been mobilised to site to accelerate this workover programme.

Refinancing required to unlock potential

Ultimately the development of Goudron and the fate of LGO will depend on refinancing of $10.6m of creditors. The net loan repayable on LGO’s senior facility has been reduced by c $8m, leaving only $4.9m remaining. The company recently terminated a formal sale process thereby allowing it to raise £1.06m of valuable equity to service debt and progress the Goudron workover programme. LGO is currently under a strict repayment plan with its principal creditor, BNP Paribas, with much of its funds frozen or under control of the bank. A longer-term deal will be required either with existing creditors or new partners to both service debt long term and realise the cash flow potential currently locked up in Goudron’s reserves.

Historical financials

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/13

5.9

(2.8)

(0.15)

0.0

N/A

N/A

12/14

9.2

(5.1)

(0.24)

0.0

N/A

N/A

Source: LGO Energy accounts

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New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: Industrials

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