Pilot Energy - Feasibility Results Drive the Economic Case

Business model

Pilot Energy is a junior oil and gas company transitioning to a sustainable clean energy play with a portfolio of potential development opportunities. The current strategy is to pursue the transformational growth potential of its renewables and carbon capture options through its Mid-West (and South-West) projects, now in a definition phase, underpinning an integrated clean hydrogen and ammonia generation platform. The company is well positioned to leverage its acreage and infrastructure base to deliver a project with diversified revenue streams. Financing for the initial phase could be provided through the accelerated production of its remaining crude oil reserves and the initial CCS phase. We would also highlight the partnering potential to prove third party capital.

Conceptual to actual is underway

The completion of feasibility studies for the integrated CCS to Hydrogen Technology projects confirms the economic potential of the company’s ambitious and potentially transformative development opportunities. Around mid-2022, PGY anticipates lodging an application for the grant of a Greenhouse Gas Injection Licence for 500kt CO2 pa commencing in 2025, which will represent a major step forward on the development pathway and make PGY an early-mover in the carbon capture and storage space. We would highlight that early mover projects can generate excess returns, particularly in this case where the blow-down of the remaining Cliff Head oil reserves would accelerate cash flow in a strong oil price environment. There is potential for a material de-risking across the portfolio on the delivery of operating approvals on increasing oil production rates over the remainder of CY22. Success cases should also provide the platform for financing and partnering.

Higher definition on projects is crystallising the value outlook

Outlining capex and operating margins even if only broadly adds more grist to our assumptions and lowers the risk range on values, despite the early-phase nature of the projects. We add that early-phase projects are subject to potentially significant change through the evaluation and construction processes so attributing values remains a subjective exercise, particularly when timing and financing are somewhat uncertain. We assign a risked valuation of $134mn (26cps) to the portfolio against a reference share price of 2.0cps. Material progress on blowing-down the oil reserves and CCS approvals should further de- risk and underpin our NAV over 2022. Our current value should be considered within that context and with the commensurate risk overlay.