Pilot Energy - Heading into a Big 2022

Business model

Pilot Energy is a junior oil and gas company with a portfolio of emerging opportunities. The critical focus of management will be its transformational growth opportunities in the renewables and carbon-capture space through its Mid-West and South-West project proposals, which are progressing through a feasibility phase. The company is looking to leverage its acreage and infrastructure base to underpin a strategic blueprint for expansion into renewable energy and carbon capture; and the diversified revenue streams that could emerge. Financing for the renewables and other downstream opportunities could be provided partly through partnering, which may be deliverable around end-2022.

Conceptual to actual – feasibility results are supportive

The timeline is crystallising with feasibility studies set to be completed by the end of Q1 CY2022 and the development strategy potentially moving into a demonstration (pilot) phase in early 2023 for the Mid-West Wind and Solar Project. Feasibility studies on the South-West Project are likely to be completed through mid-CY22 to be followed by the drilling of the Tcf- scale Leschenault gas prospect. Early indications from the studies confirm the technical potential of the renewable power generation and CCS, whilst work continues on the hydrogen-generation opportunities. The carbon-capture market is significantly greater than initially considered. We see potential for a material de-risking across the portfolio on the delivery of positive conclusions to studies by the end of CY22. Success cases should also provide the platform for financing and partnering.

The risk is slowly unwinding

Valuing early-phase projects and project proposals remains a subjective exercise, particularly when timing of work programmes and financing are somewhat uncertain. The market is now pricing renewables options and we have assigned carrying values to reflect these opportunities and risks within the PGY portfolio. We retain a risked valuation of $130mn (26cps) to the portfolio against a reference share price of 4.5cps. We note the renewables and carbon-capture options are as yet still early stage and subject to significant change through the feasibility and evaluation process. The move to pilot/demonstration operations should provide a tangible NAV-based valuation platform. Our current value should be considered within that context and with the commensurate risk overlay. It’s worth highlighting that a successful, integrated renewables development could deliver an equity value of >$2.3bn across the life cycle, on a 1.5GW project with associated hydrogen manufacture on the basis of our assumptions and reference valuation methodology.