Pilot Energy Ltd - Cliff Head Deal Opens the Pathway to CCS Project
Pilot Energy Ltd
Cliff Head deal opens the pathway to CCS project
Pilot Energy Ltd (ASX:PGY) is a junior oil and gas exploration company transitioning towards the new industry paradigm – renewable energy. The company has completed feasibility studies over its renewable and carbon capture options at the Mid-West Project in Western Australia. Broad capital and operating assumptions confirm a valid economic pathway with next steps including various regulatory approvals and declarations. PGY has now moved quickly into implementation with the formal restructuring of the Cliff Head JV [with Triangle Energy (ASX:TEG.)] underpinning the proposed Cliff Head Carbon Capture-Storage Project (CH CCS). By mid-2022, PGY anticipates lodging the initial application for the grant of a Greenhouse Gas Injection Licence for 500kt CO2 pa commencing in 2025. To facilitate this, the CH JV has also progressed a new off-take arrangement for CH crude oil enabling a blowdown of the remaining production potential as a precursor to CCS operations. The price of Australian Carbon Credit Units is projected to range between A$40-50/t by 2025, potentially rising to over A$100/t by 2030. Pilot is pursuing an integrated renewables/hydrogen opportunity by leveraging its oil production infrastructure and tenements, with multiple commercial outcomes, whilst providing carbon capture and storage as an enabler for the production of low-cost clean blue hydrogen at an estimated cost of ~A$2.00/kg. The company has existing oil production with growth potential and a Tcf-scale gas play coincident with its South-West Project. Although the renewables plays are early stage, the value proposition is beginning to crystallise. The next 12 months presents an opportunity to deliver a material re-rating on the expectation of successful results.
Business model
Pilot Energy is a junior oil and gas company transitioning to a sustainable renewables 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) project proposal, which are now moving into a definition phase. The company aims to leverage its acreage and infrastructure base to underpin an integrated renewable energy, carbon capture and hydrogen generation platform, with resultant diversified revenue streams. Financing for the renewable and other downstream opportunities could be provided partly through partnering.
Ticking boxes and moving forward, a big 12 months to come
The completion of feasibility studies for the renewable energy/hydrogen technology projects confirms the integrated economic potential of the company’s ambitious and potentially transformative development opportunities. Next steps are to navigate the numerous permitting and approvals processes and better define the financial parameters through a formal FEED undertaking. We highlight important steps already delivered with the restructuring and resolution of new off-take agreements for the Cliff Head JV as a precursor to commencing carbon capture operations in 2025. The integrated project could potentially move into a demonstration (pilot) phase in early 2023 for Mid-West Wind and Solar Project options. Feasibility studies are also under way on the South-West Project which are likely to be followed by the drilling of the Tcf-scale Leschenault gas prospect before end-CY22. There is the potential for a material de-risking across the portfolio across the next 12 months with success cases providing the platform for financing and formal partnering arrangements.
Our valuation stands at $0.26/share ($131mn)
We assign a risked valuation of $131mn ($0.26/share) to the portfolio against a reference share price of $0.032/share. We note the renewables and carbon capture options are still early-stage and remain subject to significant change through continuing evaluation processes, which should be completed by end-CY22. The move to pilot/demonstration operations should provide a tangible NAV-based valuation platform.
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