Pilot Energy Ltd: Renewables Bandwagon Attracting More Riders

Business model
Pilot Energy is a junior oil and gas company transitioning to a sustainable renewable energy generator with a portfolio of potential development opportunities. The critical focus of management will be to pursue its transformational growth potential in the renewables and carbon-capture space through its Mid-West and South-West project proposals, which are currently in a feasibility study phase. The company is looking to leverage its acreage and infrastructure base to underpin a strategic blueprint for expansion into the renewable energy, carbon capture and hydrogen generation space, with the diversified revenue streams that could emerge. Financing for the renewable and other downstream opportunities could be provided partly through partnering, which may enter a demonstration phase around end CY22.

The timetable is set and partners are coming on board
Another positive step forward is the company announcing the formation of a consortium with Warrego Energy and APA Group to provide technical and commercial input (and funding) for the Mid-West Blue Hydrogen and CCS (MWBHCCS) feasibility study. Both WGO and APA can provide important operational aspects to the project as a gas supplier and project infrastructure. The MWBHCCS study is expected to cost in the order of $0.6mn and be completed by mid-2022 (See RaaS Update 3-Nov). We know the timeline is crystallising with all feasibility studies set to be completed by end-CY22 and initial results towards the end of March 2022. The project could potentially move into a demonstration (pilot) phase in early 2023 for the Mid-West Wind and Solar Project. Feasibility studies are also under way on the South-West Project which are likely to be completed through 1QFY22 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 on the delivery of positive conclusions to the economic assessments. Success cases should also provide the platform for financing and formal partnering arrangements, making 2022 potentially a very important year for the company.

Our valuation remains $0.27/share ($136mn)
We retain a risked valuation of $136mn ($0.27/share) to the portfolio against a reference share price of $0.065/share. We note the renewables and carbon-capture options are still early-stage and subject to significant change through the feasibility and evaluation process, which should be completed by end-CY22. The move to pilot/demonstration operations should provide a tangible NAV-based valuation platform.