Coro Energy is an independent E&P company that offers investors exposure to the rapidly growing South-East Asia gas markets. The company intends to execute its strategy of creating a portfolio of hydrocarbon-producing hubs in a region that is observing an exodus of the major oil and gas players, creating opportunities for small- and mid-cap independent E&Ps. With the experienced and well-connected in-region ex-Salamander CEO James Menzies at the helm, Coro is well placed to build on these opportunities and acquire low-cost discovered reserves, monetise existing resources and appraise the fields for potential upside. With the generated cash flows, Coro intends to acquire new opportunities, replicate the process and achieve a self-funding portfolio of hubs with the final goal of redistributing capital to shareholders.
Coro has acquired c 170bcf of net 2C gas resources across two offshore fields in Indonesia, in the Bulu PSC and the Duyung PSC. Both fields are gas discoveries ready to be developed and the company is concluding the gas sales agreements (GSA) necessary to take final investment decision (FID). Coro intends to expand its portfolio and, in 2018, joined forces with Petronas in Malaysia for a joint technical study in Block 2A. Additional M&A deals will be required to drive shareholder value, although to do this efficiently the company has to reduce its cost of financing given the relatively high capital intensity/ project internal rates of return (IRRs). Unlocked, low-risk upside can improve these projects’ IRRs.
Tambak-2 has successfully appraised the intra-Muda at a 13.5km step-out from the Mako discovery well, which should lead to a material uplift in contingent resources, representing a pure example of what Coro intends to do in the region. The appraisal element of Tambak-1 has encountered better developed sands than expected in the intra-Muda reservoir in the central area of the Mako gas field with potential to add resources to the project. Coro estimates that Tambak holds c 250bcf gross prospective resources with a 45% chance of geological success.
Our base case RENAV of 3.79p/share assumes equity related to 4.00p/share warrants and debt where capital programmes are unfunded. Relatively high capital intensity means our valuation is highly sensitive to WACC and gas price assumptions; we provide sensitivities to these valuation inputs.
