Pilot Energy Ltd: 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 to pursue its transformational growth opportunities 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 and carbon capture space and the diversified revenue streams that could emerge. Financing for the renewable and other downstream opportunities could be provided partly through partnering, which may be deliverable around end CY22.

Conceptual to actual –the timetable to the first stage is set
The timeline is crystallising with the feasibility studies set to be completed within the next 15 months (to end-CY22) with initial feasibility results towards the end of March 2022 and the development strategy potentially moving into the 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 partnering, making 2022 potentially a very important year for the company.

The value is crystallising
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 $136mn ($0.27/share) to the portfolio against a reference share price of $0.067/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. 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.