Pilot Energy Ltd: Sometimes It Pays to Be Long Winded

Scope
This report has been commissioned by Pilot Energy to present investors with an analysis of the opportunities emerging for the company over the next 12 months. The company will be pursuing growth opportunities within its core E&P business, particularly the Cliff Head production enhancement campaign, but also via the CH-MWWSP with the submission of an EOI by 24-Dec. The oil and gas business is high-risk by definition and the transition to a renewable model is transformational but potentially long-dated at this stage.

Business model
Pilot Energy is a junior oil and gas company holding a production interest in the offshore Cliff Head Oil Field with expansion options; and an accompanying exploration portfolio in the North Perth Basin. The company is looking to leverage its acreage and infrastructure base to underpin a strategic blue-print for expansion into the renewable energy space and the diversified revenue streams that could emerge. Future oil production could service upstream exploration and appraisal commitments. Financing for the renewable opportunities could be provided partly through partnering.

Scenario analysis
Our analysis and review of Pilot Energy’s opportunities assumes the merger with Royal Energy will be approved by shareholders at the scheduled EGM. We have evaluated the PGY portfolio against a range of risk factors based on our assessment of the operating environment accounting for commodity prices, location, phase of exploration, timing and scale of work programmes; and the probability of success associated with the CH-MWWSP submission. However, we note our current assumptions are subject to potentially significant adjustment as growth opportunities become better defined over time.

Valuation of $17m (4.9cps)
Valuing early phase exploration and even production growth assets is a subjective exercise, particularly when work programmes and financing are uncertain. We set our base asset value against risk-weighted development scenarios applying where appropriate, discretionary probability weightings to pricing, volume and success factors, which we believe are reasonable given the commercial operating environment and available data. We assign a risked valuation of $17m (4.9cps) to the upstream assets against a reference share price of 3.4cps. We cannot directly ascribe any value to the CH-MWWSP in particular or to a greater renewables opportunity at this stage, noting any nominal value at this point resides in the IP associated with the feasibility study. However, it’s worth commenting that an integrated renewables development could deliver an equity value of $90mn through >$1.7Bn across the life cycle, on a 1.1GW project alone. We add that power generation would be only one component of a what would likely be an multi=stream project opportunity.