VSA16 Apr 2018 09:32
Columbus Energy Resources (CERP LN) has announced that it has agreed in principle to purchase the remaining 50% of the Icacos Field from its JV partner Touchstone Exploration (TXP LN/CN) via their respective subsidiaries; Leni Trinidad Limited (LTL) and Primera Oil & Gas Limited. LTL will subsequently become the 100% owner of the Icacos field and the operator. The Icacos Field is located at the far end of the South West Pensinsula and we believe that the transaction will enable both CERP and TXP to focus more fully on their respective strategies.
The transaction remains subject to regulatory approval and a definitive sale and purchase agreement, however, CERP is confident that the deal will be finalised during Q2 2018. Our estimates remain unchanged whilst the transaction is finalised.
Gross production on the field was consistently around 22bopd during 2017 having peaked at 34bopd in 2011. The Field consists of six wells with three on production although new work programme activities and workovers have been limited recently. The transaction is valued at US$500,000 and will mean operatorship transfers from TXP to CERP along with the 50% share of production. This will be paid over time until 1 January 2021 with Primera receiving net revenue it would have received had it retained its interest. In the event of increased production, Primera will also receive, 25% of any net revenue above the current baseline; until 1 January 2021.
The terms of the transaction are attractive in our view enabling CERP to use existing cash resources to fund operational activities at Icacos rather than being used for upfront payment. With TXP�s current strategy focussed on infill drilling on its developed acreage and CERP heavily focussed on development of the SWP we believe that CERP is better placed to oversee Icacos Field development.
We reiterate our Buy recommendation and 26p target price.
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