Calima Energy (ASX:CE1) benefitting from rising oil & gas prices


by Melissa Darmawan

Calima Energy Limited (ASX:CE1) Chairman Glenn Whiddon provides an update on drilling at the company's Thorsby Development Field in Alberta, Canada. He also discusses plans for the Montney gas holdings, company financials and outlook.

Melissa Darmawan: Hello. Melissa Darmawan for the Finance News Network. Joining me from Calima Energy (ASX:CE1) is Chairman Glenn Whiddon. Glenn, welcome back and nice to see you again.

Glenn Whiddon: Thank you. You too.

Melissa Darmawan: Before we go ahead, can you tell me what is behind you?

Glenn Whiddon: Oh, that's Boris. Boris is a bison from North America. We've had him for a number of years now, and he just sits and monitors me during the day.

Melissa Darmawan: Nice to meet you, Boris.

Glenn Whiddon: He says, hi, too.

Melissa Darmawan: Great. Calima Energy recently provided an update on drilling at its Thorsby Development Field. Can you tell us more?

Glenn Whiddon: The drilling program on the Thorsby Three Wells has done extremely well. What we've done is we've extended the length of the wells and we've increased the frack intensity. So, what we're expecting these wells to do is to deliver better results than the historical wells that have been drilled in the Thorsby. These wells are development wells, and we expect them to produce anywhere between 350 and 450 barrels of oil equivalent a day. So, they're going to be really meaningful to the company. And what you'll see happening is, we're going to commence the frack operations in about 10 days' time, maybe seven to 10 days time. It'll take about a month for the frack to be completed. And first production will be recognised in November.

Melissa Darmawan: Thanks, Glenn. One of the company's major asset is your Montney acreage. Would you remind us of its size? And what's planned now that gas prices have improved?

Glenn Whiddon: The Montney is actually a fabulous holding for us. We went into the Montney a few years too early, when gas prices were 50 cents or a dollar an M. Today, they are anywhere between $5 and $6, an MCF or a BTU. And what we've done is, we've commenced the process to look for joint venture partners, or also to sell the assets out in the Montney. And the reasons for that is it needs large pools of capital to develop it at each stage. So, what we're trying to do is manage our balance sheet and maintain a conservatively geared balance sheet. So, if we could bring in a partner to work with us in the Montney, it would actually benefit our shareholders and actually reduce our financial liabilities.

Melissa Darmawan: And what do you think this could be worth today, given the improved outlook?

Glenn Whiddon: Well, when gas prices were 50 cents an M, we would trading at a 12, 15, $20 million market cap. Gas prices now are 10 times that. It's all in the eye of the beholder, but gas is now the flavour of the day. A lot of people think we've reached peak supply, rather than peak demand. And in North America, gas prices are only forecast to go up, not down. So, we're pretty excited. It'll take a three- to six-month process for us to realise value, but I think we will surprise people on the upside.

Melissa Darmawan: Now to financials, how is the company performing and how much free cash flow are you generating?

Glenn Whiddon: The company's doing very well. Since we merged or acquired Blackspur, we've gone from 2,500 barrels a day of production to just under 3,500 barrels a day of production in August. We had free cash flow of $2.8 million, and we've got a really, really strong business that's exposed to the upside of the oil price. So what we can do is we can be responsive to oil price movements and we can actually drill additional wells. Or if the oil price falls, we're protected through a staged or a staggered period of hedging. So, we can see our revenues increasing going forward with the rise in the energy price. And we also see a downside protection in the balance sheet. So, we see growth in our operations and revenues. And, next year, if we produce 5,500 barrels a day of oil, which is slightly higher than our target, and oil is at $80 a barrel -- today it's $77 -- we're predicting north of $60 million EBITDA for the year.

Melissa Darmawan: Before we end off today, is there anything else you'd like our viewers to know?

Glenn Whiddon: Yeah, I think the key today is oil's unpredictable, energy's unpredictable. Coal prices have gone through the roof. Gas prices in Europe are at all time highs. Shortages of gas in England. Questions about how quickly they can ramp up the North American production base. So, I think the sun is actually shining, ironically, for the energy space today. And we're actually in a period of peak supply rather than peak demand. We've had years of underinvestment. So, whether it's Calima or whether it's Woodside or anyone else, I think we'll all going to do very, very well. I think, though, for Calima that we've got tremendous leverage because we're a small company and we can grow the balance sheet and we can be very, very responsive. So, I think the time is now for energy stocks for the next five to 10 years.

Melissa Darmawan: Glenn Whiddon, thanks for the update and congratulations with the progress.

Glenn Whiddon: Thank you. Cheers.


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