Kolibri Global Energy – Tweeting in Oklahoma

[Petroleum economist]

Dan suggested that I should add Kolibri Global to my oil and gas company ranking, as he deemed it would rank well. Gathering the data and doing the assessment it looks like Dan was right.

Introduction
Kolibri is a very small cap (market value US 116 M). The company is a spinoff from a Canadian company and was formerly known as BNK Petroleum The name Kolibri Global Energy was adopted in November 2020. The company is registered in Canada but its operations are 100% in the USA.

The company produces oil and gas from the shallow zones of the Tishomingo Field in Central Oklahoma. The deeper zones are operated by Exxon.

Summary
Kolibri has ample proven reserves which despite a low RRR allow substantial growth of production. Production is growing since 2021 and may reach 5.0 K BoE/d by 2028. This can be higher or lower dependent on how of the operational cash flow is directed to wells and how much to shareholder returns. Kolibri is profitable and over time is heading for a low PE-ratio. Shareholder returns will be minimal in 2024, but can start in 2025 and go up thereafter.

Big drawback is the limited number of shares traded per day (only 10-20 K/day). This make Kolibri only suitable for private investors.

Reserves
• Kolibri has ample proven reserves of 33.4 M BoE, equivalent to a very high 25.7 years of 2024 production (industry average 9.5-10.0 years).
• The proven reserves have been flat over the last five years, gradually dropping from 34.4 M BoE (2019) to 33.4 M BoE (2023).
• The Reserves Replacement Ratio (RRR) is a bit difficult to assess as data are spread out over Sedar, SEC and other data banks.
• The RRR in the period 2019-2023 is a low 0.44 (industry average 1.02).
• The 2023 RRR is an even lower 0.02 (industry average 0.95).
• With the extensive reserves, the RRR is rather irrelevant.
• The reserves allow substantial growth of production.

Production
• Throughout 2020 and 2021, production was hovering at low levels of 900=1,200 BoE/d.
• Horizontal longer wells with better completions made drilling more economical.
• After 2021, production accelerated to 1,640 BoE/d (2022) and 2,797 BoE/d (2023).
• Production in Q1 was 3,305 BoE/d.
• Production in Q2 (3,128 BoE/d) declined due to the two new wells coming on line only in late May.
• Three new wells to be drilled in Q3 will come onstream in mid Q4.
• I expect Q3 production of 3,150 BoE/d and a Q4 production of 3,700K BoE/d, leading to a 2024 average of 3,320 BoE/d. 2024 outlook is 3.2-3.7 K BoE/d.
• Production in 2025 is dependent on the evaluation of the three Q3 wells and subsequent plans. Capex for new wells needs to be balanced versus a desire for shareholder returns.
• Based on the reserves , I expect production in the period up to 2028 to grow with 9-10%/year, reaching 5.0 K BoE/d in 2028. If the new wells prove successful, then this can be higher.
• Fluids are 74% oil, 16% NGL and 10% gas.
• As the production (74/16/10) is aligned with the reserves (72/16/12) production will not change over time.

Balance sheet
• The balance sheet is robust.
• The Q2 equity ratio (equity/balance sheet total) of 77.3% is high and is up versus late 2023 (76.0%)
• Long-term debt in Q2 ($ 33.7 M) is slightly up versus late 2029 ($ 29.6 M).
• The 2024 debt/EBITDA ration will be <0.9 and is not an area of concern.
• The balance sheet allows shareholder returns.

Profitability
• Kolibri is a profitable company.
• Royalties are a high 21-22%
• Unit costs (including depreciation, interest, and overheads) are a medium low $ 29/BoE.
• Q1 profit was $ 4.1 M (eps $ 0.11) and Q2 profit was $ 3.5 M (eps $ 0.11).
• For 2024 with WTI at $ 70-75/bbl I expect a profit of $ 13.9-15.1 M (eps= $ 0.39-0.42, PE= 7.7-8.4).
• The eps can increase to $ 0.42-0.50 in 2025 (PE=6.5-7.7) and to $ 0.63-0.70 (PE=4.4-5.2) in 2028.
• Kolibri is a growing company heading for a low PE

Shareholder Returns
• Kolibri does not pay dividends.
• Kolibri applied for TSX permission to start buying back 5% of its shares, starting 10th September.
• With WTI = $ 70/bbl, I do not expect share buybacks in 2024.
• In 2025 share buybacks can reach 3%, gradually increasing to 9% in 2028.

Conclusion
Kolibri has ample proven reserves which despite a low RRR allow substantial growth of production. Production is growing since 2021 and may reach 5.0 K BoE/d by 2028. This can be higher or lower dependent on how of the operational cash flow is directed to wells and how much to shareholder returns. Kolibri is profitable and over time is heading for a low PE-ratio. Shareholder returns will be minimal in 2024, but can start in 2025 and go up thereafter.

Big drawback is the limited number of shares trade per day (only 10-20 K/day). This make Kolibri only suitable for private investors.


Kolibri ranks a high 10th out of 84 companies in my oil and gas ranking system.

[dan_s]

Kolibri is in our Small-Cap Growth Portfolio. I have been following it for over three years.

They had an issue with a completion crew not showing up to tie in several wells at the end of 2023. This caused Kolibri to miss their production guidance and the stock price declined by about 25% in Q4 2023. The wells were eventually completed late in Q4 and production growth is back on-track. The delay had nothing to do with the long-term quality of the wells or the potential of the Tishomingo Field. It was just a timing difference.

The recently drilled three Alicia Renee 2-11-3H, 2-11-4H, and 2-11-5H horizontal development wells are key for this stock.
> They have longer laterals of 1.5 miles
> The drilling averaged less than 14 days each, which was substantially less than Kolibri's budgeted 20 days. Completion work for all three wells is expected to begin in early October, with flowback anticipated in early November. All three wells will be completed at the same time. Kolibri has a 100% working interest in all three wells. From production of 3,128 Boepd in Q2 2024, I am expecting an 2024 exit rate of more than 4,000 Boepd.
> Completed well costs per foot should be much lower than the Company's previous 1.0 mile lateral wells.
> They are expected to have higher production rates than previous wells, so well level economics should be much better.
> Netherland Sewell & Associates is a highly respected engineering firm that generates Kolibri's year-end reserve reports. Recent well results and the three new wells should significantly increase Kolibri's proven reserves.
> Based on the Company's December 31, 2023 reserve report the PV10 of just their proved reserves (1P) was $13.44US/share. < See slide 14 of Kolibri's recently updated presentation.
> For a company of this size, it has a lot of low-risk "Running Room" in Central Oklahoma: 170 additional booked Caney locations at 6 wells per section with 58 Proved, 60 Probable, 52 Possible. < 2024 drilling program should push more locations into the Proved catagory.

Management has been telling their story at more conferences recently, which should draw more attention to the stock.