By Dr. Michael Green

Dramatically rising gas prices across Europe have set the scene for Coro Energy to dispose of its Italian gas operations, which will allow the company to be fully focused on South East Asia. Yesterday, investors were treated to not one but two announcements which seem to herald some big moves afoot.

Announcement number 1 concerned the disposal of the Italian gas assets portfolio. Coro has entered into an Option Agreement with Zodiac Energy S.p.A., an existing operator in Italy, to purchase the company’s Italian gas interests for up to €7.5 million.

Earlier on in the year Coro relaunched its Italian gas asset portfolio to take advantage of the buoyant gas prices and since that time the company has received significant free cash flows from this business. Coro has received unsolicited approaches for these interests and with apparently near term and long-awaited developments on the Duyung PSC, it looks like it was an opportune time to crystalise the inherent value here.

So, the company has awarded a five-month option, with potential for a two-month extension to Zodiac, for the entire Italian operation. Out of that €7.5 million, €6.0 million would be paid on completion with another up to €1.5 million from a 10% net profit interest (NPI) over the next three years.

However, it looks as though the company stands to net more like €10 million plus (£8.4 million) when you factor in the option cash consideration (€0.3 million already received), the retained NPI and cash flows. Currently, cash flow delivered by the Italian Portfolio under Coro’s continued ownership remains in the business. This could continue for the next seven months until the Sale and Purchase Agreement is signed (or even extended by mutual agreement) as this period seems to reflect the time it would take to get regulatory approval.

That means seven more months ownership of the Italian Portfolio which produced something like 0.6 mmcf/d in Q2 2022 net to the company (that equates to 100 boepd) and generated free cash flows to Coro in July 2022 of €0.45 million alone. In addition, the release of corporate guarantees gives the release of the abandonment liability on the wells, which could run into millions.

Announcement number 2 was a corporate update which outlined the key players changing roles within the management team of Coro. This all results not just from the potential sale of the Italian portfolio but also the need to cut ongoing costs.

Moving ahead the management structure will look like this. Leonardo Salvadori was Coro’s Managing Director – Italy and has been appointed Managing Director – Oil & Gas, where he will have overall and extended operational responsibility for the company’s hydrocarbon assets in Asia and Italy.

Michael Carrington, who was Coro’s Chief Operating Officer, becomes Managing Director – Renewables. In this role, Michael will have overall operational responsibility for the company’s renewable energy interests.  Both these MD roles are non-board positions.

Former CEO Mark Hood has moved to become as a Non-Executive Director of Coro and Country Chairman – Philippines, with immediate effect. In his new role, the company will continue to benefit from having access to Mark’s strong relationships and connectivity in the region whilst supporting the progress in the Philippines on both the renewables and hydrocarbons portfolio.

At the time James Parsons, Executive Chairman of Coro, commented that “Coro, capitalising on recent energy market volatility, remains strategically focused on monetising both the Duyung PSC and our Italian cash flows whilst investing selectively in South East Asian renewables.  We provide shareholders with a unique exposure to a leveraged play on global gas and oil prices which we believe is compelling in the current environment.

We welcome Leo and Michael to their expanded roles, as we continue to refine our management structure following our decision to exit Italy and in anticipation of progress on Duyung.  We also thank Mark for his time at the helm during a very volatile period and look forward to his ongoing support as a non-executive director and Country Chairman in the Philippines.”

Our ears pricked up on the mention of the near term and long-awaited developments on the Duyung PSC. There has been little let up in the ongoing rise in global gas prices which is excellent news for Coro’s 15%-owned Duyung PSC Gas Project in Indonesia. The Directors reckon this is the largest confirmed undeveloped resource in the area. They maybe right as the Mako gas field is one of the largest gas discoveries (495 Bcf gross, full field) 2C (contingent recoverable resources) in the West Natuna Basin.

It looks to be getting closer to the time that we might hear about progress on negotiating a binding Gas Sales Agreement. Regional gas prices in South East Asia remain strong and the macro environment is really creating the incentive for the positive negotiations.

Outside of Duyung, the news flow looks as though it could be quite impressive. There should be more news from Vietnam which looks set to be operational before the year end. We should also see updates on progress in the Philippines – but bear in mind it is very quick to get a 3MW roof top solar project up and running in Vietnam as it just doesn’t need the same level of permitting as a far larger 100MW project in the Philippines. We believe these projects have all the makings of being big winners.

By any yardstick Coro is alarmingly cheap in our view. The board seem to be guiding investors towards believing that the company could actually net €10 million plus from pulling out of Italy (£8.4 million). There is clearly one hell of a lot going on in this company and we think the current market cap of £6 million is just plain wrong.

We initiated coverage on Coro Energy in January 2022 with a Conviction Buy and a target price of 1.50p when the shares were trading at 0.275p. The valuation was derived in a very different world, with gas prices in South East Asia now moving upwards in line with the higher energy price environment. We saw upside before with Coro – but given what has gone on in the energy sphere, there looks to be more upside potential now. We look forward to revisiting our valuation and target price to reflect these changes. Currently the stock trades at 0.30p and we are more than happy to reiterate our stance.

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