Trade Idea: Reabold Resources - Trading 25% Discount to its Cash Reserves with some Significant Catalysts on the Horizon
At a valuation of circa 25% discount to its current cash reserves and with catalysts on the horizon, including the Colle Santo Gas project in Italy where offtake agreements could facillitate development financing, is Reabold Resources worth a look?
Reabold Resources's strategy is to invest in existing undeveloped gas discoveries with significant resources and near-term production potential.
The company has bolstered its financial strength, including a 41% increase in cash reserves during the first half of 2024. This includes proceeds from its Corallian sale to Shell, allowing it to advance key projects. The company in its half year results reported cash in the bank of £7.6M. At todays Market Capitalisation of just £5.5M, the company trades at c.25% discount to it's cash reserves.
If the company were just a cash shell and in this 'market environment', one would perhaps not be surprised however, Reabold has a diverse portfolio of Oil & Gas assets spanning UK on-shore, North Sea, Romania, the USA and finally Italy.
As with any junior resource company the reality is that cash is always limited and thus needs to be funnelled into strategic projects to realise as much value as early as possible. Reabold have already done this with the sale of its 49.99% interest in Corallian for £12.7 million.
This has allowed Reabold to increase its interest in the potentially lucrative Gas field Colle Santo in Italy.
Given Reabold are focusing their efforts on two key strategic assets including Coll Santo, lets just discuss them as they are the projects that have the ability to bring near-term value and news-flow.
West Newton Gas Field (UK)
West Newton is an onshore hydrocarbon discovery located north of Hull, England. To date, three wells have been drilled at West Newton (A-1, A-2 and B-1Z) confirming a major discovery - potentially one of the largest hydrocarbon fields discovered onshore UK. Rathlin Energy (UK) Limited ("Rathlin") is the operator of the licence and holds a 66.67% interest. Reabold holds a 59.5% shareholding in Rathlin and holds a direct 16.67% in the licence giving the Company an aggregate c. 56% economic interest in West Newton.
Near-Term Development & Low-Capex
An independent feasibility study has confirmed the viability of a single well development at West Newton which would be a precursor to a full field development.
An early production plan (via a single well development) is set to deliver gas as early as 2026, potentially generating strong early cash flows with minimal capital expenditure. The forward work program consists of the low cost (c£2M) re-entry and re-completion of the West Newton A-2 well. The programme aims to establish sustained gas flow and provide proof of concept for the overall West Newton development.
A single well development would produce gas from a single horizontal well processed in a modular plant and tied into the National Transmission System via a 3.5km pipeline. Capex for this is modest at c.£12M with a project NPV10 of £33M (£18.5m net to Reabold)
Cash from the first producing well could further fund expansion and production from further wells. Additional exploration in the same area could also unlock further resource.
Colle Santo (Italy)
The Colle Santo project boasts an estimated 65 billion cubic feet (Bcf) of gas reserves (15.9Bcf net to Reabold, 29.2% interest), and agreements with Gunvor for LNG offtake could facilitate development financing and revenue generation.
The project is a low-risk, small-scale LNG development and is development ready, subject to permits: two wells have already been drilled and no additional drilling is required.
Colle Santo has the potential to generate an estimated €11-12m of post-tax free cash flow per annum according to LNEnergy Management estimates, at 9 mmcf/d sales gas and €45/MWh.
Development is planned via a micro-LNG project, and a HoA has been signed with Gunvor for an LNG contract covering the entire planned output, which will cover offtake as well as a prepayment provision, which at the current Italian gas price, could provide c€30m in funding. With potential for additional government grants, it's possible that the Colle Santo gas project could be financed with limited additional capital from Reabold.
Forward Catalysts
Guidance from the Company is that they aim to finalise a sales contract with Gunvor by the end of 2024. This would be a material share-price catalyst as it would provide a substantial proportion of the Capex required for the planned gas development at Colle Santo and an off-take partner for the full planned production output.
Furthermore, LNEnergy's application for concession has been recognised by the Italian Ministry of Environment and Energy Security ("MASE") as a project that meets the requirements of the Italian government's National Integrated Plan for Energy and Climate and National Plan for Economic Recovery, for which €12 billion in grants and economic incentives have been made available by executive decree.
As discussed earlier, the above 'opens the door' to potential grants that would assist with development Capex alongside a pre-payment deal with Gunvor.
At West Newton, the JV is fully funded for the re-entry and re-completion of an existing West Newton well, and operational activity is expected to commence in H1/25.
Given the company is trading sub-cash, has no near-term operational funding requirements and has zero value applied to two key strategic development projects that both have near-term news-flow due and the potential to return many multipls of the current market cap, Reabold could offer an interesting Risk v Reward trade at its current large discounted valuation.