Company Note

28 April 2021

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Company Note

Corp

Share price performance

Jonathan Wright

Director of Research

[email protected]

020 7220 0543

Sales desk 020 7220 0522

Trading desk 020 7220 0533

* denotes corporate client of finnCap

President Energy*

Further Rio Negro drilling success

President’s Rio Negro drilling programme remains on track with the latest well in line with pre-drill expectations and delivered on time and budget. A return to Puesto Guardian drilling also remains on the cards for H2 2020, helped by the Trafigura strategic relationship, which is already delivering benefits via improved realisations. We are reinstating 2021 estimates and rolling out 2022. While 2021 estimates have been cut on the back of lower 2020 volumes rolling through, we still expect significant EBITDA growth, aided by higher commodity prices and lower pricing differentials. Our risked-NAV and price target rise 19% to 4.3p/sh.

Drilling on track. President’s latest well, EV-1001 on the Estancia Vieja field has

been drilled, logged and cased on time and budget. This well is a twin to the formerly

producing EV-x1 gas well, which suffered a casing collapse. Well logs are in line with

pre-drill expectations, with 11m of net gas identified with good average porosity of

27%, supporting management’s initial gas production expectations of 2.1 mmcfd (350

boepd). The well is expected on stream in the first half of May and will benefit from

strong gas prices, which are currently ~US$4/MMBtu. The rig is now being moved to

the next drilling location, EV-1002, and is expected to spud in the next week.

Improved Puesto Guardian economics. On the Puesto Guardian concession in

Salta province, preparations are progressing for an H2 2021 3D seismic shoot, the

first across this concession, in addition to three new oil production wells at the Dos

Puntitas field, with drilling expected to start around end-Q3. This is President’s first

new well in the Puesto Guardian concession for 10 years, with higher oil prices and

improved realisations supporting a return to this significant opportunity, which has

remaining 2P reserves of 12.7 mmbbls.

Estimate changes. We are reinstating our estimates for President after incorporating

its 2020 reserves update and 2021 work programme, alongside higher oil (US$55/bbl

Brent) and Argentine gas prices. Offsetting this, we have cut sales volumes from

3,900 boepd to 3,200 boepd, largely as a result of lower sales in 2020 rolling through.

2021 revenue falls 5% to US$40.6m, with EBITDA down 9% to US$14.4m, still a

strong improvement on the ~US$3m EBITDA in 2020.

Price target raised. Our risked-NAV and price target rise from 3.6p to 4.3p/sh,

primarily as a result of a higher long-term Brent assumption of US$55/bbl, up from

US$50/bbl previously, and the roll forward of our discounting date to 1 January 2021.

2.250 000 000 000

This report has been prepared solely for the use of Jonathan Wright

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President Energy 28 April 2021


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Estimate changes

For 2021, we have raised our Brent oil price assumption from US$45/bbl to US$55/bbl

and our Argentine gas price from US$2.25/mcf to US$2.70/mcf – although we note that

current gas prices are seasonally strong at ~US$4/mcf.

Offsetting this, we have cut sales volumes from 3,900 boepd to 3,200 boepd, largely as a

result of lower sales in 2020 rolling through, but also a slower ramp up in volumes from

new wells in 2021.

2021 revenue falls 5% as a result to US$40.6m, with EBITDA down 9% to US$14.4m,

Still, this is a strong improvement on the 2020 EBITDA of US$3m. Similarly, CFFO falls

8% to US$14.6m.

Higher depreciation charges result in a sharper decline in EBIT and net profit, although

this is expected to be temporary. President is looking to extend the licences for Puesto

Flores and Estancia Vieja in 2021 by 10 years, which is their regulatory right. Once that

happens, unit depreciation charges will reduce by around $3/boe as higher reserves are

booked. This would likely reduce 2021 depreciation by over US$3m.

Figure 1: President 2021 estimate changes

Source: finnCap

At current assumed commodity prices, this year’s increased work programme of

~US$18m will need President to take on additional debt. We have assumed an additional

US$6m, but the higher capex budget is highly discretionary so management has

considerable flexibility if funding terms are not acceptable.

We are also rolling out 2022 estimates. These are based on the same US$55/bbl Brent oil

price assumption, but a lower Argentine gas price of US$2.50/mcf. We expect strong

production growth as a result of this year’s active work programme in Rio Negro and Salta

province, with a full year’s contribution in 2022.

FY 2021 estimates (December yr end) New Old % Chg

Average Realised price US$/boe 34.8 36.6 -5%

Sales volumes boepd 3,192 3,930 -19%

Revenue US$m 40.6 52.5 -23%

Cost of sales US$m -34.1 -36.7 -7%

Gross Profit US$m 6.5 15.8 -59%

EBITDA US$m 14.4 23.5 -39%

EBIT US$m 2.5 11.8 -79%

Adjusted net profit US$m 0.9 6.9 -87%

CFFO US$m 14.6 23.8 -39%

Capex US$m 18.1 10.7 70%

Period-end cash US$m 1.1 14.1 -92%

Period-end debt US$m 22.1 16.1 37%




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Figure 2: President estimates summary

Source: finnCap

Lower average realisations in 2022 reflect both our lower gas price assumption and a

higher proportion of gas in the production mix. Still, revenue increases 22% to US50m in

2022, with EBITDA and CFFO ~40% higher at US$20m.

We have assumed capex drops sharply in 2022, to US$7m, which includes four additional

wells in Rio Negro, but none in Puesto Guardian. In reality, this work programme could be

larger as we see President generating over US$5m in FCF in 2022 after interest payments

and the repayment of US$2.5m of its US$5m peso-denominated Banco Hipotecario loan.

Net asset value

Our risked-NAV and price target rise from 3.6p to 4.3p/sh following the incorporation of the

2020 reserves and resource update and the 2021 work programme. The majority of this

increase, however, is driven by our higher long-term Brent oil price assumption of US$55/bbl,

up from US$50/bbl previously, and the roll forward of our discounting date to 1 January 2021.

Figure 3: President net asset value

Source: finnCap

Our 4.3p/sh risked-NAV includes just 0.3p/sh for exploration. This includes 0.2p/sh for

Paraguay, where President is in advanced farm-out discussions. The main financial and

commercial terms have been agreed and the board of the proposed farm-inee, a

substantial national energy company, has approved the project.

All that remains is to finalise definitive legal agreements, which should occur in H1 2021.

This will tee up a well in H1 2022 at the high impact Delray complex of prospects,

estimated by President to contain 230 mmbbls of unrisked oil initially in place (OIIP). At

present we include just the 87.5m OIIP Delray main prospect and heavily risk this.

Unrisked it could be worth 3.5p/sh.

FY estimates (December yr end) 2021 2022 % Chg

Average Realised price US$/boe 34.8 31.2 -10%

Sales volumes boepd 3,192 4,364 37%

Revenue US$m 40.6 49.7 22%

Cost of sales US$m -34.1 -40.7 19%

Gross Profit US$m 6.5 9.0 39%

EBITDA US$m 14.4 20.3 41%

EBIT US$m 2.5 5.0 101%

Adjusted net profit US$m 0.9 0.4 -52%

CFFO US$m 14.6 20.5 40%

Capex US$m 18.1 7.3 -60%

Period-end cash US$m 1.1 6.5 487%

Period-end debt US$m 22.1 19.6 -11%

Net reserves EV/bbl Geological Commercial

mmboe $/boe US$mm p/sh CoS CoS US$mm p/sh

Net cash / (debt) -15.8 -0.6 -15.8 -0.6

G&A costs -12.0 -0.4 -12.0 -0.4

Puesto Flores/Estancia Vieja 7.2 4.9 35.2 1.3 100% 100% 35.2 1.3

Puesto Prado/Las Bases 3.6 4.0 14.2 0.5 100% 100% 14.2 0.5

Puesto Guardian 3.6 4.8 17.2 0.6 100% 100% 17.2 0.6

Louisiana 0.8 12.8 10.4 0.4 100% 100% 10.4 0.4

Core value 15.2 3.2 49.2 1.8 49.2 1.8

Discovered/Undeveloped reserves:

Puesto Flores/Estancia Vieja 2C 7.4 4.5 33.3 1.2 100% 100% 33.3 1.2

Puesto Prado/Las Bases 2C 1.5 4.0 5.9 0.2 100% 100% 5.9 0.2

Puesto Guardian 2P Undeveloped 9.1 3.0 27.4 1.0 100% 75% 20.6 0.7

Angostura 2P + 2C 0.2 -0.1 0.0 0.0 75% 75% 0.0 0.0

Core + contingent value 33.4 3.5 115.8 4.2 109.0 4.0

Exploration:

Argentina - Vinderman ex-V-x1 3.6 3.5 12.6 0.5 50% 50% 3.2 0.1

Paraguay - Delray main 17.5 5.6 97.2 3.5 51% 10% 5.0 0.2

Core + contingent + exploration value 54.5 4.1 225.7 8.2 117.1 4.3

Total: Developed + discovered + exploration + prospective value: 3,273 119.1 117.1 4.3

Unrisked NPV Risked NPV




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Research Arshad Ahad 020 7220 0552 [email protected] Guy Hewett 020 7220 0549 [email protected]

Mark Brewer 020 7220 0556 [email protected] Michael Hill 020 7220 0554 [email protected]

David Buxton 020 7220 0542 [email protected] Nik Lysiuk 020 7220 0546 [email protected]

Kimberley Carstens 020 7220 0548

|

[email protected] Mark Paddon 020 7220 0541 [email protected]

Michael Clifton 020 3772 4682 [email protected] Nigel Parson 020 7220 0544 [email protected]

Lorne Daniel 020 7220 0545 [email protected] Charlie Long 020 3772 4683 [email protected]

Andrew Darley 020 7220 0547 [email protected] Jonathan Wright 020 7220 0543 [email protected]

Raymond Greaves 020 7220 0553 [email protected]

Equity Capital Markets

Andrew Burdis 020 7220 0524 [email protected] Tim Redfern 020 7220 0515 [email protected]

Richard Chambers 020 7220 0514 [email protected] Sunila de Silva 020 7220 0521 [email protected]

Barney Hayward 020 7220 0518 [email protected] Charlotte Sutcliffe 020 7220 0513 [email protected]

Alice Lane 020 7220 0523 [email protected]

Sales

Henry Botting 020 7220 0516 [email protected] Jonathon Webb 020 7220 0511 [email protected]

Louise Talbot 020 3772 4651 [email protected] Rhys Williams 020 7220 0522 [email protected]

Malar Velaigam 020 7220 0526 [email protected]

Investor Relations

Brittany Lambert 020 7220 0592 [email protected] Lisa Welch 020 7220 0519 [email protected]

Lucy Nicholls 020 7220 0528 [email protected]

Sales Trading

Kai Buckle 020 7220 0529 [email protected] Danny Smith 020 7220 0533 [email protected]

Mark Fidgen 020 7220 0536 [email protected]

Market Makers

Steve Asfour 020 7220 0539 [email protected] Shane Watters 020 7220 0535 [email protected]

James Revell 020 7220 0532 [email protected]

Investment Companies

Johnny Hewitson 020 7720 0558 [email protected] Pauline Tribe 020 7220 0517 [email protected]

Monica Tepes 020 3772 4698 [email protected] Mark Whitfeld 020 3772 4697 [email protected]

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