Energy Co. Looks to Fill 'Critical Business' Need for Colombia

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A lack of rainfall is pushing Colombia's electrical grid, which normally runs on up to 80% hydropower, to the point of stress. The country under leftist President Gustavo Petro has also announced an end to exploration for oil and gas.

NG Energy International Corp. (GASX:TSX.V), which is building is building itself into a more than 200 million cubic feet per day (MMcf/d) natural gas producer with more than 1 trillion cubic feet (TCF) in reserves, is there as a "really critical business for the Colombian people" to help fill the gap with this important transitional fuel, said Chief Executive Officer of NG and Managing Partner at SAF Group Brian Paes-Braga.

If the company reaches its goal, it will provide 20% of the country's supply of natural gas.

"At that stage, we'd be a business that's generating about a half a billion U.S. dollars a year in revenue and about (US)$200 million a year of cash flow," Paes-Braga said. "And that's pretty well free cash flow."

NG Energy's current gross production is 19.4 MMcf/d with 100% of the gas volumes sold at a significant price premium, the company said. Over the past five years, the company said Colombia has had the most favorable spots prices for the commodity in the Americas, going as high as US$9 per MCF.

The company has 415 billion cubic feet (BCF) in total reserves, shallow conventional onshore reservoirs with robust well economics and an accelerated payout period of four to six months, US$100 million deployed across its asset base to date, and a US$100 million credit facility closed with Macquarie Bank Ltd. to fully fund development plan in 2024 and 2025, according to its presentation for investors.

Analyst Stephen Kammermayer of Clarus Securities recently visited the company's wells and its pipeline under construction. He maintained a Buy rating on the stock with a CA$2.50 per share target price.

"Assuming the company executes its plans to continue drilling, and assuming $8 MM per well, we expect the company could generate debt adjusted cashflow (DACF) of $266 MM at 200 MMcf/d of production," he wrote on July 12. "Using our target EV/DACF multiple of 4.0x would generate a target price of CAD$6.50 per share."

The Catalyst: A Challenging Time for Colombia

Paes-Braga has been an investor in the company for seven years, becoming more involved "because what we recognized was Colombia was going to probably head into a really challenging environmental to secure gas supply," he told Streetwise Reports in a recent interview.

He has been involved as founder, chief executive officer, and strategic advisor in more than US$1 billion in growth equity financings and more than US$5 billion in market value creation over the last five years. He was the founder and CEO of Lithium X Energy Corp., which was acquired for US$265 million in 2018.

SAF Group, where he is managing partner, is an alternative capital provider, investing on behalf of some of the world's leading institutional investors, pensions, family offices, and individuals. Its alternative credit platform serves three distinct segments: direct lending, infrastructure credit, and special situations credit.

The Harvard graduate is also author of the Amazon No. 1 bestselling book 8: Reflections on Building Business + Balance.

'A Smart Move'

With NG Energy, Paes-Braga said one of the things that helps is that its "assets don't require a lot of additional capex."

"To generate this type of amount of free cash flow, I think, is very unique," he continued.

The three concessions that NG Energy founders had originally accumulated were adjacent to the three largest gas fields in the entire country.

"We thought that was really, really a smart, smart move," he said. "Then a couple of years ago, when no one seemed to care, the company made two significant discoveries in in what's called the SINU-9 concession. So, the combined flow rates from those two wells were over 60 MMcf/d, 66 MMcf/d."

Kammermayer, the Clarus analyst, said the has a current average gas production of 18 MMcf/d from its Maria Conchita block, with expectations to increase to 20 MMcf/d as production is optimized. Once the two wells at SINU-9 are completed and connected, total production is set to total 45 MMcf/d.

"Current capital plans include a third Sinu 9 well (Hechicero-1X) which will be drilled from the Brujo pad in late 2024/early 2025, which is expected to increase production to 60 MMcf/d, effectively tripling production from current levels, he wrote. "With permits in hand to drill 22 wells at its Sinu 9 block and the ability to drill further at Maria Conchita, the company has plans to reach production of 200 MMcf/d."

He also noted the company's infrastructure partner, INFRAES, is building a pipeline to carry the carry the gas from NG Energy to the national transport system.

"To date, INFRAES has 98% of the pipeline installed and covered with all environmental permitting, road interventions and community agreements approved, as well as 100% of easement agreements in place, Kammermayer wrote.

Ownership and Share Structure

According to Reuters, about 24.4% of the company is owned by insiders and management, about 19.12% by strategic entities, and 1.05% by institutions. The rest is retail.

Top shareholders include Lutry Investments Ltd. with 19.12%, Paes-Braga with 13.86%, Co-Chairman Serafino Iacono with 7.77%, Gordon Keep with 1.13%, and President and Executive Director Federico Restrepo-Solano with 0.79%. Reuters reported.

NG Energy has 225.27 million shares outstanding with 127.23 million free float traded shares. It has a market cap of CA$207.17 million and trades in a 52-week range of CA$1.33 and CA$0.61.