Kolibri Global Energy Inc.

Kolibri Global Energy has over 33 million barrels of oil equivalent (MMBOE) in total proved oil and gas reserves as certified by independent engineers. Proved reserves refer to the amount of oil and gas that can be technically and economically produced from Kolibri’s well locations with at least 90% certainty under current regulations and prices.

What does 33 MMBOE mean? The latest estimate translates to potentially 15 years of future production for Kolibri, an extremely long runway. Evaluating reserves using the net present value (NPV) method also shows their immense value - Kolibri’s proved reserves alone are worth approximately $515 million net to them. 

Over 80% of Kolibri’s proved reserves are considered “undeveloped” (PUD), meaning visible oil and gas are known to exist, but new wells must still be drilled to access them. The company has 60 economic locations left to drill in just the proved category, ensuring many years of low-risk oil & gas development ahead to convert PUD locations to production. As Kolibri continues successfully drilling new wells, it can potentially convert even more probable and possible reserves to proved reserves over time.

With crude oil forward pricing above $80 per barrel and natural gas prices remaining strong, Kolibri is sitting on an extremely valuable proved reserve base to support future growth for years to come.

The Summary of Oil & Gas Reserves (below) is from a March 13, 2023, report. Data was collected by an independent qualified reserves evaluator or auditor.

Source: Company Documents

Kolibri’s cornerstone asset is the approximately 17,000 net acre Tishomingo Field located in the Ardmore Basin region of Oklahoma. This field has a long history - Kolibri’s management was originally drilling here over 10 years ago, targeting the Woodford shale formation. After selling those assets in 2013, Kolibri retained the mineral rights to the shallower Caney shale (primarily oil) and drilled new wells to transform Tishomingo into a premier liquids-rich asset.

Source: Company Reports

Today, Kolibri has 31 Caney oil wells already online and producing in the northern “corridor” of the field. However, analyzed subsurface geology and drilling results confirm the Caney extends much further across the acreage, leading Kolibri’s reserve auditor NSAI to book 60 economically proved drilling locations to date and another 120 significant probable/possible locations on top. This doesn’t include adjacent acreage that Kolibri owns, which hasn’t been evaluated yet. With 180 potential locations, 6 new Caney wells per year can be drilled for decades, fueling reliable, low-risk oil-weighted growth.

Source: Company Documents

Beyond the Caney, the Tishomingo Field may have even greater upside potential in the slightly deeper T-zone formation, which shows encouraging early results. The T-zone is an unconventional oil play in its own right. If the T-zone proves economic across Kolibri’s acreage, it expands its growth runway even longer.

Kolibri also has access to Exxon’s gas gathering lines, which cover Kolibri’s property. This allows short connection distances for the gas and natural gas liquids sales, while the oil is trucked from the property. Even with trucking, Kolibri’s sales price for the oil has a very low differential of about $1.85 a barrel to the West Texas Intermediate oil price.

Kolibri’s concentrated prime position in the oil-rich Tishomingo Field gives it a unique platform to reliably grow production for years. The field’s long-producing history de-risks future drilling, while the expanded potential of the T-Zone offers huge upside surprises if successful.

Source: Company Documents

Kolibri Global Energy stands out from peer E&Ps with a relentless focus on enhancing well performance and driving down costs. As CEO Wolf Regener explains, “We strive for constant improvement” in designing and drilling new wells. Even with oil prices recovering, Kolibri pursues creative new solutions to maximize returns.

For example, in its latest wells, Kolibri used an innovative downhole tool that is part of the drilling assembly, like the drill pipe and drill bit. This new tool boosted drilling efficiency substantially – the last 3 Caney wells took just 11 days each to reach target depth vs. an expected 20 days per well. Faster drilling directly saves capital expenses.

Beyond superior drilling speeds, Kolibri has driven total well costs down from 2022 estimates of $7.2 million per well to just $5.6 million on its latest wells. Finding ways to cut capex while achieving similar or better production lets Kolibri earn superior internal rates of return (IRRs) even if oil prices weaken again.

Thanks to its innovative culture and strategic infrastructure ownership in Tishomingo, Kolibri expects to generate high IRRs on its future drilling inventory. As the company responsibly develops its large asset base, this capital efficiency advantage will compound into exponentially greater value creation over time.

Source: Company Documents

Unlike many small E&P peers, Kolibri Global Energy runs a conservative balance sheet with low leverage rather than aggressive debt accumulation. The company exited Q3 2023 with a total debt position of $23.8 million vs. $40 million of available borrowing capacity per its credit facility. With forecasted Adjusted EBITDA of $46-51 million in 2024, that debt position appears easily serviceable for a low sub-1x net debt to EBITDA ratio.

Kolibri’s rising cash flows from existing production at Tishomingo also sufficiently funds new well drilling activity for growth, reducing dependence on external capital. The newest 3-well pads were financed from internal reserves due to superior project-level rates of return and its existing credit facility, rather than layering on new loans. Banks often provide higher credit line limits to E&Ps exhibiting financial restraint and visibility into self-funding.

Carrying lower debt minimizes Kolibri’s fixed financing expenses quarter-to-quarter, allowing price upside to translate into higher free cash flow margins. A stronger balance sheet also provides stability if oil markets face renewed volatility, given recent geopolitical turmoil and macroeconomic uncertainty.

Kolibri strikes an optimal balance between balance sheet flexibility, liquidity for opportunistic moves, and potential cash returns to shareholders. The current leverage profile appears appropriate for an E&P of Kolibri's size focused on executing a long-term returns-driven growth strategy.

Source: Company Documents

With oil prices rebounding and Kolibri’s production scaling efficiently, the company is on track to generate significant free cash flow - referring to residual cash left after covering day-to-day operations and capital expenses. Kolibri produced $28.7 million of operating cash flow in the first 9 months of 2023, providing a buffer to finance growth.

Specifically, Kolibri expects to invest $33-39 million into drilling new wells in 2024, funded by recurring cash flows and its existing credit facility, without needing external capital. Funding expansion organically is rare for small E&Ps, demonstrating Kolibri’s capital efficiency.

In 2024, Kolibri forecasts another $46-51 million of Adjusted EBITDA next year based on $72/bbl oil pricing. This enables drilling 6-7 more Caney wells in 2024, continuing to scale oil volumes by re-investing cash from existing wells. Eventually, if oil markets weaken, Kolibri can always access capacity on its existing credit facility as a backstop.

Running cash flow positive alleviates pressure on management to frequently access outside debt or equity markets. Kolibri can simply focus operations on efficient execution, knowing sufficient operating cash gets recycled into the next round of value-creating wells.

Source: Company Documents

With a stable base of production established and low leverage, Kolibri has a clearly visible path to continue scaling up over the next few years organically. Their investor presentation forecasts production growth through 2024 to a range of 3,500 to 4,000 BOE/day of primarily oil volumes. Associated revenue is modelled to reach $60-65 million with $46-51 million of Adjusted EBITDA by 2024 as well.

This growth trajectory is underpinned by ~$35 million per year of efficient capital investment funded from recurring cash flows. The budget finances additional wells drilled at Tishomingo within Kolibri’s vast inventory of 180 locations and potential additional locations. As more wells come online, production, revenue, and cash flow numbers can build upon each other.

Given strong well economics even under $60 WTI oil, the next few years of drilling have highly predictable returns. As oil markets potentially strengthen amidst global supply tightness, Kolibri can generate free cash flow on top to accelerate debt reduction or consider shareholder returns (dividend/buyback) later in 2024.

Overall, Kolibri Global Energy offers investors a differentiated level of visibility into a sustainably growing oil-weighted business model that is self-funded. The company has laid out detailed numerical models of future expansion supported by facts from engineers and geologists. As additional catalyst wells get drilled in 2024, achieving or exceeding guidance will demonstrate execution.

Source: Company Documents

Despite Kolibri Global Energy demonstrating consistent oil-weighted production and cash flow growth over the past two years, its valuation multiples continue to lag behind peer E&P companies listed in Canada. Based on enterprise value-to-NAV (net asset value), Kolibri stock trades 37% below the peer average - a striking value arbitrage.

Source: Company Documents

Specifically, Kolibri’s proved plus probable (2P) reserves are worth US$20.34 per share based on expert NSAI engineering. Yet shares currently sit at US$3 after appreciating from under US$1 in late 2020. This 85% discount to 2P reserve value reveals extreme undervaluation for assets with clear line-of-sight economics.

No asset-heavy company can trade at such steep NAV discounts forever, particularly with crude fundamentals constructive. As Kolibri executes its visible oil production and cash flow growth strategy in 2023-2024, the disconnect between underlying value and stock price may narrow. Applying even average peer multiples suggests multi-bagger return potential as the market re-rates KGEI towards fair value.

As part of its risk management strategy, Kolibri Energy uses oil and gas price hedge agreements to lock in favorable rates for future production. In the third quarter of 2023, the company did report a $2.579 million mark-to-market loss, which are non-cash losses, on these hedges under accounting rules. However, realizing losses is not inherently problematic, since the commodity contracts simultaneously guaranteed Kolibri will sell significant 2023-2025 production volumes at profitable price floors of $60+ per barrel. Also, most of its hedges going into 2024 are costless collars which reduces the volatility of mark-to-market losses going forward. Avoiding downside cash flow risk is the priority.

Source: Company Documents

If global benchmarks like WTI crude rose materially higher, Kolibri’s existing hedges would simply cap some potential upside. But its asset-level well economics already appear healthy at mid-cycle prices around $60-$70. The contracts also roll off methodically over time, allowing price upside visibility.

In totality, Kolibri’s hedging program indicates prudent financial planning by management rather than a risk factor for investors. Securing known cash generation is wise amid market instability, and reported modest mark-to-market losses may ultimately reverse over time.

Kolibri Global Energy exhibits a standout level of cost discipline and operating efficiency that enables superior cash flow margins versus comparable E&P peers. Its general & administrative (G&A) overhead averaged just under $6 per barrel of oil equivalent in 2022, with consistent reduction over time. Peers range as high as nearly $24/BOE.

As shown below, Kolibri’s production and operating expenses were $6.05 per BOE based on the latest quarterly figures. This Opex efficiency surpasses all but one peer company from a size-relevant benchmark group operating in similar North American basins. Low operating expenses boost the corporate free cash flow conversion rate.

With sector-leading cost control already evident as production scales, operating leverage can amplify Kolibri’s net cash flows, reserves value, and corporate valuation over time. As oil markets tighten, lean overhead and opex may create upside asymmetry for long-term shareholders.

Source: Company Documents

Kolibri Energy represents a uniquely compelling emerging E&P investment opportunity for risk-tolerant investors. Management has aligned the critical components of large oil-rich resources, exceptional low-cost well economics, free cash flow generation, and financial conservativism into an integrated platform poised for sustained equity upside.

2024 guidance for $60-65 million revenue and $46-51 million EBITDA at modest $72 WTI prices offers just a preview of Kolibri's visible high-margin production growth ahead. This scalability stems from the company's massive 180+ locations with infrastructure already in place. Based on 2P reserves alone, Kolibri trades at a rare 85%+ discount to NAV.

Kolibri’s seasoned technical team leverages their 250 years of collective expertise to continually enhance well productivity through innovations like optimizing downhole tools and fracture stimulation techniques. These optimizations unlock higher IRRs from the premium SCOOP acreage. The company also maintains an enviable debt-light balance sheet, providing stability if energy markets face volatility.

In total, Kolibri Energy exhibits that optimal alignment of institutional execution capability with differentiated resources driving reduced-risk exponential oil production/cash flow growth for decades to come. The company has clearly articulated detailed operating and financial guidance models mapping an expansive visible trajectory ahead likely to significantly reward invested capital in time.

Source: Company Reports

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