Since we began our coverage of Vintage Energy in January 2021, the company has rapidly morphed from being a high risk, exploration company to a fully funded (imminent) producer at its main asset, the Vali joint venture.
VEN’s extensive exploration and appraisal of the Vali field (and the nearby Odin field) has delivered 100% success resulting in 2P reserves tripling to 46bcf (net to VEN). Fast forward to today and that fly has landed a big fish as AGL has now signed a conditional Heads of Agreement (HoA) with the Vali JV. The HoA covers the sale of all gas produced from the Vali field from start-up (mid CY22) through to the end of 2026. This is expected to be a minimum of 9 PJ and up to 16 PJ of gross gas sales over the contract term. Our own estimates of volume at Vali leans to the upper end of the range projected for the AGL deal.
On completion of the conditions precedent, the terms set out in the HoA will form the basis of a fully termed Gas Sales Agreement (GSA). On execution of the GSA, AGL will provide an upfront payment of $15 million ($7.5m for VEN’s 50%) to the JV in three tranches as the project moves to first gas. That money will be used specifically to complete all three Vali wells and the tie-in of the Vali field to the nearby Moomba pipeline network.
The AGL deal includes a mixture of fixed and variable prices for the gas, but over the term of the contract, we estimate the gross revenue generated will be around $90 million net to VEN.
Additionally, VEN has secured a $10 million debt facility that will also form part of the capital required for Vali over the next two years adding significant financial flexibility.
VEN has now raised a further $8.5 million of equity from an institutional placement at 8.5cps and a further $3.44 million from a heavily oversubscribed Share Placement Plan. These funds will be used for VEN’s Odin-1 well tie-in and more exploration around Vali and Odin. There will also be room for drilling of other assets in VEN’s portfolio.
The AGL deal has arrived at a fortuitous time for VEN as domestic gas prices on Australia’s East Coast keep rising due to supply shortages and a tightening global market.
Investment view
Few small E&P companies could boast a script as tidy and high-achieving as VEN. The secret sauce of an experienced management team and a highly prospective initial asset has delivered investors a bankable, commercial project with valuation upside still sitting in the share price. Our new risked valuation for VEN of 25cps reflects higher gas prices, partially offset by higher production and transport costs. But it also now reflects a substantially de-risked profile for the Vali JV, VEN’s major asset. There is potential for further upside if VEN can translate its Vali success across its portfolio. The main short term earnings and valuation risk currently pertains to the execution of the GSA with AGL, together with VEN’s future exploration and development program. We have maintained our Buy recommendation on VEN.
