Does Coro Energy have an Ace up its sleeve in possibly their final hand?
“…the Company needs a run of good news to reignite its share price, which has subsided some 95pc from levels of 8p back in 2017 to just over 0.3p, but if Coro Energy can demonstrate solid progress towards realising its new strategy over the coming months its share price might once again set itself on an upwards trend…”
After several tough years Coro Energy (AIM:CORO) is embarking on a transition that is becoming something of a rite of passage for energy companies in changing times: making a long-term commitment to renewables underpinned by a significant gas project.
Coro has taken radical action to save itself over the past year, removing a former CEO, offloading an Italian gas portfolio that was leaking money, slashing costs, and developing a new strategy seeking to participate in the vast market generated by South East Asia’s transition to clean energy.
Now billing itself as ‘the South East Asian energy company focused on leading the regional transition to a low carbon economy’, Coro has a particular interest in the Phillipines, where annual electricity demand is projected to rise by some 65 gigawatts over the next 20 years, much of it to be generated by gas and renewables as the islands’ seek reduce their dependence on coal. The increased pressure on Asian economies to cut carbon emissions was highlighted earlier this month when JPMorgan, Fidelity and other global investors demanded that the region’s most polluting power generation companies, which produced roughly 285 million tonnes of CO2 in 2019, equivalent to the national emissions of Spain, cut their greenhouse gas emissions. The initiative joins a similar scheme pursued by Climate Action 100+, an influential global investor group with more than 500 members including BlackRock and Pimco.
Gas interests past and present
Two years ago Coro took a 15pc interest in the Duyung Production Sharing Contract (PSC), focused on the Mako gas field offshore Indonesia, a licence shared with operator Conrad Petroleum Ltd (76.5pc) and Empyrean Energy plc (8.5pc). Mako, one of the largest gas fields to be discovered in the prolific West Natuna basin, offers a 2C gross gas resource of 495 Bcf that could be supplied to Indonesia and in Singapore through existing extensive pipeline infrastructure. The PSC partners are currently working to conclude a sales agreement with a buyer in Singapore, after which a final investment decision to develop and commercialise the field will be taken. A Plan of Development announced late last year stated accepted gas in place ranging from 384 (low) 566 (best) and 766 (high) Bscf.
The Duyung PSC is now Caro’s sole gas interest following disposal of its Italian assets last month. After an attempted sale to Zenith Energy fell through last year, Coro has entered into a Sale and Purchase Agreement worth €300,000 with Dubai Energy Partners, a US-based oil and gas producer. The sale still needs to be formally confirmed by the Italian authorities, but the agreement allows Coro to severe the assets’ trading liabilities with immediate effect.
Looking towards solar and wind
Coro hopes Mako will provide a healthy revenue stream to support the longer term development of its renewables interests. Earlier this year the company acquired Global Energy Partnership Ltd (GEPL), a UK-based venture with a pipeline of more than 20 wind and solar projects across the Philippines, Vietnam and Indonesia, together capable of generating 25 GW. GEPL is prioritising two Filipino projects, a ground mounted solar and onshore wind opportunities both prospective for 100 MW. GEPL’s importance to Caro’s future was signified by the appointment of the subsidiary’s co-founder, Mark Hood, who has managed utility scale energy projects for BP and Cairn Energy, as Coro CEO. GEPL seeks to develop projects through planning and permitting phases to ‘ready to build’ status with a view to attracting external construction capital, and retaining both a carried interest in the project and responsibility for asset management through construction and operation. There is a possibility that such build-ready projects will attract buyers from ESG-focused domestic or multinational utilities.
Coro’s GEPL acquisition complements its earlier taking of a 20.3pc stake in ion Ventures, a battery storage specialist developing a 300 MW project pipeline across South East Asia. The deal gives Coro a right of first refusal to invest in the projects directly.
Buying breathing space
The GEPL purchase was funded by a February placing that brought in just under £4m, giving Coro a lifeline as it seeks to move beyond persistent financial struggles. The company’s most recent set of results, published in April, recorded a total loss to 31 December 2020 of $10,167,000 (2019: $16,635,000). Coro was hit hard by the pandemic, which caused a significant fall in Italian gas prices, prompting the company to suspend production at three fields. Revenues fell 70pc year-on-year as production was cut to 5.4 MMscm (12.7 MMscm: 2019). The company tightened its belt further by cutting its G&A costs by $2.2m to $2.9m (2019: $5.1m). It says it expects to be able to keep them around this level going forward, projecting a recurring overhead cost base in the range of $1.7m to $1.9m for 2021.
Coro says the placing will tide it through to Q2 2022, allowing the company to capitalise project specific special purpose vehicles for the two initial GEPL projects, and meet ongoing Duyung PSC expenses through to a potential Final Investment Decision in mid-2022. The funds will also give the company crucial breathing space to seek a restructuring of a €22.5m Eurobond obligation currently scheduled to mature next April.
The delicate language used in the annual report to refer to the situation indicates its continued threat, the directors stating they ‘have a reasonable expectation that the Company can restructure its balance sheet, which may include a restructuring of its bond obligations in part or in full, to enable the Group to remain in operation for at least 12 months from the date of signing these financial statements.’ The report acknowledges that ‘the ability of the Company to successfully manage its capital structure is not guaranteed and this represents a material uncertainty regarding the ability of the Group to continue as a going concern.’ The Auditors’ Report in the 2020 Annual Report & Accounts includes an emphasis of matter that references this material uncertainty.
It’s vital, then, that Coro demonstrates good progress with its new interests. In February the company announced that ion Ventures is making moves towards an innovative new battery storage solution, partnering with LiNA Energy, a solid-state battery technology developer, to conduct a successful trial of LiNA’s proprietary solid-state sodium battery platform, envisaged as an alternative to the lithium-ion chemistry that currently dominates the grid storage and passenger and commercial electric vehicles markets. According to a strategic scoping study by E4Tech, a London-based clean-tech specialist consultancy ‘LiNa’s platform was superior to existing lithium ion-based storage, especially in distribution, generation level storage and behind the meter owing to superior CAPEX, OPEX, Life Cycle Cost, battery self-discharge and safety metrics.’
In April Coro provided an update on GEPL’s progress in advancing key elements of its flagship 100MW wind and solar projects. The subsidiary has structured a local holding company to develop its Philippine interests, has opened discussions on the Energy Services Contracts required to define the scale, technology and location of the projects, and initiated negotiations with local landlord engagement to secure land leases on two sites with a view to completing both tasks by the end of Q2 2021. Negotiations are also underway to develop Power Purchase Agreements for both projects, and undertake Environmental and Grid Impact Assessments.
CEO Mark Hood took the opportunity of Coro’s last operations update to say that the company has ‘a large number of important commercial and operational milestones approaching over the next 6-12 months’, with the potential to seed a ‘variety of revenue streams that will add material value to the business.’ Coro needs a run of good news to reignite its share price, which has subsided some 95pc from levels of 8p back in 2017 to just over 0.3p. The price still has the capacity to spark into life, as demonstrated by earlier this year when it briefly spiked at 0.75p following confirmation of the Duyung PSC’s potential.
Coro has tough financial issues to sort out and a range of assets that only be said to be at early stages of development. But if it can demonstrate solid progress towards realising its new strategy over the coming months its share price might once again set itself on an upwards trend.