Reabold Resources : FinnCap Research Note - 14 March 2023

14 March 2023

Corp

Ticker	RBD:AIM
Oil & Gas
Shares in issue (m)	9,177.4
Next results	FY May

Price		0.19p
Target price		1.20p
Upside		523%
Market cap		£17.7m
Net debt/(cash)		-£3.6m
Other EV adjustments		£0.0m
Enterprise value		£14.1m
What's changed?		From	To
Adjusted EPS		-	-0.0
Target price		-	1.20

Share price performance

%	1M	3M	12M
Actual	-16.3	-18.1	-48.0

Company description

An E&P investment company pursuinginvestments in low risk/high return projects to unlock stranded value.

Jonathan Wright

Director of Research

[e-mail]

020 7220 0543

Sales desk		020 7220 0522
Trading desk		020 7220 0533

* denotes corporate client of finnCap

Company Note

REABOLD RESOURCES*

From little acorns…

Reabold is an E&P investment company focused on investing in pre-cash flow projects to unlock stranded value. Management is adept at identifying oil & gas assets where there is a clear near- term value creation opportunity. It is the driving force behind asset work programmes aimed at quickly de-risking projects, adding value and allowing monetisation. We initiate with a risked NAV based price target of 1.20p/sh, 6x the current share price. Key to unlocking this valuation is the first horizontal well on the West Newton gas discovery, planned for H2 2023 and aiming to definitely prove a commercial flow rate from this significant resource. We value West Newton at 0.80p/sh within our risked NAV, 4x the current share price. With little priced into the shares, we see the risk/reward profile of this well skewed to the upside. In the meantime, the prospect of a significant distribution from asset sale proceeds should keep investors engaged.

• West Newton well a key catalyst. Reabold's core region, and the key to its share price in the near term, is the UK. Here it has a material onshore gas discovery, West Newton, on licence PEDL 183 on the northeast coast. Three vertical wells have been drilled on this field to date confirming the significance of the resource. The first horizontal appraisal/development well is planned for H2 2023 to demonstrate the flow potential of the reservoir, targeting an initial gas rate of ~36 mmcfd (5,900 boepd). Given the outlook for gas prices and the drive for domestic security of supply, there is a strong chance this project will proceed if commercial flow rates are delivered.
• Material UK North Sea acreage position compiled. In the UK North Sea, Reabold has built a material acreage position, rapidly and at minimal cost, across four core areas that contain a deep inventory of exploration and appraisal opportunities. Drilling on these licences is some way off, but they still provide a project hopper to mature and monetise through farm-out and/or disposal. We include just US$2m (0.02p/sh) in our valuation for these contingent and prospective resources, which could be worth in excess of US$250m on an entirely unrisked basis. A farm-out process is underway.
• California and Romania yet to bear significant fruit. Reabold also has interests outside the UK. These include California, where it has a stake in a small, listed E&P production business, and Romania, where it has a small onshore gas discovery. Reabold's investments in these regions have yet to bear significant fruit, although investment to date has successfully enhanced positions and the value of these businesses.
• Strategy in action. Proceeds from the recent successful sale of the Victory gas discovery to Shell for £12.7m will fund the first horizontal well on West Newton in H2 2023, a significant potential catalyst for the shares. On a risked basis, we value West Newton at 0.80p/sh within our risked NAV, 4x the current share price. With little priced into the shares, we see the risk/reward profile of this well skewed to the upside. Reabold also intends to make a £4m distribution (20% mkt cap) to shareholders from the sale proceeds, the mechanism for which is still to be decided.

Key estimates		2020A	2021A	2022E	2023E	2024E
Year end:		Dec	Dec	Dec	Dec	Dec
Revenue	£m	1.0	1.2	0.6	0.0	0.0
Adj EBITDA	£m	-1.3	-1.5	-1.7	-1.6	-1.6
Adj EBIT	£m	-1.6	-1.8	-2.0	-1.6	-1.6
Adj PBT	£m	-2.5	-2.6	-3.3	-2.3	-2.3
Adj EPS	p	-0.0	-0.0	-0.0	-0.0	-0.0
DPS	p	0.0	0.0	0.0	0.0	0.0
Key valuation metrics
EV/EBIT (adj)	x	-8.7	-7.8	-7.0	-8.9	-8.7
P/E (adj)	x	-5.7	-6.8	-5.6	-8.0	-7.9
Dividend yield	%	0.0%	0.0%	0.0%	0.0%	0.0%
Free cash yield	%	-21.2%	-14.6%	-12.4%	-22.1%	-10.7%
Pre-tax ROCE	%	-4.2%	-3.9%	-4.3%	-3.7%	-4.3%

This research cannot be classified as objective under finnCap research policy. Please visit www.finncap.comor the Research Portal

REABOLD RESOURCES	14 March 2023

From little acorns…

	Income statement		2021A		2022E		2023E		2024E
	Year end:		Dec		Dec		Dec		Dec
	Sales	£m	1.2		0.6		0.0		0.0
	Gross profit	£m	0.2		0.0		0.0		0.0
	EBITDA (adjusted)	£m	-1.5		-1.7		-1.6		-1.6
	EBIT (adjusted)	£m	-1.8		-2.0		-1.6		-1.6
	Associates/other	£m	-0.8		-1.2		-0.7		-0.7
	Net interest	£m	-0.0		-0.0		-0.0		-0.0
	PBT (adjusted)	£m	-2.6		-3.3		-2.3		-2.3
	Total adjustments	£m	-0.0		3.2		-0.1		-0.1
	PBT (stated)	£m	-2.7		-0.1		-2.4		-2.4
	Tax charge	£m	0.0		0.0		0.0		0.0
	Minorities/Disc ops	£m	0.0
	Reported earnings	£m	-2.7		-0.1		-2.4		-2.4
	Adjusted earnings	£m	-2.6		-3.3		-2.3		-2.3
	Shares in issue (year end)	m	8,929.6		9,177.4		8,712.3		7,316.9
	EPS (stated)	p	-0.0		-0.0		-0.0		-0.0
	EPS (adjusted, fully diluted)	p	-0.0		-0.0		-0.0		-0.0
	DPS	p	0.0		0.0		0.0		0.0

	Growth analysis		2021A		2022E		2023E		2024E
	Year end:		Dec		Dec		Dec		Dec
	Sales growth	%	12.1%		-51.7%		n/m		n/m
	EBITDA growth	%	-12.9%		-16.4%		7.1%		-2.5%
	EBIT growth	%	-12.2%		-11.0%		21.8%		-2.5%
	PBT growth	%	-5.6%		-25.0%		30.5%		-1.7%
	EPS growth	%	15.4%		-21.8%		30.5%		-1.7%
	DPS growth	%	n/m		n/m		n/m		n/m

	Profitability analysis		2021A		2022E		2023E		2024E
	Year end:		Dec		Dec		Dec		Dec
	Gross margin	%	17.8%		7.9%		n/m		n/m
	EBITDA margin	%	-125.6%		-302.9%		n/m		n/m
	EBIT margin	%	-156.5%		-359.6%		n/m		n/m
	PBT margin	%	-226.6%		-587.0%		n/m		n/m
	Net margin	%	-226.6%		-587.0%		n/m		n/m

	Cash flow		2021A		2022E		2023E		2024E
	Year end:		Dec		Dec		Dec		Dec
	EBITDA	£m	-1.5		-1.7		-1.6		-1.6
	Net change in working capital	£m	0.4		0.1		0.0		0.0
	Other operating items	£m	0.1
	Cash flow from op. activities	£m	-1.0		-1.6		-1.5		-1.6
	Cash interest	£m
	Cash tax	£m
	Capex	£m	-1.5		-0.6		-2.4		-0.3
	Other items	£m
	Free cash flow	£m	-2.6		-2.2		-3.9		-1.9
	Acquisitions / disposals	£m	0.0		-0.4		-0.4		0.0
	Dividends	£m
	Shares issued	£m	6.9		0.0		0.0		0.0
	Other	£m	-0.5		3.4		8.5		-3.0
	Net change in cash flow	£m	3.8		0.8		4.2		-4.9
	Opening net cash (debt)	£m	1.3		5.1		5.7		10.0
	Closing net cash (debt)	£m	5.1		5.7		10.0		5.1
	Balance sheet		2021A		2022E		2023E		2024E
	Year end:		Dec		Dec		Dec		Dec
	Tangible fixed assets	£m	4.3		0.0		0.0		0.0
	Goodwill & other intangibles	£m	9.5		6.7		9.4		9.6
	Other non current assets	£m	28.3		25.0		23.5		22.8
	Net working capital	£m	-0.1		9.1		0.4		0.4
	Other assets	£m	0.1		0.1		0.1		0.1
	Other liabilities	£m	-0.6		-0.3		-0.3		-0.3
	Gross cash & cash equivs	£m	5.1		5.7		10.0		5.1
	Capital employed	£m	46.5		46.4		43.1		37.7
	Gross debt	£m	0.0		0.0		0.0		0.0
	Net pension liability	£m	0.0		0.0		0.0		0.0
	Shareholders equity	£m	46.5		46.4		43.1		37.7
	Minorities	£m	0.0		0.0		0.0		0.0
	Capital employed	£m	46.5		46.4		43.1		37.7

	Cash flow analysis		2021A		2022E		2023E		2024E
	Year end:		Dec		Dec		Dec		Dec
	Cash conv'n (op cash / EBITDA)	%	n/m		n/m		n/m		n/m
	Cash conv'n (FCF / EBITDA)	%	176.7%		129.3%		247.9%		117.1%
	U/lying FCF (capex = depn)	£m	-1.4
	Cash quality (u/l FCF / adj earn)	%	53.1%
	Investment rate (capex / depn)	x	4.3		1.9		n/m		n/m
	Interest cash cover	x	n/a		n/a		n/a		n/a
	Dividend cash cover	x	n/a		n/a		n/a		n/a

	Working capital analysis		2021A		2022E		2023E		2024E
	Year end:		Dec		Dec		Dec		Dec
	Net working capital / sales	%	-10.5%		n/m		n/m		n/m
	Net working capital / sales	days	-38		n/m		n/m		n/m
	Inventory (days)	days	6		0		n/m		n/m
	Receivables (days)	days	54		6,163		n/m		n/m
	Payables (days)	days	99		237		n/m		n/m

	Leverage analysis		2021A		2022E		2023E		2024E
	Year end:		Dec		Dec		Dec		Dec
	Net debt / equity	%	no debt		no debt		no debt		no debt
	Net debt / EBITDA	x	n/a		n/a		n/a		n/a
	Liabilities / capital employed	%	0.0%		0.0%		0.0%		0.0%

	Capital efficiency & intrinsic value		2021A		2022E		2023E		2024E
	Year end:		Dec		Dec		Dec		Dec
	Adjusted return on equity	%	-5.7%		-7.1%		-5.3%		-6.2%
	RoCE (EBIT basis, pre-tax)	%	-3.9%		-4.3%		-3.7%		-4.3%
	RoCE (u/lying FCF basis)	%	-3.0%
	NAV per share	p	0.5		0.5		0.5		0.5
	NTA per share	p	0.4		0.4		0.4		0.4

2

	REABOLD RESOURCES		14 March 2023

From little acorns…

Investment summary

Investing capital to unlock stranded value…

Reabold is an upstream oil & gas investment company focused on low risk/high return projects. It has a distinctive strategy which entails investing capital in high calibre, pre-cash flow oil and gas opportunities to unlock stranded value.

Reabold has a management team that it is well versed in managing oil and gas investments. Co-CEOs Sachin Oza and Stephen Williams were oil and gas investment analysts at blue-chip institutions for over 20 years. The board also includes Marcos Mozetic, Repsol's former Head of Global Exploration, and Peter Dolan, who has founded numerous oil and gas businesses, is an Adviser.

Management is adept at identifying oil & gas assets at the appraisal stage where there is a clear near- term value creation opportunity from investing in the asset to mature and de-risk the project and allow monetisation.

It seeks projects in regions with existing production and low geopolitical risk that are substantially de-risked by previous drilling. Management focuses on low capex, fast cycle opportunities that can be rapidly monetised and has built a diverse portfolio of low risk, high impact projects with near- term catalysts.

Reabold does not look to operate, keeping costs low, but is heavily involved in all of its projects. It takes significant stakes in operating companies and uses Board representation and a partnership approach to drive value creation.

It is the driving force behind asset work programmes aimed at quickly de-risking projects and adding value. Each investment Reabold targets must have a low drilling risk, a near-term drilling catalyst and a clear exit strategy, minimising cost exposure.

…through optimal investment structures

Management chooses the structure for each of its investments to optimise its attractiveness to an industry acquiror and provide a tax efficient exit route. Reabold is unlikely to invest in stock exchange listed companies but is an active investor in subsidiaries or private companies with significant exposure to the specific target asset.

Investing directly in the operating company rather than buying a stake in the asset also gives Reabold exposure to any wider portfolio and makes it easier to exit the investment - a strategy management has put to good use with its Corallian Energy investment.

Appraisal drilling at Colter - the main driver for the initial Corallian investment - failed to live up to expectations, but Reabold has still realised value from this investment. It sold the West of Shetland Victory gas discovery to Shell for £12.7m, more than 1.5x its investment into Corallian. More is expected too, with the low-cost acquisition of Corallian's remaining UK North Sea acreage ahead of the disposal presenting another West of Shetland gas discovery to monetise and a significant hopper of exploration opportunities across four licences for which a farm-out process is underway.

Importantly, Reabold's low cost, non-operator strategy also allows it to be nimble, and ensures it does not become 'wedded' to projects, freeing it up to monetise an investment at the optimal point. Capital is then either recycled into other projects or distributed to shareholders.

3

REABOLD RESOURCES	14 March 2023

From little acorns…

Multiple shots on goal

Reabold has three areas of operation. These include California, where it has an interest in a small, listed E&P production business, and Romania, where it has a small onshore gas discovery. Reabold's investments in these regions have yet to bear significant fruit, although it has successfully enlarged positions and the value of these businesses via its investments.

California - In May, Reabold completed an equity Exchange Agreement with Daybreak Oil & Gas, injecting its California assets into the company in exchange for a 42% interest in the enlarged Daybreak. This created a self-funded Californian oil and gas operator with a strong balance sheet and experienced management team.

Romania - Reabold has invested £5m in Danube Petroleum Ltd for a 50.8% equity interest. Danube owns 100% of the Parta licence in Romania, which includes the IMIC-1 discovery and the IMIC-2 prospect. In 2020, the IMIC-1 well encountered gas across three zones and 2C contingent gas resources were raised from 6 to 20 bcf. Activity in Romania was deferred last year as management focused on higher priority opportunities, but the region still offers upside from a farm-out or disposal.

Figure 1: Reabold portfolio

Source: Reabold Resources

Core UK region offers scale and catalysts

Reabold's core region, and the key to its share price in the near term, is the UK. Here it has a material onshore gas discovery, West Newton on licence PEDL 183 (RBD 56%) on the northeast coast. Three wells have been drilled on this field to date, which is potentially the UK's largest onshore conventional discovery. The first horizontal appraisal/development well is planned at West Newton in H2 2023, which is targeting an initial gas flow rate of ~36 mmcfd (5,900 boepd). Given the outlook for gas prices and the drive for domestic security of supply, there is a strong chance this project will proceed if commercial flow rates are delivered with this planned well.

A CPR of the asset was published last September, which we have used alongside management's development plans to value this discovery. After geological and commercial risking, we value Reabold's stake in this discovery at US$88m (0.80p/sh) - 4x the current share price alone, without even considering the significant additional low-riskfollow-on exploration opportunities contained on licence PEDL 183.

The planned H2 2023 well represents a major potential catalyst for Reabold's shares. The significant quantity of high-quality 3D seismic covering West Newton alongside the extensive data provided by the previous wells materially reduces the risk associated with this well, and the CPR gives it a high (86%) chance of success.

4

		REABOLD RESOURCES								14 March 2023
		From little acorns…
				Our 1.20p risked NAV is dominated by this licence, which constitutes ~1p/sh or 80% of the valuation.
				With little value in the shares for this project, we believe the risk/reward profile for this well is
				skewed heavily to the upside.
				Figure 2: Reabold net asset value
				Net Asset Valuation	Net reserves	NPV/bbl	Unrisked NPV		Geological	Commercial	Dry hole cost	Risked NPV
					mmboe	US$/boe	US$m	p/sh	CoS	CoS	US$m	US$m	p/sh
				Net cash / (debt)			4.3	0.04				4.3	0.04
				G&A costs (3 yrs)			-5.8	-0.05				-5.8	-0.05
				California: 42% Daybreak Oil & Gas			4.5	0.04				4.5	0.04
				Victory asset initial sales proceeds			3.8	0.03				3.8	0.03
				Core asset value:			9.9	0.09				6.8	0.06
				Contingent resource:
				Victory asset contingent payment			11.4	0.10		80%		9.1	0.08
				UK: West Newton 2C resources	18.9	7.37	139.3	1.26	86%	75%	1.5	87.8	0.80
				Romania: Parta 2C resources	1.7	8.70	14.7	0.13	75%	25%		2.8	0.03
					20.6	8.03	165.4	1.50			1.5	99.7	0.91
				Prospective resource:
				UK: West Newton - Spring Hill, Withernsea and Ellerby	10.0	7.74	77.5	0.70	43%	75%	1.9	23.2	0.21
				UK: Dunrobin West Jurassic	15.1	6.72	101.5	0.92	34%	10%	1.3	2.2	0.02
				UK: Dunrobin West Triassic	12.2	6.72	82.2	0.75	12%	10%	1.7	0.0	0.00
				UK: Dunrobin Central and East Jurassic	2.9	6.11	17.6	0.16	31%	10%	1.3	0.0	0.00
				UK: Dunrobin Central and East Triassic	3.2	6.11	19.8	0.18	14%	10%	1.7	0.0	0.00
				UK: Golspie Jurassic	4.3	5.55	24.0	0.22	27%	10%	1.4	0.0	0.00
				UK: Golspie Triassic	7.2	5.55	40.0	0.36	12%	10%	1.7	0.0	0.00
					56.5	7.26	410.0	3.72			42.1	25.4	0.2
				Total			585.2	5.31			43.6	131.9	1.20
				Source: finnCap.
				Discounted at 10% to 1 January 2023.
				Assumes long-term UK NBP gas price of 70p/th and Brent oil price of US$70/bbl.
	Material UK acreage position to de-risk and monetise
Figure 3: RBD North Sea portfolio

In the UK North Sea, Reabold has built a material acreage position at minimal cost across four core areas that contain a deep inventory of exploration and appraisal opportunities. Drilling on any of these licences is some way off, but they still provide management with a project hopper to monetise through farm-out or disposal.

This includes licence P2605, which holds the Laxford gas discovery and the Scourie prosect, West of Shetland, close to the 179 bcf Victory gas discovery that Reabold recently sold to Shell for £12.7m, over 1.5x its investment. Deal activity in the West of Shetland region has increased recently, with Viaro Energy acquiring West of Shetland player Spark Exploration at the start of March, which was quickly followed by Equinor's acquisition of Suncor Energy's UK North Sea business, which doubled its exposure to the Rosebank oil development, West of Shetland. Following on from the CPR compiled on licence P2478 (see below), Reabold is expected to publish a CPR on its broader North Sea portfolio later this year, including licence P2605, which will provide a basis for valuation and support the ongoing farm-out/disposal process.

Beyond that, there is significant exploration potential across several North Sea licences located close to existing infrastructure with prospectivity that management can technically mature at minimal cost, enhancing value and improving the potential for monetisation. A farm-out process for these licences is already underway.

Source: Reabold Resources

In the Inner Moray Firth, Reabold has two exploration prospects on licence P2478 - Dunrobin and Golspie - containing a combined 125 mmbbls of prospective resources. There is significant well control in the area, with eight exploration and appraisal wells drilled nearby historically, which has been instrumental in evaluating the prospects. The prospects are located in shallow water with shallow target depths, enhancing their appeal as it will keep drilling/development costs down. Using the recent CPR released for these prospects, we value the unrisked potential NPV10 of these prospects at US$285m (2.6p/sh). However, at this early stage we include just US$2m (0.02p/sh) in our 1.20p/sh risked NAV.

In the East Shetland basin, Reabold has two licences (P2464 and P2504) containing a small existing oil discovery and two gas prospects, Unst and Oulton West, which exhibit a seismic amplitude anomaly similar to nearby producing gas fields. We give no value to these prospects in our risked NAV as yet.

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