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Initiation of Coverage

Calima Energy Ltd (ASX: CE1)

Following the successful and value accretive merger with Blackspur Oil Corp (BOC), Calima Energy (CE1) emerges as an oil & gas company underpinned by strong production with operations focused in Alberta, Canada. The company has 5.4 mmboe of Proved Developed Producing reserves, 16.7 mmboe of 1P reserves, 22.5 mmboe of 2P reserves and 192.4 mmboe of contingent resources. Current production comes to 3,000 boe/d with a very low break-even price of WTI US$26/bbl.

2021-2022 will be catalyst rich for CE1 as it builds upon its current production, executes its 24 well development drilling program in Brooks and Thorsby, grows its production to 5,500 boe/d, reaches FID or a strategic transaction on its Montney project and reduces its net debt position. Longer term, the company has the opportunity to increase production to over 10,000 boe/d and grow further through targeting drilling and/or acquisition growth.
CE1 will recommence trading on the ASX with immediate revenue, easily attainable growth prospects and significant potential upside from the Montney play. The company will continue to grow its production with a focus on targeting oil formations with inexpensive and shallow conventional horizontal drilling, with quick payouts at current oil prices. Post the acquisition of Blackspur, Calima Energy will be able to combine the financial flexibility of a listed company with Blackspur’s experienced and nimble management style to enable the company to reach the next level of growth.
CE1 Valuation: We have run three development scenarios under various production assumptions being: the current production indicated by CE1 (Base Case), Base Case with full development of CE1 2P Reserves and an additional scenario where CE1’s Montney formation is developed.

News flow: We anticipate several share price catalysts including further results from the company’s drilling program at Brooks and Thorsby, increase in revenue from stronger international oil and gas prices, a possible announcement on Montney, or perhaps even a potential takeover offer.
CE1 Valuation: 2021 is a watershed year for CE1 with: an enhanced management team, recapitalised balance sheet, becoming a producer and extensive positive news flow which should all be reflected in the share price. On completion of a share consolidation we believe the stock would significantly re-rate and become even more attractive. Currently our risked Base Case valuation comes to $153m or 1.5¢/share while for our High Case (2C volumes) the NPV amounts to A$553m or 5.4¢/share. Our price target for CE1 comes to 2.6¢/share, representing a 3.7x uplift to the capital raising price. It is based on the 2P Development Case, which is self-funded by the strong cash flow generated from the Base Case and onwards.


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