Longer Lateral Wells And Expanding Reserves Will Fuel 2025 Performance

Key Takeaways

• Drilling longer lateral wells and expanding crude reserves are expected to enhance production efficiency, supporting future revenue and production growth.
  
• Effective cost management and the share buyback program are set to improve net margins and increase earnings per share, benefiting investors.
  
• Decreased net income and increased expenses amid reliance on credit and hedging pose financial risks, challenging revenue growth and profit margins.

Catalysts

Engages in the finding and exploiting oil, gas, and clean and sustainable energy in the United States.

• The company's drilling of longer lateral wells, which offer increased access to the reservoir with only a minimal increase in drilling time, suggests improved production efficiency, likely resulting in higher revenue.
  
• The expectation to drill seven longer lateral wells in 2025 and bring nine new wells into production is set to significantly increase production, potentially boosting revenue by 28% to 52%.
  
• The company's effective cost management, reflected in maintaining low operating expenses per BOE, will likely enhance net margins by reducing costs relative to revenue.
  
• The continued expansion of crude reserves, with a 24% increase over the previous year, provides a stronger asset base that can support future production and revenue growth.
  
• The share buyback program indicates a focus on increasing earnings per share by reducing the share count, which can amplify returns for investors and potentially increase earnings.

Kolibri Global Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kolibri Global Energy's revenue will grow by 30.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.9% today to 32.6% in 3 years time.
• Analysts expect earnings to reach $42.1 million (and earnings per share of $1.16) by about April 2028, up from $18.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.0x on those 2028 earnings, down from 12.8x today. This future PE is greater than the current PE for the CA Oil and Gas industry at 10.3x.
• Analysts expect the number of shares outstanding to decline by 0.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.33%, as per the Simply Wall St company report.

Kolibri Global Energy Future Earnings Per Share Growth

Risks

• Lower average prices for oil and gas in 2024 decreased netback from operations, posing a risk to future revenues if prices remain low or decrease further.
  
• The company's net income decreased by 6% from 2023 to 2024 despite increased production, which may indicate challenges in maintaining profit margins amid fluctuating commodity prices.
  
• Operating expenses increased compared to previous years, affecting net margins and indicating potential challenges in cost management.
  
• The company's forecasted reliance on its line of credit and increased capital expenditures for growth could lead to higher financial risk if market conditions shift, impacting earnings stability.
  
• Dependence on hedging strategies with a large portion of production hedged might limit potential revenue gains if oil prices surpass hedging ceilings, thereby impacting revenue growth potential.

Valuation

• The analysts have a consensus price target of CA$15.69 for Kolibri Global Energy based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $129.2 million, earnings will come to $42.1 million, and it would be trading on a PE ratio of 11.0x, assuming you use a discount rate of 6.3%.
• Given the current share price of CA$9.31, the analyst price target of CA$15.69 is 40.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.