Ongoing Drilling Improvements Will Increase Future Reserves And Profitability

Key Takeaways

• Successful drilling and improved processes could boost production rates, cost efficiencies, reserve valuations, and ultimately revenue growth.
  
• Strong cash flow and low leverage enable strategic reinvestment and shareholder returns, positioning Kolibri for future expansion and earnings enhancement.
  
• Rising costs and price declines could pressure future earnings, while share repurchases may limit reinvestment, impacting growth and revenue potential.

Catalysts

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

• The successful drilling of longer lateral wells is resulting in higher production rates and cost efficiencies, which could significantly impact Kolibri's future revenue growth.
  
• Ongoing improvements in drilling and completion processes may lead to increased proved reserves and more economically viable wells, potentially boosting reserve valuations and earnings.
  
• The strategic focus on enhancing shareholder value through share buybacks could contribute to higher earnings per share (EPS) as the share count decreases.
  
• Anticipated increase in cash flow due to strong well performance may provide additional capital for reinvestment or further shareholder returns, supporting future revenue and earnings growth.
  
• The company’s leverage remains low, with significant available borrowing capacity, positioning it well for potential future expansion or opportunistic investments that could enhance long-term earnings.

Kolibri Global Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kolibri Global Energy's revenue will grow by 30.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 31.6% today to 30.0% in 3 years time.
• Analysts expect earnings to reach $36.6 million (and earnings per share of $1.06) by about March 2028, up from $17.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.9x on those 2028 earnings, down from 15.2x today. This future PE is lower than the current PE for the CA Oil and Gas industry at 10.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.98%, as per the Simply Wall St company report.

Kolibri Global Energy Future Earnings Per Share Growth

Risks

• The company experienced a 9% decrease in average prices for the quarter, which negatively impacted netbacks and could affect revenue if price declines continue.
  
• Net income decreased in the year-to-date results due to higher income tax, operating, and G&A expenses, which could pressure future earnings if these costs remain high.
  
• Kolibri plans to repurchase shares using cash flow only, which could limit available capital for reinvestment and growth, potentially impacting future revenues and earnings.
  
• Operating expenses have increased by 21% year-to-date due to adjustments and higher water hauling costs, which could reduce net margins if these costs persist.
  
• There is uncertainty around the longer lateral wells' production and ultimate recovery, which could affect future revenue and reserve valuations if outcomes do not meet expectations.

Valuation

• The analysts have a consensus price target of CA$11.0 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 $122.0 million, earnings will come to $36.6 million, and it would be trading on a PE ratio of 8.9x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of CA$10.63, the analyst price target of CA$11.0 is 3.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.