Texas Billionaire Investing in Colombian Natural Gas Ahead of Projected Shortage
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Despite its significant potential, Colombias energy sector is heading towards a major natural gas shortage by next year.
The oil and gas market is the key to Colombias national revenue, accounting for roughly 10% of GDP and 20% of exports. However, decreasing onshore production, delayed start-up of new offshore discoveries and President Gustavo Petro's focus on renewable energy are creating ongoing challenges in the sector.
This shortage is compounded by the challenges caused by El Nio and declining oil and natural gas reserves, as Colombia strives to maintain its position in the global energy market. El Nio has reduced hydropower generation in Colombia, increasing reliance on natural gas for electricity and boosting demand amid a tight supply.
By 2025, Colombia's natural gas supply will fall short of demand by 17% according to state-owned oil producer Ecopetrol SA. Whats more, Colombia's proven oil and natural gas reserves can last only around seven more years at the current extraction rate.
While recent gas discoveries offer some hope, Colombia is still grappling with the challenge of declining reserves and struggling production. In response, Colombia's state-run oil company, Ecopetrol, plans to invest up to $6.7 billion in 2024 to boost exploration and production activities, as well as developing new technologies to improve efficiency and sustainability in the sector.
Rod Lewis, founder of Lewis Energy Group and self-made billionaire, sees major potential in Colombias natural gas market and in Latin America, in general.
In the early 2000s, Lewis established a private subsidiary named Lewis Energy Colombia, which has operated in Colombia for 17+ years, with a significant runway ahead to grow and help meet the growing natural gas demand.
But to realize its full potential, it needed a dedicated and experienced management team, which is where the newly listed TSXVs LNG Energy Group Corp. (TSXV:LNGE) (OTCQB:LNGNF) (FRA:E26) comes in.
LNG Energy Group acquired Lewis Energy Colombia, Inc. in August of 2023 and went public on the TSXV the following month on September 12, 2023. Its management and board of directors bring together a combination of financial, legal and operational experience to grow the business rapidly and capitalize on the Latin American energy opportunities identified by Rod Lewis. He remains the largest investor in LNG Energy Group, which speaks volumes about his commitment to Colombia, Latin America and the team selected to drive business value.
LNG Energy Group Targets Ambitious Growth in 2024, Outlines Robust Production and Financial Goals
After a year focused on strategic acquisitions and financial structuring, particularly with the successful acquisition of Lewis Energy Colombia, LNG Energy Group Corp. (TSXV:LNGE) (OTCQB:LNGNF) (FRA:E26) is now turning its focus towards enhancing its portfolio of producing wells.
LNG Energy recently announced its 2024 production and capital guidance, signaling a promising year ahead with significant operational and financial milestones.
The company expects to achieve a gross production rate of between 40 million cubic feet equivalent per day (MMcfe/d) and 44 MMcfe/d in 2024, which is anticipated to generate an EBITDA of between US$33 million and US$39 million, assuming an average gas price of US$7.50 per thousand cubic feet (Mcf).
LNG Energy Group has identified more than 20 prospects that hold over 1 trillion cubic feet of prospective resources1 and with an exploration and development budget of $10-$12 million, the company is planning a five to six well work-over campaign and drilling one development well and two to four exploration wells in 2024.
These efforts are expected to significantly boost production by up to 15% year-over-year to 22 MMcfe/d net.
LNG Energy Group also plans to capitalize on take-or-pay contracts already in place, which have a locked-in weighted average natural gas sales price of $7.50 per thousand cubic feet ($/Mcf) for a volume of 18.1 million cubic feet per day (MMcf/d). Operating netback is anticipated to be between $5.40 and $5.50/Mcfe.
These contracts are particularly significant, considering Colombias soaring gas prices which are three times higher than the Henry Hub benchmark and AECO prices. LNG Energy Group's ability to secure prices averaging US$8.40/Mcf, and expecting US$7.50/Mcf for 2024 represents a substantial premium to US natural gas prices and underscore the competitive edge these contracts offer.
LNG Energy Group Corp. (TSXV:LNGE) (OTCQB:LNGNF) (FRA:E26) also recently announced its 2023 year-end reserves evaluation results, which revealed a notable 26% increase in the before-tax NPV10 value of its Proved plus Probable reserves to US$306 million, or C$2.67 per share.
The value of its Proved (1P) reserves reached US$171 million (C$1.49 per share), while its Proved plus Probable plus Possible (3P) reserves increased to US$577 million (C$5.04 per share).
By the end of 2023, the companys 1P reserves had a reserve life index of 7.9 years, and its 2P reserves had a reserve life index of 14.3 years. Additionally, over the last three years, LNG Energy has maintained a net reserves replacement ratio of 193% on a 1P basis and 336% on a 2P basis, indicating strong reserve growth and sustainability prospects. The company estimates it can produce at its current rate for nearly 8 years with its proven reserves and over 14 years with its proven and probable reserves.
The current market price of the Companys common shares represents a significant discount to the NPV10 for 1P reserves which is C$1.49 per share, said Pablo Navarro, LNG Energys Chairman and CEO. The Company has a reserves life index of 7.9 years on a 1P basis and a net reserves replacement ratio of 193% on a 1P basis. These reserves are located on acreage that represent less than 2% of our total acreage and we look forward to launching our 2024 activity set.
With over 40 years of experience in natural gas and more than 17 years of operations in Colombia, LNG Energy Group understands how to grow in international jurisdictions and is well-positioned to lead the countrys transition.
Click here to learn more about LNG Energy Group Corp. (TSXV:LNGE) (OTCQB:LNGNF) (FRA:E26).
[1] https://cdn-ceo-ca.s3.amazonaws.com/1iitanp-Canaccord%20Initiating%20Report.pdf
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