Criterium Energy plc (TSX:CEQ) is the topic of conversation when Auctus Advisors’ Head of Research Stéphane Foucaud caught up with DirectorsTalk for an exclusive interview.
Q1: I wanted to talk to you today about Criterium Energy. Can you just remind us of their story?
A1: Criterium Energy is a $15 million Canadian market cap, micro-cap E&P listed in Toronto, and they have producing assets in Indonesia that were acquired about three years ago. Today, the company holds about 8 million barrels of low-cost 2P reserves in a mature field onshore Sumatra. and about five times that in contingent resources.
This is really the classic story of putting mature assets in the right pair of professional hands, so that their value can be maximised by applying effectively new approaches and appropriate technologies. The Canadians are particularly famous for doing this extremely well.
So, the problem for Criterium has been the very weak balance sheet and that has really been crippling for the company. On surface, the last 2/3 years have looked to have been really around managing production between 700 and 1,000 barrels a day. Below the surface, much more was happening.
During these 30 months or so, the management had time to really get under the hood of their own mature assets and now it’s about realising the value from the opportunities that they saw. There are really three sources of low-hanging fruit:
- The first one is around gas. There are large volumes of gas that have not been produced and that are now booked as 2P reserves. With all the existing infrastructure and existing wells in the area, the capex to take this asset to production is almost zero or very small. Production could start by the end of August under current timing so reaching first gas would be absolutely game-changing for the company.
- Second, there is a waterflood opportunity that could be implemented in the field and unlock about 8 million barrels of additional reserve. By way of context, this is about 100% upside to the current 2P reserve. Again, very low capex, pilot expected this year and potentially again reserve booking this year.
- Third, there are also some untapped reservoirs where oil had been encountered, but it had not been produced because that would have required stimulation, again, that represents about 5 million barrels, 60% upside.
- Lastly, that’s not associated with those natural assets. That’s the cherry on the cake. Criterium holds a large interest in an undeveloped discovery called Bulu, this is offshore shallow-water Indonesia with 22 million contingent resources net to them. Given the scarcity of gas in the region with the context of Hormuz and Iran at the moment, this asset could be really material and strategic.
So, taking this project forward means resolving the ownership structure. These resources again in context are three times the current reserve held by Criterium so as you can see, there is a lot to go after.
Q2: Why is the onshore gas so important to the story?
A2: Well, this is game-changing for the company and this for a variety of reasons.
First, it takes the company in a path of growth for reserve and production. By the end of 2026, the overall production of the company could basically triple compared to current level.
Second, it demonstrates to the market that the gas opportunity is real. It’s important because it is repeatable; what they are doing now could be repeated many times over the coming years. A bit of context, the gas reserve could triple and the gas production double versus the level at the end of 2026 in the coming years.
Third, that’s perhaps the most important, the gas will add about US$10 million of free cash flow. That’s every year. So, that yearly free cash flow equates to the company’s current market cap. Basically, the company will generate its own market cap every year in free cash. That’s material and it also allows the company to go after the other projects.
Lastly, it changes the risk profile of the company. The gas production is sold at a fixed price and that means that the associated free cash flow is completely insulated from all price movement.
Q3: You mentioned earlier about the balance sheet. It has been a bit of a drag. How do you think that should be resolved? Will the gas resolve that situation?
A3: Yes, I think, as you said, the balance sheet weakness has been the biggest drag. At the end of 2025, the company had over US$20 million of net debt, more than twice its market cap. This is a problem. The current oil production basically covers the base cost and the G&A and a bit more but the expected free cash flow from the gas represents effectively 50% of the current net debt position.
So, effectively, from starting gas in about two months, this is a key milestone to start this process of deleveraging the balance sheet and get the company out of the woods.
I appreciate the last two years have been quite challenging for shareholders. They have had to wait and have had to be patient. I think the company is probably two months away from a critical inflection point where the balance sheet issues start to be dealt with and the company returns to growth.
