‘We're just not on people's radars' – Fundie backs EU-operating gas biz

The ripples of the Russia-Ukraine war are being felt across the European energy markets with Russian gas imports into Europe declining rapidly from 50% until the second half of 2021 to below 20% since June 2022 and down to 12.9% in November. In January, the country’s pipeline gas exports to Europe dipped further to a new monthly record-low.

Targeting this shifting market is Po Valley Energy Limited (ASX: PVE) is a gas exploration and production company operating in the high-priced Italian gas market where, according to the company, natural gas is the largest contributor to the country’s energy mix, accounting for 42% of total power production.

“Our thesis has always been that the company holds these really strategic assets and that’s considering that Italy imports 90% of its natural gas, and natural gas accounts for the majority of its electricity production,” said Hancock & Gore Portfolio Manager Joseph Constable on Reach Markets’ The Insider: Meet the Fund Manager in September 2022. Watch the full The Insider: Meet the Fund Manager session.

“The company has two main assets: an onshore field called Selva (Malvezzi), near Bologna, and an offshore field called Teodorico, off the coast of Ravenna. Both have proven reserves, been drilled, and received full and prior environmental approval from the government,” he said.

Serving as Non-Executive Director on PVE’s Board, Mr Constable has held shares in the company both personally and via Hancock & Gore’s H&G High Conviction Fund, 14% of which was held in Po Valley Energy, as at June 30th 2022.

“Onshore Selva is very much ready for production and expected to come online in the first half of next year (CY23) and they have recently received a full production permit in July,” Mr Constable said. He also highlighted a broker note on the company which estimated Selva’s first year of production to generate about $22 million in EBITDA.

“That’s a very juicy amount of cash flow for a company like Po Valley who’s market cap is only about $75 million (as at September 2022).”

Kevin Bailey, Executive Chairman of Po Valley Energy, joined Reach Markets’ The Insider: Meet the CEO session in February 2023 where he talked through the European energy market, Po Valley Energy’s progress over the past 12 months and outlined the company’s clear-cut plans to move forward with its assets. Watch the full The Insider: Meet the CEO session.

“All the years that Po Valley Energy has been involved has put us at the right place at the right time,” Mr Bailey said.

“They (European countries) have recognised that natural gas is a transition fuel. Italy’s got less than 20% in renewables in wind and solar. The European parliament has made gas a clean energy source as part of this transition.”

A former Director in the company, Mr Bailey has been a long-standing shareholder in Po Valley Energy (since April 2008) holding 23.8% of shares at the time of speaking. Having invested ~$9 million of his life savings in the company, he made his intentions clear on returning value to shareholders.

Among Po Valley Energy’s development-ready assets, Mr Bailey admitted his excitement was around the Podere Maiar-1 well in Selva Malvezzi. “We are very close to being able to produce gas. We’re literally looking at April, early in the second quarter,” he said.

Highlighting the company’s ‘revitalised’ Board and Management Team, Mr Bailey recapped the timeline of Po Valley Energy’s progress from environmental and regulatory approvals in 2021 up to the tendering for Gas Sales Agreements in 2022.

According to the company, the revenue from gas sales can be used to develop a number of the other fields in the Selva (north and south), which are lookalike wells to Podere Maiar-1, and Po Valley Energy’s top priority is converting resources to reserves and extracting those reserves.

On 14th February 2023, Po Valley Energy signed an offtake agreement with BP Gas Marketing to supply gas from its Podere Maiar-1 facility. Under the 18-month contract commencing on 1st April 2023, Po Valley Energy and its joint venture partners will supply an estimated 37 million standard cubic metres of gas.

“We’ve got proven reserves for at least 6 years but then some of the resources could spill out to as much as 15 years,” Mr Bailey said.

“We’re talking about 8.4 billion cubic feet of reserves and then once we bring those contingent resources in at the north and south, get those into reserves, get Selva east, a larger field, Riccardina and Fondo Perino, that’s very much on our radar.”

Hancock & Gore’s Joseph Constable also made an appearance on the The Insider: Meet the CEO session where he spoke about Po Valley Energy in Australian capital markets. “We’ve been going for many years in Australia. Things haven’t always gone well because of legacy issues especially around the operating environment. We’re just not on people’s radars,” he said.

“The company’s debt free and that’s a very important thing especially for a company of its size and it’s trading at a discount to what we believe to be the value of those assets and that’s just easily based on doing a net present value valuation on it,” he added.

According to the fundie, Po Valley Energy is ‘not about building an empire’ but more about making returns to shareholders. “(It’s) still early days and exciting times, and that’s why I’m very happy to hold 18% for the (HCF) Fund in the company and look forward to future progress,” he said.

Click here to view more videos from Joseph Constable’s The Insider: Meet the Fund Manager session, or click here to view the full The Insider: Meet the CEOs session with Po Valley Energy Executive Chairman Kevin Bailey.

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