Innovative funding model for hydrogen tech

The intended acquisition of a stake in Ohrid Organics Limited (Ohrid Organics), a UK holding company of a North Macedonian subsidiary producing medicinal cannabis, provides Hydrogen Utopia International (HUI) with a potential innovative source of financing without having to resort to a dilutive share issue. The initial indications are that Ohrid Organics has a high-quality product that is attracting significant interest. The cash flows from Ohrid Organics should facilitate the development and application of HUI’s pioneering waste plastic to hydrogen technology. In this report, we recap on HUI’s technology and progress towards its first plant, describe the funding plans and cover recent management changes.

Innovative funding model for hydrogen tech

Pharos Energy reported its interim results on 13 September. Although profits were lower than forecast, this was predominantly due to a non-cash impairment charge. The key message is the strength of the balance sheet, which has seen net debt reduced to US$16.4m at the end of June 2023 from US$28.9m at the end of 2022. This leaves the group free to return more cash to shareholders and to start to increase investment, including commitment exploration, which we believe should be a key driver of shareholder value.

Interim results show balance sheet strength

Petro Matad has this morning reported interim results for the six months to 30 June. The company is pushing to resolve the land access issue that would allow it to complete the Heron-1 well as an oil producer. Although progress has been made with Mongolia’s central government, the provincial government has been slow to respond, and it remains uncertain that this well can be completed before the winter shutdown. Elsewhere Petro Matad is making exciting progress on its renewable energy operations, and management has submitted applications for new blocks in the exploration tender round.

Interim results reflect progress and frustrations

Like the rest of the industry, Pharos Energy was impacted by the Covid-induced collapse in the oil price, at a time when the company was heavily investing in Egypt. Net debt rose to US$57.5m at end-FY21. However, management has farmed out 55% of its Egyptian assets and put through significant cost-cutting measures, reducing debt to a more modest level of c.US$16m at the end of June 2023. Pharos is now in a position to restart returning cash to shareholders (via a dividend and buyback) and we believe it is set to increase investment, including commitment exploration, which should be a significant driver of shareholder value.

Initiating coverage: Back to growth

Petro Matad has announced that the Cabinet of the Mongolian Government has approved the certification of the Block XX Exploitation Area as special purpose land. This is good news as it should allow the company to move ahead with the completion of the Heron-1 well as an oil producer and start generating cash flow. The company has also announced that its Velociraptor exploration well found water rather than oil. Although this is disappointing, it was a high-risk well, and in our view is outweighed by the positive news that Petro Matad can now start to plan the Heron development.

Block XX land access granted

Hydrogen Utopia (HUI) announced this morning that it has been notified that its application for an EU grant has been successful. This would see Alister Future Technologies, HUI’s Irish subsidiary, reimbursed for 75% of expenditure of up to €0.45m. The grant is good news as this will provide the company with funds to help move the business forward. We believe there is potential for additional funding as governments look to reduce waste plastics and increase the use of hydrogen, which plays into the hands of HUI with its innovative technology.

Successful EU grant application

Hydrogen Utopia (HUI), the waste plastic to hydrogen company, has announced that it has signed a Heads of Terms for an option to acquire a 49% stake in Carbon Capture and Sequestration (CCS) which it hopes will provide cash flow, via a dividend stream, to help HUI fund the roll out of its plants across Europe. CCS is wholly owned by Howard White, a significant shareholder and executive director of HUI. CCS has agreed to buy a medical cannabis cultivator in North Macedonia. HUI expects to exercise its option if this cultivator becomes profitable. Assuming that the profitability of the cultivator is as forecast, the dividend stream should provide a source of cashflow to allow HUI to build up its waste plastic to hydrogen portfolio.

Proposed Option and Future Funding

Petro Matad announced this morning that it has spudded the Velociraptor-1 exploration well, located in Block V in central Mongolia, where the company has a 100% working interest. Velociraptor-1 is expected to take approximately 30 days to drill and could prove transformational for the outlook of the company. This well is probing a prospect with mean prospective recoverable resource potential of 200 mmbbl. Success would provide a step change in Petro Matad’s resource base and also de-risk the other prospects within the licence, which have an additional 375 mmbbl of prospective resources.

Velociraptor-1 spuds

This morning Petro Matad, the Mongolia-focused E&P company, announced that it has commenced mobilising equipment to allow it to spud the Velociraptor-1 exploration well in the first half of June. The prospect is located on Block V, where the company has a 100% working interest. Management believes that this well could have a 20% chance of success and, with potential recoverable resources of 200 mmbbl, could prove to be transformational for the company. Success would also de-risk additional adjacent prospects in the licence.

Ready for the raptor

Hydrogen Utopia (HUI) released its final results for the year ending 31 December 2022 on Friday, with the company producing a small loss of approximately £1.5m but showing a strong balance sheet with cash of approximately £2.9m. The financials are not particularly relevant until HUI gets its first waste-plastic-to-hydrogen plant up and running, and the results statement provides clear evidence of the operational progress the company has made over the past year, particularly in Ireland and Poland.

Final results highlight operational progress

Pharos Energy plc

Petro Matad has issued an operational update showing that the company’s operations are progressing well on several fronts. The Velociraptor-1 well on Block V is scheduled to spud in June. Management is advanced in the process of obtaining the required permitting on Block XX, which should allow the company to start developing the Heron discovery. On top of this, the company is in negotiations with the Mongolian government for a new licence in the current exploration tender round. After the frustrations of 2022, it is good to see that Petro Matad is now moving forward with multiple projects.