Pilot charts course to value uplift as pioneer in CCS, clean energy

Independent investment advisory firm Whairo Capital is confident Pilot Energy is set to pioneer and become one of Australia’s first globally competitive clean energy providers given its achievements to date.

Arguably one of the most active in the clean energy space, Pilot Energy (ASX:PGY) has made significant headway in its advance towards bringing its Cliff Head carbon capture and storage project and broader Mid West clean energy project to commercial realisation.

What gave Pilot a head start on the CCS path was its near-exhausted Cliff Head oil field, which is the only late-life offshore reservoir located in Western Australia’s Mid-West region with a Commonwealth regulatory pathway to CCS.

The company expects to be granted approval for the Cliff Head oil field to be declared a greenhouse gas storage formation in the next few months.

Late last year, Pilot and partner Triangle Energy (ASX:TEG) became the first in Australia to lodge a submission seeking regulatory approvals for an offshore CCS project under legislation that has been in place since 2006.

“By repurposing its existing oil assets and infrastructure to be used for carbon capture and storage, Pilot is capturing a significant first mover advantage in pursuing an opportunity that will allow it produce clean hydrogen and clean ammonia for export into key Asian markets,” Whairo Capital said in a research note released this week.

“The opportunity is being explored through several sub-projects that collectively provide exposure to multiple commercialisation pathways and diversified revenue streams, with potential to deliver world-class competitive clean energy at scale.”

Since formally applying for regulatory approval, Pilot has brought in several strategic and financial partners to quickly advance the project once it gets the green light from the National Offshore Petroleum Titles Administrator (NOPTA).

Significant Australian and international interest

Pilot has announced partnerships with Canada’s Svante Technologies – a Global Cleantech 100, Australian carbon technology developer KC8 Capture Technologies, Norway-based CO2 shipping company Knutsen NYK Carbon Carriers (KNCC) and US-based leading international full-service net-zero solutions provider 8 Rivers Capital.

The interest in the Mid West clean energy project is significant and spans the entire staged development from the CCS through to ammonia production and export.

The early deal with 8 Rivers provided the company with an option for ammonia offtake once the project reaches production.

The CCS project, which will be able to store over 1 million tonnes per annum (Mtpa) of CO2 starting in early 2026, is particularly important in that it provides a solid foundation to produce clean hydrogen and ammonia with substantial cost benefits.

The injection capacity of Cliff Head places it within the top 10 CCS projects globally.

“The ability for Pilot to leverage its existing oil and gas assets for CCS operations should not be overlooked,” Whairo Capital said.

“In fact, it is the key enabler and foundation for clean energy production. The production of blue/green hydrogen is typically expensive and requires significant investment in CCS technology and infrastructure to make its production feasible at scale.

“However, production becomes significantly more cost effective (and significantly less time intensive) if existing CCS infrastructure can be leveraged.”

Feasibility studies completed in March 2022 confirmed the project would be able to produce hydrogen and renewable energy at scale on a globally competitive basis.

“The feasibility studies confirmed Pilot is able to convert the Cliff Head wells, pipelines and infrastructure to facilitate CO2 injection with minimal modification,” Whairo Capital noted.

“This provides a clear, low-cost pathway for Pilot to transition from blue to green hydrogen production.”

Value potential

While Pilot has made significant progress towards becoming one of Australia’s first globally competitive clean energy providers, it has an enterprise value (market capitalisation + debt – available cash) of just $9m.

But if you look at other clean energy players like Pure Hydrogen (ASX:PH2), which currently has an EV of $84.5m, you can see the value uplift potential.

Whairo Capital says regulatory approval provides a near-term catalyst for the company.

“The Declaration is the initial regulatory approval for an offshore CCS project and facilitates the CHJV progressing to apply for a CO2 injection licence,” Whairo said.

“Pilot is the first ever company to submit an application to NOPTA. It is anticipated NOPTA will provide an assessment outcome by the end of Q3 2023. If successful, Pilot will be the first company to hold a CCS license in Australia.”

This article was developed in collaboration with Pilot Energy, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.