Boutique and independent research house Volte Corporate says Pilot Energy has “been quietly kicking goals while the hydrogen and renewables sector has been having a breather” and that the emerging clean energy producer is “coming off a very low valuation”.

The next six to 12 months has the potential to be pivotal for Pilot Energy (ASX:PGY), as it begins to execute stage one of its three-stage development plan, according to Volte Corporate director Dayna Louca.

The first stage will comprise Australia’s first significant offshore carbon capture and storage (CCS) operation capable of safely and permanently storing up to 16 million tonnes of CO2 storage at an injection rate of up to 1.1 million tonnes each year.

Studies have indicated that the Cliff Head CCS project could deliver a gross project real pre-tax net present value (NPV) of between $110-$210m at an internal rate of return of about 30-40%.

The project will leverage the region’s existing underground CO2 storage capacity, natural gas, and infrastructure already in place at the Cliff Head oil project.

Cliff Head is unique in that it is the only end-of-life offshore reservoir located in the WA Mid West region with a Commonwealth regulatory pathway to CCS.

The key catalysts that will set the company up for this “material re-rating”, according to Louca, are locking in regulatory approvals and bringing in commercial partners.

“The achievement of these milestones should mitigate any market uncertainties surrounding potential regulatory challenges, while also providing further validation to the company’s project,” Louca said in a recent research report.

“We believe this could deliver a significant re-rating to the company and further highlights the value proposition of Pilot.”

The market seems to be waking up to the value proposition, with Pilot forced into a trading halt last week after its share price went for a mad dash on no news.

In the two days prior to the halt, nearly 40 million shares changed hands, driving the share price up almost 70% to 2.7c. After responding to a speeding ticket from the ASX, Pilot stock continued to be a hot commodity as a further 92 million shares were traded.

Pilot Energy (ASX:PGY) share price chart

“In our view, the achievement of recent milestones is not accurately reflected in the share price – particularly the recent completion of the feasibility studies that confirmed the project’s viability,” Louca said.

“We see this as a significant de-risking step that reinforces Pilot’s unique position and potential to capitalise on a significant first mover advantage.”

Clean hydrogen and ammonia production

Over the next 12 months Pilot plans to complete the necessary works – including securing regulatory approvals and commercial offtake arrangements and completing a bankable feasibility study – required to enable a final investment decision on the Cliff Head CCS project.

To help meet its goal, the company recently raised $2.2m via a placement that was strongly supported by investors.

The Cliff Head CCS project, which will be owned 57.5% by Pilot and 42.5% by Triangle Energy (ASX:TEG) alone is a substantial opportunity, but it also provides a strong foundation for future clean hydrogen and ammonia production.

In late June, Pilot signed a memorandum of understanding for US-based 8 Rivers Capital to invest about $1m in the Mid West Clean Energy project. The investment included $500,000 in cash, which was part of the $2.2m placement, with the remainder to be settled through in-kind services.

The 8 Rivers investment will be used to fast track the engineering and commercialisation of Stage 2 (blue hydrogen) and Stage 3 (clean ammonia).

As part of that deal, 8 Rivers is to be granted the option to enter into a long-term ammonia offtake agreement for up to an initial 172,500 tonnes per annum of zero-carbon ammonia production from the project.

“By repurposing its existing oil assets and infrastructure to be used for carbon capture and storage (CCS), Pilot is capturing a significant first mover advantage in pursuit of an integrated wind and solar power generation opportunity that will see it produce clean hydrogen and clean ammonia for export into key Asian markets,” Louca said.

Pilot envisages a 2025/26 start-up for the CCS project, with first-to-market clean ammonia supply expected from 2027.

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.

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