President Energy has emerged with a new brand and a strategy to diversify its business, but after numerous problems in its operations, it remains to be seen whether a pivot at this point can turn around its fortunes.
The Leeds-based oil and gas company, now called Molecular Energies LSE:MEN, made a profit in the first half of this year of around USD1.5m (GBP1.35m), much better than the USD3m of loss it reported in the first six months of 2021.
Meanwhile, turnover over the period was USD17.7m, only slightly up from USD17.1m year-on-year.
This was despite production outages impacting operations in Argentina and closed well in Louisiana.
Don’t Cry for Me Argentina
Argentina has turned out to be a bad bet for President Energy, with production declining sharply due in the first half of the year. Meanwhile a fire at its Puesto Flores Facility in Rio Negro has impacted production in August and September.
Not only that, but because of currency exchange restrictions in the country capital repayments are prohibited and the UK parent company can only receive interest payments from the subsidiary. This amounts to around GBP115k a month, according to the interim results.
“President has delivered a period of solid profits, but we recognise the difficulties of the group’s current reliance on cashflow from its Argentine centric main business when it is not possible to repatriate such profits to group level,” said chairman Peter Levine, in the group’s results published at the end of September.
Renewable Play
The company is now looking to move away from the country and position itself more as a green/alternative energy supplier. According to analysts at finnCap it is aiming to replicate the success of Atome Energy [LSE:ATOM].
Last year President Energy spun out green hydrogen and ammonia production business Atome Energy and floated it on the AIM market of the London Stock Exchange. It holds nearly a third of its shares. Since listing last December, Atome Energy’s share price has gone up more than 10% to 88.50p.
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In an attempt to create a similar success story, President Energy has now set up Green House Capital, which will become the alternative energy division of the company, and act as the first step in its transformation.
Reducing debt
In addition to diversifying its business, the group is also aiming to reduce its debt level over the next months.
According to Levine: “…this will place the group in a stronger position whilst supporting its evolution into more fertile fields of business where the prospects are re-invigorating and exciting after the frustrating and unrewarding battles of the last years.”Currently, the company has a net debt of USD29.2m, up year-on-year from USD16.7m. Group debt of USD11.3m is covenant-lite and long-term, provided by IYA, a company owned by Levine. In contrast, free cash flow from core operations amounted to USD6.8m over the period, up 10% from the first half of 2021.
But according to finnCap analysts, “the challenging business environment in Argentina, where inflation in August was running at nearly 80%, remains a thorn in President’s side”.
And despite energy companies delivering a strong performance this year, with rising energy prices amid a global supply crisis, President Energy hasn’t been able to ride that wave. For most of the year its share price hovered around 1.5p until the end of September when the company initiated a 200 to 1 share consolidation. It is already down 6% this month.
