Mexican Soledad Transaction Adds Material Upside and Portfol

MORNING NOTE
WEDNESDAY, MAY 15, 2024

Garett Ursu, CFA, (403) 750-7221
gursu@cormark.com
Recommendation: Buy New Stratus Energy Inc.
Target Price: $1.75
(NSE - TSXV)
Mexican Soledad Transaction Adds Material Upside And

Current Price $0.65 Shares Outstanding (MM)
Portfolio Diversification
52 Wk High $0.84 Basic 124.0
52 Wk Low $0.21 Diluted 148.5 Unless otherwise denoted, all figures shown in C$
Net Debt (MM) $(12.5) Mgmt and Dir 21.6 • Mexican Producing Acquisition
NAV $0.36 Mkt Cap. (MM) $80.6
P/NAV 1.83x Float (MM) $66.6 New Stratus announced an agreement to acquire an initial 49% interest in Operaciones
Total Return 169% EV (MM) $68.1 Petroleras Soledad, a private company operating the Soledad block in the Tampico-Misantla
Net Debt/EBITDA (0.5)x
Basin in Mexico’s Veracruz state. The initial transaction will see New Stratus pay just US$2.0
Fiscal YE Mar 31 2024E 2025E 2026E
MM while assuming 49% of existing ARO with a commitment to fund capital requirements
CFPS, diluted Q1 $(0.02) $0.08 $0.18 for the next two years. New Stratus will also have the right to purchase another 41% interest
Q2 $0.03 $0.10 $0.19 in OPS for six months following the conclusion of the two-year spend. Cormark Securities
Q3 $0.04 $0.09 $0.16 acted as financial advisor with respect to the OPS acquisition.
Q4 $0.07 $0.12 $0.20
FY $0.13 $0.39 $0.73 • Soledad Block Asset Profile
Prod'n (BOE/d) Q1 40 2,431 5,923
Q2 587 2,869 6,169 Soledad produces ~1,430 BOE/d of 32-37°API crude oil with associated natural gas, NGLs
Q3 1,498 3,269 6,393 and water from conventional formations across seven fields. The contract for the block
Q4 1,952 3,633 6,598 expires in 2039 with a possible 10-year extension. An independent reserve evaluator has
FY 1,026 3,054 6,273 assigned 43.3 MMBOE of proved reserves to Soledad through the 2039 term. Management
EV/EBITDA 2.6x 1.3x 0.7x
Net Debt (MM): 2024E
believes the block could peak at ~10,900 BOE/d (gross) in 2031.
• Soledad Drilling & Workover Economics
Soledad workovers are budgeted at US$0.6 MM, should produce at 92 BOE/d and recover
116 MBOE for an expected 6.2x recycle ratio. New wells should cost US$4.2 MM, recover
813 MBOE and produce at 627 BOE/d for a 6.5x recycle ratio. With strong economics, the
Soledad block should be generating material free cash flow by 2026 or 2027.
• Venezuela Operations Update
Reactivations have now been carried out on the OS-95, OG-271, LZ-621 and HG-522 wells
in the Lido-Limon and Oficina fields. April gross Venezuela production averaged 625 B/d
with volumes peaking at 915 B/d. New Stratus plans to reactivate five more wells (NS-806,
NG-806, NZ-519, LZ-632 and LS-1) near term, which should add 600 B/d to volumes
and take total gross production to 1,300 B/d by the end of June. Plans remain 41 well
reactivations this year to drive exit Venezuela volumes of 3,500 B/d.
• Estimate Impact
Incorporating revised Venezuelan estimates that assume a slightly slower 1H/24 activity
ramp in that country, Q4/23 results and the new Soledad block in Mexico, our 2024 cash flow
estimate decreases slightly while our 2025 estimate sees a material increase in CFPS and
our 2026 estimate sees a massive boost to both cash flow and free cash flow. Our risked
NPV for New Stratus also increases from ~$1.55/share to $2.30/share in Mexico.
• New Stratus Target, Rating & Valuation
Company Description:
With another attractive and accretive acquisition, we reiterate our Buy rating on New Stratus,
New Stratus is a micro-cap international E&P led by an
have increased our target from $1.50 to $1.75 (1.9x 2026E EV/EBITDA) and continue to
experienced and respected team building a pan-South
American portfolio of producing oil & gas assets with see the name as a unique way to play the inevitable opening of massive South American
low risk and high economic production, cash flow and resources to western E&Ps (foremost New Stratus).
reserves upside.
Prepared by Cormark Securities Inc. Our disclosure statements are located on page 14 - 15 of this report.
MORNING NOTE
gursu@cormark.com
Mexico Transaction / Country Entry: Yesterday New Stratus announced the company’s long-awaited entry
into the Mexican upstream oil & gas sector with an agreement to acquire an initial 49% equity interest in
Operaciones Petroleras Soledad S. de R.L. C.V. (“OPS”), a private Mexican oil & gas company. Operating
the Soledad block, OPS is the 3rd-party contractor of a hydrocarbon production contract awarded by Pemex
Exploracion y Produccion S.A. de C.V. (“Pemex”).
Structured in two tranches, the first tranche of the acquisition will see New Stratus acquire a 49% equity
interest in OPS for a fixed price of US$2.0 MM and commit to funding capital requirements (and in some cases
operational costs of OPS) for the next two years including US$15.0 MM in year one and US$30.0 MM in year
two. New Stratus will also assume 49% of the existing abandonment obligations to be completed by the expiry
of the contract currently estimated at US$9.95 MM (net to the company). Closing of the first tranche of the
transaction is expected to occur on or about July 29, 2024 (conditional on New Stratus funding the first
US$15.0 MM in capital) with an effective closing date of May 1, 2024. The maximum capital exposure for New
Stratus under the capital commitments is expected to be ~US$12.5 MM at any one time.
The second tranche of the transaction involves the purchase by New Stratus of up to 41% of the equity in
OPS under terms to be negotiated between the company and the (unnamed) vendor based on results in the
field. New Stratus will have exclusivity, a right of first offer and a first right of refusal (ROFR) for six months
after the completion of the above 2-year spending commitment to negotiate the second tranche of the
transaction.
Soledad Block Assets: The onshore Soledad block comprises 124 km2 in the State of Veracruz in eastern
Mexico near the Gulf of Mexico within the Tampico-Misantla Basin.
Figure 1: Soledad Block Mexico
Source: Company reports
For historical reference, the Tampico-Misantla Basin served as Mexico’s primary producing basin from the
1920s to the 1970s, after which Pemex moved on to the Chiapas-Tabasco and Campeche provinces. Despite
producing more than 7.4 billion BOE and being considered one of 24 global “super basins” similar to the
Permian for unconventional (shale) potential, industry focus remains on the carbonates (especially the
Tertiary-aged Chicontepec and Cretaceous-aged Tamabra formations), the original drivers of basin volumes.
Page 2 of 15
MORNING NOTE
gursu@cormark.com
Figure 2: Tampico-Misantla Basin Stratigraphy
Source: Iqbal, Salazar, Papa, Rabe
Seven fields on the block (Ahuatepec, Aragon, Coyotes, Gallo, Palo Blanco, Soledad, and Soledad Norte)
contribute to current volumes, reported by the company to be ~1,430 BOE/d (gross). Crude oil produced is
32-27° API with associated natural gas, NGLs and water. While production is below 1,500 BOE/d, public
Mexican government data suggests volumes are currently above 4,000 BOE/d (Figure 3). While public Mexico
data is notoriously overstated for political reasons and we largely disregard such data, CNH data does provide
(at the very least) an idea of historical production trends for the fields to be operated by the company. Based
on government data, production from the seven fields has declined ~45% since 2013 with natural gas
comprising a relatively static 30-35% of overall production.
Figure 3: Soledad Block (CNH Reported ) Production – Illustrative Only
8,000
7,000 Gas (BOE/d)

6,000 Oil (B/d)
Production (BOE/d)
5,000
4,000
3,000
2,000
1,000
0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Source: Comision Nacional de Hidrocarburos, Cormark Securities Inc.
Page 3 of 15
MORNING NOTE
gursu@cormark.com
For reference only, and as an indicator of relative contribution, public data suggests that three fields (Aragon,
Soledad Norte, and Soledad) contribute just over 80% to the Soledad block’s production with Aragon itself
accounting for 35-40% of all volumes. We again stress that the volumes reported by the government do not
correlate to actual volumes on the ground but do provide an idea of production composition.
Figure 4: Soledad Block (CNH Reported ) Field Production – Illustrative Only
8,000
Ahuatepec Palo Blanco
7,000 Gallo Coyotes
6,000 Soledad Soledad Norte

Production (BOE/d)
Aragon
5,000
4,000
3,000
2,000
1,000
0
2013
2014
2015
2017
2018
2020
2021
2023
2024
2016
2019
2022
The Ahuatepec field (largely absent from recent data) first reported gas production in 1980 with first oil
volumes reported in 1989. Producing intermittently between 1989 and 2007, the field was reactivated in 2012
but has not produced since 2016. The Aragon field also began producing (or reporting) natural gas before oil
with first gas volumes reported in 1975 and first oil reported in 1989. Volumes from the field were relatively
static and unimpressive between 1989 and 2015 before volumes began to ramp in 2016 with material
increases through 2022 before volumes again began to decline. The Coyotes field began producing in 1975
(both crude and gas) before being shut-in between 1988 and 1990. With the field not producing for several
years through 2000 and 2008, Coyotes volumes peaked in 2013 before steadily declining through the present
day. The fourth field, Gallo, was producing in 1969 (the limit of public data) but was shut-in between 1987
and (effectively) 2010 before volumes restarted and began to increase to the present day. The Palo Blanco
field was also producing as far back as 1969 and producing steadily (every year) until the present day, though
with minimal (50-100 B/d) contribution to the block the entire time. The field for which the block is named,
Soledad, was the main contributor to block volumes since at least 1969 with peak production reached in 1980
before the field began a steady decline through 2009. A temporary renaissance in volumes occurred in 2010
(though at half 1975 peak rates) before volumes declined through the present day. The final field, Soledad
Norte, produced intermittently from 1973 to 1988 before volumes peaked in 1989. Production then steadily
declined through 2011 before Baker Hughes (operating the block beginning in 2011) boosted and maintained
volumes between 2013 and 2016, at which point limited activity and spending led to normal declines.
Unlike many fields that have been offered for redevelopment in South America (Rubiales in Colombia, Blocks
16/67 in Ecuador, Adas in Venezuela, etc.), crude volumes from the Soledad block come with minimal water.
As illustrated below, water cuts across the Soledad fields average just 15-20% compared to 90% or more for
other high-profile fields in South America, lending to lower operating costs in Mexico.
Page 4 of 15
MORNING NOTE
gursu@cormark.com
Figure 5: Soledad Block (CNH Reported) Production – Illustrative Only

5,000
4,500 Water (B/d)
4,000 Crude Oil (B/d)
Production (B/d)
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2016
2017
2020
2021
2022
2023
2024
2018
2019
Based on an independent, third-party evaluator’s audit, the Soledad block is reported to carry 43.3 MMBOE
of proved (1P) reserves. Public data (again, only for illustrative purposes) reports proved reserves of just
under 100 MMBOE with three fields (Aragon, Coyotes, and Soledad) accounting for just under 70% of all
proved reserves.
Figure 6: Soledad Block (CNH Reported) Proved Reserves – Illustrative Only
140
120
Reserves (MMBOE)
100
80
60
40
20
0
2013
2015
2016
2017
2019
2020
2021
2023
2014
2018
2022
Coyotes Soledad Aragon Soledad Norte

Palo Blanco Gallo Ahuatepec
While New Stratus has not reported proved plus probable (2P) reserves for the Soledad block, public data
puts 2P reserves at just under 600 MMBOE. Heavily discounting public data, we would expect 2P reserves to
still ultimately (potentially) come out above 150 MMBOE, though will wait for company reserves reported with
year-end results to confirm or contradict our initial/rough assumptions. Public data does again suggest that
the Coyotes, Aragon, and Soledad fields comprise a majority (~55%) of field 2P reserves. Of interest, public
data would place Galo 2P reserves as third largest amongst the seven fields despite very few proved reserves,
suggesting material undeveloped but identified upside for Gallo.
Page 5 of 15
MORNING NOTE
gursu@cormark.com
Figure 7: Soledad Block (CNH Reported) 2P Reserves – Illustrative Only

1,200
1,000
Reserves (MMBOE)
800
600
400
200
0
2013
2015
2016
2017
2019
2020
2021
2023
2014
2018
2022
Finally, while New Stratus and its reserve auditor do not estimate (or publicly provide) proved, probable and
possible (3P) reserve estimates, public data would suggest more than 825 MBOE of 3P reserves with four
fields (Palo Blanco, Coyotes, Gallo, and Soledad) accounting for ~630 MMBOE or more than 75% of total 3P
reserves. Whatever the ultimate number, we expect redevelopment opportunities to significantly exceed
capital spending near term and through the life of the contract (i.e., Mexico will continue to be opportunity rich
through New Stratus’s tenure).
Figure 8: Soledad Block (CNH Reported) 3P Reserves – Illustrative Only
2,000
1,800
1,600
Reserves (MMBOE)
1,400
1,200
1,000
800
600
400
200
0
2013
2015
2016
2017
2019
2020
2021
2023
2014
2018
2022

While natural gas comprises 30-40% of current production, the composition of proved reserves (based on
public data) would suggest that crude oil, making up ~80% of reserves, provides the most opportunity for
increasing volumes over time.
Page 6 of 15
MORNING NOTE
gursu@cormark.com
Figure 9: Soledad Block (CNH Reported) Proved Reserves – Illustrative Only

140
Natural Gas
120
Crude Oil
100
Reserves (MMBOE)
80
60
40
20
0
2013
2014
2015
2016
2017
2019
2020
2021
2023
2018
2022
Contract Terms: A service contract for the Soledad block was issued by Pemex to OPS in 2013 and has
been operated by OPS since that time. The contract for the block was amended on May 1 to extend the term
of the contract to July 2039 with an additional 10-year extension possible (to 2049). The contract was also
amended to include a profit-sharing remuneration structure, as previous economic terms discouraged
investment with limited spending on the block over the last several years. The current/updated profit-sharing
structure is based on revenues minus royalties, special taxes, and “irreducible” costs such as hydrocarbon
“conditioning”, transportation, and labour. While adjustable based on the price of oil, based on current pricing
and royalty rates, the profit participation for OPS is currently 88.23% of Available Cash Flow (designated
“FED” based on the Spanish acronym, in Figure 10) with the remaining less than 12% accruing to Pemex.
Royalties will vary dependent on the different components present in the hydrocarbons produced with royalties
on crude oil ranging between 7.5% and 9.25%, plus US$1.50/B. Natural gas royalties range between 1.6%
and 5.0% with an overall 30% income tax rate (with unlimited carry-forward of losses) and 10% employee
profit participation right.
Special taxes include a Share Profit Right (Spanish acronym “DUC”) that equates to 54% of monthly gross
revenues less deductions that include a portion of capital spending, royalties and 100% of operating costs
and Pemex labour costs. The DUC cannot exceed 60% of monthly gross revenues. Finaly, a land use tax of
between 0.5% and 2.0% of monthly gross revenues less royalties and the DUC also applies.
Figure 10: Soledad Block Profit Share
Page 7 of 15
MORNING NOTE
gursu@cormark.com
Aggregating the above factors, economics for new activities (horizontal or deviated drilling) will differ only
nominally from rehabilitation activities (workovers) when comparing netbacks. Starting with a US$80.00/B
Brent price and assuming a common WTI differential, product quality discount and operating costs, new wells
will generate a netback of US$33.43/B, while workovers will generate a slightly lower US$32.18/B.
Figure 11: Soledad Block Illustrative Economics
Like netbacks, capital efficiencies across activities are also expected to be comparable. At a cost of US$4.2
MM, new wells are expected to produce (IP-30) at 627 BOE/d and recover 813 MBOE for implied capital
efficiencies of ~US$6,700/BOE/d and ~US$5.15/BOE. Workovers are expected to cost US$0.6 MM to
produce (IP-30) 92 BOE/d and recover 116 MBOE, suggesting capital efficiencies of US$6,500/BOE/d and
US$5.15/BOE. Based on netbacks and F&D costs, Soledad workovers should boast an ~6.2x recycle ratio,
while new wells should have a slightly higher 6.5x recycle ratio.
Mexico Plans / Spending / Production: As reported by the company, a development plan approved by
Pemex envisions 42 workovers, 12 new deviated wells and four new horizontal wells during the first two years
of operation, funded by the capital commitment accompanying the transaction (above). Based on expected
capital efficiencies and capital commitments, we expect gross volumes to grow from the current 1,430 BOE/d
to ~2,000 BOE/d this year before peaking at ~10,900 BOE/d in mid-2031 and declining from there. Net
volumes shown below anticipate New Stratus increasing its 49% interest in the Soledad block to 90% at the
beginning of 2026.
Page 8 of 15
MORNING NOTE
gursu@cormark.com
Figure 12: Potential Soledad Block Production Profile (Cormark assumptions)

11,000
10,000 Gross
9,000 Net
Production (BOE/d)
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2024
2025
2026
2027
2028
2029
2030
2031
2032
Source: Company reports, Cormark Securities Inc.
Through the 2024-2039 period (the current life of the contract), New Stratus Management anticipates
spending of US$370 MM on new drilling and workovers to produce (in aggregate) just over 43 gross MMBOE,
equating to an approximate aggregate average capital efficiency of US$8.60/BOE.
Given the above individual well economics, projected production profile and spending estimates, New
Stratus’s Mexican operations will likely assume a similar free cash flow profile to Venezuela (see our Initiation
report from January 16th for more details) with a slight outspend in the near term followed by a “tipping point”
where EBITDA and cash flow begin to materially exceed capital spending. With funding commitments of
US$15.0 MM and US$30.0 MM through the first two years of the contract, we expect an outspend in 2024
and 2025 before cash flow and EBITDA largely match capital spending and the asset becomes “self-funding”
in 2026. While volumes are still expected to grow between 2026 and 2029 before plateauing and then
declining, spending requirements will fall rapidly beginning in 2027, suggesting material free cash flow
accruing to the company from 2027 to 2039. Based on Cormark estimates, we believe Soledad could, in
aggregate, cash flow more than US$815 MM through the life of the contract (assuming US$80.00/B Brent flat
pricing).
Figure 13: Potential Soledad Cash Flow Profile (Cormark assumptions )
$100
$90 EBITDA
$80 Cash Flow
Financials ($US MM)
$70 CAPEX
$60
$50
$40
$30
$20
$10
$0
-$10
2024
2025
2026
2027
2028
2029
2030
2031
Source: Company reports, Cormark Securities Inc.
Cormark Involvement: Cormark Securities acted as a financial advisor to New Stratus with respect to the
OPS acquisition.
Page 9 of 15
MORNING NOTE
gursu@cormark.com
Venezuela Sanctions: While Cormark had suspected it to be unlikely that the US administration would
reimpose sanctions on the Venezuelan oil industry given (1) elevated global oil prices, (2) the recent
announcement by Pemex that Mexico was reducing heavy oil exports by more than 400 MB/d and (3) relatively
high US gasoline prices in an election year, sanctions were reimposed on Venezuela in mid-April. US
companies have 45 days from that time to wind-down operations in-country, though we continue to stress that
New Stratus operations are unaffected by US sanctions. We also note that the largest private operator in
Venezuela, US-based Chevron, is also unaffected by the sanctions as that company operates under a 2022
licence and internationals ENI, Repsol and Maurel & Prom should also be unaffected given their corporate
headquarters are outside the US. Realized pricing for Venezuelan crude will likely be depressed near term
given the sanctions, though we note that trading, contracting, and financing fees earned by New Stratus under
the Vencupet contract should represent more than 70% of Venezuelan revenues this year (assuming full
pricing for Venezuelan crude) and more than 50% of 2025 forecast revenues. As such, lower prices for
production will have a smaller impact on our estimates for 2024 and 2025 than would be expected for a “pure
play” Venezuelan producer.
Venezuela Update: In early March New Stratus provided an operational update (see our Morning note from
March 5th for more details) that suggested Venezuelan volumes would reach ~1,000 B/d by the end of April
(approximately) with the goal of reaching ~3,500 B/d by the end of 2024. At the end of April, the company
provided an operational update for Venezuela with Q4/23 results. Reactivations have now been carried out
on the OS-95, OG-271, LZ-621 and HG-522 wells in the Lido-Limon (OS-95 and OG-271 wells) and Oficina
(LZ-621, OG-271 and NG-522 wells) fields. For the month of April (through to April 24), gross production
averaged 625 B/d with volumes peaking at 915 B/d. A sixth well, NS-805, was having its artificial lift system
replaced with volumes expected imminently. Once volumes are being produced from the NS-805 and LZ-621
wells, New Stratus plans to reactivate five more wells (NS-806, NG-806, NZ-519, LZ-632 and LS-1), which
should add 600 B/d to volumes and take total gross production to 1,300 B/d by the end of June.
Plans remain 41 well reactivations this year to drive exit volumes of 3,500 B/d.
Figure 14: New Stratus Venezuela Fields
Page 10 of 15
MORNING NOTE
gursu@cormark.com
Cormark Estimate Changes: Incorporating (1) the new Soledad spending, volumes, and cash flow into our
corporate model, (2) revised estimates for Venezuela that assume a slightly slower ramp in activity for 1H/24
but keep our 2024 exit forecast, and (2) Q4/23 results, our near-term forecasts have been revised as follows:
Figure 15: Cormark Estimate Changes
Q4/23A Q1/24E 2024E 2025E 2026E

Act. Est. % New Old % New Old % New Old % New Old %
Production
Liquids (B/d) - - nmf 40 50 -20% 747 397 88% 2,232 1,230 81% 4,277 1,763 143%
Natural gas (MMcf/d) - - nmf - - nmf 1.7 - nmf 4.9 - nmf 12.0 - nmf
Production (BOE/d) - - nmf 40 50 -20% 1,026 397 158% 3,054 1,230 148% 6,273 1,763 256%
Financial
Cash flow ($MM) ($6.4) ($4.5) nmf ($2.5) ($2.3) nmf $17.1 $18.2 -6% $50.3 $40.2 25% $95.0 $44.5 114%
CFPS ($/sh) ($0.05) ($0.04) nmf ($0.02) ($0.02) nmf $0.13 $0.14 -6% $0.39 $0.31 26% $0.73 $0.34 115%
Net Capex ($MM) $0.1 $0.0 nmf $6.8 $6.6 2% $48.7 $40.2 21% $63.6 $37.2 71% $88.8 $24.3 265%
Net Debt ($MM) ($44.1) ($40.4) nmf ($34.8) ($31.4) nmf ($12.5) ($18.4) nmf $0.8 ($21.3) nmf ($5.5) ($41.5) nmf
Source: Cormark Securities Inc., Company reports
Our 2024 cash flow estimates have decreased on lower forecast Venezuela volumes, while capex has
increased due to incremental spending now assumed for Soledad and the US$2.0 MM
“entry fee” for Mexico. While 2024 volumes increase, Mexican volumes are less profitable near term than are
barrels in Venezuela. Our 2025 and 2026 cash flow estimates increase materially based on new volumes
from Mexico with a large increase in both spending, production, and cash flow in 2026 based on an additional
Cormark assumption that New Stratus increases its interest in Soledad to 90% in 2026.
We have also adjusted our risked NPV for New Stratus to incorporate Soledad (Mexico) with an approximate
10% NPV of US$200 MM (~$271 MM at a $0.735 FX), equating to a very conservative $6.25/BOE for Mexican
volumes. Given the newness of the contract, we have applied a relatively harsh discount factor to Soledad in
our risked NPV. Despite the large discount factor, we still expect Mexico to add more than $0.75/share in
value over time (on a risked basis) while representing ~$2.20 of value on an unrisked AT-10 basis.
Figure 16: Cormark New Stratus NPV
Net Asset Value Summary Unrisked (AT-10) Risked
New Stratus Energy MMBOE $/BOE $MM $/sh Risk MMBOE $MM $/sh
Proved Reserves 0.0 $0.00 $0.0 $0.00

Probable Reserves 0.0 $0.00 $0.0 $0.00
YE22 Proved & Probable Reserves 0.0 $0.00 $0.0 $0.00
Net Cash (2023) $44.1 $0.36
Proved & Probable NAV $44.1 $0.36
Venezuela Contingent Resource (2C)

Development Pending 2.5 $3.00 $7 $0.06 85% 2.1 $6 $0.05
Development Unclarified 4.7 $3.00 $14 $0.11 75% 3.5 $11 $0.09
Development Unclarified 5.1 $3.00 $15 $0.12 50% 2.5 $8 $0.06
Trading / Marketing NPV (BT-10) $116 $0.93 65% $75 $0.61

General Contractor NPV (BT-10) $50 $0.41 65% $33 $0.26
Financing NPV (BT-10) $23 $0.19 65% $15 $0.12
Mexico NPV 43.3 $6.25 $271 $2.18 35% 15.2 $95 $0.76
Unbooked Upside 55.6 $8.95 $497 $4.01 49% 23.3 $243 $1.96
Total 55.6 $9.74 $541 $4.36 23.3 $287 $2.31
Page 11 of 15
MORNING NOTE
gursu@cormark.com
Recommendation: With aggressive growth and constructive netbacks expected in Mexico, we are increasing
our target on New Stratus from $1.50 to $1.75 (1.9x 2026E EV/EBITDA) with a bias to the upside as our risked
NPV on the name is still well above our new target.
We do expect the market to take some time to fully realize the value of both (Venezuela and Mexico) ventures
with at least 2-3 quarters of growth and cash flow (in our view) required to be demonstrated in both Mexico
and Venezuela before the company begins to attract a higher multiple.
We reiterate our Buy rating on New Stratus and continue to see the name as a longer dated option on crude
oil strength, a top-tier Management team and structural geopolitical shifts across South America opening
massive resource to western capital and expertise.
Figure 17: Operations Summary, Income Statement, and Cash Flow Summary
2023 2024 2025 2026
(In $MM, except where noted) FYA Q1E Q2E Q3E Q4E FYE Q1E Q2E Q3E Q4E FYE FYE
Operations Summary
Daily Production (BOE/d) - 40 587 1,498 1,952 1,026 2,431 2,869 3,269 3,633 3,054 6,273
Benchmark Prices - Strip
WTI (US$/B) $77.66 $79.09 $80.01 $78.10 $76.53 $78.42 $74.96 $73.51 $72.10 $71.28 $72.95 $69.11
Brent (US$/B) $82.24 $84.27 $84.96 $83.03 $81.44 $83.42 $79.92 $78.64 $77.02 $76.24 $77.94 $74.12
FX Rate $0.74 $0.74 $0.73 $0.73 $0.73 $0.73 $0.73 $0.74 $0.74 $0.74 $0.74 $0.74
Realized Prices (Excl. Hedging)
Conventional Oil ($/B) - $109.36 $89.27 $81.92 $79.78 $82.37 $82.14 $81.15 $79.67 $78.99 $80.29 $70.84
Income Statement
Total Revenue - $4.1 $12.6 $19.1 $20.8 $56.5 $22.3 $25.1 $27.5 $29.6 $104.5 $164.7
Operating Expenses
Royalties - $0.1 $0.6 $1.1 $1.3 $3.1 $1.7 $2.1 $2.4 $2.6 $8.8 $10.7
Operating Costs - $0.6 $2.1 $5.7 $3.8 $12.2 $3.5 $3.7 $6.4 $3.9 $17.5 $28.6
G&A (Incl. Share-Based Comp.) $17.1 $3.8 $3.8 $3.8 $3.8 $15.0 $3.8 $3.8 $4.0 $4.0 $15.5 $16.0
EBITDA ($17.1) ($0.4) $6.2 $8.5 $11.9 $26.3 $13.3 $15.6 $14.7 $19.1 $62.7 $109.4
DD&A $0.4 $0.0 $0.6 $1.6 $2.1 $4.3 $2.5 $3.0 $3.5 $3.8 $12.8 $26.3
Other ($6.9) $1.0 - $1.0 - $2.0 - - - - - -
EBIT ($10.6) ($1.4) $5.6 $6.0 $9.8 $20.0 $10.8 $12.6 $11.3 $15.3 $49.9 $83.1
Net Interest Expense $0.7 $1.1 $1.1 $1.1 $1.1 $4.4 $1.1 $1.1 $1.1 $1.1 $4.4 $4.4
EBT ($11.3) ($2.5) $4.4 $4.9 $8.7 $15.5 $9.7 $11.5 $10.2 $14.2 $45.5 $78.7
Taxes $0.0 $0.1 $0.5 $1.0 $1.2 $2.8 $1.5 $1.9 $2.2 $2.4 $8.0 $10.0
Net Income ($11.4) ($2.6) $3.9 $3.9 $7.5 $12.8 $8.1 $9.6 $8.0 $11.8 $37.5 $68.7
EPS (Diluted) ($0.09) ($0.02) $0.03 $0.03 $0.06 $0.10 $0.06 $0.07 $0.06 $0.09 $0.29 $0.53
CFPS (Diluted) ($0.14) ($0.02) $0.03 $0.04 $0.07 $0.13 $0.08 $0.10 $0.09 $0.12 $0.39 $0.73
Diluted Shares Outstanding 148.5 148.5 148.5 148.5 148.5 148.5 148.5 148.5 148.5 148.5 148.5 148.5
Cash Flow
Discretionary Cash Flow (DCF) ($17.3) ($2.5) $4.6 $5.5 $9.6 $17.1 $10.7 $12.6 $11.4 $15.6 $50.3 $95.0
Capital Expenditures (CAPEX) $6.9 $6.8 $13.0 $15.4 $13.5 $48.7 $15.9 $15.9 $15.9 $15.9 $63.6 $88.8
Dividend - - - - - - - - - - - -
Free Cash Flow (FCF) ($17.4) ($3.2) ($5.0) ($9.2) ($3.1) ($20.6) ($4.5) ($2.5) ($3.7) $0.5 ($10.3) $16.2
EBITDA ($17.1) ($0.4) $6.2 $8.5 $11.9 $26.3 $13.3 $15.6 $14.7 $19.1 $62.7 $109.4
Page 12 of 15
MORNING NOTE
gursu@cormark.com
Figure 18: Balance Sheet, Netbacks, Hedging, and Metrics

2023 2024 2025 2026
(In $MM, except where noted) FYA Q1E Q2E Q3E Q4E FYE Q1E Q2E Q3E Q4E FYE FYE
Balance Sheet
Current Assets $48.0 $3.9 $3.9 $3.9 $3.9 $3.9 $3.9 $3.9 $3.9 $3.9 $3.9 $3.9
Net PP&E $0.6 $7.3 $19.7 $33.6 $45.0 $45.0 $58.4 $71.3 $83.7 $95.8 $95.8 $158.2
Other Assets $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Total Assets $48.7 $11.3 $23.7 $37.5 $49.0 $49.0 $62.4 $75.3 $87.7 $99.7 $99.7 $162.2
Current Liabilities $3.9 $3.9 $3.9 $3.9 $3.9 $3.9 $3.9 $3.9 $3.9 $3.9 $3.9 $3.9
Long Term Debt - ($34.8) ($26.3) ($16.4) ($12.5) ($12.5) ($7.2) ($3.9) $0.5 $0.8 $0.8 ($5.5)
Other Non-Current Liabilities $22.7 $22.7 $22.7 $22.7 $22.7 $22.7 $22.7 $22.7 $22.7 $22.7 $22.7 $22.7
Deferred Income Tax - - - - - - - - - - - -
Total Liabilities $26.6 ($8.2) $0.3 $10.2 $14.1 $14.1 $19.4 $22.6 $27.1 $27.4 $27.4 $21.1
Shareholders' Equity $22.1 $19.5 $23.4 $27.3 $34.8 $34.8 $43.0 $52.6 $60.6 $72.3 $72.3 $141.0
Netbacks & Hedging

Revenue ($/BOE) nmf $564.55 $198.00 $123.49 $104.37 $129.19 $92.53 $88.23 $84.70 $82.61 $86.44 $68.39
Hedging ($/BOE) - - - - - - - - - - -
Royalties ($/BOE) nmf $25.92 $10.67 $7.85 $7.46 $8.24 $7.74 $7.86 $7.87 $7.90 $7.85 $4.67
Operating Costs ($/BOE) nmf $161.50 $40.07 $41.32 $21.11 $32.60 $16.21 $14.07 $21.40 $11.58 $15.72 $12.51
Operating Netback ($/BOE) nmf $377.13 $147.26 $74.33 $75.80 $88.35 $68.58 $66.30 $55.44 $63.12 $62.86 $51.22
G&A ($/BOE) nmf nmf $70.22 $27.20 $20.88 $40.06 $17.14 $14.36 $13.30 $11.97 $13.90 $6.99
Interest Cost/Other ($/BOE) nmf $604.95 $30.17 $22.27 $12.86 $24.49 $12.05 $11.40 $10.90 $10.60 $11.15 $6.28
Cash Netback ($/BOE) nmf nmf $46.87 $24.85 $42.06 $23.80 $39.39 $40.54 $31.23 $40.56 $37.81 $37.95
Total Est. Hedge Gains/(Losses) - - - - - - - - - - - -
Metrics
Net Debt ($44.1) ($34.8) ($26.3) ($16.4) ($12.5) ($12.5) ($7.2) ($3.9) $0.5 $0.8 $0.8 ($5.5)
FCF ($17.4) ($3.2) ($5.0) ($9.2) ($3.1) ($20.6) ($4.5) ($2.5) ($3.7) $0.5 ($10.3) $16.2
EV/EBITDA ($3.2x) nmf 2.2x 1.9x 1.4x 2.6x 1.4x 1.2x 1.4x 1.1x 1.3x 0.7x
Net Debt/EBITDA N/A mnf (1.1x) (0.5x) (0.3x) (0.5x) (0.1x) (0.1x) 0.0x 0.0x 0.0x (0.0x)
Page 13 of 15
MORNING NOTE
gursu@cormark.com
Updated May 15, 2024

Price Chart and Disclosure Statement *Information updated monthly on or about the 5th of each month
I:BUY:1.50
New Stratus Energy Inc. Rating History as of 05/14/2024 * Cormark has this percentage
01/16/2024 of its universe assigned as the
1.60
1.40
following:
1.20 Buy or Top Pick 85%
1.00 Market Perform 13%
0.80
0.60
Reduce or Tender 1%
0.40 Not Rated 0%
0.20
0.00
Jul 21 Oct 21 Jan 22 Apr 22 Jul 22 Oct 22 Jan 23 Apr 23 Jul 23 Oct 23 Jan 24 Apr 24
Closing Price
Buy (BUY); Top Pick (TP); Buy (S) (SPB); Market Perform (MP); Reduce (R); Tender (TD); Under Review (UR)
The analyst viewed the material operations of New Stratus Energy Inc..
During the last 12 months, CSI provided financial advice to and/or, either on its own or as a syndicate member, participated in a public offering, or private
placement of securities of New Stratus Energy Inc..
During the last 12 months, the analyst of New Stratus Energy Inc. received compensation from a pool that included investment banking revenues from the
subject company earned by CSI.
During the last 12 months, CSI received compensation for having provided investment banking services to New Stratus Energy Inc..
This report has been prepared by Cormark Securities Inc., which is regulated by the Investment Industry Regulatory Organization of Canada ("IIROC").
Cormark Securities Inc. and, its wholly owned affiliate, Cormark Securities (USA) Limited (collectively ":CSI") are in compliance with IIROC and the Financial
Industry Regulatory Authority research report rules and regulations where they apply. The firm does not receive compensation for any non-securities or
non-investment banking related services. Neither the analyst nor the associate (if any), or any member of his/her household, serve as an officer, director or
employee or serve in any advisory capacity of the subject company(ies) under their coverage.
CSI actively solicit investment banking business, including underwriting and advisory services, from its research coverage list. As a result, although uncertain,
revenue from these activities may be received at any time.
All relevant disclosures required by regulatory rules (including IIROC) and Cormark's recommendation statistics and research dissemination policies can be
obtained at www.cormark.com.
Cormark will provide, upon request, a statement of its financial condition and a list of the names of its Directors and senior officers.
Page 14 of 15
MORNING NOTE
Recommendation Terminology
Cormark’s recommendation terminology is as follows:
Top Pick our best investment ideas, the greatest potential value appreciation
Buy expected to outperform its peer group
Market Perform expected to perform with its peer group
Reduce expected to underperform its peer group
Tender clients are advised to tender their shares to a takeover bid
Not Rated currently restricted from publishing, or our recommendation is under review
Our ratings may be followed by "(S)" which denotes that the investment is speculative
and has a higher degree of risk associated with it.
Additionally, our target prices are set based on a 12-month investment horizon.
For Canadian Residents: This report has been approved by Cormark Securities
Inc. (“CSI”), member IIROC and CIPF, which takes responsibility for this report and
its dissemination in Canada. Canadian clients wishing to effect transactions in any
security discussed should do so through a qualified salesperson of CSI. For US
Residents: Cormark Securities (USA) Limited (“CUSA”), member FINRA and SIPC,
accepts responsibility for this report and its dissemination in the United States. This report is
intended for distribution in the United States only to certain institutional investors. US clients
wishing to effect transactions in any security discussed should do so through a qualified
salesperson of CUSA. Any research analyst contributing to this report is not registered as a
research analyst with FINRA and is not an associated person of CUSA and therefore may
not be subject to FINRA Rule 2241 restrictions on communications with a subject company,
public appearances, and trading securities held by a research analyst account.
Every province in Canada, state in the US, and most countries throughout the world have
their own laws regulating the types of securities and other investment products which may
be offered to their residents, as well as the process for doing so. As a result, some of the
securities discussed in this report may not be available to every interested investor. This
report is not, and under no circumstances, should be construed as, a solicitation to act as
securities broker or dealer in any jurisdiction by any person or company that is not legally
permitted to carry on the business of a securities broker or dealer in that jurisdiction. This
material is prepared for general circulation to all clients and does not have regard to the
particular circumstances or needs of any specific person who may read it. This report is
provided for information purposes only and does not constitute an offer or solicitation to
buy or sell any securities discussed herein.
The information and any statistical data contained herein have been obtained from sources
believed to be reliable as of the date of publication, but the accuracy or completeness
of the information is not guaranteed, nor in providing it does CSI or CUSA assume any
responsibility or liability. All opinions expressed and data provided herein are subject
to change without notice. The inventories of CSI or CUSA, its affiliated companies and
the holdings of their respective directors, officers and companies with which they are
associated may have a long or short position or deal as principal in the securities discussed
herein. A CSI or CUSA company may have acted as underwriter or initial purchaser or
placement agent for a private placement of any of the securities of any company mentioned
in this report, may from time to time solicit from or perform financial advisory, or other
services for such company. The securities mentioned in this report may not be suitable for
all types of investors; their prices, value and/or the income they produce may fluctuate and/
or be adversely affected by exchange rates.
No part of any report may be reproduced in any manner without prior written permission
of CSI.
A full list of our disclosure statements as well as our research dissemination policies and
procedures can be found on our website at: www.cormark.com
Each research analyst and research associate who authored this document hereby certifies that the recommendations and opinions expressed
in the research report accurately reflect their personal views about the subject company (ies) and its (their) securities and that they have not
been and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) in this report.

Mexican Soledad Transaction Adds Material Upside and Portfol

Uploaded by

Copyright:

Available Formats

You might also like

Mexican Soledad Transaction Adds Material Upside and Portfol

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Mexican Soledad Transaction Adds Material Upside and Portfol

Uploaded by

Copyright:

Available Formats

MORNING NOTE

WEDNESDAY, MAY 15, 2024

Mexican Soledad Transaction Adds Material Upside And

Source: Company reports

Figure 2: Tampico-Misantla Basin Stratigraphy

Source: Iqbal, Salazar, Papa, Rabe

7,000 Gas (BOE/d)

Source: Comision Nacional de Hidrocarburos, Cormark Securities Inc.

6,000 Soledad Soledad Norte

Figure 5: Soledad Block (CNH Reported) Production – Illustrative Only

4,000 Crude Oil (B/d)

Coyotes Soledad Aragon Soledad Norte

Source: Comision Nacional de Hidrocarburos, Cormark Securities Inc.

Figure 7: Soledad Block (CNH Reported) 2P Reserves – Illustrative Only

Source: Comision Nacional de Hidrocarburos, Cormark Securities Inc.

Coyotes Soledad Aragon Soledad Norte

Source: Comision Nacional de Hidrocarburos, Cormark Securities Inc.

Figure 9: Soledad Block (CNH Reported) Proved Reserves – Illustrative Only

Source: Company reports

Source: Company reports

Figure 12: Potential Soledad Block Production Profile (Cormark assumptions)

Source: Company reports, Cormark Securities Inc.

Source: Company reports

Q4/23A Q1/24E 2024E 2025E 2026E

Source: Cormark Securities Inc., Company reports

Proved Reserves 0.0 $0.00 $0.0 $0.00

Venezuela Contingent Resource (2C)

Trading / Marketing NPV (BT-10) $116 $0.93 65% $75 $0.61

Source: Cormark Securities Inc., Company reports

Source: Cormark Securities Inc., Company reports

Figure 18: Balance Sheet, Netbacks, Hedging, and Metrics

Netbacks & Hedging

Source: Cormark Securities Inc., Company reports

Updated May 15, 2024

You might also like