Energy Co. Initiates Strategic Process to Spin-off Hydrogen Portfolio

Source: Nicholas Cortellucci 04/18/2024

In light of Jericho Energy Ventures Inc.’s recent news, Atrium Research analysts reiterated their Buy rating and CA$0.50 target price.

Yesterday, after the market close, Jericho Energy Ventures Inc. (JEV:TSX.V; JROOF:OTC; JLM:FRA) announced that it has commenced a strategic process to explore the spin-off and separate listing of its hydrogen platform. This was reported on by Atrium Research analysts Nicholas Cortellucci and Ben Pirie in an April 18 research note.

“We view a potential spin-off as a great outcome for shareholders as the value of both JEV’s O&G [oil and gas] and hydrogen assets will be better appreciated in their own separate entities,” the analysts commented.

The proposed spin-off has the goal of producing two independent, streamlined, pure-play companies focused on becoming leaders in their respective markets, oil and gas production in Oklahoma, and hydrogen energy technologies.

“Each business will have an appropriate capital structure and management team to support creating maximum shareholder value,” the company stated. If successful, the oil and gas business will remain with Jericho Energy Ventures, while the hydrogen assets will be moved to a new entity.

As for the O&G entity, the analysts believe “the proposed transaction will provide much greater visibility as the economics of its assets were previously hidden by JV accounting. We think this will allow investors to better appreciate the assets which were last reported to have a PV-10 (proven reserves only) of US$44M or CA$0.29/share.”

On the hydrogen front, “the proposed transaction will allow the new entity to attract energy transition and ESG investors, which previously shied away due to the hydrocarbon aspect,” noted the analysts. Just a reminder, JEV’s hydrogen projects were doing really well towards the end of 2023. They got funding from the U.S. Department of Energy, made a deal with Superior Boiler to manufacture something, had good test results from H2U, partnered with Exogen & Lhyfe SA, and even got their first order for a boiler

To support the proposed transaction, Jericho recently closed a US$2.2M private placement and amended terms on its debentures. “On March 6, JEV announced that it closed a US$2.2M non-brokered private placement of 11.1M units at US$0.20/unit, including one warrant at US$0.24/share. The financing was led by insiders and existing shareholders,” the analysts highlighted. “Additionally, on April 5, Jericho announced that it amended the conversion price on its debentures and extended their maturity along with the associated warrants.”

In other recent news, JEV’s portfolio company, H2U Technologies, entered into a research and development agreement in December with De Nora, the world’s largest supplier of high-performing catalyst-coated membranes.

“The agreement aims to identify and develop low-cost, high-performance electrocatalysts for hydrogen production through water electrolysis. These catalysts are expected to enable the market presence of affordable green hydrogen,” explained the analysts

Atrium Research continues to value JEV using a sum-of-the-parts methodology, including the O&G assets at CA$0.19/share (0.7x NPV), Hydrogen Technologies at CA$0.25/share (4.5x 2025E sales), and its minority hydrogen investments at CA$0.03/share (cost). The firm reiterated its Buy rating and CA$0.50 per share target price, representing a potential return of 163% from current levels.

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Disclosures for Atrium Research, Jericho Energy Ventures Inc., April 18, 2024

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( Companies Mentioned: JEV:TSX.V; JROOF:OTC; JLM:FRA, )