Po Valley Energy: Interview with Executive Chairman Kevin Bailey AM

Po Valley Energy (ASX: PVE)

We spoke to Kevin Bailey AM, Executive Chairman of Po Valley Energy, about the imminent start of gas production at Podere Maiar within the Selva Malvezzi production concession in northern Italy, and what the company intends to do next in terms if further field development.

Full transcription below.

 

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Transcription

 

Stuart: Hello, and welcome to “Stocks Down Under.” My name is Stuart Roberts, and I’m one of the co-founders of our service. And joining me today on Wednesday the 17th of May, 2023 from Melbourne is Mr. Kevin Bailey, AM, who is the executive chairman of Po Valley Energy, ASX:PVE. Kevin, good afternoon.

Kevin: Good afternoon, Stuart. Great to be with you.

Stuart: First time we’ve had someone with AM after their names. Order of… Australia’s Honours List for 2017 for your services to promoting relations between our country and East Timor. So thanks for your service to Australia.

Kevin: So they gave it to me for three things. The Australia East Timor relations, the services to the financial services sector and to philanthropy. So on any one of them, I wouldn’t have gotten up, I reckon, so they had to put three together, so.

Stuart: A very busy man. Some investors might know you from your time building Shadforth, which became part of of SGA, ultimately bought by IOOF in 2014, and most of the time since then, it’s been involved in philanthropy. But you’ve gotten involved in this very interesting company that is now developing its first producing gas asset in the Po Valley of of northern Italy. You’ve been invested in that company since, I believe, about 2006, and it has been a very long journey.

Kevin: 2008. Sure. 15 years. It’s been a long 15 years.

Stuart: Right. Now, I’m excited getting to know the Po Valley story. The secret of Italy’s post-war prosperity was was in and under Enrico Mattai developing the gas resources of the Po Valley. Time moves on, ENI was no longer permitted to have a monopoly over oil and gas production in Italy, they divested a few assets. Some of them ended up in your hands in Po Valley Energy’s hands and then the company spent a long time developing those. You’re now on the cusp of the first producing well from Podere Maiar within the… I need to check my notes here Selva Mezvelli field

Kevin: Malvezzi, yeah,

Stuart: Malvezzi. The Malvezzis were big shots in Bolognia in the Middle Ages, as I understand.

Kevin: Yes.

Stuart: This is named after them.

Kevin: Indeed. Indeed it is. Yeah. We’ve got another field in the Adriatic, Teodorico, named after one of the big leaders of Italy back in the 600s or so. So interesting names that they came up with these fields.

Stuart: Right. So let’s paint the background here, the Po Valley is the longest river in Italy, it runs about 650 kilometers. You go through the provinces of Bologna, and you’re in the heartland of the industrial powerhouse that is the Emelia-Romagna region. You’ve now got some new gas sitting about a kilometer away from the pipeline grid in Italy discovered in 2017, this particular well. You’ve spent about two or three million euros to then get the gas plant together and first gas flows within a month or so, as I understand.

Kevin: Any day now. So we’re about…

Stuart: We need to…we’ll wave our Italian flag in honor of that.

Kevin: Well done. No, it’s very exciting. We’ve completed the plant, we’ve connected to the national grid, what’s called SNAM, S-N-A-M, the same grid. We’re now just waiting that final sign off for the fire department and the UNMIG and the safety sign off, and then we can actually do some testing and then start pumping into the grid. We’ve actually got an off-take that we’ve signed a contract with a major and that we basically will be pumping into the grid, hopefully and any day now, but certainly within the next month or so.

Stuart: Right. And the timing is exquisite. Obviously the whole of Western Europe had some serious energy difficulty since the war in Ukraine started in February, 2022. We saw a huge spike in the Dutch TTF price for gas in Europe. Now, a lot of that’s come back, but if you look at the long term chart, it’s still at the top of the long term range that gas was trading at for the several years prior to that war. So, you’re selling into a sales market for gas at a time when, well, not only can Italy not import Russian gas for the gas that it doesn’t source domestically, it’s gotta take it from Libya or Algeria, which it’s fair to say that Italy would like to reduce its reliance on those two partners as well.

Kevin: Overwhelmingly, the new government has made a very strong policy stance and statements saying they want domestic production to increase. You know, five or six years ago, they had about 40% domestic production, and they wanted to…they basically outsourced most of it to Russia, and they went down to 8% when the Russians invaded Ukraine. And suddenly they were in all sorts of strife.

It’s interesting, the whole European Union now is recognized that, fundamentally, gas as a transition fuel, they’ve now said it’s a clean fuel because they need, desperately need, base load power and talk about the lights going out, it’s not just the lights, the entire industrial base of Italy in the north of Italy there will be absolutely catastrophically ruined if they don’t get this right. And they need to actually be in control of their own energy security, and so therefore there is a very strong emphasis getting this whole Po Valley region up and running again as quickly as they possibly can.

Stuart: Right. So you’ve got eight BCF just in this first well at 2P.

Kevin: As I said 2P.

Stuart: Yeah. It won’t 8 BCF, if you and your exploration team have their say, not far away from this original PM 1 well, which is just about to go live. You’ve got silver North [SP], silver East [SP], and about three other prospects that you can drill out. These wells are deep, but they’re not hideously expensive. So with the cash flow, the ample cash flow that you’re about to enjoy from that first well, and the offtake with your sales partner, it’s fair to say that you are on a bit of a growth trajectory for Po Valley Energy.

Kevin: We’re at an inflection point, Stu, what we have is a situation where we’ve been an explorer and developer, you know, etc., etc., but we’re now a producer, and so now we’re in production, instead of so many companies, you know, where you’re making losses and you’re making…you’re talking about BlueSky [SP] and upside and all that side of things.

Effectively, we’ve got the cash flow that we could either use to develop some of these lookalike wells at Salva North or Salva South, Salva East, or Rekidina [SP] that we are very, very confident that we can actually bring them on stream over the next few years that are going to, just for very, very little outlay, give us a tremendous return on investments.

So my job is to just systematically bring on additional revenue that’s going to…I’m an investor managing the company for investors. I’m the largest investor in the company. We keep our remuneration down pretty low. We’ve got four directors, and I’m getting paid the same non-executive director salary of $50,000 per annum.

Stuart: And when you come to Sydney, lunch is still on me. It sounds like you’re gonna be a bit short of cash there, Kevin.

Kevin: Look, the cash flow is going to be everything. You know, It’s a rounding error as far as I’m concerned compared to running this business for investors. And so most of the major shareholders are absolutely behind me in getting this thing going, getting the cashflow going and running it for investors. And so we need to actually spend some of the money on developing a couple of the extra wells, but we’re not gonna have to dilute shareholders in order to do that. And we’re going to be in a situation where we’ve got lots of good choices to make about how we can reward investors, which is fantastic.

Stuart: Right. And, of course, you’ve got optionality as well. We mentioned Teodorico out in the Adriatic Sea. That’s a pretty large resource, I think 37 BCF QP for that one. You know, if you could find a good partner for that one. It’s an offshore field, obviously, so a little more difficult to develop, but there could be some upside.

Kevin: It’s in about 30 meters of water, so it’s not very deep, fairly shallow. It’s about 12 kilometers from Naomi, Pandora, which is the ENI plant which we are very, very close to. There’s a number of hurdles we’ve gotta overcome. We’ve got, you know, there’s all sorts of environmental issues. There’s all sorts of issues.

It’s probably beyond our capacity to do it on our own, certainly I would say that’s the case. So we are looking for either a joint venture partner or maybe even someone to sell it to. So there’s, you know, there’s a very interesting options that we’ve got with that one. And that’s going to, you know, basically we are looking for the best outcome for shareholders with that. So it’s great that we’ve got the the license there.

They have a, like, what they call a plan of areas but the size of this field means it’s about four or five times bigger than the field that they said is exempted. But we’ve gotta get that in confirmation from the government. So I don’t wanna give anyone the idea that all systems go there the same way that as we are with Selva, which is a really straightforward story.

But then, you know, we’ve got that, we’ve got Podere Maiar that we’re bringing online, but then we’ve got Toro di Moro [SP], which is a condense site. So there’s a number of projects that we can look at, but we don’t wanna be, you know, building empires, we wanna be just basically looking at how we can actually do things cost effectively and then get money back to shareholders in the most tax effective and efficient way we can.

Stuart: Okay. Those new wells at Selva, most of them won’t be happening till till next year, but what do you hope to have achieved by Christmas 2023?

Kevin: Well, we will, basically, we’ll have the cash flow coming through. We’ll develop our strategy of where we’re going to be going. We can’t control what the gas price is gonna be in Europe, but we think that’s gonna be substantially higher than it is today, time will tell. And so well, we’ll be in a very, very strong position, profitable and with lots of choices at our disposal. We’ll be able to make announcements to the market exactly what we’re going to be doing and when we’re going to be doing it, contracts we’re gonna be signing.

We had an arrangement with Tesi, which is a manufacturer who developed the surface plant, and they did a phenomenal job. We came in on time and on budget within, you know, literally less than 3% over what our original budget was in the…

Stuart: Inflation exploding out of control, you must have you must have greased a few palms there, right, Kevin?

Kevin: No, I bought a lot of steel before we had the approvals because the price of steel was going through the roof, the supply chain blowouts, all sorts of things. We made sure that we got everything done right, and Tesi just did a phenomenal job. I think, you know, Tesi recognized that if they did a really good job for us, we’ve got, you know, north and south and east, I reckon, then we’ve got these other, and so I’m pretty sure when we put out the tender that they’re gonna be at the front of the queue. So if they can keep working the way they’ve worked for us, then I’d be delighted to have them doing the other plants that we’ll have in store down the track.

Stuart: Okay, Kevin Bailey at PO Valley Energy. Well done on what you and your colleagues have achieved. And here’s to some fruitful increase in free cash flow in the next few years from these great assets.

Kevin: No, looking forward to it. It’s a lot of fun. It’s winners are grinners, as they say.

Stuart: Yep Thanks for joining “Stocks Down under.”

Kevin: Thanks a lot, Stu.