Last week, Condor's share price ripped higher on the back of a very impressive well result out of Uzbekistan. The company tested its K-46 horizontal well at 18.3 million cubic feet per day (~3,050 boepd) from a very high-quality reservoir – and the well was put on-stream shortly thereafter, taking corporate production to a new high of 14,000 boepd. Recall that we were looking for a well rate of greater than 10 mmcf/d as validation of CDR's thesis that horizontal wells could generate superior well economics. Consider that box checked with a big green checkmark. The company says that its recent well result is repeatable and that it has identified additional development well locations in the structure that it is currently drilling as well as 17 others, implying years of drilling inventory. Arguably this positions CDR very favourably in the eyes of the Uzbek government with respect to the potential for more gas-optimization project awards. The Uzbek government rides shotgun along with CDR on these optimization/redevelopment projects and they have much, much larger fields and blocks that CDR could work on… the current project was a "starter" project. Given these recent results, CDR seems well on its way to meeting the exit 2026 production target of 120 million cubic feet per day (20,000 boepd) from its existing gas optimization contract.
Shortly after the good news, Condor tapped the market for what was to be a $15 million financing at a price of $2.60 per share. Demand for that financing was so strong that the deal was upsized to $29.9 million and even that only partially satisfied the orders that came in. Part of the heightened interest stemmed from the realization that the Uzbek gas story is real (and has the potential to become a much larger piece of business), but another part of it came from the increasing awareness that Condor's LNG strategy in Kazakhstan is based on some incredibly solid fundamentals in a market where domestic energy security is top of mind. CDR's first (half-sized) onshore LNG facility is expected to be installed late this year, after which the company will take low-value domestic natural gas and convert it into high-value LNG for use in industrial trucking fleets (first) and then eventually locomotives (second).
To summarize… In Uzbekistan, CDR will optimize and redevelop Soviet-era gas fields with modern technology and approaches, with the ultimate goal of securing additional, larger contracts on the back of the proven results from its existing likely-to-be-multi-hundred-BCF "starter" project. In Kazakhstan, CDR will take its government-granted (and hard-to-get) gas supply agreements and feed low-value natural gas (which Kazakhstan has in abundance) into its modular onshore LNG plants to create a high-value fuel that can substitute for diesel (which Kazakhstan is chronically short of) in existing trucking fleets that are already in the country. Huge amounts of goods transit the Russia-Kazakh-China trade corridor every day and there are Chinese trucking fleets that would gladly switch to LNG in Kazakhstan if it were available to them. With a little patience, I think that CDR will ultimately be a $6-8 stock if it executes on what it already has its arms around. I have added to my position at levels as high as the $2.90s and continue to believe that my patience with this one will continue to be rewarded. It's also worth noting that CDR has a very tight float and a very supportive shareholder base that understands the company's long-term business plans in Uzbekistan and Kazakhstan.
For those readers who want to refresh on the thesis here, go back to the CDR note in the "Briefings" section of the Circle website for my back-of-the-envelope view. And this recent Forbes article is an absolute must read on the Central Asian energy landscape… I'd argue that it bodes very well for how CDR is already positioned. Iran is an absolute non-factor here for anyone but the "tourist" investor who doesn't know what he owns and why he owns it.