Steady Production Growth, Record Revenue Outlook, and Multiple Catalysts Ahead

Report Highlights

• Q1-2025 production was up 19% QoQ, primarily driven by new production from a previously unproductive well. The company has identified at least five additional wells with a similar profile that can be brought into production. CDR’s current production is 73,000 mcf/d, prompting us to raise our 2025 full-year forecast to 77,000 mcf/d, up from our previous forecast of 70,000 mcf/d.
• Uzbekistan's natural gas pricing is regulated by the government. This provides a stable price environment for CDR, which we view as a major advantage given the volatility risk in commodity prices for typical oil and gas producers.
• Construction of a proposed modular Liquefied Natural Gas (LNG) facility in Kazakhstan is underway, with operations scheduled to begin in 2026. 
• Key upcoming catalysts include progress updates on the LNG project in Kazakhstan, and efforts to boost gas production in Uzbekistan. We continue to anticipate record revenue and EPS in 2025

Price Performance (1-year)

Financials (Year-End: Dec 31st)

We are not making YoY comparisons, as current production comes from the company's Production Enhancement Contract (PEC) with the Government of Uzbekistan, whereas historical production came from its now-depleted gas fields in Turkey.

Q4 production was up 4% QoQ, and full-year production came in at 18.5 bcf, aligning with our forecast

Although Q4 revenue rose 9% QoQ, EBITDA and EPS declined due to higher G&A expenses (driven by higher head count), and amortization

For the full year, revenue, EPS, and free cash flows improved significantly, driven by production from Uzbekistan. Revenue and gross profit were exactly in line with our estimates at $66.7M and $28.0M, respectively

However, EBITDA missed by 12% due to higher-than-anticipated G&A expenses, while EPS fell significantly (-$0.07 vs. our forecast of $0.14) due to higher amortization expenses

Debt-to-capital declined significantly, both QoQ and YoY, moving closer to the sector average, driven by a $19M equity financing in Q4

Company Updates 

The company is focused on three main initiatives: 1) Uzbek Gas: Redeveloping natural gas projects in Uzbekistan, 2) Modular LNG: Developing Central Asia’s first LNG facility in Kazakhstan, and 3) Lithium Brine Exploration: Investigating lithium brine resources in Kazakhstan

In early 2024, CDR obtained rights to gas fields in Uzbekistan, and transformed into a significant gas producer. The company is also actively developing an LNG project, and conducting lithium exploration in Kazakhstan

Development Plans: Uzbek Gas (proposed 2025 CAPEX: $30M, to be funded through operating cash flows) - Through a combination of workovers, and new wells, the company aims to boost production to over 100,000 mcf/day across 120 wells (total CAPEX - $80M+). Q1-2025 production was up 19% QoQ, primarily driven by new production from a previously unproductive well. The company has identified at least five additional wells with a similar profile that can be brought into production. CDR’s current production is 73,000 mcf/d, prompting us to raise our 2025 full-year forecast to 77,000 mcf/d, up from our previous forecast of 70,000 mcf/d.

Q1-2025 production is up 19% QoQ

In 2025, the company plans to drill a vertical, horizontal, and multi-lateral well. If successful, this could yield over 15,000 mcf/d of new production.

CDR also received a maiden reserve report, which indicated 18.5 mmboe of reserves, with a BT-NPV10% of US$50M, which we believe equates to an AT-NPV10% of  approximately C$60M. However, we believe these estimates are based on historic production rates, and do not account for CDR’s initiatives to improve recovery and production, and reduce decline rates. Our valuation models (presented later in this report) account for these initiatives using conservative assumptions.

18.5 mmboe of reserves. AT-NPV10% of $60M, or $0.89/share

Near-term production potential. Early-stage exploration

Development Plans: Kazak LNG (proposed 2025 CAPEX: up to $20M) - The company is planning to develop a series of modular LNG facilities in four phases. When fully operational, these facilities will produce up to 600k tonnes of LNG annually, displacing 680k tonnes of diesel fuel. The first phase of the project is expected to produce 120k tonnes per year (CAPEX: US$80M), which is the energy equivalent volume of 440k litres of diesel per day (161M litres per year). Construction of the facility is ongoing, with fabrication expected to be completed in Q4 -2025, and operations scheduled to begin in 2026.

Development Plans: Kazak Lithium (proposed 2025 CAPEX: n/a) - CDR is collecting and evaluating historical data, with no firm plans to drill any wells this year. We note that delineating a lithium resource is a faster and cheaper process vs mainstream metals such as gold and copper. Last month, CDR secured a second lithium brine license in the country.

FRC Projections and Valuation

Due to higher Q1 production, we are raising our 2025 production, revenue, and EBITDA forecasts, but lowering our EPS forecast due to higher amortization expenses

Our valuation declined from $3.59 to $3.33/share, due to share dilution from the recent financing, partially offset by our higher near-term EBITDA estimates

We are reiterating our BUY rating, and adjusting our fair value estimate from $3.59 to $3.33/share. We continue to believe the market has yet to recognize the potential of CDR’s LNG initiative. Q1-2025 production growth from a single previously unproductive well is indicative of the growth potential of the Uzbek gas field. We expect record revenue in Q1, with even stronger performance in the following quarters.

Risks

We are maintaining our risk rating of 4 (Speculative)

We believe the company is exposed to the following key risks (not exhaustive):

• No guarantee that agreements with government entities in Uzbekistan and Kazakhstan will be extended
• The Uzbek government is considering liberalizing the energy sector, and implementing market-based pricing; market liberalization may lead to volatility in gas prices 
• FOREX and interest rate fluctuations
• Project financing and potential delays in development
• No guarantee that the company will be able to expand its projects simultaneously

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