Horizon Petroleum: Capturing Energy Infrastructure Yield with European Gas Leverage

Amid geopolitical volatility and surging energy demand, Horizon Petroleum Ltd. (TSXV:HPL) has emerged as a compelling play for investors seeking high-yield income with embedded equity upside. Its recent 15% debenture offering, coupled with warrants tied to Poland’s Lachowice gas field—a strategic asset aligned with EU energy security goals—creates a rare risk-adjusted opportunity in a sector primed for recovery.

The High-Yield Debt Structure: Immediate Income with Leverage

Horizon’s 15% annual interest rate on its debentures (maturing December 31, 2026) provides a robust income stream, with semi-annual payments on June 30 and December 31. The convertible feature allows holders to exchange principal into shares at $2.75 per share, below the warrants’ exercise price of $3.00, creating an implied arbitrage opportunity if the stock rallies.

The warrants themselves—0.5 per $1,000 debenture—act as leveraged equity exposure to Horizon’s core asset: the Lachowice gas field. With a 4-year expiration, they offer asymmetric upside if the company’s European projects succeed.

The Warrants’ Asymmetric Upside: Betting on European Gas Demand

The Lachowice project holds 34 BCF of 2P reserves and 163 BCF of contingent resources (NPV10: $515.5M), positioning Horizon as a key player in Poland’s push to reduce Russian gas dependence. With Polish gas prices at ~$12.75/mcf and EU gas hubs hovering near $11.50/mcf, the economics of Lachowice are compelling.

If Horizon achieves first production by early 2026, as planned, the warrants could surge. Even a 50% rise in HPL’s share price to $0.21 (from May 2025’s $0.16) would see the warrants’ intrinsic value jump from zero to $0.15 per warrant. At $0.30—a price achievable if Lachowice’s NPV10 is realized—the warrants could deliver +100% returns.

The Lachowice Gas Play: A Strategic Asset with EU Tailwinds

The field’s development aligns perfectly with EU energy policy, which prioritizes:
1. Reducing Russian gas imports by 2027, a goal Horizon directly supports via Poland’s domestic production.
2. Transitioning from coal to gas, leveraging Lachowice’s sweet gas reserves to fuel power plants at lower emissions than coal.
3. Energy security, with Lachowice’s proximity to existing infrastructure enabling quick monetization.

Horizon’s seasoned management, including CEO Dr. David Winter and COO Roger McMechan, has navigated regulatory hurdles in Poland, finalizing land agreements and securing permits for the L7 well workover. By late 2025, this well could begin producing 1.5mmscf/d, with plans to tie into grids or sell via LNG/CNG.

Balancing Risks and Rewards

Risks remain:
- Execution delays: Permitting in Poland is slower than North America, and infrastructure (e.g., relocated power lines) must be completed on time.
- Financial fragility: Negative equity and a $7.55M market cap suggest dilution risks.
- Gas price volatility: If EU gas prices collapse, project economics could weaken.

Tailwinds outweigh these concerns:
- Geopolitical tailwinds: EU’s $27 billion REPowerEU fund prioritizes gas projects in Poland.
- Operational leverage: Low drilling costs ($1–2M/well) and high resource NPV10 reduce breakeven points.
- Catalysts ahead: Q3 2025 workover results and Q1 2026 first production will be critical inflection points.

Investment Thesis: A Compelling Yield/Warrant Combo

Investors should allocate 2–3% of energy sector exposure to Horizon’s debentures for:
1. High-yield income (15% annualized) with cash flow visibility from semi-annual interest.
2. Equity upside via warrants that amplify returns if Lachowice delivers.
3. Geopolitical alpha: A play on EU energy security, a theme likely to outperform as Russia’s influence wanes.

Conclusion: Act Before the Catalysts Arrive

Horizon’s structure offers a rare blend of income, leverage, and asymmetric upside in a sector with clear macro tailwinds. With warrants priced out of the money but set to expire in 2026, time is on the side of selective allocators. The path to $0.30+ shares—and $0.15+ warrant value—depends on execution, but the stakes are too high for European energy security to ignore this opportunity.

Investors seeking yield and growth in energy infrastructure should act now—before the gas flows and the warrants catch fire.