Report
Stephane Foucaud

AUCTUS ON FRIDAY - 30/05/2025

Arrow Exploration (AXL LN/CN)C; Target price of £0.70 per share: Gearing-up for acquisitions? – 1Q25 production was 4,085 boe/d with no horizontal wells drilled in the period. RCE is more mature than CN and while no drilling has taken place at RCE, the decline rate between 4Q24 and 1Q25 was only ~5%. 1Q25 Production was constrained by increased water production preventing the company increasing the speed of the pumps at some of its producing wells. The increased amount of produced water increased opex. In order to address the increased water production, remove the oil production bottleneck at some wells and reduce opex, Arrow is working towards the conversion of CN 5 into a water disposal well. The AB 2 injector well should be in operation in late 2Q25 and CN 5 in 3Q25. Production is expected to increase in 2Q25. During the quarter, Arrow has brought CN 11, CN HZ9 and CNHZ10 (two horizontal wells) on production. The AB HZ4 horizontal well is also expected to start production in June. A second rig that will mobilize to the RCE field will drill up to four development wells and will then mobilize to the Carrizales Norte pad for further development drilling. The first RCE well is expected to spud in early June. Arrow held US$24 mm in cash on 01 May and the FY25 drilling programme is funded by operating cashflow. The company has entered into a two-year crude prepayment agreement with an integrated energy major to market its oil production in Colombia. The agreement provides access to US$20 mm in funding in year one falling to US$15 mm in year two if not drawn. Given Arrow’s strong cash position, we believe that this additional funding could allow Arrow to make acquisition without diluting shareholders. The interest rate is SOFR + 4% for the first US$10 mm and SOFR + 5% for amounts exceeding US$10 mm.
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Southern Energy (SOUC LN/SOU CN)C; Target price of £0.25 per share: 1Q25 production in line. First DUC expected to start producing in June – 1Q25 production of 2,135 boe/d was broadly in line with our expectations.
The company’s gas production was sold a US$0.49/mcf premium to Henry Hub (+13%). Field operations are scheduled to commence on the 13‐13 #2 Lower Selma Chalk horizontal well in the next few weeks, and Southern with production due to commence in June. This is an important well that will boost production and potentially derisk further locations. There are 45 additional drilling locations in the Lower Selma Chalk. This represents ~26 mmboe potential additional reserves (vs. YE24 2P reserves of 28 mmboe). Southern will then move to second and third DUCs (one Lower Selma Chalk and one City Bank). There are 30+ additional locations in the Gwinville City Bank (~15 mmboe potential reserves upside). This programme is expected to be completed before YE25..
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Valeura Energy (VLE CN)C; Target price of C$12.30 per share: Potential reserves additions following appraisal programme. Ratree is dry. – Valeura has completed an 8 well drilling programme on Block B5/27. Two wells at Jasmine C encountered more oil pay than expected. Two development wells at Ban Yen A are now on production and appraised new reservoirs, adding drilling locations and will likely contribute to reserves when next evaluated at year-end. One of the wells (BYA-35ST1) encountered an oil pay 100% larger than expected. The third well was an appraisal well. It encountered an oil-water contact deeper than expected but the reservoir was poorly developed at this location. At Jasmine D, two development wells encountered oil in their primary targets as well as upside volumes in secondary targets that will now be developed with further wells in future campaigns. The drilling programme has already offset natural declines. We currently forecast ~22 mbbl/d production in 2Q25 (vs. ~23.7 mbbl/d in 1Q25). This might be overly conservative. While Jasmine is a mature field, we anticipate that this campaign’s results will add reserves at YE25. It is also likely that decommissioning will be further delayed. We value each additional million barrel of reserves at Jasmine at ~US$8-10 mm. The Ratree exploration well did not encounter hydrocarbons. There are further trends on the block that could be explored as part of future drilling campaigns. Pending further visibility on the reserves addition at B5/27, we have not changed our Core NAV. However we have removed Ratree from our valuation. As a result our target new price is C$12.30 per share in line with our new ReNAV.
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Zephyr Energy (ZPHR LN)C; Target price of £0.18 per share: Paradox Resources boost following interpretation of well test – The analysis of the well test result at well 36-2R suggests recoverable resources of 0.84-1.24 mmboe for the 4,000 feet lateral. The reservoir characteristics are consistent across the length of the lateral with consistent contribution from the reservoir matrix to the flow rate. Extrapolating these results across a longer lateral of 10,000 to 15,000 feet suggests recoverable volumes per well of 9 bcf to 37.5 bcf with a condensate yield of 20-60 bbl/mmcf. The base case is 15-17 bcf (plus condensates) for a well with a 11,000 feet lateral. The high end of the range (37.5 bcf) is comparable to the recoverable volumes of an offshore well. Assuming US$14 mm drilling and completion cost, the drillex would be below US$5.6/bbl in the base case with initial production of 5-10 mmcf/d (plus condensates). Overall, Zephyr estimate recoverable resources across the Cane Creek reservoir of 32.5-112.5 mmboe including 3.5 – 29 mmbbl of condensates (mid case of 72.5 mmboe). Net of royalties, this equates to 25.6-89.5 mmboe (mid case of 57.7 mmboe). A new CPR incorporating the well test result is expected to be published by early 4Q25 and we anticipate a material increase to the previous estimate of 34 mmboe 2C contingent resources. The flow test results enhance the profile of Zephyr with regards to potential partners. First gas (~5 mmcf/d gross) is now expected around YE25. Gas production is expected be transported through the existing Enbridge pipeline but we anticipate additional routes to earlier production may be explored. We have increased our target price from £0.15/sh to £0.18/sh to incorporate the greater resources estimates in the Paradox. In addition, there are eight overlying reservoirs above the Cane Creek with similar reservoir characteristics on the licence.
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IN OTHER NEWS
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EUROPE

EnQuest (ENQ LN): Operating update – 1Q25 production was 42,028 boe/d. Magnus was offline for four weeks in 2Q25. Net debt at the end of March was US$405 mm. The FY25 production guidance of 40,000-45,000 boe/d has been re-iterated. FY25 cash capex plus decommissioning cost continues to be expected to stand at US$250 mm.

OKEA Energy (OKEA NO): One discovery and one dry hole in Norway – Well 31/4-A-23 F in PL-055 was dry. However well 31/4-A-23 G encountered 0.3 – 2.8 mmbbl recoverable resource.

FORMER SOVIET UNION

Caspian Sunrise (CASP LN): Production licence award in Kazakhstan – Caspian has been awarded a 25 year production licence for the Airshagyl structure on the BNG Contract Area. The Airshagyl structure is one of two deep structures on the BNG Contract Area and extends to 58 km2, with four deep wells drilled to date. A similar application has been made for a 25 year full production licence at the Yelemes Deep structure, which extends over an area of 36 km2 and on which three deep wells have to date been drilled.

MIDDLE EAST AND NORTH AFRICA

Chariot (CHAR LN)C: Raising new equity – Chariot has raised US$6.1 mm of new equity priced at 1.4 p per share. The net proceeds of the fundraise will be used in order to secure Chariot's stake and participation in wind generation, gas and new upstream assets and enable management to demerge the Renewable Power business.

OMV (OMV AG): Divesting stake in UAE asset – OMV is selling its 5% stake in the Ghasha concession to Lukoil for US$594 mm les US$100 mm transaction fee.

SUB-SAHARAN AFRICA

Shell (SHEL LN): Increasing stake in offshore field in Nigeria – Shell is acquiring TotalEnergies’ 12.5% stake in OML 118 that includes the Bonga field for US$510 mm.

Supernoval Metals (SPUR CN): Raising new equity for Namibia exploration – Supernova is raising C$7 mm of new equity at a price of C$0.36 per share to fund exploration activities offshore Namibia. Investors will also receive one warrant for each new share with an exercise price of C$0.54 per share. The company will be renamed Oregen Energy. It will be acquiring an additional 36.0% gross equity interest in WestOil, a private company that owns a 70% interest in block 2712A in the Orange Basin.
Underlyings
Arrow Exploration Ltd

Front Range Resources is engaged in oil and natural gas exploration and production focusing on horizontal multi-stage frac development in Montney, Bluesky, Wilrich and Falher formations in the Deep Basin area of west central Alberta.

Caspian Sunrise

Caspian Sunrise is engaged in exploration and production of crude oil. Co. builds a portfolio of oil and gas exploration and production assets in Central Asia and in particular Kazakhstan.

Chariot Oil & Gas

Chariot Oil & Gas is an independent oil and gas exploration company focused offshore in West Africa with a portfolio of assets located in the under-explored regions of Namibia, Mauritania and Morocco.

EnQuest PLC

Enquest is an oil and gas production and development company. As of Dec 31 2016, Co.'s principal U.K. assets were its interests in the producing operated oil fields Heather/Broom, Thistle/Deveron, the Dons area, the Greater Kittiwake Area, Alma/Galia and Scolty/Crathes. In addition, Co. had interests in the Kraken development and also a non-operated interest in the producing Alba oil field. In Malaysia, Co.'s operated assets comprise the PM8/Seligi Production Sharing Contract and the Tanjong Baram Risk Services Contract. At Dec 31 2016, Co. had proven and probable reserves of 215.0 million barrels of oil equivalent.

Okea

Okea ASA is a Norway-based oil company engaged in the oil and gas exploration and production industry. The Company contributes to the value creation on the Norwegian continental shelf with development and operation systems through the utilization of the result of previous and ongoing exploration activities in order to bring undeveloped oil on stream in strategic cooperation with service companies. Its services do not involve the exploration for petroleum. The Company operates an office in Trondheim, Norway.

OMV AG

OMV is an international energy company with activities in Exploration and Production (E&P), Refining and Marketing including petrochemicals (R&M), and Gas and Power (G&P). Co. explores and develops oil and gas resources and supply energy to over 100 million people. OMV has three operating segments: Exploration and Production (E&P), Refining and Marketing, including petrochemicals (R&M), and Gas and Power (G&P), as well as the segment Corporate and Other (Co&O).

SOUTHERN ENERGY CORP

Total SE

Total is an international integrated oil and gas company also active in solar and biomass energy sources. Co. engages all aspects of the petroleum industry, including Upstream operations (oil and gas exploration, development and production, and LNG (Liquefied Natural Gas)) and Downstream operations (refining, petrochemicals, specialty chemicals, marketing and marketing and trading and shipping of crude oil and petroleum products). In addition, Co. is engaged in the coal mining and power generation sectors. Co.'s worldwide operations are conducted through three business segments: Upstream, Refining & Chemicals, and Marketing & Services.

Valeura Energy Inc.

Valeura Energy is engaged in the exploration, development and production of petroleum and natural gas in Turkey and Western Canada. As of Dec 31 2010, proven gross reserves for light and medium oil was 116 thousand barrels (net reserves of 104 thousand barrels); proven gross reserves for heavy oil was 10 thousand barrels (net reserves of 9 thousand barrels); proven gross reserves for natural gas was 1,047 million cubic feet (net reserves of 938 million cubic feet); and proven gross reserves for natural gas liquids was 26 thousand barrels (net reserves of 19 thousand barrels).

Zephyr Energy

Rose Petroleum is an oil and gas (O&G) and mining company with exploration assets and an operational crushing and flotation mill. Co.'s principal activities are the exploration and development of O&G resources together with the evaluation and acquisition of other mineral exploration targets, principally gold, silver, uranium and copper, and the development and operation of mines in Mexico. In Co.'s O&G division, the area of focus is on two unconventional oil and gas basins in the U.S.: the Uinta Basin and the Paradox Basin. In its mining division, Co. continues its milling operations through its subsidiary, Minerales VANE S.A. de C.V., which owns the SDA Mill in Mexico.

Provider
Auctus Advisors
Auctus Advisors

Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector.

The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy.

Auctus has been set up at the beginning of a new decade in which we see significant opportunities in the Energy space. Globally, demand for energy is at record levels and continues to grow. Conversely, investment in traditional energy sources has been severely constrained. We believe this imbalance creates opportunities for both companies and investors.

Auctus provides Corporate Broking, Equity Research and Investment Banking services. 

Analysts
Stephane Foucaud

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