Southern Energy Corp. (SOUC LN/SOU CN): Debt reset and new funding to unlock growth through new oil development

• Southern has refinanced its US$14 mm of existing debt through a new US$17 mm convertible debenture, and strengthened its balance sheet with (1) a US$1.5 mm equity raise at C$0.07/sh (no discount to Friday’s close) and (2) the sale of a 6% gross overriding royalty for US$5 mm. The capital was provided by three related parties, including an existing minority shareholder. The new convertible debenture carries a 7% annual coupon—well below the 15% rate on the previous facility—and matures in December 2028. This reduces annual financing costs by roughly US$3 mm, freeing capital for drilling. The debenture is convertible at C$0.10/sh (43% premium to Friday’s close).
• With an incremental US$9 mm of liquidity, Southern will complete the two Gwinville DUCs and, more importantly, initiate oil‑focused drilling at the high‑impact Williamsburg field in 2H26. The company’s profile is shifting: oil and liquids‑rich gas will increasingly drive the story, while the dry‑gas assets become an option on a future gas‑price recovery.
• Incorporating the transaction and the company’s renewed strategic focus, we revise our target price to £0.20/sh, based on our ReNAV, with an unrisked NAV of approximately £0.52/sh.

Williamsburg and Mechanicsburg
Until Henry Hub futures improve, Southern will focus capital on two assets: Williamsburg and Mechanicsburg, with Williamsburg being the most material. Development activity in the neighbouring Seminary analog field—same reservoir, pressure and temperature regime, and oil quality—is accelerating. The Doley #1 well has already recovered more than 370mbbl and generated over US$17 mm of estimated net income. Two additional wells were drilled last year, with the Conner #1 testing at 624 bbl/d. Seminary covers only 3–4 sections, compared with Williamsburg’s ~20 sections and 40–50 potential drilling locations. Assuming a 350 bbl/d IP rate, a shallow decline profile, and well costs of ~US$3.5 mm, a Williamsburg well pays back in ~9 months at US$65/bbl WTI. Mechanicsburg offers a further 6–12 drilling locations, each with an estimated NPV of ~US$4.5 mm.

Valuation
With the shift toward oil and liquids‑rich opportunities, we assume for the time being no further investment in the gas assets beyond completing the two remaining DUCs. We have reduced our valuation for the existing 2P gas reserves and removed the gas‑upside case from our NAV. Our production growth profile now reflects an oil‑weighted drilling programme that Southern can fully fund from its strengthened balance sheet. Our ReNAV for Williamsburg of £0.15/sh incorporates ~25 drilling locations, each assuming ~0.5 mmbbl EUR per well—~50% of Doley #1’s expected recovery.