Auctus on Friday - 31/03/2023

AUCTUS PUBLICATIONS
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Arrow Exploration (AXL LN) C; Target price of £0.45 per share: Adding reserves in Colombia – Arrow’s 1P, 2P and 3P reserves were estimated at respectively 3.4 mmboe, 7.7 mmboe and 11.7 mmboe at YE22. This includes 2.1 mmboe 2P reserves and 4.3 mmboe 3P reserves at the company’s core assets in Colombia (Tapir and Oso Pardo). Even after deducting 6 months of production (~0.18 mmbbl), the 2P and 3P reserves at the core assets have increased by ~0.08-0.35 mmboe since the end of June 2022 (date of the last reserves report). The reserves increase at the core assets reflects the high performance of the RCE wells drilled in 2H22. However, the YE22 resources estimates do not account for the drilling campaign at Rio Cravo Este that started in January, which, given the encouraging results to date, might trigger further reclassifications and increases in reserves. The results of the RCE 5 well are expected to be announced imminently. The rig will then move to Carrizales Norte where three wells will be drilled. We continue to estimate that the FY23 drilling programme could add between 2,800 boe/d and 4,800 boe/d net production (before decline and in a success case). We forecast 3.6 mboe/d production in 2023 (that could prove to be too conservative) and 4.4 mboe/d in 2024. We have increased our Core NAV from £0.22 per share to £0.26 per share.
See website for full report

Calima Energy (CE1 AU) C; Target price of A$0.50 per share: Replacing over 100% of produced reserves – YE22 net 2P reserves have been estimated at 20.5 mmboe (net of royalty), up 1% compared to YE21. This suggests that Calima has added ~1.3 mmboe net reserves in 2022 (~+6% versus YE21). The overall development plan associated with the 2P reserves is based on only 54 wells, including 30 wells at Brooks and the balance at Thorsby. Net 2P reserves at Brooks have increased from ~10 mmboe at YE21 to 10.2 mmboe at YE22 given the very good results in the shallow Glauconitic and Sunburst reservoir. Compared to YE21, 8 new net drilling locations have been identified at Brooks (total of 138 at YE22 versus 130 at YE21). Only 19% of these locations have been booked at YE22. The reserves report assumes four new Glauconitic and four Sunburst wells to be drilled in 2023. 108 locations have not been booked as 2P reserves yet. Net 2P reserves at Thorsby were estimated at 10.2 mmboe at YE22, down from 10.4 mmboe which reflects FY22 production. The total number of locations has been reduced from 98 to 82 with some land expiries. Two Thorsby wells could be drilled in 2023. Production in 1Q23 to date continues to be high at ~4,500 boe/d including 3,500 boe/d at Brooks that continues to perform very well. The positive impact of the increase in reserves is offset by our more conservative gas price assumptions and we re-iterate our target price of A$0.50/sh.
See website for full report

PetroTal (PTAL LN/TAC CN)C: Target price of £1.50 per share: Generous capital return: 10% buyback plus ~13% dividend yield – YE22 net cash and 4Q22 production had already been reported. Production continues to be very high with 20,500 bbl/d production to date during March. PetroTal expects to sell >19 mbbl/d through Brazil in March and >18 mbb/d in April. This would be the highest level achieved though that route. This is important because the net backs through Brazil are higher than through the ONP. PetroTal has re-iterated its FY23 production guidance of 14-15 mbbl/d. There is however an upside case of 17 mbbl/d for 2H23 depending on river levels. We only assume 14.9 mbbl/d in 2H23. With the bond now fully repaid, PetroTal is launching a generous capital return programme with a share buyback programme for up to 10% of the share capital over a period of 12 months from 2Q23 and a US$0.015 per share quarterly dividend. On an annualized basis, this represents ~13% dividend yield, one of the highest in the sector.
See website for full report

Southern Energy (SOUC LN/SOU CN)C: Target price of £1.50 per share: Hitting the pause button until gas price recovers - In the context of the HH gas price rapid collapse from US$7.90/mcf in 3Q22 to ~US$2/mcf currently, Southern has decided to reduce its capex programme from US$101 mm to US$55 mm. This has already been deployed to drill a total of seven wells (out of 13 initially expected). It also includes long lead items and preparation work that would have been applied to the entire programme. 3 of the 7 wells have been completed, with the 4 remaining wells to be completed when HH is >US$3.5/mcf. The 18-10 #2 Upper Selma Chalk well had an IP rate of 3.3 mmcf/d with only 50% in the zone. We note that if 80-100% of the well had been in zone (as it was the case for the 2 other wells), the well could likely have delivered an IP30 rate >6 mmcf/d, which would have been a very good result. The geo-steering system was optimized on subsequent wells in this programme to address this issue. The 18-10 #3 Upper Selma Chalk well was 80% in zone. However, during one of the last staged fracks, a joint of casing collapsed and remediation is required. It is anticipated to be remediated in May and put on production. The 18-10 #1 City Bank well was 100% in zone and flow back has started. The well should reach peak rate in ~45 days. The results are very encouraging. On success, this well would add reserves (none booked so far in the City Bank). Our unrisked NAV for the City Bank is ~£0.50/sh. With faster drilling than expected (9 days per well versus 21 days per well initially), lower rig rates and monobore drilling for future wells, individual well drilling costs could be reduced by 35-40%. We have reduced our HH gas prices assumptions and assumed a slower production ramp-up that can be funded through cashflow. We have reduced our target price to £1.50/sh.
See website for full report

IN OTHER NEWS
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AMERICAS

Canacol Energy (CNE CN): FY22 results – 4Q22 gas sales in Colombia averaged 175.6 mmcf/d. The company expects that gas sales in Colombia will increase to over 300 mmcf/d in late 2024. Net debt at YE22 was US$492 mm.

EUROPE

Coro Energy (CORO LN): Selling Italy – Coro is selling its Italian natural gas business to Zodiac Energy (Pengas Italiana) for up to EUR7.5 mm including an initial cash payment of EUR1.5 mm and contingent payments of up to EUR1.5 mm through a 10% net profit interest over three years.

Ithaca Energy (ITH LN): FY22 results – FY22 production in the UK was 71.4 mboe/d. YE22 net debt was US$971 mm. 1Q23 production is estimated at 70-72 mboe/d with FY23 production of 67-74 mboe/d (down from 72-80 mboe/d). The FY23 net capex is forecasted at US$450-550 mm.

IGas Energy (IGAS LN): FY22 results – FY22 production in the UK was 1,898 boe/d. Net debt at YE22 was £6.1 mm. FY23 net production is expected to be ~2,000 boe/d with £15.3 mm capex and £6.5 mm abandonment cost.

Jersey Oil & Gas (JOG LN): Agreeing heads of terms with Farm-out partner in the UK – Heads of terms have been agreed for the farm-out of a material interest in the GBA licences to a UK North Sea operator.

Kistos (KIST LN): Mixed drilling results in the Netherlands – The results of drilling at Q-10A were mixed. This was due to mechanical issues arising from utilising the existing well stock rather than reservoir performance issues.

The Parkmead Group (PMG LN): six-month result to 31/12/2022 – Gross production in the Netherlands over the period was 18 mmcf/d. The company held £8.6 mm in net cash at YE22. The LDS-01 well encountered hydrocarbon and will be in production shortly but LDS-02 was dry. The company held 45.5 mmboe of 2P reserves as at 01 March 2023.

UK Oil & Gas (UKOG LN): Farming out UK onshore assets – Pennpetro Energy (PPP LN) is acquiring 49% WI in Horse Hill in return for funding a well (HH-3) and shooting seismic. Pennpetro is raising £1.5 mm of new equity priced of at 3p per share to fund the well.

MIDDLE EAST AND NORTH AFRICA

BP (BP LN) and Adnoc: Acquiring stake in New Med - A BP-Adnoc consortium will acquire a 50% stake in NewMed at a price of US$3.36 per share, a 72% premium on the pre-deal market price. This values NewMed at ~US$4 bn.

Companies suspending export from Kurdistan – Forza Petroleum (FORZ CN), Genel Energy (GENL LN), DNO (DNO NO), Gulf Keystone Petroleum (GKP LN) and ShaMaran Petroleum (SNM CN) have been advised that the Iraq-Turkiye pipeline has been shut-in. The shut-in has been requested by Turkey. This follows the international Chamber of Commerce in Paris ruling in favour of Iraq in the arbitration case against Turkey.

SUB-SAHARAN AFRICA

Global Petroleum (GBP LN): Increase of resources estimates in Namibia – The Marula prospect is now estimated to hold 411 mmbbl prospective resources (218 mmboe previously).

EVENTS TO WATCH NEXT WEEK
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03/04/2023 – Repsol (REP SM): 1Q23 results
05/04/2023 – EnQuest (ENQ LN): FY22 results