AUCTUS ON FRIDAY - 28/03/2024

AUCTUS PUBLICATIONS
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ADX Energy (ADX AU)C; target price of A$1.00 per share: Logging results at Welchau further derisk the discovery – The logging program has confirmed open fracture networks and vuggy porosity (matrix porosity) essential for well productivity coincident with hydrocarbon shows between 1346 m and 1702 m measured depth. This represents 356 m of gross interval across three interpreted lithological sequences. This compares with only 115 m of liquids-rich gas shows announced previously. Intervals with good hydrocarbon shows clearly correlate to either fractured zones or zones with vuggy porosity. This provides reassurance as to the consistency of the interpretation. The zones with the best characteristics within the ~356 m of gross already represents a total of ~40 m. This producible area could be much larger as it does not include all the zones with good characteristics. The MDT-tested intervals show medium to very high permeability which accords with fracture density and petrophysical log interpretation. This is important and positive as good permeability is important for flow rates. ADX could not acquire representative downhole samples due to mud losses in the open fractures. The surface interpretation of recovered samples were contaminated with mud from fractures due to losses while drilling. The MDT tool was then stuck in the well. It was eventually recovered but could not be re-used. After MDT logging, liquid hydrocarbon and gas inflow to the wellbore was observed at surface following downhole sampling operations. This was probably due to the MDT tool sampling process inducing a flow of reservoir hydrocarbons despite the over-balanced mud weight. This is positive as this confirms the mobility of hydrocarbons in the reservoir. Mud gas readings for C1 of up to 20% were recorded from the well bore with heavier components up to C5 recorded. The condensate yield could be higher than initially expected. The well will now be cased ahead of testing in 4Q24. Required environmental permitting for future operations will commence immediately. It will include additional drilling locations. We view the confirmation of the reservoir quality (fracture plus matrix) and of the mobility of hydrocarbons as positive developments.
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Arrow Exploration (AXL LN/CN)C; target price of £0.60 per share: Reserves additions. Flow rate at Carrizales Noroeste likely to add further reserves – YE23 2P reserves were estimated at 11.8 mmboe, including 0.7 mmboe for Canada and 4.6 mmboe non-core, leaving 6.5 mmboe for the company’s core Colombian assets. This compares with 2.1 mmbbl at YE23 plus 3.9 mmbbl for Carrizales Norte reported in September for a total of 6 mmbbl. Adding back 0.6 mmbbl (net) produced at Tapir in 2023 suggests that Arrow has added 1.1 mmbbl at its core Colombian assets since the latest reserve reports (September 2023 for Carrizales Norte and YE23 for the other assets). The CN-5 exploration well that had encountered 45 feet of Ubaque pay with 25% porosity and 5 Darcy permeability at the Carrizales Noroeste prospect has now been put in production at a rate of 175 bbl/d (net) with 8% water cut. Production is being restricted at the lowest ESP setting of 30Hz to evaluate the water cut and will be gradually increased. The flow rate is important as it confirms the producibility of this area of the field estimated to hold 3.35 mmbbl resources net to Arrow and could allow Arrow to book additional reserves. The CN-6 development well in the C7 formation has been put on stream at an oil rate of 110 bbl/d net to Arrow (33 deg API) with 71% water cut. The CN-7 well has encountered pay zones in the Carbonara C7, Gacheta and Ubaque, and should be on production in the next few weeks. The first horizonal well at Carrizales Norte continues to be expected to be drilled in April. This is a very important well.
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Pharos Energy (PHAR LN)C; target price of £0.50 per share: Re-iterating guidance. Dividend up by 10%. Environment in Egypt improving - FY23 production and YE23 net debt had already been reported. Pharos has re-iterated its FY24 guidance of 5.2-6.5 mboe/d (3.9-5.0 mboe/d in Vietnam plus 1.3-1.5 mbbl/d in Egypt) with net capex of US$27.1 mm. In 2H24, Pharos plans to commence a two well drilling programme at TGT (Vietnam) and to start the development of NBS SW (Egypt). The environment in Egypt is improving. Pharos has received a payment of ~US$10 mm from EGPC, reducing receivables from ~US$37 mm at YE23 to ~US$30 mm at the end of March. Egypt has a received support package of US$57 bn and has committed US$1-1.5 bn to EGPC and EGAS to pay foreign oil companies. A regularization of payments should positively impact Pharos’ investment in Egypt and boost production. Pharos is also renegotiating the terms of its licences that could be consolidated to unlock further investment. With two drilling rigs in operation, Pharos’ production in Egypt could more than double. The FY23 dividend is expected to be 1.1 p per share up from 1.0 p per share in 2022. This represents a dividend yield of ~5.5% complemented by a US$3 mm share buyback programme. The key newsflow in 2024 is the securing of a well drilling slot on the high impact Block 125 as part of a multi well drilling campaign with a wider consortium of companies including Pharos. This could unlock discussions with a farm-in partner. The approval of an updated development plan for CNV, incorporating horizontal wells, could also have a positive impact on reserves..
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Pulsar Helium (PLSR CN)C; target price of C$1.80 per share: Wireline logging results suggest productive permeable zones at high impact helium well – The interpretation of the wireline logs at the Jetstream #1 well at the Topaz helium project suggests a predominantly gas saturated interval between 1,650-2,200 feet containing discrete zones with productive permeability. Drilling observations and log data interpretation suggest the presence of permeable zones in the form of fracture and/or vuggy porosity. Good permeability is very important for flow rate. Fractures typically have very high permeability. The saturation and the nature of the porous system are uncertain as not all the desired wireline data could be acquired due to the lack of fluid level in the borehole. All logging was conducted in a gas filled borehole instead of liquid. As a result, some of the measurements could lack reliability. Additional logs are planned to further assess reservoir characteristics and the porosity types prior to the well testing program. Pulsar is also having additional lab analysis performed on the drill cuttings and the LOD-6 (2011 discovery well) drill core.
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Tethys Oil (TETY SS)C; target price of SEK100 per share: No dividend for 2023 – Without surprise Tethys has decided to declare no dividend for 2023 as the company is ongoing a strategic review the rebalance the company’s asset mix. Until this process is completed, there is uncertainty regarding both the near- and long-term capital requirements relating to the development of the company’s portfolio of oil and gas assets. We were already assuming that no dividend would be paid for 2023.

VAALCO Energy (EGY US/LN)C; target price of US$10.00 per share: EG unlocked – The final documents for the Joint Operating agreement (JOA) for the Venus-Block P Plan of Development have now been signed by all the partners. The JOA has also been approved by the EG government. The Block P PSC is for 25 years from the date of approval. FEED is expected in 2024, FID in 2025 with installation of facilities and drilling thereafter and ultimately production. We currently carry US$0.69 per share for EG in our valuation. There are multiple sources of potential upside on the block. including Europa, Saturno, Urano and SW Grande, with over 100 mmbbl WI prospective and contingent resources. Other small companies are operating successfully offshore EG, including Trident Energy, Kosmos Energy and Panoro Energy. Typical fiscal terms in EG (based on Ceiba Okume operated by Trident Energy/Kosmos Energy) include 11% royalty, cost stop of 70% of revenue (for cost oil calculation), ~19% of profit oil being allocated to the State and 25% corporate tax on profit.
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Valeura Energy (VLE CN)C; target price of C$9.00 per share: Additional exploration upside. Lower decommissioning liabilities – FY23 production, YE23 net cash and YE23 reserves and resources had been reported previously. The FY24 production guidance of 21.5-24.5 mbbl/d with US$205-235 mm opex and US$135-155 mm capex has been re-iterated. Current production continues to be high, with average production for the first half of March of ~23,000 bbl/d, including ~7.9 mbbl/d for Jasmine, 7.2 mbbl/d for Nong Yao, 2.9 bbl/d for Manora and 4.9 mbbl/d for Wassana. Production at Wassana is particularly high. Valeura will also drill two exploration prospects that we had not included in our valuation: Ratree, near Jasmine, and Nong Yao D. An exploration well could also potentially be drilled at Wassana North, subject to rig sequencing. Nong Yao D is expected to hold at least 7-10 mmbbl, which could justify a new platform. The well is about to be spudded. Ratree is a riskier prospect with >20 mmbbl recoverable resources, to be drilled later in the year. First production from the Nong Yao C extension continues to be expected in late 2Q24. While the company has drilled additional wells in 2023, the YE23 estimates for NPV of the decommissioning liabilities has been reduced by 30% to ~US$129 mm (US$198 mm as at the end of September 2023) as decommissioning has been delayed. There could also be further opportunities to reduce cost. The new decommissioning liabilities are below the net cash position of the company at YE23 (US$151 mm). As we incorporate the new prospects to be drilled in 2024, we have increased our target price from C$8.50 per share to C$9.00 per share. The story continues to be about strong free cashflow generation, reserves growth and exploration upside.
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Zephyr Energy (ZPHR LN)C; target price of £0.12 per share: Potential for helium well to be drilled mid 2024 –In October 2023, Zephyr announced the acquisition of at least a 75% WI in the Salt Wash field, located ~3 miles to the south of the Paradox project. Salt Wash has a 15 feet oil rim, above which is an inert gas cap (~500 feet of gas column) which consists of ~72% nitrogen, 22% hydrocarbon gases, and 1.4% to 1.7% helium content. The field was abandoned in 2014 after having produced 1.65 mmbbl of oil and 11.7 bcf of natural gas. Zephyr believes that producible gas remains in the reservoir as the focus of the previous development was to produce oil. Salt Wash is estimated to hold 0.07-0.19 bcf of net helium discovered resources plus 0.04-0.66 bcf net helium prospective resources. The presence of helium, which is currently sold at up to US$1,000/mcf, could support a high value development. Equity investors are showing growing interest for US helium, which could benefit Zephyr. Following the positive drilling results at its key helium asset in Minnesota with ~0.26 bcf discovered resources of helium, the market cap of Pulsar Helium has increased to >£50 mm. The readthrough value for Zephyr’s 0.13 bcf of discovered helium (mid case) is ~£25 mm. Zephyr has already paid the vendor of Salt Wash US$0.6 mm and Zephyr now needs to spud a well before the end of June (gross cost ~US$6 mm), with the vendor having the right to back-in for 25% once the development plan has been proposed. The Company is in discussions with funding partners with a goal to finance the drilling of the initial Salt Wash well at the asset level. Many nearby Paradox oil and gas operators are already producing co-mingled helium in commercial quantities, and there is an active local offtake market for produced helium.
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IN OTHER NEWS
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AMERICAS

Canacol Energy (CNE CN): Discovery in Colombia – The Pomelo 1 exploration well encountered 96 ft of vertical gas net pay with average porosity of 21% within the primary Cienaga de Oro sandstone reservoir. The well was tested at a rate of up to 10 mmcf/d.

Enauta: Selling stake in Brazilian field – Enauta is selling 20% WI in Block BS-4 (Atlanta and Oliva fields) in the Offshore Santos basin to Westlawn Americas Offshore for US$301.7 mm.

ExxonMobil (XOM US): Resources estimate at Guyana field – CNOOC reported that the Lancetfish discovery is estimated to hold 730 mmbbl gross recoverable reserves. The Stabroek block is estimated to hold 11 bnboe recoverable resources.

Helix Exploration: US Helium IPO on AIM – Helix is raising £7.5 mm of new equity through an IPO on AIM. The company is exploring for helium in central Montana.

i3 Energy (I3E LN): Reserves update in Canada – YE23 2P reserves were estimated at 179.9 mmboe.

Molecular Energies (MEN LN): Cancelling AIM listing – Molecular Energies will be delisted from AIM. The upcoming IPO of Green House Capital has also been cancelled.

AUSTRALASIA

Coro Energy (CORO LN)/Conrad Asia Energy (CRD AU)/Empyrean Energy (EME LN): Operating update in Indonesia – The gross 2C contingent resources at Mako are now estimated at 392 bcf (-10% vs previous estimates).

Falcon Oil & Gas (FOG LN/FO CN): Reducing interests in Australian asset – Falcon is reducing its working interest in the Shenandoah South Pilot Project from 22.5% to 5%. Falcon will still retain a 10% working interest in the enlarged area of circa 72,000 acres around the Pilot and a 22.5% working interest in the remaining 4.52 million acres.

EUROPE

EnQuest (ENQ LN): FY23 results. Share buyback programme – EnQuest has announced a US$15 mm share buyback programme for 2024. YE23 net debt was US$481 mm. FY24 production is expected to average 41-45 mboe/d with US$270 mm capex. Production is expected to increase from 2025. Net 2P reserves at YE23 were estimated at 175 mmboe (YE22: 190 mmboe) with 389 mmboe net 2C contingent resources. Overall net production averaged 44.5 mboe/d in 2024 to the end of February.

Ithaca Energy (ITH LN): FY23 results and potential combination with Eni UK – FY23 production in the UK was 70.2 mboe/d. The company held 544 mmboe of 2P reserves plus 2C contingent resources at YE23 (YE22: 512 mmboe). YE23 net debt was US$605 mm. Ithaca anticipates producing 56-61 mboe/d production in 2024 with US$525-615 mm capex. Production is expected to reach 80 mboe/d by 2027. Ithaca has signed an exclusivity agreement with Eni to combine the company with Eni UK in return for shares in Ithaca. Eni is expected to hold 38-39% of the enlarged issued capital. Eni UK produced 40-45 mboe/d in 2023 and held ~100 mmboe of 2P reserves at YE23.

The Parkmead Group (PMG LN): 6 month result for the period ended 31/12/2023 – Gross production in the Netherlands was 19.9 mmcf/d. Parkmead held £9 mm in cash as at 31/12/2023.

FORMER SOVIET UNION

Caspian Sunrise (CASP LN): Operational update in Kazakhstan – Caspian has been in discussion with potential buyers concerning the BNG shallow structures at indicative prices potentially higher than the current carrying value. Production at MJF and South Yelemes is currently ~1,700 bbl/d.

Condor Energies (CDR CN): Financing for Central Asia – Condor issued US$4.8 mm of 3-year convertible debentures with 9% interest per annum and convertible into ~3 mm shares to fund working capital in Uzbekistan. This represents a conversion price of ~US$1.62 per share.

MIDDLE EAST AND NORTH AFRICA

Capricorn Energy (CNE LN): FY23 results. Special dividend – FY23 WI production in Egypt was 30,044 boe/d. In the North Sea, Capricorn settled its remaining earnout considerations due from Waldorf in exchange for a US$72.5 mm payment and 25% working interest in the Columbus gas field. YE23 net cash was US$75.9 mm. In Egypt, Capricorn received payment of US$30 mm from EGPC this week. FY23 production was 30,044 boe/d. FY24 production in Egypt is expected to be 20-24 mboe/d with a commitment to spend US$4.3 mm in a work programme and a further US$10 mm. YE23 reserves were estimated at 50.4 mmboe (WI). This represents a reduction of 13% on a net entitlement basis vs YE22. Capricorn has declared a special dividend of US$50 mm for 2023.

Eni (ENI IM): Dry hole in Egypt – The Orion-1X exploration well offshore Egypt was dry.

Genel Energy (GENL LN): FY23 results and operating update – FY23 WI production in Kurdistan averaged 12.4 mbbl/d. The company held 89 mmbbl net 2P reserves at YE23: Production at Tawke is anticipated to be stable in 2024. Genel held US$120 mm in net cash at YE23. The company anticipates net cash to remain above US$100 mm in 2024. US$107 mm is overdue from the KRG and Genel is looking to acquire new assets to diversify the income streams.

SUB-SAHARAN AFRICA

Corcel (CRCL LN): Update in Angola – The reactivation of the fractured carbonate reservoir at the TO-14 well has been challenging. Continued engineering work is being conducted to identify solutions to flow both TO-14 and the yet untested TO-13 well..

Reconnaissance Energy Africa (RECO CN): Raising equity for onshore Namibia – ReconAfrica is raising C$10 mm through an offering of units consisting of 1 common share and 1 warrant at an offering price of C$0.90 per unit. The warrants have an exercise price of C$1.15 per share. The proceeds will fund early stage exploration activities onshore Namibia.