Auctus on Friday - 10/03/2023

AUCTUS PUBLICATIONS
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Chariot (CHAR LM) C; Target price of £0.55 per share: One step closer to FID – Production ramp-up quicker than expected – Chariot has completed the Front-End Engineering and Design (FEED) on the key components of the Anchois gas development project. The FEED confirms a plateau production of 105 mmcf/d from three wells including the existing Anchois-2 well, subsea infrastructure to an onshore central processing facility and an onshore gas pipeline to the Maghreb Europe Gas Pipeline (tie-in agreement already signed). This is in line with previous indications. We are currently assuming that production will initially be ~70 mmcf/d for up to two years. This is likely to be too conservative as production could reach >100 mmcf/d in just a few months. There is also upside to the production plateau given that (1) the wells could deliver much higher production and (2) the pipeline to shore could take ~150 mmcf/d. The European market through the Maghreb Europe Gas Pipeline could also absorb a much higher level of production. The onshore facility that is being sized to handle 105 mmcf/d would be the main bottleneck but it is modular in design and its capacity could be increased quickly. The onshore and offshore baseline surveys have been conducted. They are part of the Environmental, Social and Impact Assessment. The Field Development Plan is being finalized. The future development drilling at Anchois will also target 754 bcf of additional gross 2U prospective resources with 49-61% chance of success.
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Criterium Energy (CEQ CN)C: Initiating Coverage – Criterium is a new Toronto listed ~US$10 mm market cap company focusing on South East Asia. In very short order, Criterium raised >C$5 mm of new equity in 2H22 and subsequently acquired 42.5% WI in the Bulu PSC (308-420 bcf field offshore Java) for ~US$1.6 mm. With many sellers looking to reduce their exposure to hydrocarbons, a management team with extensive experience in the region and limited competition, Criterium is poised to rapidly assemble a production portfolio with visibility on 2-3 mboe/d by YE23 increasing to 8-10 mboe/d by 2026. The eye-catching acquisition by Valeura Energy of ~20 mbbl/d production in Thailand for just ~US$10 mm and the A$45 mm IPO of Conrad Asia Energy (Indonesia gas assets) in 2022 highlight the attractiveness of the region for Junior E&Ps. Net cash at the end of 3Q22 was ~C$0.025/sh. Our ReNAV based on Bulu is ~C$0.100/sh. The readthrough value of Criterium based on Conrad Asia’s market cap is ~C$0.410/sh.
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GeoPark (GPRK US)C; Target price of US$28 per share: CPO-5 production expected to be back to full capacity in early 2Q23 – FY22 production and YE22 net debt had been previously reported. January to February WI production was only ~37 mboe/d, below the production potential of 39,400-40,300 boe/d as the Indico 6 and Indico 7 wells in the CPO-5 block in Colombia continue to be off line until definitive surface facilities are completed. These two wells represent ~2.4-3.3 mbbl/d net to GeoPark, The facilities are now expected to be completed in early 2Q23 according to the operator. Importantly this does not reflect a more stringent attitude of ANH. In addition, since 28 February, temporary localized blockades have been affecting overall production and operations in the CPO-5 block, which are expected to be normalized within the next few days. GeoPark is re-iterating its FY23 guidance of 39.5-41.5 mboe/d (excluding any contributions from exploration) but given the low production in January and February FY23 production will be most likely be near the low end of the guidance range. The FY22 capex was well below the company’s guidance and our expectations (US$169 mm versus our forecast of >US$210 mm). This mostly reflects delays in activities that are now expected to take place in 2023 and are included in the FY23 capex guidance of US$200-220 mm.
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Longboat Energy (LBE LN LN)C; Target price of £1.10 per share: Egyptian Vulture to be relinquished but Longboat plans to take the asset forward – As part of an assessment of Egyptian Vulture, the discovery has been estimated to hold 4-68 mmboe contingent resources (1C-3C case). The study focused on seismic interpretation and distribution of areas with good reservoir. For an appraisal well on Egyptian Vulture to be successful, it would need to encounter better reservoir quality than that penetrated by the discovery well. Reflecting differing views on the asset, the Joint Venture participants could not reach agreement on an appraisal well to derisk Egyptian Vulture and the licence is being relinquished. Longboat continues to see value in Egyptian Vulture and is now looking to form a new group to take the asset forward. Rather than take over the existing licence, which would involve escalating license fees, Longboat will seek to re-apply for the acreage in the forthcoming licence round with awards due in January 2024. Pending further details on next steps, we are now excluding Egyptian Vulture that we carried at £0.18 per share in our Core NAV from our valuation. We are reducing our target price from £1.30/sh to £1.10 per share. Our estimate of the value of the Kveikje discovery alone is £0.17 per share while the unrisked value of Velocette is ~£1.50 per share.
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PetroTal (PTAL LN)C; Target price of £1.50 per share: Production back at 20 mbbl/d. Regular payments from Petroperu – Production was constrained in January and February, with average production of ~7,600 bbl/d and 8,000 bbl/d respectively, due to restricted barging capacity over these two months. The barging fleet schedules have now been re-established with an increased capacity of 1.5 mmbbl (1.2 mmbbl in 2022) and PetroTal’s production has been averaging 20 mbbl/d since the last week of February. Given the constrained production rates over January and February, the company now expects 1Q23 production to range between 11 mbbl/d and 12 mbbl/d, below previous expectations of 13.5 mbbl/d. However, given the strong current production rate and increased barging capacity, the company anticipates it will make up the 1Q23 production shortfall in 2Q23. The FY23 production guidance of 14-15 mbbl/d has been re-iterated. Well 14H is expected to be completed in early to mid April. The shares continue to offer deep value combined with reserves and cashflow growth. Also, the company could return US$100-130 mm to shareholders in 2023. This equates to £0.09-0.11 per share.
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Zephyr Energy (ZPHR LN)C; Target price of £0.20 per share: State 16-2 well test to be extended while precipitate issues are addressed – The State 16-2 well was initially flow tested at a choked back rate of 2 mmcf/d of natural gas and 100 bbl/d of condensate (433 boe/d), a measured rate which allowed the company to successfully commission surface facilities and improve flow assurance processes. As flow rates were increased above those levels, well performance became limited by fresh water pumping capacity and was subsequently impacted by the formation of down hole salt precipitate, an issue not uncommon with this type of completion. The precipitate, which blocked and subsequently cleared multiple times, impacted the well's flow capacity to achieve higher rates for an extended period of time. Zephyr was in the early stages of testing higher rates when its mandated flaring limits were reached. This will prevent further testing until the permits are updated or the well is put in production. The achieved constrained flow rate of 433 boe/d is probably the least that should be expected from the well once in production. The formation of salt precipitate in the tubing to a depth of ~8,000 ft (where the packers are located) was expected. Fresh water is injected in the annulus into the tubing from that depth to dissolve any salt precipitate. The formation of salt precipitate below the packers was not expected. Zephyr is assessing whether the precipitate issue is a function of continued flow back of completion fluids or a function of normal flowing conditions. If it is a result of normal flowing conditions, Zephyr is evaluating mitigation solutions which have been successful in other basins, and plans to extend the well test subject to regulatory approval. Pending further details on next steps and the flow test results of the State 36-2 well, we have not changed our forecasts. The precipitate formation is not expected to pose an issue at the State 36-2 well as it is testing the natural fracture network and will not be fracked. Zephyr plans to also drill a well in the oil-window of the basin that should not experience salt precipitate.
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IN OTHER NEWS
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AMERICAS

Alvopetro Energy (ALV CN): Production update in Brazil – February average sales volumes of 2,866 boe/d.

Desert Mountain Energy (DME CN): Raising new equity for US helium – Desert Mountain is raising C$20 mm of new equity through a placing of new units including shares and warrants. The Company intends to use the net proceeds for continued drilling and exploration, the purchase of infrastructure to support the McCauley Facility and the purchase of a second Helium facility.

iOG (IOG LN): Reserves update in the UK – YE22 2P reserves (gross) have been estimated at 54 bcf (YE21: 122 bcf) with Southwark 2P reserves down from 71 bcf to 10 bcf. Gross 2C contingent resources at Nailsworth have been reduced from 105 bcf at YE21 to 85 bcf at YE22.

Pantheon Resources (PNR LN): Drilling update in Alaska – The Alkaid well has delivered IP30 rate of 505 bbl/d of liquid and 2.3 mmcf/d of natural gas post clean-up of a sand blockage. Post cleanout, the flow rates were initially only marginally higher than pre-cleanout.

Parex Resources (PXT CN): FY22 results – FY22 production in Colombia was 52,049 boe/d. The company held a working capital surplus of US$85 mm at YE22. The YE22 2P reserves had been previously reported. Production during the first two months of 2023 was ~50.7 mboe/d due to the current suspension of operations in the Northern Llanos, specifically Capachos (approximately 6,500 boe/d net impact), less than expected production from LLA-34, as well as delays in the start of rig activity at VIM-1 and LLA-26. The FY23 production guidance has been set at 57-63 mboe/d.

Touchstone Exploration (TXP LN/CN): Reserves update in Trinidad – YE22 2P reserves were estimated at 75.1 mmboe (down 0.6% vs YE21).

EUROPE

Harbour Energy (HBR LN): FY22 results – FY22 production was 208 mboe/d. YE22 2P reserves plus 2C contingent resources were estimated at 865 mmboe including 410 mmboe of 2P reserves (YE21: 948 mmboe including 488 mmboe of 2P reserves). YE22 net debt was US$0.8 bn. The company has announced a final dividend of US$100 mm. Production in 2023 until the end of February was 202 mboe/d. The company expects to produce 185-200 mboe/d in 2023 with US$1.1 bn capex (guidance unchanged).

Neptune Energy: FY22 results – FY22 production was 135 mboe/d. The company expects to produce 150-165 mboe/d in 2023 with capex of US$650 mm.

MIDDLE EAST AND NORTH AFRICA

Genel Energy (GENL LN)/Gulf Keystone Petroleum (GKP LN): Reduced realisations in Kurdistan - The pricing formula for realised price has Kurdistan has changed from Dated Brent to Kurdistan Blend crude. From September 2022 to January 2023, the Kurdistan Blend was US$16-20/bbl below Dated Brent. The negative resulting impact on Genel revenue is US$2.2-2.7/bbl, while Shaikan realised prices will be US$10-13/bbl lower than under the previous mechanism.

ShaMaran Petroleum (SNM CN): FY22 results – 4Q22 WI production in Kurdistan was 16,761 boe/d. YE22 2P reserves in Kurdistan were estimated at 68.3 mmbbl (YE21: 30.4mmbbl). FY23 net production is expected to be 15-18 mboe/d with US$64 mm net capex.

SUB-SAHARAN AFRICA

Africa Oil (AOI CN/SS): Resources estimates in South Africa – Block 3B/4B is estimated to hold 4 bn boe P50 prospective resources with a chance of success ranging from 11% to 39%.

Tullow Oil (TLW LN): FY22 results – FY22 WI production was 61.1 mboe/d. YE22 net debt was US$1.86 bn. YE22 2P reserves were estimated at 229.1 mmboe with 605 mmboe contingent resources. FY23 production is expected to stand at 58-64 mboe/d with US$400 mm capex. The company anticipates generating US$200 mm free cash flow at US$100/bbl in 2023. Jubilee is expected to reach production >100 mbbl/d before YE23.