Auctus on Friday - 11/08/2023

AUCTUS PUBLICATIONS
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ADX Energy (ADX AU)C; target price of A$0.08 per share: A high-quality industry partner in Austria to fund and accelerate Anshof development - ADX is farming out 30% WI in the Anshof discovery to MND. On closing, ADX will hold 50% WI in Anshof. MND will pay ADX ~A$3.2 mm for back costs and long lead items for the Anshof-1 and 2 wells on completion of the transaction. MND will also fund ADX’s share of drilling and completion costs of A$3.9 mm per well (total of A$7.8 mm for two wells). This results in total firm payments of ~A$11 mm to ADX. In addition, MND will pay a further ~A$2.2 mm in back costs and fund ~A$6 mm of ADX’s net share of an additional work programme if Anshof-2 performs in line with independent expert prediction. We view this performance-based milestone as very low risk. MND is a very credible industry player in the region and the decision to enter Austria with ADX highlights the materiality and attractiveness of ADX’s assets. The transaction values ADX’s residual 50% WI in Anshof at A$18-32 mm (excluding the value of the carry). This represents 57% to 98% of ADX’s current market cap or US$4.7 to 8.1/bbl of 2P reserves. The transaction provides funding to accelerate Anshof’s production ramp-up and increases ADX’s ability to bring forward further exploration including Welchau and further gas exploration. Separately, ADX has agreed terms with MND for further investment in gas exploration in an area within the ADX-AT-I licence. This could be announced shortly and will provide further funding for exploration drilling. ADX continues to be in discussions with other parties to farm out interests in its other Austrian assets. The entry of MND could act as a catalyst for other players to follow suit. While the funding risk for Anshof has been reduced significantly, we have changed our target price to A$0.080 per share as we factor dilution. This represents ~9x the current share price.
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GeoPark (GPRK US)C: target price of US$25 per share: Discoveries in Colombia and Ecuador. Important drilling results over coming quarter – 2Q23 production of 36,581 boe/d and cash at the end of June had already been reported. The Indico 6 and Indico 7 wells in the CPO-5 block in Colombia continue to be expected to return to production in August. The operator has completed most of the required surface work. GeoPark has re-iterated its FY23 production target of 38.0-40.0 mboe/d. With contribution from 5-6 new horizontal wells with increasingly long laterals by YE23 and better uptime at Llanos-34, 4Q23 production is expected to reach 40-41 mboe/d. The Saltador-1 well at Llanos-123 has encountered 29’ of net pay in the Barco (Guadalupe) formation. The formation has been put on production at ~880 bbl/d (5% water cut). Importantly the well could derisk a larger prospect located to the south of the block that could be drilled around YE23 or early 2024. The discovery of 48’ of net pay in the new U-sand formation at the Yin 2 well is another positive. Frontera Energy reported initial production rates of ~1,200 bbl/d of 30.5 degree API crude oil. With multiple near term drilling catalysts including (1) the testing of Yin-2 that could add reserves and production, (2) the drilling of the Zorzal Este-1 (Llanos-87), Toritos-1 (Llanos-123) and Halcon (CPO-5) exploration wells, (3) the Cucarachero 1 exploration well (Llanos-124) reaching TD imminently, we re-iterate out target price of US$25 per share.
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PetroTal (PTAL LN/TAL CN)C; target price of £1.50 per share: Boosting 2Q23 dividend distribution. Reiterating production guidance - 2Q23 production, net debt and working capital at the end of June had already been reported. The dry season has started, resulting in low river levels, which constrains barging sales. Production in July was 11,552 bbl/d increasing to 13 mbbl/d in August. The company has re-iterated its FY23 production guidance of 14-15 mbbl/d. Given its strong balance sheet, PetroTal has declared a dividend of US$0.025 per share for 2Q23 (to be paid during 3Q23). This represents an increase of US$0.010 per share compared to the recurring quarterly dividend of US$0.15 per share. A quarterly dividend of US$0.025 per share (US$0.10 per year per year) would represent a dividend yield of ~18%. A buyback programme of US$3 mm per quarter would represent a further return of >2% per year. Important upcoming newsflow includes the potential reopening of the ONP pipeline allowing PetroTal to increase its production capacity and eliminate the production constraint during the dry season when the Amazon river water level is low. We also expect the company to progressively return to exploration drilling.
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Tethys Oil (TETY SS)C; target price of SEK110 per share: Lower production but positive appraisal results could trigger the development of a new field - 2Q23 WI production at Blocks 3&4 of 8,994 bbl/d had already been reported. The field continues to underperform but net production has stabilized at ~ 9 mbbl/d. Tethys has taken the cautious view of changing its FY23 production guidance from 9-10 mbbl/d to ~9 mbbl/d (+/- 0.2 mbbl/d). We have reduced our FY23 production forecast to 9 mbbl/d as well as our production estimates in future periods (9 mbbl/d in 2024 and 8.5 mbbl/d in 2025 versus 10.5 mbbl/d and 9.7 mbbl/d previously). The positive results at the Elaf-1, Rahbah-1 and Jari-1 exploration wells (also on Blocks 3&4) could add production and reserves. The most important update is the result of the EWT at Al-Jumd on Block 56 with 34,699 bbl produced during 2Q23 (~385 bbl/d) with production varying from 150-700 bbl/d. 2 wells are in communication while the third well (drilled in a separate section of the structure) experienced an increase of water cut and will be worked-over. Following these results, the company has started looking at commercialization options for the Al-Jumd trend. The exact perimeter of the development could also include (i) resources targeted by an exploration well to be drilled in 2H23 and (ii) the Sarha-3 well (testing to resume in the coming months). We currently carry only 1.5 mmbbl for Al-Jumd, but the development could be much more material. A development of the area could be sanctioned in 2024 and would provide additional sources of production. We have changed our target price to SEK110 per share, which reflects the lower production at Blocks 3&4. The total unrisked NAV of the upcoming exploration programme until 1Q24 is ~SEK245 per share.
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Valeura Energy (VLE CN)C; target price of C$6.10 per share: Lower capex, lower opex and potentially more reserves - 2Q23 production and net cash at the end of June had already been reported. The drilling programmes at various fields have delivered positive results, unlocking further drilling campaigns to extend production and delay decommissioning. At Nong Yao, following the 2Q23 drilling programme, Valeura is progressing plans for further infill drilling on the already-producing Nong Yao accumulations aimed at enhancing production and minimising the effect of natural declines. Positive ongoing performance of the new Jasmine infill wells has led to the development of a further infill drilling programme, which is now in the planning phase. At Manora, the results of the three new wells indicate the potential for further development opportunities (the incremental production particularly includes dry oil contributions from bypassed oil, which is rare in such a mature field), which are likely to form the basis of further infill drilling campaigns in 2024 and 2025, which could add reserves. As we were anticipating, the use of only one rig in 2023 has resulted in savings and the capex programme has been reduced by US$25 mm to US$155-175 mm. The FY23 operating costs guidance has also been reduced by US$20 mm to US$200-220 mm as Valeura operates more efficiently. With more drilling taking place at Nong Yao and Jasmine (and probably less at Wassana), the FY23 production guidance of 20-22.3 mbbl/d is unchanged. We have increased our target price from C$6.00/sh to C$6.10/sh. We continue to believe that the confirmation that the ~US$300 mm of tax losses associated with Wassana can be applied to the other fields could be a rerating event. It would materially offset the tax bill due in relation to profits made in 2023.
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VAALCO Energy (EGY US/LN)C: target price of US$9.00 per share: Raising production guidance with lower capex budget on strong operational performance– 2Q23 WI production stood at 24,863 boe/d (19,676 boe/d NRI), above the top end of the 2Q23 production guidance (WI: 22.6-24.5 mboe/d) with strong performance across all the company’s assets. In Gabon, 2Q23 WI production was 10,262 bbl/d (guidance of 9.5-10.3 mbbl/d) given very high uptime (97% during 1H23 vs 85% over 2022). In Egypt, 2Q23 WI production was 11,579 boe/d (guidance of 10.6-11.6 mboe/d) with 13 new wells drilled in 1H23. In Canada, 2Q23 WI production was 3,021 boe/d (guidance of 2.5-2.7 mboe/d) with the two new longer lateral wells exceeding expectations. Future drilling campaigns could be based exclusively on similar wells. As a result of this strong operational performance, VAALCO has increased the lower end of the FY23 production guidance range from 20.4-24.4 mboe.d to 22.4-24.3 mboe/d. This confirms our view of the potential of the assets. We are increasing our FY23 production forecast from 23.1 mboe/d to 23.6 mboe/d. With better drilling efficiency in Canada and Egypt, the FY23 capex guidance has been reduced from US$70-90 mm to US$65-75 mm. The strong performance of the Canadian and Egyptian assets since VAALCO took over TransGlobe showcases the rationale for the transaction. VAALCO will sanction further drilling campaigns in upcoming years, unlocking further growth. The company has already bought back US$12.5 mm in shares in 2023. Assuming share buybacks of US$5 mm per quarter during 2H23 (total of US$19.5 mm during 2023) and with an annual dividend of US$0.25/sh would lead to total shareholder distributions of >9% of the market cap in 2023.
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IN OTHER NEWS
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AMERICAS

Alvopetro Energy (ALV CN): Operating update in Brazil and 2Q23 results – Sales in July were 2,018 boe/d. Effective August, the contracted sales price is US$13.25/mcf. At the end of June, Alvopetro held US$18.8 mm in working capital surplus.

Canacol Energy (CNE CN): 2Q23 results – 2Q23 production in Colombia was ~188 mmcf/d. Net debt at the end of June was US$621 mm.

Eco (Atlantic) Energy (ECO LN/EOG CN): Acquiring assets in Guyana – Eco is acquiring 60% WI in the Orinduik Block from Tullow for an initial consideration of US$0.7 mm. Eco will also pay contingent consideration of US$4 mm in case of a discovery and US$10 mm upon issuance of a production licence. Tullow will also be entitled a 1.75% of the 60% Participating Interest entitlement revenue net of capital expenditure and lifting costs.

Frontera Energy (FEC CN): 2Q23 results – 2Q23 production in Colombia was 42,049 boe/d. Net debt at the end of June was US$201 mm.

Gas discovery in Bolivia– The Remanso-1X well has made a gas discovery with estimated volumes of 700 bcf of gas.

Maha Energy (MAHA-A SS): Production update in Brazil and the USA – 2Q23 production was 1,988 boe/d, including 211 boe/d in the USA and the balance in Brazil.

Touchstone Exploration (TXP LN/CN): 2Q23 results – 2Q23 production in Trinidad was 1,827 boe/d. Net debt at the end of June was US$28.9 mm.

Trinity Exploration (TRIN LN): Discovery in Trinidad – The Jacobin-1 well has encountered 290 feet of net oil pay including 63 feet of net oil pay in the deeper exploration targets.

ASIA PACIFIC

Harbour Energy (HBR LN): Selling Vietnam – Harbour is selling its ibusiness in Vietnam, which includes its 53.125% in the Chim Sao and Dua producing fields, to Big Energy Joint Stock Company for a consideration of US$84 mm.

EUROPE

Star Energy (STAR LN): Operating update in the UK – 1H23 production was 2,080 boe/d. Production was consistently above 2,250 boe/d in the latter part of July. Net debt at the end of July was £2.7 mm.

MIDDLE-EAST AND NORTH AFRICA

Gulf Keystone Petroleum (GKP LN): 1H23 operating update in Kurdistan – Outstanding receivables of US$$151 mm are still owed to Gulf Keystone. Crude sales averaged around 4,900 bbbl/d gross for the period from 19 July to 31 July. Since the beginning of August, volumes have increased to around 11,700 bbl/d. Volumes are sold at realised prices in line with the local market. The company’s cash balance as at 8 August 2023 was US$80 mm with no outstanding debt.

ShaMaran Petroleum (SNM CN): 2Q23 results – While the export pipeline to Turkey is shut-in, 2Q23 Sarsang oil sales went to the Kurdistan local market at an average net back price of ~US$41/bbl and generated cash payments to the company of US$6.5 mm. As at the end of June, ShaMaran had cash of US$92.5 mm (including restricted cash of US$59.3 mm), receivables from past oil sales of US$96.7 mm and gross debt of US$315.6 mm.

SUB-SAHARAN AFRICA

Kosmos Energy (KOS US/LN): 2Q23 results – 2Q23 net production was ~58 mboe/d. Net debt at the end of June was US$2.3 bn. First gas in Mauritania and Senegal is now expected in 1Q24.

EVENTS TO WATCH NEXT WEEK
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17/08/2023: DNO (DNO NO) – 2Q23 results