AUCTUS ON FRIDAY - 02/08/2024
AUCTUS PUBLICATIONS________________________________________
ADX Energy (ADX AU)C; target of A$0.75 per share: Reflections on Welchau – IIndependent consultants have calculated that each of the three reservoirs encountered at Welchau (Reifling - 128 metres, Steinalm -118 metres and the Guttenstein - 111 metres) are hydrocarbon bearing with uncertainty on the hydrocarbon type. Laboratory work on the Steinalm reservoir has confirmed the full properties ofthe 43° API light sweet oil that was recovered in an MDT sample run in the Steinalm Formation. The vertical extent of this light oil in the Steinalm or in the shallower Reifling and deeper Guttenstein is uncertain and there is no clear evidence of a hydrocarbon-water contact in any of the reservoir formations based on the open hole wireline log data. Multiple open fractures and resulting fracture networks have been identified. In addition, there are other features that have the flow characteristics of open permeable fractures but are not fractures. Welchau-1 is expected to be tested in 4Q24. Two additional exploration opportunities have been identified. (1) There remains over 1,000 m of exploration potential below the current Welchau-1 well TD and the well could be deepened. (2) A similar anticline structure to Welchau at similar shallow depths is located ~7 km Northwest of Welchau-1. We re-iterate our target price of A$0.75 per share in line with our ReNAV. Our target price represents 7.5x the current share price.
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Arrow Exploration (AXL LN/CN)C; target of £0.65 per share: Continued high flow rate at 1st Hz well. Very good result at 2nd well. High overall production – The first CN Horizontal well (CNB HZ-1) is currently flowing at a rate of 2.2 mbbl/d (oil) with an IP30 rate of 2.65 mbbl/d (1.32 mbbl/d net). The well is performing better than expected. We forecast IP90 rate of only 1.5 mbbl/d. The well has paid back in less than a month. The water cut after >1 month is 34%. Assuming the water cut after six months of production doubles to 60-80% would imply ~1.1 mbbl/d of oil production by then (assuming the pump speed is unchanged). Given that the pump settings are likely to be increased, the oil flow rate is also likely to be higher. The second CN Horizontal well (CNB HZ-3) has been put in production and is currently flowing at a constrained oil rate of 3,038 bbl/d (1.5 mbbl/d net to Arrow) with a water cut of less than 6.5% while still recovering load fluid. This is very close to the initial production achieved at CNB HZ-1 (3.15 mbbl/d). This is again a very good result. Current net production stands at 4,557 boe/d, reflecting the continued restrictions associated with water handling. This is above our production forecasts of ~4 mboe/d in 3Q24 with two further back-to-back horizontal wells to be drilled. The CN-4 water disposal well is on production. The CNB-2 water disposal well has been completed and is awaiting stimulation work and regulatory approval. The company held ~US$11 mm in cash on 1 July. The success of the horizontal drilling programme unlocks the upside. Average production could be >5.6 mboe/d in 4Q24 and the company could become an M&A target.
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New Zealand Energy (NZ CN)C; target of £C$5.00 per share: Increasing domestic natural gas prices. Tariki-5 to spud in September – The Tariki-5 well continues to be expected to spud in early September. Drilling operations are expected to take 28 days with production starting in late October or early November. Initial production is expected to be around 6-8 mmcf/d growing to 20 mmcf/d within 10 months once New Zealand Energy has upgraded its facilities to comply with current safety and production standards. A gas offtake agreement has been signed for 1.8 bcf (0.9 bcf net to New Zealand). The offtaker will also pay New Zealand NZ$1 mm net for the exclusive right to negotiate a gas storage contract on Tariki. The exclusivity period is for a period of 12 months following the commencement of drilling of Tariki-5. The exclusivity payment provides additional funding and is in line with our forecasts. We value the natural gas reserves at Tariki-5 at ~C$3.20 per share.
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Panoro Energy (PEN NO)C; Target price NOK52 per share: Rig contract in Gabon extended to February 2025. Bourdon prospect confirmed. – Gross 2Q24 production in Gabon was 21,184 bbl/d, very close to our expectations (21.5 mbbl/d). 2Q24 production was negatively impacted by 21 days of planned maintenance. All the existing ESPs will be replaced with conventional ESPs. This should address the electrical problems that have negatively impacted production due to increased downtime at some producing wells. Changing an ESP is expected to last 2-3 weeks per well. During that period the production of this well will be shut down. The rig contract in Gabon has been extended until February 2025. This is important as this gives enough time to drill the Bourdon prospect (29 mmbbl gross prospective resources/~5 mmbbl net to Panoro WI) with an unrisked NAV of >NOK4.80 per share. The other key newsflow will be the drilling of Akeng in Equatorial Guinea (180 mmbbl gross prospective resources/~22 mmbbl net to Panoro WI) with an unrisked NAV of NOK16.30 per share.
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Serica Energy (SQZ LN)C; Target price £2.90 per share: Reflections on the UK fiscal regime changes – As expected, the rate of the Energy Profits Levy (EPL) will increase from 35% to 38% and the 29% investment allowance introduced with the EPL will be removed. The changes will be effective from 01 November 2024 and run until 31 March 2030. The government has also signalled that capital allowances (including first year allowances) in relation to the EPL will be reduced, but has said that the extent of this will be established after consultation with stakeholders and published in the 30 October fiscal event. While the continued uncertainty is unhelpful for new investment decisions, the government did confirm that the permanent regime (CT of 40% plus SCT of 10%) would remain unchanged. This is a positive surprise as this implies that the 62.5% uplift on capex for SCT purposes will also be retained. This means that for each £1 of capex, £1.625 is deducted from taxable profits for SCT purposes. We had anticipated that this uplift would be removed. This feature together with statements that they would consult on a long-term replacement for EPL could be read as an intention to provide some stability to the industry. Assuming that the new oil & gas UK fiscal regime will be in line with Norway’s (which was the Labour party’s indication before the election) where 100% of capex is deductible against taxable profits, then the reduction in capital allowances for EPL purposes might only be changed so that it offsets the retained uplift on SCT. Our model and valuations are based on these assumptions. Notwithstanding the proposed fiscal regime changes, the fact that the 62.5% capex uplift for SCT purposes remains in place means that our valuation for Serica on a worst case scenario (of capex not being deductible for EPL purposes and no sunset date for the EPL) has increased to ~£1.90/sh from ~£1.80/sh. Under this scenario Buchan would however not be developed. This valuation still represents >50% upside to the current share price. Assuming a sunset date of 2030 for the EPL (in line with the government’s announcement) sees our valuation increase to ~£2.30 per share (=90% upside). This assumes that Buchan is not developed. Under a low commodity price scenario (GBp57/th for NBP UK gas prices and US$74.21/bbl for Brent, the level below which the EPL would fall away), Buchan is sanctioned and our valuation for Serica would be ~£4.00/sh.
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Valeura Energy (VLE CN)C; Target price C$9.30 per share: Production restart at Wassana – Through advanced underwater inspection, including magnetic particle inspection, Valeurta has concluded that the observed anomaly (a crack within a weld) at Wassana MOPU is superficial, and accordingly does not constitute a risk to the structural integrity of the facility. Valeura has begun the process of restarting production operations, and anticipates achieving pre-suspension oil production rates of ~5,000 bbl/d within the week.
IN OTHER NEWS
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AMERICAS
Gran Tierra Energy (GTE LN/US/CN): 2Q24 results – 2Q24 production in Colombia and Ecuador was 32,776 bbl/d. Net debt at the end of June was US$521 mm.
Parex Resources (PXT CN): 2Q24 update – 2Q24 production in Colombia was 53,568 boe/d. The FY24 production guidance of 54,000 boe/d to 60,000 boe/d and capital expenditure guidance of US$390 mm to $430 mm are trending toward the lower end of their respective ranges.
Touchstone Exploration (TXP LN/CN): Operating update in Trinidad – 2Q24 sales volumes were 5,432 boe/d with current sales of ~5,711 boe/d following the work-over of Cascadura Deep-1.
Trinity E&P (TRIN LN): REcommended cash offer from Lease Operators – Lease Operators has made a formal offer to acquire Trinity at a price of 68.05 p per share. The Trinity directors have withdrawn their recommendation of the Touchstone Offer and recommending shareholders to accept the offers of Lease Operators.
ASIA AND AUSTRALASIA
Jadestone Energy (JSE LN): 1H24 update – Production at Akatara is expected to commence imminently. 1H24 production was 16,687 boe/d. Net debt at the end of June was US$72.7 mm. The FY24 production guidance range is reduced to 18.5-21,000 boe/d, from 20-22,000 boe/d due to weather and delays.
EUROPE
bp (BP LN): 2Q24 results – Adjusted net earnings over the period were US$2.8 bn with 2,480 mboe/d production. bp continues to expect FY24 production to be slightly higher than in 2023 with US$16 bn capex.
OMV (OMV AG): 2Q24 results – Adjusted net income for the period was EUR494 mm with 338 mboe/d production. FY24 production is forecasted to be ~330-350 mboe/d with EUR3.8 bn capex.
Shell (SHEL LN): 2Q24 results – Adjusted net earnings for the period were US$6.3 bn with 2,763 mboe/d production. The company has announced a new share buyback programme of US$3.5 bn.
Shell (SHEL LN)/Exxon Mobil (XOM US): Selling UK assets – Viaro Energy is acquiring Shell and Exxon’s working interest in the Shell-operated UK Southern North Sea assets owned by the two supermajors. FY23 production was 28,000 boe/d.
Trillion Energy (TCF CN): Operating update in Turkey – Production at West Akcakoca-1 is now 2.8 mmcf/d with wellhead pressure increased by 200-300 psi. Total combined production from the Akcakoca platform is 7.3 mmcf/d.
FORMER SOVIET UNION
Block Energy (BOE LN): 2Q24 update in Georgia – Production in July was 534 boe/d. The maturity date of the existing US$2 mm loan has been extended to February 2026. 91.2 nmm new warrants with an exercise price of 0.85 p per share have been issued to the lenders.
Nostrum Oil & Gas (NOG LN): Operating update in Kazakhstan – 1H24 production was 12.2 mboe/d.
SUB-SAHARAN AFRICA
Africa Energy (AEC SS/AFE CN): TotalEnergies exit licences in South Africa – TotalEnergies (TTE FP) and QatarEnergy are withdrawing from their 45% and 25% interests in Block 11B/12B. Following the exit of CNR, Africa Energy is the only remaining international partner in the block through Main Street 1549. The licence holds the Brulpadda and Luiperd discoveries.
BW Energy (BWE NO): Operating update in Gabon, South Africa and Brazil – 2Q24 net production in Gabon was 15,570 boe/d. WI production at Golfinho was 8.040 boe/d. Net debt at the end of June was US$345 mm.
Eco Atlantic (ECO LN/EOG CN)/Africa oil (AOI CN/SS): Transaction in South Africa – Azinam is selling a 1% Participating Interest in Block 3B/4B to Africa Oil in exchange for the cancellation of the shares in Eco held by Africa Oil. The value of the shares and the warrants is estimated at C$11 mm.
Invictus Energy (IVZ AU): Raising new equity for Zimbabwe gas exploration – Invictus has raised US$10 mm of new equity priced at A$0.10 per share from Zimbabwean investors. The funds will be utilised for Mukuyu-2 flow testing, advancing early monetisation opportunities and purchase of long leads for new exploration wells. Participants will receive an option to subscribe for one share for every four shares subscribed exercisable at A$0.30 with a two-year option period.
Seplat Energy (SEPL LN): 1H24 results – 1H24 production in Nigeria was 48.407 boe/d. Losses amounted to only 3.1% in 1H24 with production deferment of only 24%. First gas at ANOH is on track to be achieved by the end of 3Q24. Net debt at the end of June was US$366 mm. The FY24 production guidance is unchanged at 44-52 mboe/d.
EVENTS TO WATCH NEXT WEEK
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05/08/2024: Kosmos Energy (KOS LN/US) – 2Q24 results
06/08/2024: Tethys Oil (TETY SS) – 2Q24 results
06/08/2024: VAALCO Energy (EGY US/LN) – 2Q24 results
06/08/2024: Genel Energy (GENL LN) – 2Q24 results
07/08/2024: Frontera Energy (FEC CN) – 2Q24 results
08/08/2024: Valeura Energy (VLE CN) – 2Q24 results
08/08/2024: PetroTal (PTAL LN/CN) – 2Q24 results
08/08/2024: Canacol Energy (CNE CN) – 2Q24 results
Front Range Resources is engaged in oil and natural gas exploration and production focusing on horizontal multi-stage frac development in Montney, Bluesky, Wilrich and Falher formations in the Deep Basin area of west central Alberta.
BP is an integrated oil and gas group based in the United Kingdom. Co. is engaged in the exploration and production of crude oil and natural gas; refining, marketing, supply and transportation; and the manufacture and marketing of petrochemicals. Co. operates globally, with business activities in Europe, the U.S., Canada, Russia, South America, Australasia, Asia and parts of Africa. Co. operates in two business segments: Exploration and Production - including oil and natural gas exploration and development and production; and Refining and Marketing- activities include the refining, manufacturing, supply and trading, marketing and transportation of crude oil, petroleum and petrochemicals.
Exxon Mobil operates or markets products in United States and other countries through its divisions and affiliated companies. The company's business involves exploration for, and production of, crude oil and natural gas and manufacture, trade, transport and sale of crude oil, natural gas, petroleum products, petrochemicals and other products. In United States, the company's development activities are focused on the onshore United States, in the Permian Basin of West Texas and New Mexico and the Bakken oil play in North Dakota. Gas development activities are also focused on the Marcellus Shale of Pennsylvania and West Virginia, the Utica Shale of Ohio and the Haynesville Shale of East Texas and Louisiana.
Gran Tierra Energy, together with its subsidiaries, is a company focused on oil and gas exploration and production in Colombia. Co. is primarily engaged in the exploration and production of oil and natural gas. Co. has one reportable segment based on geographic organization, Colombia. As of Dec 31 2017, Co. had total estimated proved reserves of 59.3 million barrels of oil and natural gas equivalent, consisting of 58.9 million barrels of oil and 2.1 million cubic feet of natural gas.
Jadestone Energy is engaged in the evaluation, acquisition, exploration and development of oil and gas properties.
OMV is an international energy company with activities in Exploration and Production (E&P), Refining and Marketing including petrochemicals (R&M), and Gas and Power (G&P). Co. explores and develops oil and gas resources and supply energy to over 100 million people. OMV has three operating segments: Exploration and Production (E&P), Refining and Marketing, including petrochemicals (R&M), and Gas and Power (G&P), as well as the segment Corporate and Other (Co&O).
Panoro Energy is an international independent oil and gas company engaged in the exploration and production of oil and gas resources in Brazil and West Africa. In Brazil, Co. participates in a number of oil and gas licenses located in the Santos basin outside the south-east coast of Brazil and in the Camamu-Almada basin in the state of Bahia. In West Africa, Co. participates in a number of licences in Nigeria and Gabon. As of Dec 31 2013, Co.'s commercial production is from the Manati field in Brazil.
Parex Resources is engaged in oil and natural gas exploration, development and production in South America and the Caribbean region. As of Dec 31 2010, Co. had gross proved light and medium oil reserve of 1,066 thousand barrels (net: 980 thousand barrels).
Royal Dutch Shell is a holding company. Through its subsidiaries, Co. is engaged in the oil and gas industry. Co. reports its business through four segments: Integrated Gas, which engaged in the liquefaction and transportation of gas and the conversion of natural gas to liquids to provide fuels and other products; Upstream, which engaged in the exploration for and extraction of crude oil, natural gas and natural gas liquids; Downstream, which engaged in oil products and chemicals manufacturing and marketing activities; and Corporate, which comprising Co.'s holdings and treasury organisation, its self-insurance activities and its headquarters and central functions.
Serica Energy is an independent oil and gas company with production, development and exploration licence interests in the U.K. Continental Shelf and exploration interests in Ireland, Morocco and Namibia. As of Dec 31 2016, Co. had proved plus probable reserves of 3.8 million barrels of oil equivalent, which consisted of 2.1 million barrels of oil and 10.40 billion cubic feet of gas.
Sintana Energy is a development stage company engaged in oil and gas exploration and development activities in the United States.
Touchstone Exploration Inc., formerly Petrobank Energy and Resources Ltd., is an oil and gas exploration and production company. The Company's segments include Trinidad and Canada. The Company's core producing properties are located onshore within Trinidad. The Company's producing properties in Trinidad include Coora 1, Coora 2, New Dome, South Palo Seco, Barrackpore, Fyzabad, Icacos, Palo Seco and San Francique. The Company's exploratory properties in Trinidad include Bovallius, Moruga, New Grant, Ortoire, Otaheite, Piparo, Rousillac, Siparia and St. John. Its exploratory properties in Canada include Beadle, Druid, Luseland and Winter. The gross acres of the properties include approximately 106,604. The Company operates a total of approximately 370 wellbores on the Coora blocks. The New Dome block is located onshore in the southwest portion of Trinidad in the Ward of Siparia. The Barrackpore Block is located approximately 11 kilometers southeast of the city of San Fernando.
Valeura Energy is engaged in the exploration, development and production of petroleum and natural gas in Turkey and Western Canada. As of Dec 31 2010, proven gross reserves for light and medium oil was 116 thousand barrels (net reserves of 104 thousand barrels); proven gross reserves for heavy oil was 10 thousand barrels (net reserves of 9 thousand barrels); proven gross reserves for natural gas was 1,047 million cubic feet (net reserves of 938 million cubic feet); and proven gross reserves for natural gas liquids was 26 thousand barrels (net reserves of 19 thousand barrels).
Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector.
The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy.
Auctus has been set up at the beginning of a new decade in which we see significant opportunities in the Energy space. Globally, demand for energy is at record levels and continues to grow. Conversely, investment in traditional energy sources has been severely constrained. We believe this imbalance creates opportunities for both companies and investors.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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