Auctus on Friday - 12/01/2024

AUCTUS PUBLICATIONS
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ADX Energy (ADX AU)C; target price of A$0.65 per share: Closing new farm-out transaction with MND/Amendment of agreement for Welchau farmout – The farm-out of 50% economic interest in a part of the ADX-AT-I licence has been completed and ADX has received EUR0.45 mm from MND for back costs payments. MND will fund EUR4.5 mm for exploration drilling. ADX and MND currently intend to drill either the LICHT or the IRR gas exploration prospect during 2H24. ADX also announced that the farm-out agreement with MCF Energy regarding Welchau has been amended. MCF will continue to pay for 50% of the well cost but the well cost cap has been increased from EUR3.8 mm to EUR5.1 mm. In return MCF will earn 25% economic interest in the Welchau investment area rather than 20%.

Arrow Exploration (AXL LN/CN)C; target price of £0.55 per share: 15 Wells in 2024 – 2024 exit production was >3.2 mboe/d. YE24 production was negatively impacted by the lack of contribution from the two new Oso Pardo wells that require stimulation (expected to take place in early 1Q24) given reservoir damage during drilling (high mud weight). We now anticipate that these two wells will add ~250-300 bbl/d (each) net production during 1Q24. The two new RCE wells (RCE-7 and RCE-8) are exceeding expectations with combined production >0.85 mbbl/d net to Arrow. We assumed IP rate of 0.25 mbbl/d per well net to Arrow. The 2024 drilling programme will include 15 wells with a capex of US$45 mm (broadly in line with our expectations). With the new Oso Pardo wells expected to be on stream in 1Q24 and taking into consideration a more precise drilling sequence for 2024, we re-iterate our target price to £0.55/sh. The story benefits from steep production growth (we forecast ~6 mbbl/d at YE24) and very material exploration with ~37 mmboe net prospective resources across multiple low risk prospects.
See website for full report

Calima Energy (CE1 AU)C; target price of A$0.13 per share: Selling Blackspur – Calima is selling Blackspur for ~A$83.3 mm (C$75 mm) in cash to Astara Energy. The final sale proceeds received by Calima will be adjusted on a dollar-for-dollar basis to the extent Blackspur’s net debt exceeds C$0. Blackspur's net debt is anticipated at closing to be approximately ~C$2-2.5 mm, resulting in a net cash payment on closing of ~A$80-81 mm. Calima Energy has ~A$4.1 mm in cash which remains with Calima together with a A$0.4 mm bond with BCOGC. The company will also retain the Paradise well asset in British Columbia that generates ~A$0.4 mm of free cash flow per year. At least 85% of the net cash received from the Blackspur sale will be distributed to shareholders. Overall, assuming only A$69 mm (equivalent to A$0.11 per share) will be distributed to shareholders (representing the minimum of 85% of the final sale proceeds) would leave Calima with ~A$15-16 mm in net cash on closing (equivalent to ~A$0.025 per share). The distribution to shareholders could be much higher as the company might not require as much net cash on closing. Calima retuned A$10 mm to shareholders during 2022/23. With the residual free cashflow funding an important proportion of the company’s residual A$1 mm per year expenditure (post sale of Blackspur), most of the remaining cash can be redeployed to make new acquisitions.
See website for full report

Panoro Energy (PEN NO)C; target price of NOK50 per share: Production update in Gabon – BW Energy (BWE NO) reported 4Q23 gross production in Gabon of 22.5 mbbl/d (3.9 mbbl/d net to Panoro). This is below our forecasts of 27 mbbl/d (4.7 mbbl/d) as the company is changing ESPs in some of the producing wells..

PetroTal (PTAL LN/TAL CN)C; target price of £1.50 per share: High Production in 4Q23 and high YE23 net cash – 4Q23 production was 14,865 bbl/d with 20,090 bbl/d in December. This compares with 11,808 bbl/d in October and 13,420 bbl/d in mid November. Well 16H is expected to start production in mid-January. The well will allow PetroTal to maintain production over 20 mbbl/d for the foreseeable future. PetroTal held US$90 mm in unrestricted cash at YE23. This is above our expectations of ~US$70 mm. In addition, PetroTal holds US$21 mm in restricted cash, US$70 mm in accounts receivable and US$68 mm in accounts payable. The latest quarterly dividend of US$0.02 per share (US$0.08 per share per year) represents a dividend yield of ~13.5%. The ongoing share buyback programme represents a further return of >2% per year.
See website for full report

Sintana Energy (SEI.V CN) C; target price of C$1.15 per share: Major discovery at PEL83 – Galp Energia has announced a major discovery of light oil in reservoir sands of high quality at the Mopane-1X exploration well on PEL83. Drilling is continuing to explore deeper targets. A DST is expected to be carried out in the coming weeks. On completion of operations, the rig will move to drill Mopane-2X. Pending the results of the well test, this could be very material to Sintana. The structure had been previously estimated to hold up to 10 bn bbl of oil in place. Assuming 30% recovery factor, this implies ~150 mmbbl net to Sintana’s 4.9% interest in the block. This is the first well of a drilling campaign likely to include at least four very high impact wells with three different operators. We have increased our target price from C$0.90 per share to C$1.15 per share as (1) we have increased our chance of development at PEL83 to 40% and (2) we are now basing our unrisked valuation of each offshore block held by Sintana on the recent farm-out transaction by Impact Oil & Gas assets in Namibia to TotalEnergies. We note that Sintana will be carried to commercial production by Galp, resulting in no dilution associated with funding the development of PEL83.
See website for full report

Tethys OIl (TETY SS)C; target price of SEK100 per share: New exploration well at Block 56 encounters hydrocarbons – The Menna-1 well encountered hydrocarbons in the Al Khlata, Karim and Birba formations. The Menna prospect is located ~30 km south-west of the Al Jumd discovery, with which it shares similar characteristics. The prospect is one of several identified prospects on the Eastern Flank trend, stretching alongside the border of Block 6’s productive Karim Small Fields. The well will now be tested. In a success case, this could increase the size of the development of the Eastern Flank (together with Al Jumd) on Block 56. We assume 3-5 mmbbl at Menna (unrisked NAV of SEK8 per share). The Menna-1 well, together with the Sarha-3 well (about to be tested), will define the total perimeter of development. This a key area for production and reserves growth in 2024. Pending the well test results at Menna-1 and Sarha-3, we re-iterate our target price of SEK100 per share. The total unrisked NAV of the upcoming exploration programme in 1Q24 is ~SEK230/sh.
See website for full report

IN OTHER NEWS
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AMERICAS

BW Energy (BWE NO): Operating update in Gabon and Brazil – 4Q23 gross production in Brail and Gabon was respecitevly 10.4 mbbl/d and 22.5 mbbl/d. Net det at YE23 was US$186 mm.

Canacol Energy (CNE CN): Production update in Colombia – Gas sales averaged 166 mmcf/d during the period 1 to 20 December 2023.

Maha Energy (MAHA-A SS): Production update in Brazil – Production in December was 2,375 boe/d.

Trinity E&P (TRIN LN): Operating update in Trinidad and disappointing exploration well performance – The flow rate of the Jacobin-1 exploration well has continued to decline and by early January was materially below expectations at ~20 bbl/d split 50/50 oil and water. There continues to be a high volume of gas produced from the well. A pressure survey has shown that a significant reduction in reservoir pressure had occurred over the period. The inference from this is that the volumes of hydrocarbons connected to the wellbore are lower than originally anticipated. The forward plan is to convert the well to pumped production and to assess potential in uphole zones. 4Q23 production was 2,736 bbl/d. The company held US$9.8 mm in cash at YE23. Borrowings at YE23 were US$4 mm, which reflect the value of outstanding VAT refunds due.

EUROPE

Equinor (EQNR NO): Dry hole in Norway – Exploration well 30/4-4 on production licence 043 FS was dry.

OMV (OMV AG): Operating update – 4Q23 production was 364 mboe/d.

Shell (SHEL LN): 4Q23 update – 4Q23 production is estimated at 2,710-2,850 mboe/d.

UK Oil & Gas (UKOG LN): Planning consent for UK project – The Court of Appeal has refused permission for any further appeal against the grant of planning consent for the Loxley conventional gas and hydrogen feedstock project in Surrey.

MIDDLE EAST AND NORTH AFRICA

SDX Energy (SDX LN): Selling asset in Egypt – SDX is selling West Gharib for US$6.9 mm including US$3.8 mm to be paid immediately and the balance in 1Q24.

SUB-SAHARAN AFRICA

Africa Oil (AOI CN/SS): Impact Oil & Gas farming out interests in Namibia assets to TotalEnergies (TTE FP) – Impact is farming out a 9.39% participating interest in Block 2912, Petroleum Exploration Licence 91, and a 10.5% participating interest in Block 2913B, Petroleum Exploration Licence 56. On completion of this transaction, Impact will hold a 9.5% interest in each of Blocks 2912 and 2913B. In return Total will carry all the costs of Impact until first commercial production. The carry will be repaid from cash flow from the blocks. Impact will also be reimbursed in cash for its share of the past costs incurred on the Blocks, net to the farmout interests, which is estimated to be ~US$ 99 mm.

BW Energy (BWE NO): Large shareholder rejecting buy offer – BW Offshore (holding 22.52% of BW Energy) has rejected the offer from BW Group to buy BW Energy.

San Leon Energy (SLE LN): Still no fund from new investor – No funds have been received yet from TRAM.

EVENTS TO WATCH NEXT WEEK
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15/01/2024: Repsol (REP SM) – 4Q23 trading update
16/01/2024: Pharos Energy (PHAR LN) - 4Q23 trading update
18/01/2024: Energean (ENOG LN) - 4Q23 trading update
During week of the 15/01/2024: Valeura Energy (VLE CN) – FY24 budget