Auctus on Friday - 20/10/2023

AUCTUS PUBLICATIONS
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ADX Energy (ADX AU)C; target price of A$0.80 per share: Two high impact wells to commence drilling by YE23 – ADX is expected to start drilling the Anshof-2 appraisal well in November. The well is targeting 4.9 mmboe possible reserves (net to ADX). Anshof is also estimated to hold 5.5 mmboe net 3C contingent resources (net to ADX). The Anshof-2 well is anticipated to be onstream together with the existing Anshof-3 well in 1H24. The Anshof-1 well will then be drilled in Q2 or Q3 24 increasing gross production from the Anshof field to ~1,000 bbl/d with three wells (500 bbl/d net to ADX). New permanent production facilities are being installed in Q1 24 that will have a capacity of up to ~4,000 bbl/d of oil. MND has already paid ADX A$3.2 million for past costs and long lead drilling expenditures. MND will fund a further A$7.8 mm of project costs to drill, complete and tie in the Anshof-2 and Anshof-1 wells to earn a 30% economic interest in the Anshof project. MND will also pay a further ~A$2.2 mm in back costs and fund ~A$6.0 mm of additional work programme costs if Anshof-2 production performance is in line with the independent expert’s prediction. The total firm and contingent cash payment and investment obligation is ~ A$19.2 mm. Welchau-1 is expected to be spudded in December. The well is targeting 807 bcfe gross best case prospective resources. ADX also holds an extensive portfolio of exploration and appraisal opportunities onshore Austria. This includes the IRR gas prospect (38 bcf gross prospective resources), SCHOE (6.6 bcfe), HOCH (4.8 bcfe) and GAST (3.6 bcfe). The GRB oil prospect (9.5 mmboe) is on trend with the Anshof discovery. We have changed our target price to A$0.80 per share as we incorporate the recently announced 10 for 1 share consolidation. This represents ~9x the current share price.
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Arrow Exploration (AXL LN/CN LN)C; target price of £0.55 per share: Large shareholders increase stake in Arrow – Canacol Energy has exercised 18.4 mm warrants and will now hold 60.1 mm shares in Arrow, representing 21.2% of the issued share capital. Tim Leslie has exercised 10.2 mm warrants, which more than doubles his interest from 7.6 mm shares to 17.0 mm shares. This represents 6.0% of the issued share capital. Arrow’s management has exercised 5.7 mm warrants. Management now holds ~6% of the issued share capital. Management has taken aggregate loans of C$675,000 with Arrow that we understand is to fund the exercise of the warrants. We view the exercise of warrants and the resulting increase in interests in Arrow as a positive. The concern of investors having to sell shares to exercise their warrants had created an overhang on the share price that should dissipate with this announcement. The exercise of warrants will also increase the cash resources of the company.
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Calima Energy (ADX AU)C; target price of A$0.80 per share: Wells above expectations and under budget in Canada – Early production at the Pisces #10 well is on trend with the existing Pisces #6 and #7 wells that were significantly above the type curve. Pisces #11 is on production and Pisces #12 will be fracc’d around 20-22 October. The three wells are under budget and continue to be expected to reach peak production in December.

GeoPark (GPRK US)C; target price of US$25 per share: 39 mboe/d current production. All eyes on Halcon-1 – 3Q23 production of 34,778 boe/d was below our forecasts of 37.3 mboe/d mostly due to a 10 day blockade at Llanos-34 (-~1.8 mboe/d) and slightly lower production at Platanillo (-~400 bbl/d) and CPO-5 (-~300 bbl/d). Current production stands at ~39 mboe/d including 7.1 mbbl/d at CPO-5 and 24.4 mboe/d at Llanos-34. Following the recent exploration success at Toritos-1 and Saltador-1, Llanos-123 is now producing 2,140 bbl/d (1,070 bbl/d net to GeoPark). The very rapid exploration to production cycle (just a few months) showcases the business model of GeoPark. The company is now drilling the Bisbita Centro exploration well that could add further production at the block if successful. Llanos-123 is a new area of production for GeoPark that could see further development wells in 2024. The Cucarachero-1 exploration well on Block-24 was dry. Following the success of horizontal drilling in the Mirador at Llanos-34, the program has been extended to six wells (from four initially). We have changed our target price to US$25 per share (in line with our new ReNAV) to incorporate the result of the Cucarachero-1 well and the 3Q23 production.
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Panoro Energy (PEN NO)C; target price of NOK50 per share: Production from Hibiscus wells back to normal. Drilling a new exploration well – Production at the DHIBM-3H and DHIBM-4AH wells has been restored to normal levels. The Dussafu field is now producing at rates of up to 35 mbbl/d, significantly above the 26.5 mbbl/d reported at the time of the electrical failures. Both wells had experienced surface electrical issues preventing operation of the downhole ESPs. DHIBM-3H was not producing while DHIBM-4H was producing on natural flow. Panoro’s total corporate production is now ~12 mbbl/d, near the target of 13 mbbl/d. Two to three new wells are still to be drilled at Dussafu. The DRM-3H development well on Ruche (5th well in the initial six well development programme) has encountered oil in the Gamba. This is the longest well in the campaign so far and an alternative final casing is now required. Drilling has been temporarily paused until the casing arrives on site. Meanwhile, Panoro has started drilling a new exploration well at Hibiscus South. The well will be drilled in ~30 days and targets ~7 mmbbl gross recoverable resources (~1 mmbbl net to Panoro).
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PetroTal (PTAL LN/TAL CN)C; target price of £1.50 per share: Opening a new export route to maximize production – Production continues to be impacted by the reduced barge movements to/from Brazil during the low river dry season. The river levels are lower compared to the 2022 dry season. 3Q23 production was 10,909 bbl/d, below our forecast of ~12 mbbl/d. Current production is ~12.5 mbbl/d. 4Q23 production is now expected to be 14-14.5 mbbl/d, below our forecasts of ~16 mbbl/d. Assuming the river levels recover in December, FY23 production is expected to be near the lower end of the 14-15 mbbl/d guidance. PetroTal will start a pilot 0.1 mmbbl oil sales shipment through the OCP Ecuador pipeline to the Esmeralda’s port in November. This involves 1,000 km of river barging and 115 km of trucking. Netbacks are expected to be similar to the Brazil route (~US$44/bbl at US$85/bbl for Brent). With the ONP (Northern Peruvian Pipeline) still shut down, the OCP route provides risk diversification by providing a route for 2-4 mbbl/d initially and then up to 5 mbbl/d. The barges used for this route are similar to the barges used for the Iquitos route and are different from the barges for the Brazil route. The rainy season though the Ecuador route is opposite to Brazil’s, allowing PetroTal to divert exports during the 3Q-4Q period when river levels are low through Brazil. PetroTal’s sales have been historically constrained by lack of export capacity and the well head production had to be chocked back. The well head production capacity was recently ~20 mbbl/d. PetroTal is considering three other potential export routes that could add a further 15 mbbl/d: (i) reaching directly station 5 (+5 mbbl/d), (ii) through Yurimaguas (+5 mbbl/d) and (iii) directly to Lima (+5 mbbl/d).
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Pulsar Helium (PLSR CN)C; target price of C$0.90 per share: Additional acreage could increase the size of the prize – Pulsar has signed a lease with a private mineral rights holder to expand the area surrounding the company’s Topaz helium project. The additional mineral rights are within a 6.2 mile radius of the Topaz discovery and cover a total of 2,840 gross acres (1,049 net acres). This more than doubles net acres under lease (existing net area of 1,040 net). Pulsar also has an option to acquire a further 2,092 net acres. The new lease is for an initial term of 20 years (extendable up to a maximum of 40 years). The lease gives Pulsar exclusive rights to non hydrocarbon gases. The private mineral rights owner will receive U$11,000 in cash from Pulsar and retains a production royalty of 3%. The acreage addition could increase the amount of prospective resources (current 2U: ~3 mmcf, 3U: ~76 mmcf currently). A new resource report is expected to be prepared after the drilling campaign. We estimate the unrisked NAV of 100 mmcf of helium at ~C$0.65 per share. Pulsar also announced that the licence area for the Tunu project in Greenland has been extended by 45 km2 to 2,816 km2. This enlarged area now covers the Kap Tobin locality where thermal springs were sampled in 2021, returning a helium concentration of 0.8%, alongside 97% nitrogen and 2% argon. This area is also expected to be able to co-generate power and heat.
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Sintana Energy (SEI.V CN)C; target price of C$0.90 per share: First high impact well to spud mid November - The Hercules drilling rig is expected to reach Walvis Bay around 4 November and reach the first drilling location at PEL83 (operated by Galp) by mid November. On completing the first well the rig will then move to the second drilling location – if results merit, the second location may be drill stem tested. The drilling programme is targeting the Mopane complex located at the southern end of PEL83 with an estimated mean oil in place up to 10 bnbbl. Assuming 30% recovery factor, this implies ~150 mmbbl net to Sintana’s 4.9% interest in the block. In case of success, Sintana is carried all the way through to production.
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Southern Energy (SOUC LN/SOU CN)C; target price of £1.40 per share: Preparing to relaunch the growth activity programme – 3Q23 production stood at 2,814 boe/d, broadly in line with our expectations. Current production continues to be ~2.9 mboe/d (as reported in August). This does not include the potential addition of ~0.25 mmcf/d of fuel gas that will now be sold as Southern consolidates the existing gathering systems. Southern has also initiated workover operations on two shut-in wells to re-establish production that could add a further 0.8 mmcf/d. In light of the recent recovery in US natural gas prices to above US$3/mmcf, Southern is in the process of re-bidding completion services in connection with the four uncompleted horizontal wells (DUCs) drilled earlier in 2023 at Gwinville. These four wells could add a total of 18-24 mmcf/d. We are now assuming that the first two DUCs will be in production in 1Q24 (we previously assumed 4Q23) with the two remaining DUCs on stream in 2Q24 (1Q24 previously). Given our assumed later production ramp-up, we have trimmed our target price from £1.50/sh to £1.40/sh, which still represents ~7x the current price.
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VAALCO Energy (EGY US/LN)C; target price of US$9.00 per share: Very strong performance in 3Q23 – 3Q23 NRI production was nearly 19 mboe/d, near the top range of the 3Q23 guidance range of 17.5-19.2 mboe/d. 3Q23 sales volumes were almost 19.9 mboe/d, at the higher end of the guidance range of 18.4-20.6 mboe/d. VAALCO held >US$100 mm in cash and cash equivalents at the end of September. This is above the already high cash position we were forecasting (US$91 mm). The cash position at the end of September is more than twice the cash the company held at the end of June (US$46 mm). In addition, VAALCO had another lifting in Gabon of about 0.6 mmbbl (gross) in early October that will contribute to the 4Q23 financials. This highlights the very cash-generative nature of the business. We forecast that VAALCO will hold almost US$130 mm in cash and cash equivalents at YE23. This is after having paid >US$25 mm in dividends and bought back US$20 mm in shares.
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Zephyr Energy (ZPHR LN)C; target price of £0.16 per share: Adding a helium asset in the Paradox – Zephyr is acquiring a minimum of 75% WI in a 1,047-acre leasehold position in the Salt Wash field which lies three miles to the south of the company’s WSU. Salt Wash was discovered in 1961 and produced 1.65 mmbbl from a 15 feet oil rim and 11.7 bcf of natural gas. Above the oil rim is a 500 feet gas column consisting of 72% of nitrogen, 22% of hydrocarbon and 1.4-1.7% of helium. In the context of helium prices of up to ~US$1,000/mcf, the estimated 0.07-0.19 bcf of discovered helium plus 0.04-0.66 bcf of prospective resources could be very valuable. Using our valuation for the Topaz helium project (Pulsar Helium), the unrisked value of 0.13 bcf of helium at Salt Wash could be ~US$60 mm (~£0.03/sh). Many nearby Paradox Basin operators are already producing co-mingled helium in commercial quantities, and there is an active local offtake market for helium. The Cane Creek reservoir is also present at Salt Wash and the Upper Leadville formation (the historical production comes from the Leadville) is a secondary target. The consideration for acquiring 100% WI in Salt Wash consists of two payments of US$0.3 mm each due within 30 days and 60 days of the transaction and the drilling of one well (US$6 mm) to be spudded in 1H24 and targeting the three plays (Cane Creek, helium and U. Leadville. The seller has the option to back-in for 25% after the well is drilled. Zephyr will redrill Well 36-2 where the tubing is stuck. The insurance is expected to bear the cost of twinning the well in 1Q24. The 36-2 wellbore may have future re-use potential such as a vertical host for a new target.
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IN OTHER NEWS
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AMERICAS

Blue Star Helium (BNL AU): Raising new equity for helium in the USA – Blue helium is raising A$7 mm of new equity at a price of A$0.021 per share. The proceeds of the raise will fund the capex to start production at Voyager. The company had A$2.5 mm in cash at the end of September.

Canacol Energy (CEN CN): Cancelling Colombia gas project and entering Bolivia - The long term take or pay gas sales contract with Empresas Publicas de Medellin, previously scheduled to commence deliveries in December 2024 has been terminated. This reflects increasing legal, social, and security obstacles that have arisen in the past months. As a result Canacol plans to 1) reduce capital spending in the Lower Magdalena Basin, 2) expend future capital in the Lower Magdalena Basin to target full use of existing transportation infrastructure, 3) drill the high impact Pola 1 gas exploration well in the Middle Magdalena Basin in 2Q24 which, if successful, could be commercialized into the interior market (Bogota, Medellin and Cali) via the existing TGI gas pipeline located 10 kilometers to the east of the Pola location, and 4) use excess capital originating from a reduced capital program to reduce debt. Canacol is acquiring E&P contracts from YPFB in Bolivia and has placed initial guarantees for a total of US$1.4 mm.

Maha Energy (MAHA-A SS): Entering Venezuela – Maha is acquiring 24% interest in PetroUrdaneta from Odebrecht E&P (OE&P). PetroUrdaneta operates three fields in the Maracaibo Basin region. PDVSA owns 60% of PetroUrdaneta. The fields produce >1,000 bbl/d and were estimated to hold >8 bnbbl of prospective oil in place. Maha will pay EUR4.6 mm for an exclusivity period of up to 9 months and an additional EUR4.6 mm in case it decides to extend the exclusivity for an additional 12 months, or upon the execution of the definitive documents. Maha would then have the option to acquire 24% interest in PetroUrdaneta for EUR18 mm in instalments. Maha will have the option to acquire a further 16% in PetroUrdaneta.

ASIA PACIFIC

Mosman Oil & Gas (MSMN LN): farming out helium and hydrogen asset in Australia – Mosman is farming out 75% WI in the EP145 licence to Greenvale Energy to fund seismic and drilling. Greenvale will pay Mosman A$0.16 mm in cash and pay for the year 3 work programme. Greenvale will also fund the permit’s year 4 work programme including drilling one well with a cost cap of A$5.5 mm. EPL 145 is estimated to hold prospective resources of 440 bcf of natural gas, 26 bcf of helium and 26 bf of hydrogen.

Woodside Energy (WDS AU/LN): 3Q23 update – 3Q23 production was 520 mboe/d. The Sangomar project in Senegal is on track for first oil in mid 2024.

EUROPE

Angus Energy (ANGS LN): Resources update in the UK – Net 2P reserves at Saltfleetby are estimated at 25.2 bcf of natural gas plus 0.4 mmbbl of liquids. The field is also estimated to hold gross contingent resources of 17.2 bcf 2C contingent resources plus 0.2 mmbbl of liquids.

BlueNord (BNOR NO): 3Q23 update in Norway – 3Q23 production was 24.7 mboe/d (guidance of 24-25 mboe/d). Production in October to date is ~26.5 mboe/d. Tyra II is now expected to start-up in 1Q24 with production plateau in 2Q24. BlueNord expects Tyra will deliver greater volumes during 2024 than previously forecasted. Net debt at the end of September was US$0.8 bn.

OKEA (OKEA NO): 3Q23 update – 3Q23 production in Norway was 23,710 boe/d. The company held net cash of NOK1 bn at the end of September.

MIDDLE EAST AND NORTH AFRICA

DNO (DNO NO): Operating update in Kurdistan and Norway – 3Q23 gross [production in Kurdistan was 25,984 bbl/d. 3Q23 net sales in Norway were 14,292 bbl/d while 3Q23 WI production is Cote d’Ivoire stood at 3,373 bbl/d.

EVENTS TO WATCH NEXT WEEK
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24/10/2023: Var Energi (VAR NO) – 3Q23 results
26/10/2023: OKEA Energy (OKEA NO) – 3Q23 results
26/10/2023: Repsol (REP SM) – 3Q23 results
27/10/2023: Aker BP (AKERBP NO) – 3Q23 results
27/10/2023: ENI (ENI IM) – 3Q23 results