AUCTUS ON FRIDAY - 28/06/2024

AUCTUS PUBLICATIONS
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Chariot (CHAR LN)C: target price of £0.50 per share: Key step towards developing future gas to industry business onshore Morocco – Chariot has signed Heads of Terms with Vivo Energy for the future offtake from the Loukos onshore licence where natural gas has been encountered at Dartois. Up to 3 mmcf/d would be initially sold to the CNG midstream business under a long-term gas sales agreement. Vivo intends to design, fund, construct and operate a CNG plant and virtual distribution network to transport natural gas from a number of sources to existing and new industrial customers in Morocco. Chariot will have the option to own up to 49% of the CNG midstream business, with Vivo Energy holding the balance. Vivo might complement this domestic production with natural gas imported from Europe. Demand is the area is estimated at 10 mmcf/d. 3 mmcf/d gross production would imply 2.25 mmcf/d net to Chariot. At US$10-15/mcf, this would lead to ~US$8-12 mm revenue net to Chariot which would bring cash in to fund further growth of the business. We view the current share price weakness as an opportunity. The company is expected to test the Dartois discovery in 3Q24. In addition, the high impact Anchois East well continues to be expected to spud in August. A drilling success could increase the size of Anchois to over 1 tcf (300 bcf net to Chariot). Our overall unrisked NAV for Anchois, including Anchois East Footwall and Anchois East North Flank, is £0.42 per share. This represents >5 times the current share price.
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Condor Energies (CDR CN)C; Operation update in Uzbekistan – Production in the second quarter to date was ~10 mboe/d. The production decline rate has been flattened (>20% per year previously) and the company is embarking a an extensive initial work-over campaign that includes installing proven artificial lift equipment to yield higher gas flow rates and increase well uptime, perforating newly identified pay intervals, performing downhole stimulation treatments, and isolating identified water intervals. There are > 100 wells associated with the Project, both existing and shut-in wells. Condor has also started construction of the first in-line flow separation unit, which separates water from the gas streams in the field, rather than at the production facility, thereby reducing pipeline flow pressure that can lead to higher reservoir flow rates.

Criterium Energy (CEQ CN)C: target price of C$0.35 per share: Results of work-over campaign above expectations. New drilling to start in August – The work-over programme has delivered a production increase of 180 bbl/d from six wells at a total cost of US$0.36 mm. This represents an average increase of ~30 bbl/d, which is 50% above management’s expectations (20 bbl/d). The overall costs are on budget. One of the worked-over wells, MGH-07, is now producing 40 mcf/d of natural gas (no natural gas production previously). The produced gas is used as fuel for power generation, directly reducing diesel consumption by 50%, resulting in an annualized operating cost savings of ~US$0.25 mm and reducing emissions (0.5ktpa) associated with Criterium’s operations at the same time. The payback period for five out of the six work-overs is estimated to be only 15-85 days and the aggregate program will have paid back by end of June. Production has now increased from 802 bbl/d in 1Q24 (and 870 bbl/d in late May) to ~910 bbl/d with two additional work-overs on stream compared to the end of May. A further 6-9 workovers are planned in 2024. The next work-over programme will start in July. Criterium has also identified follow-on workovers targeting gas zones within the field to ensure gas production can support power generation needs, reducing operating costs. Drilling operations are expected to start in August with two wells expected to be completed by the end of 3Q24. Criterium continues to anticipate the completion of the divestment of Bulu for US$7.75 mm by the end of August. This would have a very positive impact on the company’s balance sheet and its ability to increase production. Including the divestment of Bulu, we forecast YE24 net debt of US$14 mm, which could be reduced further by paying down the existing debt in return for additional write-down.
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Longboat Energy (LBE LN)C; Resources estimates in Malaysia – Block 2A has been estimated to hold unrisked prospective resources (Pmean) of 9.1 tcf plus 146 mmbbl of condensates.

Serica Energy (SQZ LN)C: target price of £2.90 per share: Initiating coverage – Serica Energy is a ~US800 mm market cap company with >40 mboe/d production and 140 mmboe of 2P reserves in the UK North Sea. The investment case is about value and generous shareholder distributions. The strategy is to maximize the value of two key producing hubs, depending on the UK’s tax policy, to develop a third one at Buchan Horst and to grow via M&A. Over the last 2 years, the share price has been negatively impacted by the reduction in UK gas prices and fiscal uncertainty. Serica’s dividend yield is now ~15% and the share price appears to more than discount a really “worst case” for the now relative certainty that the tax regime will change. The new management that joined in 2024 is looking to maintain the strong legacy of the firm including through smart M&A across the wider North Sea and the UK. Our £2.90/sh target price reflects our ReNAV. It implies ~85% upside.
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Serica Energy (SQZ LN)C: target price of £2.90 per share: Operations on track. High net cash – 2023 production to date was 43,781 boe/d. very close to our expectations of 44.3 mboe/d. Production in June at the Bruce Hub of 25,771 boe/d was particularly strong following the recent Light Well Intervention Vessel campaign. This partially offsets the low production in May at the Triton Hub following a trip of a compressor that shut down production for three weeks (the production at Triton has been restored since then). A 90 day well intervention campaign at Bruce from mid-July is likely to have a further positive impact on production. Bruce is expected to be shut down for maintenance for only one week in 3Q24. The second compressor at Triton (which provides redundancy) is expected to be repaired in October due to spare part lead time issues. Meanwhile, with a single compressor in operation, the risk of production shutdown is higher. However, with the platform expected to be shut down for maintenance for 40 days from 1 July, the period of vulnerability is only 1.5 to 2.5 months. The Bittern B1z sidetrack has encountered an oil filled reservoir in line with expectations. We carry an additional ~3 mbbl/d production from this well once on stream. Keith is now on stream with intermittent production. Production is expected to be continuous once the topsides at the Bruce platform are optimized. This is expected to be resolved in a few weeks’ time. Erskine is offline for the planned turnaround of the Lomond platform. The field is expected to restart in late July. The current run rate dividend implies a yield of ~17%.
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Tethys Oil (TETY SS)C; target price of SEK100 per share: Production update in Oman – WI production from Blocks 3&4 in May was 7.5 mbbl/d. Production continued to be impacted by the extreme weather conditions reported in April. As of the middle of May, production and exports have resumed on all fields.

Valeura Energy (VLE CN)C: target price of C$9.30 per share: Operational blip offers an opportunity for investors – Production at Wassana has been suspended following the discovery of a crack within one of the MOPU’s steel jack-up legs that could pose a risk to the structural integrity of the MOPU. The company is conducting further inspections and analysis to plan next steps. Further visibility is expected in the coming weeks. Pending further details, we are assuming no production at Wassana during 2H24 (~4 mbbl/d previously). We are also reducing our opex forecast for 2H24 by US$12 mm (50% of US$24 mm during 2H24). Under a worst case scenario, production at Wassana will be restored when the extended Wassana field will be redeveloped (~2026-2027). It is worthwhile to note that the situation with the Wassana MOPU has no impact on the redevelopment plan of Wassana. We understand that the repair or the change of the MOPU are unlikely to be covered by insurance. We now forecast ~21.1 mbbl/d production in 2024 (23.2 mbbl/d previously).
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Zephyr Energy (ZPHR LN)C: target price of £0.12 per share: Reducing the cost of debt. Testing at State 36-2R to start imminently – The FY23 operating cashflow after interests of ~US$9 mm was above our forecasts (US$7 mm) due to change of working capital. We expected a negative change of working capital given (1) Zephyr had to make advance payments for the remedial of the State 36-2R well ahead of being reimbursed by the insurance and (2) the fact that the proceeds of the production for the Slawson wells were not received until part way through 1H24. Zephyr’s revolving credit facility (RCF) has been redetermined with an unchanged borrowing base (compared to December 2023) of US$15.15 mm. The same lender, longstanding North Dakota-based commercial bank FIBT, has also provided Zephyr with a new term loan of US$5.6 mm. Overall, Zephyr now holds ~US$29 mm of debt (~US$30 mm previously), including the existing US$8.75 mm amortising term loan, as the more expensive US$6 mm bridge loan has been repaid out of the proceeds of the new term loan. The terms of the bridge loan included 12% per annum interest rate plus 1% royalty interest on the production associated with the new Williston wells. The overall average interest rate is now 9.5% per annum (10% per annum previously). The imminent focus remains the testing of the State 36-2R well that is currently cleaning-up. Zephyr had used very heavy mud to keep the well balanced while drilling (due to the very high pressure) and the company is slowly reducing the mud weight. Our unrisked NAV for the contingent resources that the State 36-2R well will contribute to derisk is £0.11 per share. A high flow rate would allow the booking of 2P reserves and growth in production. With success, overall production rates could increase by 250% by end of 4Q24 (compared to the FY23 average production). In addition, the well has encountered the overlying reservoirs with a similar response as at the original well. 270 mmboe prospective resources have been estimated at the nine overlying reservoirs. This represents 6-7 times the contingent resources estimated in the Cane Creek reservoir, which was the target of the State 36-2R well.
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IN OTHER NEWS
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AMERICAS

Eni (ENI IM): Selling assets in Alaska – Eni is selling 100% of the Nikaitchuq and Oooguruk assets to Hilcorp.

Equinor (EQNR NO): Dry hole in Argentina – The Argerich-1 well offshore Argentina was dry.

Melbana Energy (MAY AU): Disappointing flow rate in Cuba – The Alameda-3 appraisal well did not flow hydrocarbon from any of the target reservoirs.

EUROPE

Beacon Energy (BCE LN): Low production in Germany/Financial difficulties/Trading suspension – The flow rate at the SCHB-2 well has not stabilized yet but the company believes that it is likely to stabilize at 50-100 bbl/d (oil). The most likely explanation for the poor performance is a combination of residual reservoir damage in the upper section of the Upper PBS reservoir and poor permeability in this particular area of the Erfelden field in the Lower PBS reservoir. Beacon looks to reduce annual cash operating cost from EUR2.5 mm to EUR1.3 mm. The company has engaged with most of its creditors with the aim of agreeing a reduction in liabilities and a deferred payment plan. Two directors of Becan will leave the company. Trading in the company’s shares will be suspended on 1 July.

TotalEnergies (TTE FP): Selling gas assets in the UK – Total is selling its entire interest in West of Shetland assets (Laggan, Tormore, Glenlivet, Edradour and Glendronach fields, the onshore Shetland Gas Plant and nearby exploration licenses) to The Prax Group. These mature assets currently produce ~7,500 boe/d.

Var Energi (VAR NO): Discovery in Norway – The Cerisa exploration well in production license PL 636 encountered estimated gross recoverable resources of 18-39 mmboe.

FORMER SOVIET UNION

Caspian Sunrise (CASP LN): Operating update in Kazakhstan – Deep Well 803 has encountered oil in a 60 m interval above the main salt layer. This interval will now be tested. Production at BNG is ~1.6 mbbl/d (FY23: 1.8 mbbl/d). BNG was estimated to hold 24.8 mmbbl of 2P reserves at YE23.

Enqell Energy (ENW LN): Suspension order of Ukraine fields cancelled - The State Geologic and Subsoil Survey of Ukraine issued orders to cancel the suspensions of the Company's VAS production licence and SC exploration licence.

Petro Matad (MATD LN): Raising new equity for Mongolia – Petro Matad has raised US$8.9 mm of new equity priced at GBp2.0 per share. The proceeds will allow the company to put Heron-1 on production, drill, complete Heron-2 and put it on production and drill the Gobi-Bear 1 exploration well.

MIDDLE EAST AND NORTH AFRICA

Africa Oil (AOI CN/SS): Acquiring 50% in Nigerian business – Africa Oil is acquiring the 50% of Prime it does not already own from BTG. The transaction will double the company’s production and reserves. Africa Oil will issue shares to BTG. On completion BTG is expected to hold ~35% of the enlarged share capital of the company.

EVENTS TO WATCH NEXT WEEK
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Week of the 01/07/2024 – Valeura Energy (VLE CN): Operating update
05/0/2024 – GeoPark (GRPK US): Operating update