Auctus on Friday - 03/02/2023

AUCTUS PUBLICATIONS
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Arrow Exploration (AXL LN)C: Target price of £0.45 per share: On track for a very busy 2023 – Arrow is about to embark on a 10 well drilling programme that could add between 2,800 and 4,800 boe/d net production (before decline and in a success case) to the existing constrained production base of ~1,800 boe/d. Over January, production was ~1,800 boe/d with short term outages due to weather at Ombu and Pepper. This compares with production rate of 1,900-2,000 in November which included an initial high contribution at East Pepper (that has since declined, as expected). The drilling programme will commence with the RCE-3 well within the next five days. This will be followed by RCE-4 and RCE-5. Each well should take ~22 days to drill and bring into production. Each of these wells is expected to add 300-500 bbl/d production net to Arrow. Arrow will then drill three wells at Carrizales Norte. Each well could add 300-500 bbl/d net to Arrow. There is potential upside to these rates given that the Carrizales Norte wells are expected to deliver higher rates than the RCE wells. Arrow is planning to drill two additional wells into the Gacheta Sandstone reservoir in the fault bounded RCE structure in 4Q23. RCE 2 tested rates exceeding 350 bbl/d net to Arrow from the Gacheta Sandstone. Dedicated Gacheta wells would likely spud in Q4 2023 after the three Carrizales Norte wells have been completed. Two wells will be drilled at Oso Pardo, each expected to initially add 300-500 bbl/d net to Arrow.
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Calima Energy (CE1 AU); Target price of A$0.50 per share: High production guidance in 1Q23 - 1Q23 production is expected to be 4,378 boe/d. This is above our forecast of ~4,100 boe/d and reflects the very strong performance of the new wells (3xGemini + 2xPisces). On 10 January, Calima had reported production of 4,500 boe/d but we had estimated a steep decline over the quarter. Current production is above 4,700 boe/d. 4Q22 production of 3,727 boe/d including 1,132 boe/d at Thorsby and 2,595 boe/d at Brooks was below our expectations of 3,970 boe/d. Brooks production was impacted by third party shutdowns, workovers, power outages and repairs and maintenance. This downtime included Calima having to shut-in and then limit production on the Pisces #5 well due to a third-party sales gas compliance issue. This is now resolved. 4Q22 capex stood at A$15.1 mm which is above expectations (A$8.9 mm). This reflects bringing forward the costs associated with drilling Pisces #6 and #7 along with costs overruns due to a down hole tool being lost in a Brooks well as well as additional workover costs. 1Q23 capex of A$9.7 mm plus A$2.8 mm for the Montney programme is close to our forecast (total of A$11.4 mm). Operating costs have increased to A$21.7/boe in 4Q22 (A$18.66/boe in 3Q22). This reflects inflationary pressures and incremental trucking costs as Calima trucked more production to sell its production at higher prices. The capex to maintain flat production is estimated at A$25-35 mm/y. At current production levels and assuming ~US$93/bbl for WTI, we forecast an annualized operating cash flow of ~A$70 mm, implying a free cashflow run rate of at least A$35 mm per year. We have reduced our target price to A$0.50/sh as we incorporate (1) the impact of a weaker US$ versus A$, (2) higher opex, and (3) higher 4Q22 capex.
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Chariot (CHAR LN); Target price of £0.55 per share: Bringing water desalination capabilities in house is important for the green hydrogen business - Chariot is acquiring ENEO Water PTE for US$0.5-1.0 mm in Chariot shares. ENEO utilises an efficient, modular and scalable reverse osmosis technology that can be entirely powered by solar energy to produce desalinated water. ENEO is developing a proof of concept at a windfarm on the Red Sea in Djibouti that is under construction and is intended to provide local communities with access to potable water for the next 20 years. The capex of the project is very small (a few hundred thousand US dollars) and the project is expected to be profitable. The consideration for the acquisition is US$0.5 mm payable in Chariot shares on completion. Further consideration of up US$0.5 mm, also payable in Chariot shares, would be due on the achievement of financial close on further water projects.
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Hartshead Resources (HHR AU); Target price of A$0.18 per share: Expecting an industry farm-in partner - The Phase I Field Development Plan is expected to be submitted to the NSTA during 1Q23. Hartshead has received interest from a number of potential industry partners, a sub-set of which has entered the next stage of the farm-out process involving further due diligence and negotiations. The company hopes to successfully conclude the process at the end of March. Securing a partner would be a major rerating event as it would provide clarity on the funding of the project as well as well as an external industry valuation for the assets. FID for the Phase I field development could be taken by mid 2023. Hartshead has also submitted bids in the UK 33rd Offshore Licensing Round. Awards are expected around mid 2023. Hartshead held ~A$9 mm in cash at YE22. Thus is much higher than we anticipated and, while the company has hired new staff and made progress with FEED, costs remain under control.
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Panoro Energy (PEN NO); Target price of NOK48 per share: On track to deliver 12.5 mbbl/d production during 2023 - FY22 production was ~7.5 mbbl/d, broadly in line with our forecasts. 1Q23 production is expected to be 7.0-7.5 mboe/d due to a planned shutdown during February at Dussafu Marin for final hook up and commissioning work. Production in the quarter has also been impacted by some ESP failures in Tunisia. The six new Hibiscus Ruche wells in Gabon are expected to be brought on stream from late 1Q23, which will progressively boost overall WI production to 12.5 mboe/d. The FY23 production guidance has been set at 9-11 mboe/d (in line with our expectations). YE22 net debt was ~US$47 mm and reflects the yearly tax payment (once per year) to EG that we estimate at ~US$10-15 mm. Panoro continues to offer a combination of value, growth and dividend distribution. At the current share price, the expected FY23 dividend will represent ~5-9% yield.
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Valeura Energy (VLE CN); Target price of C$4.70 per share: C$10 mm financing - Valeura is raising C$10 mm through a bought deal priced at C$2.54 per share. While the additional cash was arguably not required, we understand that the board of Valeura decided to accept the bought deal to provide an additional cash buffer in the interim period prior to the closing of the acquisition of the Mubadala asset and prior to first oil at Wassana (both in 1Q23). It took over a year to sign the SPA with Mubadala for the Thai assets, which was much longer than initially anticipated. The dilution associated with the C$10 mm equity issue is very small in the context of the company’s ~C$220 mm market cap. Our net cash forecast at YE23 is now ~US$220 mm (versus market cap of ~US$165 mm) increasing to ~US$380 mm at YE24. We re-iterate our target price of C$4.70 per share as the impact of the new equity issue is more than offset by the rolling forward by one year of our DCF to YE23. The shares continue to offer deep value, production and cashflow growth and reserves upside.
See website for full report

IN OTHER NEWS
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AMERICAS

88 Energy (88E AU/LN): Raising new equity – 88 Energy is raising up to A$15 mm at a price of A$0.0095 (£0.0055) per share. The proceeds will fund the Hickory-1 well at Project Phoenix in Alaska.

Canadian Overseas Petroleum (COPL LN/XOP CN): Operating and balance sheet update in the USA – 4Q22 gross production was 1,360 bbl/d. During late December 2022 and January 2023, the company's Wyoming operations and operating cash flow have been impacted by weather-related downtime and long-lead times or unavailability of services required for paraffin remediation and production management. The BFSU production and gas injection has been offline since late January. The production facilities are presently being re-started from 30 January as weather and access roads are cleared. Limited quantities of oil have been trucked from Cole Creek Unit during this time. As a result of these interruptions in production Canadian Overseas may not meet its financial covenants on its Senior Credit Facility in February 2023 and March 2023.

Diversified Energy (DEC LN): Operating update in USA – 4Q22 production was 134 mboe/d.

Frontera Energy (FEC CN): FY23 outlook in Colombia, Ecuador and Guyana – Frontera expects to produce 40 43 mboe/d in 2023 with US$385-455 mm capex including US$120-140 mm for Guyana exploration.

Murphy Oil (MUR US)/Wintershall Dea/Petronas: Dry hole in Mexico – The Tulum-1 exploration well did not encounter hydrocarbons.

Parex Resources (PXT CN): Increasing reserves and dividend – YE22 2P reserves were 201 mmboe (YE21 198 mmboe). The company has declared a regular quarterly dividend of C$0.375 per share, representing a 50% increase from the Company’s 4Q22 regular dividend. In the Northern Llanos, on January 21, 2023, Parex proactively shut-in its Capachos Block (50% WI) and halted drilling operations at the Arauca Block (50% WI), due to heightened security concerns related to peace talks at the Federal Government level in Colombia. As a result of this shut-in, net production is being impacted by approximately 6,000 boe/d and is affecting the pace that new wells can be drilled and brought online. The company anticipate production of 57-63 mboe/d in 2023.

Trinity E&P (TRIN LN): 4Q22 update in Trinidad – 4Q22 sales volumes averaged 2,961 bbl/d. The company held US$12.1 mm in cash at YE22.

ASIA AND AUSTRALASIA

Jadestone Energy (JSE LN): Trading update in Australia and Malaysia – FY22 production was 11,487 boe/d including 4,227 bbl/d at Montara, 2,176 bbl/d at Stag, 4,702 boe/d in Malaysia and 383 bbl/d at CWLH. YE22 net cash was US$122 mm. Jadestone sold its production at Stag at a US$22.78/bbl premium to Brent.

EUROPE

OKEA Energy (OKEA NO): 4Q22 results – 4Q22 net production in Norway was 19,887 boe/d. The plateau production at Yme has been pushed back to mid 2023.

OMV (OMV AG): 4Q22 results – 4Q22 adjusted earnings were EUR700 mm. FY23 production is expected to stand at 360 mboe/d with group capex of EUR3.7 bn.

Shell (SHEL LN): 4Q22 results – 4Q22 adjusted net earnings were US$9.8 bn. The company estimates FY23 capex at US$23-27 bn. A new US$4 bn share buy back is expected to be completed by the 1Q23 results announcement. 4Q22 dividend is US$0.2875 per share (3Q22: US$0.25 per share). YE22 1P reserves are estimated at 9.6 bn boe, representing a FY22 Reserves Replacement Ratio of 120% including acquisitions. Excluding acquisitions, the FY22 Reserves Replacement Ratio would have been 26%. The company expects to produce 2,660-2,920 mboe/d in 1Q23.

Trillion Energy (TCF CN): Drilling update in Turkey – The Guluc-2 well offshore Black Sea encountered 73 metres of potential natural gas pay within 14 separate sands in the Akcakoca Member. There are 3 sand gas reservoirs greater than 9 metres thick each.

FORMER SPOVIET UNION

Cadogan Energy (CAD LN): Operating update in Ukraine – FY22 net oil production was 323 bbl/d. Neither theKyiv Administrative Court nor the Supreme Court have taken into consideration the company’s arguments regarding the Bitlyanska license award approval and they have rejected the claims. The litigation case with the Ukrainian Tax Administration has been ended in favour of the position defended by Cadogan.

Caspian Sunrise (CASP LN): Operating update in Kazakhstan – Deep well 802 encountered oil at a depth of 3,900 m. Approximately 100 meters remains to be drilled to complete the side-track. Nevertheless, after encountering strong gas flows the well has flowed over a period of 3 days at oil rates fluctuating between 700 and 900 bbl/d measured on an open hole basis.

Petro Matad (CASP LN): Raising equity for Mongolia – Petro Matad has raised us$6 mm of new equity priced at 2.5p per share to drill an exploration well on Velociraptor prospect in Block V.

MIDDLE EAST AND NORTH AFRICA

Gulf Keystone Petroleum (GKP LN): Operating update in Kurdistan – FY22 gross production was 44,202 bbl/d. The company held US$151 mm in net cash at YE22. Gross production in 2023 year to date was 47,800 bbl/d. FY 23 gross production is expected to be 46,000 to 52,000 bbl/d with net capital expenditure of US$160-$175 mm.

TotalEnergies (TTE FP): Transferring interests in Lebanon assets to QatarEnergy - TotalEnergies and Eni have completed the transfer to QatarEnergy of a 30% interest in exploration Blocks 4 and 9 off the coast of Lebanon.

SUB-SAHARAN AFRICA

Orca Energy (ORC.A/B CN): Operating update in Tanzania – Additional Gas averaged 95.5 mmcf/d in 4Q22. Early in 4Q22 TPDC and TANESCO requested supply of a further 20 mmcf/d to supply the Kinyerezi 1 power plant extension, bringing total field offtake close to the maximum deliverability of 150+mmcf/d.

EVENTS TO WATCH NEXT WEEK
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07/02/2023 – BP (BP LN): FY22 results
07/02/2023 – Tethys Oil (TETY SS): FY22 results
08/02/2023 – Equinor (EQNR NO): FY22 results
09/02/2023 – DNO (DNO NO): FY22 results