Auctus on Friday - 24/03/2023

AUCTUS PUBLICATIONS
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Arrow Exploration (AXL LN) C; Target price of £0.45 per share: Good flow rate at RCE-4 – The RCE-4 well has been put in production. It has produced at a rate of 728 bbl/d (364 bbl/d net to Arrow) of 28.5 API oil with a 1% water cut from the C7-A and C7 Stringer zones over the last 24 hours. This is a similar result as at RCE-3 (24 h flow rate of 968 bbl/d gross/484 bbl/d net). As was the case at RCE-3, the RCE-4 well is also flowing naturally (ie the pump has not been turned on yet) and is choked back. The RCE-5 well spud on 19 March. Target depth is expected to be reached within the next two weeks. The rig will then move to Carrizales Norte where three wells will be drilled. With two new wells (out of 10 in 2023) already delivering high flow rates, we continue to estimate that the FY23 drilling programme could add between 2,800 and 4,800 boe/d net production (before decline and in a success case). Our FY23 production forecast of 3.6 mboe/d could be too conservative.
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Calima Energy (CE1 AU) C; Target price of A$0.50 per share: Another strong production update – The Pisces #8 and #9 wells have now been tied in. The aggregate initial flow rate of >500 boe/d is in line with expectations. The IP30 production for a Pisces type well is 230 boe/d. Production in 1Q23 to date is ~4,500 boe/d. With the contribution of the two new Pisces wells, our forecast of 4,325 boe/d in 1Q23 could prove to be too conservative. We continue to forecast that Calima will produce 4,450 boe/d in 2023. The WCS discount to WTI has also reduced to ~US$15/bbl compared with US$28/bbl in January. This is much lower than what we assume (US$23/bbl in 2Q23 and US$21/bbl in 3Q23), which could have positive impact on our cashflow forecasts.
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Hartshead Resources (HHR AU)C; Target price of A$0.18 per share: Agreeing with Shell on commercial terms – Hartshead has reached agreement with Shell on key commercial terms to transport and process Hartshead’s Phase I gas production to UK sales point. This is a key step in moving forward the FDP. Shell and Hartshead as respective Operators will now progress to conclude full-termed binding agreements for the offtake.

Longboat Energy (LBE LN)C: Target price of £1.10 per share: Looking at potential next steps – Longboat now expects the monetization of the Kveikje discovery by the end of 2Q23. We value this asset at £0.17 per share (US$13 mm), which would boost the company’s balance sheet and address funding concerns. In November 2023, Longboat is expected to receive £40.7 mm in tax receivables and repay ~£36.7 mm current debt. Longboat is looking for development/production assets in the North Sea and Malaysia that could add 1-3 mboe/d. In Malaysia, this includes DRO (Discovered Resource Opportunities). In February, for example, Petronas offered the Chenang DRO cluster off the coast of peninsular Malaysia and the Bambazon DRO cluster off the coast of Sabah. Both are shallow water clusters located close to existing producing hubs that will enable quick monetization. A DRO operates under a modified version of a production sharing agreement with the contractor take level similar to Norway (~22%). South East Asia is in our view an interesting area for potential acquisitions. With the region maturing, less appetite for exploration and ESG pressures to reduce exposure to hydrocarbons, the traditional asset holders such as Mubadala, Repsol, Shell, OMV and ConocoPhillips have been divesting properties, sometimes at low prices.
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Pharos Energy (PHAR LN)C: Target price of £0.55 per share: Operations on track. Guidance re-iterated. 1p per share dividend to be paid in July - Pharos has re-iterated its FY23 production guidance of 6,050-7,500 boe/d including 4,700-5,700 boe/d for Vietnam and 1,350-1,800 bbl/d for Egypt (3,000-4,000 bbl/d gross) with ~US$22 mm cash capex. YE22 2P reserves were estimated at 27.2 mmboe, down from 53 mmboe at YE21 due to the divestment of 55% WI of the Egyptian assets (-20.7 mmbbl), production during 2022 (-2.6 mmboe) and technical revisions ( 2.5 mmboe) in Egypt (low production combined with licence duration) and Vietnam (lower performance from certain wells and reduced production due to maintenance combined with licence duration). Pharos also held 19.7 mmboe of net 2C resources at YE22. Repatriation of US$ from Egypt continues to be constrained and a second drilling rig to resume production growth is not now expected until next year. In Vietnam, drilling will resume at TGT in early 2024. An extension to the licence term on Block 125 is expected to be obtained in 2023 with a farm-in partner to be secured in 2H23.
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Tethys Oil (TETY SS)C; Target price of SEK120 per share: Production update in Oman – WI production at Block 3&4 in February was 9,566 bbl/d up from 9,392 bbl/d in January. This is in line with our expectations but the production increase suggests that the water production issue is now under control and that the company’s remediation programme is effective.

Valeura Energy (VLE CN)C: Target price of C$5.20 per share: Wassana FSO sales away. Accretive acquisition of minorities. Completing the acquisition of Mubadala assets in Thailand – The MT Jaka Tarub crude oil storage vessel for the Wassana field has sailed away and is now on its way to the Wassana field. The vessel is expected to arrive at Wassana in the next few days, to be followed by first oil shortly thereafter. Valeura is also acquiring the 12.5% minority interest in the Thailand SPV for 9.5 mm shares in Valeura representing 9.4% of the enlarged share capital. This is a very accretive transaction that increases production, cashflow and reserves in Thailand by 14.3%. It also simplifies the capital structure and the understanding of the cashflow net to Valeura. Valeura has also completed the acquisition of Mubadala’s assets in Thailand. We are increasing our target price from C$4.70 per share to C$5.20 per share to capture the impact of the acquisition of minorities. The shares continue to offer deep value, production and cashflow growth and reserves upside.
See website for full report

Zephyr Energy (ZPHR LN)C; Target price of £0.20 per share: Starting well test at Paradox well – A service rig has now been mobilised to the well-site and operations on the ground have commenced. Workover operations (which will include perforating the well in the productive portion of the Cane Creek reservoir) and subsequent production testing are estimated to take four to six weeks.

IN OTHER NEWS
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AMERICAS

Alvopetro Energy (ALV CN): Operational update in Brazil. Increasing dividend distribution – Sales in January averaged 2,754 boe/d increasing to 2,866 boe/d in February. YE22 cash and working capital was US$14.7 mm. The company is increasing its quarterly dividend by 17% to C$0.14 per share.

Aventi Energy (AVN CN): Helium contingent resources in Canada – Avanti has been estimated to hold 221 mmcf of net helium recoverable resources at the Sweetgrass Pool in Greater Knappen.

Canacol Energy (CNE CN): Reserves update in Colombia – Canacol has been estimated to hold 114.5 mmboe of 2P reserves at YE22, up 7.5% versus YE21.

Capricorn Energy (CNE LN)/Eni (ENI IM): Discovery in Mexico – The Yatzil exploration prospect in Block 7 has encountered ~200 mmboe of hydrocarbons in place.

Diversified Energy (DEC LN): FY22 results – FY22 production in USA was 135 mboe/d with 141 mboe/d in December 2022. YE22 2P reserves were estimated at 829 mmboe. ~85% of 2023 production is hedged at an average natural gas price of US$3.83/mcf.

Rockhopper Exploration (RKH LN): Update in the Falklands – Rockhopper is proposing a lower cost development plan for the Sea Lion discovery with capex pre-first oil of US$1.3 bn (US$1.8 bn previously).

Touchstone Exploration (TXP LN/CN): 4Q22 update in Trinidad – 4Q22 WI production was 2,229 boe/d including 955 boe/d at Coho-1. YE22 net debt was US$16 mm. Coho production in February has declined to 864 boe/d while crude production has increased to 1,441 bbl/d.

ASIA AND AUSTRALASIA

Great Eastern Energy Corporation (GEEC LN): Intention to delist – The GRDs of Great Eastern will cease trading in London on 21 April.

EUROPE

Beacon Energy (BCE LN): RTO and fundraise – Rhein Petroleum is reversing into Beacon. In return, Beacon is issuing ~3.5 bn new shares in Beacon to Rein Petroleum’s shareholders. Beacon is also raising £6.04 mm of new equity priced at 0.11 p per share. Rhein Petroleum holds 3.85 mmbbl of net 2P reserves and 22.96 mmbbl of net 2C resources in Germany.

Egdon Resources (EGD LN): Trading update in the UK – Production in the six month period ending 31 January was 253 boe/d. As at 31 January, the company held £5.5 mm in cash.

OKEA (OKEA NO): Acquisition in Norway – OKEA is acquiring 28% WI in PL035 from Equinor for US$220 mm including tax balances of ~NOK300 mm with an effective date of 01 January 2023. The acquisition includes 23.9% WI in Statfjord Unit, 28% WI in Statfjord Nord, 14% WI in Statfjord Øst Unit and 15.4% WI in Sygna Unit with 41 mmboe of net 2P reserves and 8 mmboe of net 2C resources. The transaction adds 13-15 mboe/d production in 2023 that is expected to grow to 16–20 mboe/d in 2024. In addition to the fixed consideration, the agreement contains a contingent consideration structure based on profit sharing on crude oil volumes sold at a realised price of US$75–96/bbl in 2023, US$64–85/bbl in 2024, and US$53–72/bbl in 2025, as well as on dry gas volumes sold at a realised price of 170-341 p/th in 2023, 125–248 p/th in 2024, and 37–75 p/th in 2025. The profit sharing within these limits is 90% after tax to Equinor and 10% to OKEA. For realised prices on crude oil above US$96/bbl in 2023 and US$85/bbl in 2024 and realised prices on dry gas above 341 p/th in 2023 and 248 p/th in 2024 the profit sharing is on 50/50 after tax basis. OKEA keeps 100% of realised oil prices above US$72/bbl and gas prices above 75 p/th in 2025.

Serinus Energy (SEN LN): FY22 results – FY22 production was 889 boe/d including 379 boe/d in Romania and 510 boe/d in Tunisia. Serinus was estimated to hold 7.2 mmboe 2P reserves at YE22 including 0.5 mmboe in Romania. YE22 net cash was US$4.8 mm.

Trillion Energy (TCF CN): Reserves update in Turkey – YE22 2P reserves were estimated at 48.6 bcf (up from 20.1 bcf at YE21).

FORMER SOVIET UNION

Nostrum Oil & Gas (NOG LN): FY23 production guidance – The company expects to produce 9-10 mboe/d in Kazakhstan in 2023.

MIDDLE EAST AND NORTH AFRICA

Capricorn Energy (CNE LN): Focusing on Egypt - As part of a strategic review, Capricorn’s near-term strategic focus will be primarily on Egypt. The company will look to farm down, monetise or exit exploration concessions outside Egypt. As a result, Capricorn will need a substantially reduced headcount in the UK.

Energean (ENOG LN): FY22 results - Energean has re-iterated its goal to reach 200 mboe/d production in 2H24. YE22 2P reserves have been estimated at 1,161 mmboe. YE22 net debt was US$2.5 bn. The FY23 production guidance of 131-158 mboe/d with US$650-740 mm capex has been re-iterated.

Genel Energy (GENL LN): FY23 results – YE22 Net cash was US$228 mm. A final dividend of US$0.12 per share for 2022 has been recommended (representing US$33.5 mm). In 2022, the company distributed US$50 mm. The FY23 production guidance of 27-29 mbbl/d in Kurdistan has been re-iterated. FY23 capex is expected to be US$100 125 mm.

Gulf Keystone Petroleum (GKP LN): FY22 results – Gross production in Kurdistan was 44.2 mbbl/d. 2023 year to date gross average production was 48,900 bbl/d, with gross average production in March to date of ~53,500 bbl/d and production of ~55,000 bbl/d in the last few days. The company held US$119 mm in cash at 22 March. Gross 2P reserves + 2C resources were estimated at 817 mmbbl (2P reserves of 506 mmbbl) at YE22. Given the continued delays to KRG payments, the company is reviewing the forward capital programme and 2023 net capital expenditure guidance of US$160-$175 mm. The FY23 production guidance has been set at 46-52 mbbl/d (gross).

SUB-SAHARAN AFRICA

Savannah Energy (SAVE LN): Chad assets nationalized – The assets that Savannah acquired from ExxonMobil in December have been nationalised. The Chad government had not approved the acquisition.

EVENTS TO WATCH NEXT WEEK
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28/03/2023 – Canacol Energy (CNE CN): FY22 results
29/03/2023 – Nostrum Oil & Gas (NOG LN): FY22 results
30/03/2023 – Valeura Energy (VLE CN): FY22 results
30/03/2023 – PetroTal (PTAL LN/TAL CN) : FY22 results
30/03/2023 – Igas Energy (IGAS LN): FY22 results