AUCTUS ON FRIDAY - 06/12/2024

AUCTUS PUBLICATIONS
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Chariot (CHAR LN)C; Target price of £0.08 per share: US$100 mm guarantees highlight the value of the South Africa energy trading business - British International Investment (BII) and GuarantCo have announced a US$100 mm guarantee finance facility for Etana Energy, the South African electricity trading platform which is owned and was co-founded by Chariot (49%) and H1 Holdings (51%). Etana is one of the few companies holding an electricity trading licence in South Africa that can buy and sell electricity through the grid. Etana is therefore a required counterparty to power producers. In order to access debt financing and take FID on their projects, the developers of new power projects need to have Power Purchase Agreements (PPAs) in place with a bankable counterparty. With the US$100 mm guarantees, Etana is bankable. As a result of Etana bankability, a total generation capacity of up to 500 MW of wind and solar projects can access debt and be sanctioned. This transaction highlights the importance of Etana to the power value chain and provides strong validation of Etana’s business model. This also highlights Etana’s deep understanding of the power sector and its capability to attract very high quality counterparties. There are multiple PPA’s already signed with more under negotiation. We currently value the South Africa business (Etana and Tharisa) at £0.02 per share, but this might prove too conservative.
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GeoPark (GPRK US)C: Target price of US$26 per share: Potential material acquisition in Colombia – GeoPark has signed a binding agreement to acquire Repsol’s 45% interest in CPO-9 and its 25% stake in SierraCol Energy Arauca. Carlyle owns 100% of SierraCol Energy, that owns 75% of SierraCol Energy Arauca. Sierracol Energy Arauca holds interests in Cravo Norte, Cosecha, Chipiron and Rondon, all located in the Llanos basin in Colombia. SierraCol has grouped these fields under the Cano Limon area. Very limited information is available on CPO-9 that is operated by Ecopetrol (55% WI). There are heavy oil producing fields (Chimene and Castilla) with 8-16 deg API oil on the licence that represent the largest proportion of the 16 mbbl/d net production being acquired by GeoPark. The licence is located to the southwest of CPO-5. According to SierraCol, the Cano Limon area has produced a total of >1.5 bn bbl of light and sweet oil. The gross original oil in place is >2.3 bn bbl and gross production has been flat at ~50 mbbl/d over the last four years. SierraCol carried 34 mmboe net 2P reserves at YE23 for the area. The consideration for the potential acquisition at full scope is approximately US$530 mm, funded through a combination of cash resources and debt, including a non-recourse amortizing debt facility of up to US$345 mm. The transaction is subject to a right of first refusal by the existing partners (SierraCol Energy for SierraCol Energy Arauca and Ecopetrol for CPO-9). Assuming these parties do not exercise their rights, the transaction could complete in 30 days. Pending confirmation of the transaction and further details on reserves, resources and growth potential, we have not included these assets in our valuation.
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New Zealand Energy (NZ CN)C; Target price of C$3.50 per share: Better than expected results at Tariki-5A - The Tariki-5A well has encountered a gas column of at least 8 metres out of a gross Tariki sand of ~60 m. An additional column of a further 8 to 12 m may be confirmed upon completion of log analyses. This is above company expectations. The gas water contact appears to be deeper than expected from the offset well Tariki-1A, and this has a positive impact on the gas volume remaining in place. Pending further details, we have increased our expected recoverable volumes by 20% to ~0.85 mmboe net to New Zealand Energy. The reservoir is expected to be able to deliver at least 9 mmcf/d, which is sufficient to exceed the 6.5 mmcf/d requirements of the Gas Sales Agreement between the Tariki Joint Venture and Genesis Energy. The gas sales above this level can be sold at spot prices. Production is expected to start later in December. The larger than expected gross sand also has positive implications for the potential size (and value) of the future gas storage after conversion. As we incorporate the additional volumes at Tariki and the dilution associated with the recent C$2 mm equity raise, we have changed our target price to C$3.50 per share in line with our new ReNAV.
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Panoro Energy (PEN NO)C; Target price of NOK46 per share: Reflecting on Akeng Deep results. Dividend yield reaches >7% - Oil zones were encountered in the Upper Albian at Akeng Deep. While the sands appear thinner than expected and the quantity of oil is sub-commercial, the discovery of oil confirms an active petroleum system in this exploration area. The company will recalibrate the subsurface model to assess whether the presence of oil supports further exploration and appraisal activities in the area. The results are viewed as encouraging. For the time being, we are now not attributing any value to Akeng Deep but we note that the upper cretaceous play is not dead. There are no material commitments at EG-01 beyond seismic studies. We have changed our target price to NOK46 per share in line with our new ReNAV. The current dividend yield for 2024 is now >7%. We expect that this could increase further in 2025 given our forecast free cash flow. The recent refinancing of the RBL with a lower cost US$150 mm bond will provide some further flexibility.
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PetroTal (PTAL LN/TAL CN)C: Target price of £1.30 per share: Completing acquisition in Peru – PetroTal has closed the acquisition of a 100% working interest in Peru’s Block 131. PetroTal estimates remaining Proved recoverable reserves are 2.0 mmbbl of light oil, and 4.2 mmbbl of Proved plus Probable reserves.

Pharos Energy (PHAR LN)C; Target price of £0.50 per share: Delivering on expectations. Continued payments from EGPC - Production from January to the end of November 2024 was 5,760 boe/d. This is line with our expectations. FY24 production is expected to be around the same level. This is in line with our forecasts and within the FY24 production guidance range of Pharos 5.2-6.5 mboe/d. The new wells at TGT are also performing in line with expectations and production from January to the end of November was 4,324 boe/d. This is in line with our forecasts. The approval of the 5 year extension of the TGT and CNV licences is at final stages. This is expected to allow Pharos to sanction additional wells and convert contingent resources into the reserves category. Pharos holds 11.9 mmboe 2C resources in Vietnam. Net cash (zero debt) at the end of November was ~US$18 mm. This is in line with our YE24 net cash forecasts. An additional US$10 mm has been paid by EGPC since the end of June (total of US$24 mm at the end of November) and the trade receivables with EGPC are unchanged since the end of June (US$31 mm).
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Serica Energy (SQZ LN)C; Target price of £2.90 per share: Compressor at Triton down for 2-4 weeks - After resumption of production at the Triton FPSO last week, an issue with one of the compressor seals has been discovered which has resulted in production being suspended. These repairs are expected to take 2-4 weeks. We are now cautiously assuming that Triton will be offline until YE24. Issues at Triton’s compressors have had a significant impact on production in 2024. With Triton and Bruce fully operational, production has exceeded 50 mboe/d. Current production is only 28 mboe/d. Addressing the Triton compressor issues is critical achieving a sustained high level of production. The second compressor at Triton continues to be expected to be repaired in 1Q25. This will provide critical redundancy and address the operational vulnerability at Triton. As a result of the shutdown at Triton, we now forecast FY24 production of 35.3 mboe/d with a YE24 net debt of ~US$80-85 mm. We have made cautious assumptions for uptime at Triton next year.
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Sintana Energy (SEI.V CN)C; Target price of C$1.85 per share: Positive well results at Mopane - Galp has announced that the Mopane-1A appraisal well (the third well to be drilled at Mopane) has encountered light oil and gas-condensate in high quality reservoir-bearing sands, once again indicating good porosities, high permeabilities, and high pressures, as well as low oil viscosity characteristics with minimum CO2 and no H2S concentrations. While limited information is available, we view the very good reservoir characteristics as a positive. In addition, we note the reference to the presence of light oil in addition to gas condensate. Given that the high percentage of gas was a key area of uncertainty, we view this as an important positive. Mopane 1A has been drilled ~7.5 km to the south of previous wells, confirming the areal extent and consistent reservoir quality of the AVO-1 discovery. This result could help to firm the farm-out price for the licence. The next well in the programme will be an exploration well. We understand that the wells will be tested at the end of the four well campaign. We continue to believe that Sintana’s current share price reflects only the value of its interest in the Mopane discovery (PEL 83) that could be crystalized by an upcoming partial divestment process initiated by Galp. We value Sintana on Mopane alone at C$1.08 per share (C$1.22 per share unrisked). We estimate the additional unrisked value of the upcoming drilling programme at PEL 83 (Galp), PEL 90 (Chevron) and PEL 87 at C$2.80 per share.
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Tethys Oil (TETY SS)C; Target price of SEK80 per share: Offer period extended – The acceptance period for the offer to acquire Tethys has been extended by Roc Oil until the 16 December pending regulatory approval by Lithuania. This extends the option value of the well test at the high impact Kunooz well being successful. A success could trigger an upward revision of the offer price.

Zephyr Energy (ZPHR LN)C; Target price of £0.13 per share: FY24 production guidance re-iterated. Binding agreement with Paradox partner by YE24 - 3Q24 production was 1,047 boe/d. Zephyr has re-iterated its FY production guidance of 1,100-1,300 boe/d. We are cautiously assuming 1,100 boe/d. The company is looking for further acquisitions in the Williston to boost production further. We know the company is continuing to look for potential opportunities in the area. The binding documentation for the asset level funding for the 5,500 ft extension and acidization of the State 36-2R well in the Paradox basin is expected to be signed later this month. This will allow Zephyr to start drilling in January and we would expect to have the results of the well test by the end of 1Q25. The acid job already performed on the existing 130 ft interval was very successful with peak test production of >2,100 boe/d. The ultimate recovery of the extended well could reach 2 mmboe, which is significantly above what would have been recovered from the 130 ft interval. Pending further visibility on the impact of acidization/long laterals on the development plan, we re-iterate our target price of £0.13 per share. We are assuming Zephyr will keep 50-60% of the production of the State 36-2R well. Following the recent weakness, the share price now trades below our Core NAV of ~£0.03 per share. We view this as an opportunity.
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IN OTHER NEWS
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AMERICAS

Canacol Energy (CNE CN): Successful exploration drilling in Colombia – The Kite-1 exploration well has encountered 102 feet of gross gas column. The well has been tested at 8-10 mmcf/d. The Nispero-2 appraisal well is flowing at ~9.5 mmcf/d.

Petrobras/Ecopetrol: Successful appraisal offshore Colombia – The assessment of the drilling results at Sirius-2 have confirmed volumes of >6 tcf in place. The consortium is expected to invest USD 1.2 billion in the exploratory phase and another USD 2.9 bn in the production development phase.

ASIA PACIFIC

Cue Energy (CUE AU): Dry hole in Indonesia – Testing of the Bekasap formation at the PC-01 well did not yield hydrocarbons.

Seascape Energy (GTE LN/CN/US): Farming out exploration block offshore Malaysia. Equity financing – Seascape is farming out a 42.5% interest in Block 2A to INPEX. Seascape will retain 10% interest. In return INPEX will carry Seascape through the remaining exploration phase which includes one firm wildcat well and one contingent appraisal well. In addition, a cash consideration of US$10 mm is payable on completion. A further contingent cash consideration of US$10 mm is payable on a commercial discovery. Seascape will also receive US$0.5 mm for back costs. Seascape is raising £2 mm of new equity at a price of £0.35 per share.

EUROPE

DNO (DNO NO): Discovery in Norway – Light oil was discovered in Palaeocene sandstones of good reservoir quality in license PL1086 with preliminary estimates of gross recoverable resources in the range of 27-57 mmboe.

Orcadian Energy (ORCA LN): Acquisition – Orcadian has acquired HALO Offshore UK from the joint liquidators of Hague and London Oil.

Shell (SHEL LN)/Equinor (EQNR NO): Creating a JV for the UK North Sea – Shell and Equinor are combining their UR North Sea assets in a 50/50 JV.

MIDDLE EAST AND NORTH AFRICA

Genel Energy (GENL LN): Negative result from arbitration in Kurdistan – The Tribunal has ruled that the KRG validly terminated the Bina Bawi and Miran production sharing contracts and that Genel’s counterclaim is dismissed. The Tribunal also reserved for determination in a future award the allocation of the costs relating to the arbitration.

SDX Energy (SDX LN): Delisting from AIM – SDX is considering cancelling the trading of its shares on AIM.

SUB-SAHARAN AFRICA

Savannah Energy (SAVE LN): Operating update in Nigeria – Gross production from January to November was 22.7 mboe/d. At the end of October, cash balances were US$53.4 mm (YE23: US$107.0 mm) and net debt stood at US$568.7 mm (YE23: US$473.7 mm).