Auctus on Friday - 16/06/2023

AUCTUS PUBLICATIONS
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Criterium Energy (CEQ CN)C; target price of C$0.95 per share: Transformational acquisition in Indonesia – Criterium is delivering on its plans by acquiring Mont D’Or Petroleum with long life and high netback production of 1,050 bbl/d and 4.7 mmbbl 2P reserves across 2 PSCs in Indonesia (Tungkal in South Sumatra and West Salawati in Southwest Papua). With important spare capacity in existing infrastructure and very low drilling costs (US$1.5 mm per well) at Tungkal, Criterium plans to increase production by ~50% by the end of 1Q24 and to ~3 mbbl/d by YE25 within cashflow. Criterium is also exploring the possibility of monetizing 20 bcf (~3.3 mmboe) contingent resources at existing gas discoveries through underutilized gas infrastructure to add ~1.5 mboe/d production. These resources would be converted into reserves on FID. The two PSCs offer important sources of potential further upside. The recovery factor to date at the main field at Tungkal is only 6% and the 2P reserves imply only 11%. The 3P case adds a further 2 mmbbl at a 14% recovery factor. Step out drilling and waterflood could increase the recovery factor to 30% (in line with analog fields) and add a further 14 mmbbl. P50 prospective resources of 27 mmboe have been mapped at Tungkal. Recompleting an onshore well at West Salawati could add 200 bbl/d by YE23 with the opportunity to add 2 mmbbl in nearby structures. There are also many large leads offshore that Criterium plans to farm-out. With line of sight on production of 8.5-9.6 mboe/d (incl. Bulu) by 2026, the story is about cashflow growth and large reserves and exploration upside. Our target price has been set close to our ReNAV.
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Panoro Energy (PEN NO)C; target price of NOK50 per share: Another good well in Gabon – The second Hibiscus Ruche Phase I well has been put in production at a gross stabilized rate of ~6 mbbl/d. This is another good well with a flow rate similar to the previous well (DHIBM-3H) announced in 1Q23. This is again at the top end of our expectations. The DHIBM-3H continues to flow at a rate of ~6 mbbl/d, exhibiting no decline so far.Net to Panoro, these two wells add ~2.1 mbbl/d production. Overall net production is close to 10 mboe/d, representing a ~50% increase compared to 1Q23 production. We estimate current gross production in Gabon at ~20 mbbl/d. Once the second gas lift compressor on the FPSO is fully operational, this will add another 3 mbbl/d gross production from the existing six Tortue wells. The company has re-iterated its target of achieving net production of 13 mbbl/d once the six new Hibiscus Ruche wells are online. The production guidance does not include any contribution from the three well drilling programme expected to start in early 4Q23 in EG.
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Pharos Energy (PHAR LN)C; target price of £0.55 per share: Vietnam licence extension key step to unlocking value – Pharos has been awarded a two year extension to Phase One of the Exploration Period (from 8 November 2023 to 7 November 2025) of Blocks 125 & 126 in Vietnam. While this was expected, it is an important development. The licence is estimated to hold very large prospects and the licence extension increases the likelihood of the company securing a farm-in partner. Pharos is also looking for a rig to drill a well next year. The extension allows Pharos to postpone the drilling commitment by up to two years. Without the extension, Pharos would have been required to pay the minimum US$15 mm commitment or fund a shallow well by November. The extension therefore has positives implication for Pharos’ balance sheet.
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SDX Energy (SDX LN)C: Potential sale of Egypt – SDX has received multiple offers for the sale of its Egyptian assets.

Tethys Oil (TETY SS)C; target price of SEK120 per share: Production update in Oman – Production from Blocks3 & 4 was 8,995 bbl/d in May.

Valeura Energy (VLE CN)C; target price of C$6.00 per share: Very good execution in Thailand – The two horizontal wells drilled at Nong Yao are producing at a combined rate of 1,350 bbl/d. The wells encountered respectively 1,000 ft and 700 ft of net oil pay, in line with pre-drill estimates. Overall aggregate net oil production rates have averaged 23.7 mbbl/d during the first 11 days of June, up from 20.5 mbbl/d in 1Q23. We forecast 22.8 mbbl/d production in 2Q23. Net production at Nong Yao is ~8,000 bbl/d. The drilling rig is already on the Manora field to drill three wells to increase production. We currently assume flat net production of 3 mbbl/d in 2023 from this field. The drilling rig will then move to Wassana in early August to drill five wells. The company is delivering on its targets. Confirmation that the ~US$300 mm of tax losses associated with Wassana could be applied to the other fields could be a rerating event.
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IN OTHER NEWS
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AMERICAS

Frontera Energy (FEC CN): Exploration well update in Guyana – Cuttings indicate multiple hydrocarbon shows in the primary target reservoirs in the Santonian interval at the Wei-1BP1 well. Data acquisition is ongoing via wireline logging, MDTs and side wall core sampling. The well has encountered ~71 ft of net oil pay in the secondary target reservoirs in the Maastrichtian and Campanian. The well is now expected to cost ~US$190-195 mm.

Maha Energy (MAHA-A SS): Production update in Brazil – 1Q23 production was 1,606 boe/d.

Trinity E&P (TRIN LN): Updated guidance in Trinidad – FY23 sales guidance has been set at 2.8-3.2 mbbl/d with capex of US$16-18 mm.

EUROPE

Equinor (EQNR NO): Dry hole in Norway – Wildcat well 31/2-24 on production licence PL 923 was dry.

IGas Energy (IGAS LN): Operating update in the UK – Production stands at 2,000 boe/d. IGas held £1.6 mm in cash as at 31 May and £4.0 mm in net debt.

IOG (IOG LN): Operating update in the UK – The H2 well appears to be choked back below the levels indicated by reservoir properties by a downhole restriction. Pressure build-up data since the test indicates that the reservoir permeability is in line with pre-drill expectations. A potential cause for the restriction may be a partially activated downhole valve. H2 is intended to be flowed at initial rates until specialist downhole equipment arrives on the rig within the next two weeks. This intervention would likely take up to a week at an estimated incremental cost net to IOG of ~£0.5 mm.

OMV (OMV AG): Discovery in Romania – OMV Petrom has discovered over 30 mmboe in the Oltenia and Muntenia regions of southern Romania. The largest discovery (~20 mmbbl of oil) was in the Verguleasa exploration area, in the Oltenia region. 6 mmbbl (oil) were discovered at the Târgoviște exploration block while 7 mmboe (gas) were discovered in the Târgu Jiu exploration block.

Shell (SHEL LN): Strategy update, increasing dividend, focusing on oil and gas – The dividend per share is increased by 15% from 2Q23. The target for future shareholder distributions has been increased from 20-30% of operating cash flow to 30-40%. The company plans to spend US$22-25 bn per year by YE25.

UK: Setting threshold for Windfall tax – The Energy Profit Levy is to be eliminated if both average Brent prices and NBP remain below US$71.4/bbl and £0.54 per therm for two consecutive quarters. Under these circumstances, tax rates would return to 40%.

FORMER SOVIET UNION

Caspian Energy (CSP LN): Selling 50% of Caspian Explorer – Caspian is selling 50% of the Caspian Explorer drilling vessel for US$22.5 mm in cash. Work at Deep Well 802 on the Yelemes Deep structure was suspended awaiting additional equipment, which, due to the sanctions on Russia, now needs to be sourced via China with much longer lead times. Recent production volumes at BNG have been ~2,000 bbl/d.

Petroneft (PTR LN): Potential sales of Russian assets – Petroneft has entered into a non-binding heads of terms to sell its interests in Licence 67 to Pavel Tetyakov, the CEO of Petroneft, for US$2.56 mm plus the assumption of debt (US$5.6 mm).

MIDDLE EAST AND NORTH AFRICA

Gulf Keystone Petroleum (GKP LN): Operating update in Kurdistan – Almost all operational activity in the Shaikan Field continues to be suspended in order to preserve liquidity. Outstanding receivables with the KRG amount to US$151 mm. The company held US$93 mm in cash at 15 June. Capex, operating costs and G&A are estimated at ~US$6 mm per month.

Sound Energy (SOU LN: Potential farm out of Morocco assets – Sound has signed a non-binding term sheet to farm out 40% WI in the Tendara Exploitation concession and the Grand Tendara exploration permit to Calvalley Petroleum. Sound would retain 35% WI. In return, Calvalley would fund (1) the first US$48 mm of Sound Energy and Calvalley’s Phase 2 equity funded development costs, (2) 100% of the TE-4 Horst well costs up to a cap of US$7 mm and (3) the advancement to Sound Energy of additional Phase 1 and Phase 2 costs, to be repayable out of future revenue. The company has also raised up to £4 mm by way of a convertible bond. The first tranche of the convertible comprises £2.5 mm with a fixed conversion price of 2.25 p per share. The second tranche (£1.5 mm) can be drawn subject to the price of its shares being at least 1.32 p per share. The second tranche conversion price will be fixed at the time of draw down at a 25% premium to the five-day volume weighted average price. The convertible carries an interest of 15% per annum, payable in cash or capitalised to the principal.

TotalEnergies (TTE FP): Discovery in Nigeria – TotalEnergies announces the Ntokon oil and gas discovery on OML102 offshore Nigeria. Located in shallow waters, the Ntokon-1AX discovery well encountered 38 meters of net oil pay and 15 meters of net gas pay, while its side-track Ntokon-1G1 encountered 73 meters of net oil pay, in well-developed and excellent quality reservoirs. Ntokon-1G1 tested up to a maximum rate of about 5,000 bbl/d of 40° API oil.

SUB-SAHARAN AFRICA

Maurel & Prom (MAU FP): Acquiring Assala Energy? – Maurel & Prom is in advanced discussions to acquire Assala. Assala produced ~45 mbbl/d in Gabon in 2022.

San Leon Energy (SLE LN): Update on balance sheet and funding – The Company currently has approximately US$10.5 mm of unpaid creditors. The publication of the company FY22 accounts will be delayed.