Pharos Energy Plc (LSE: PHAR): Five year licence extension adds reserves and unlocks further potential upside
• The TGT and CNV licenses in Vietnam have been extended by five years, to December 2031 and December 2032, respectively. In return, Pharos' working interest in the licenses is reduced from 30.5% to 25.3% for TGT and from 25% to 20% for CNV.• This extension is significant for Pharos as it unlocks approximately 5.7 mmboe of resources and immediately adds 0.8 mmboe of 2P reserves.
• The extension allows Pharos to convert approximately 0.8 mmboe from the 2C category to 2P reserves. Pharos' year-end 2024 WI 2P reserves in Vietnam are therefore estimated at around 8.3 mmboe, net of FY24 production.
• Additionally, the extensions unlock work programs. Field Development Plans (FDP) for TGT and CNV are expected to be approved in 2025 with new infill wells to be drilled. Pharos will also drill an appraisal well at TGT in 2025.
• Approval of the FDPs will allow Pharos to convert a further 1 mmboe into the 2P reserves category. Success at the TGT appraisal well could derisk approximately ~3.5 mmboe and unlock further development wells.
• We have increased our target price from £0.50 per share to £0.55 per share.
Valuation
We have incorporated the reserves addition and the new resources estimate into our model. We understand that the contingent resources at CNV are still under review, and we have cautiously assumed a reduction compared to YE23. Our Core NAV for the company, based solely on its 2P reserves, is £0.32 per share. Key near-term newsflow includes:
• (1) Approval of the new FDPs for TGT and CNV, expected in 2025 would increase our Core NAV by £0.04 per share.
• (2) Successful appraisal at TGT and CNV would derisk approximately 5 mmboe of resources with an unrisked value of £0.17 per share.
• (3) Securing a rig and a farm-in partner for blocks 125 and 126 in Vietnam.
• (4) Continued stabilization of payments in Egypt. Finalizing the consolidation of the Egyptian concessions would enable the company to commit more capital to Egypt and grow production.
Our new ReNAV is £0.54 per share.
Soco International is an oil and gas exploration and production company. Co. has exploration, development and production interests in Vietnam, and exploration and appraisal interests in the Republic of Congo and Angola. As of Dec 31 2016, Co.'s commercial reserves were 33.3 million barrels of oil equivalent.
Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector.
The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy.
Auctus has been set up at the beginning of a new decade in which we see significant opportunities in the Energy space. Globally, demand for energy is at record levels and continues to grow. Conversely, investment in traditional energy sources has been severely constrained. We believe this imbalance creates opportunities for both companies and investors.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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