Pharos Energy Plc (LSE: PHAR): Flow rate at new Vietnam well above expectations. Discovery in Egypt
• The recently drilled VNV-2PST1 lateral in Vietnam is flowing at 3 mbbl/d gross (750 bbl/d WI). The well has been in production since late March and continues to perform very well. The flow rate represents 3x the pre-drill production estimates. This could have a positive impact on 2023 production expectations. The lateral was drill from an existing well at a much lower cost compared to a new drill. It is still early stage but this could open-up the possibility of lower further development costs.• The NBS-1X well in Egypt made a commercial discovery after encountering multiple pay zones in the Abu Roash G Formation. The stabilized production test rate pre-frac is 470 bbl/d gross. The result of the well could add a few 100,000’s bbl of 2P reserves and opens a new area. A second well will be drilled in the area later this year.
• Total WI production from January to April was 6,805 boe/d including 5,477 boe/d in Vietnam and 1,328 bbl/d Pharos in Egypt. This is ~400 boe/d below our forecasts but with the new Vietnam lateral starting production in late March and the Egyptian discovery well on stream in 3Q23, production over the last 8 months of 2023 could be high.
• 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$23 mm cash capex.
• In Vietnam, drilling will resume at TGT in 2Q/3Q24. An extension to the licence term on Block 125 continues to be expected to be obtained in 2023.
• We re-iterate our target price of £0.55/sh.
Egyptian receivables and net debt
Net debt at the end of April of US$29 mm based on cash and debt is in line with the net debt at YE22. Without visibility on the detailed balance sheet in the period, it is difficult to draw conclusions. Egypt receivables have increased from US$24 mm at YE22 to US$29 mm at the end of March. This would suggest that the business has generated underlying free cash flow of ~US$5 mm net of share buy back over the first months of 2023.
Valuation
Our Core NAV and ReNAV are marginally reduced to respectively £0.39 per share and £0.54 per share as we have reduced our Brent price assumption for 2023 by US$3.5/bbl. Key upcoming newsflow continues to include the extension of the licences in Vietnam and the associated sanctioning of further drilling that could unlock the conversion of up to 10 mmboe 2C resources into the 2P reserves category and add over £0.20 to our Core NAV.
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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