Pharos Energy Plc (LSE: PHAR): Net cash positive by YE23 and new growth opportunities
• 1H23 production of 6,915 boe/d and net debt of US$16 mm at the end of June had already been reported.• Being paid in US$ in Egypt remains challenging and the FY23 drilling and capital programme has been curtailed to 5 development wells (9 previously). As a result, Pharos anticipates FY23 WI production in Egypt of 1.35-1.45 mbbl/d, at the lower end of the previous guidance range (1.35-1.80 mbbl/d).
• In Vietnam, the work-over programme at TGT is now expected to take place in 1Q24 rather than 4Q23. The CNV-2PST1 horizontal well continues to outperform expectations with current gross production of 2 mbbl/d. The FY23 WI production guidance range in Vietnam has been narrowed from 4.7-5.7 mboe/d to 5.0-5.3 mboe/d (mid point broadly unchanged).
• The FY23 cash capex guidance has been reduced from ~US$23 mm to US$13.2 mm with no cash capex in Egypt. The carry in Egypt is now expected to cover all of Pharos’s expenses in Egypt until YE23. The capex reduction reflects (i) a lower level of activity, (ii) cost reductions and (iii) the deferral of long lead items.
• Drilling at TGT in Vietnam continues to be expected to start in 2H24.
• With only US$0.7 mm in shares bought back during 1H23, the remaining US$2.3 mm allocated for share buyback in 2023 should provide support to the share price. The key newsflow until YE24 is the commencement of drilling on Block 125 in Vietnam. Securing a farm-in partner (process ongoing) would be a very high impact event. The approval of an updated development plan for CNV incorporating some horizontal wells could also have a positive impact on reserves. The recent discovery at NBS (Egypt) is expected to add 4 mmbbl (~1.6 mmbbl net to Pharos WI) that will be developed from late 2023/early 2024.
• We re-iterate our target price of £0.55/sh.
Financials and forecasts
G&A in 1H23 was only US$4.6 mm. The lower FY23 capex results in a stronger balance sheet at YE23 than we previously expected. Assuming a build-up in receivables in Egypt of only US$5 mm during 2H23, we now forecast a small net cash position at YE23 (US$15 mm net debt previously). The company will also start to accept some payment in Egyptian pounds in 2024 to cover its Egyptian expenses. We have now taken the conservative view that the development of the Egyptian reserves will only start in 2025 (one year delay) with 2024 production broadly flat vs 2023.
Valuation
Our Core NAV and ReNAV are broadly unchanged at £0.41/sh and £0.56/sh.
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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