Pharos Energy Plc (LSE: PHAR): Re-iterating guidance. Dividend up by 10%. Environment in Egypt improving
• FY23 production and YE23 net debt had already been reported. Pharos has re-iterated its FY24 guidance of 5.2-6.5 mboe/d (3.9-5.0 mboe/d in Vietnam plus 1.3-1.5 mbbl/d in Egypt) with net capex of US$27.1 mm.• In 2H24, Pharos plans to commence a two well drilling programme at TGT (Vietnam) and to start the development of NBS SW (Egypt).
• The environment in Egypt is improving. Pharos has received a payment of ~US$10 mm from EGPC, reducing receivables from ~US$37 mm at YE23 to ~US$30 mm at the end of March. Egypt has a received support package of US$57 bn and has committed US$1-1.5 bn to EGPC and EGAS to pay foreign oil companies. A regularization of payments should positively impact Pharos’ investment in Egypt and boost production. Pharos is also renegotiating the terms of its licences that could be consolidated to unlock further investment. With two drilling rigs in operation, Pharos’ production in Egypt could more than double.
• The FY23 dividend is expected to be 1.1 p per share up from 1.0 p per share in 2022. This represents a dividend yield of ~5.5% complemented by a US$3 mm share buyback programme.
• The key newsflow in 2024 is the securing of a well drilling slot on the high impact Block 125 as part of a multi well drilling campaign with a wider consortium of companies including Pharos. This could unlock discussions with a farm-in partner. The approval of an updated development plan for CNV, incorporating horizontal wells, could also have a positive impact on reserves.
• We reiterate our target price of £0.50 per share.
Reserves and resources update
YE23 2P reserves plus 2C contingent resources were estimated at 45 mmboe (47 mmboe at YE22) with 1.8 mmboe production during 2023. YE23 2P reserves in Egypt were estimated at 14.4 mmbbl (broadly flat vs YE22). In Vietnam, YE23 2P reserves were 9.1 mmboe compared with 12.2 mmboe at YE22 with the difference reflecting 1.8 mmboe production and a 1.3 mmboe negative revision, mostly at TGT. YE23 2C resources in Vietnam have increased by 1.1 mmboe to 11.9 mmboe mostly due to the success of horizontal drilling at CNV.
Valuation
We estimate that Pharos now holds net cash rather than net debt. Assuming no improvement in the situation in Egypt, we forecast Pharos will hold US$15-20 mm in net cash by YE24 after distributing US$9 mm to shareholders. Our Core NAV and ReNAV are unchanged at £0.33/sh and £0.53/sh respectively. The approval of a 5 year extension of the TGT and CNV licences would unlock a total of £0.30/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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