Pharos Energy Plc (LSE: PHAR): Reducing net debt by a further US$10 mm
• FY23 production was 6,508 boe/d, which is the middle of the production guidance of 6.35-6.75 mboe/d. This includes 5,127 boe/d for Vietnam (guidance of 5.0-5.3 mboe/d) and 1,381 boe/d in Egypt (guidance of 1.35-1.45 mbbl/d).• YE23 net debt is just ~US$6.5 mm, down from US$16.4 mm at the end of June. The US$10 mm net debt reduction has been achieved despite a US$6.4 mm increase in EGPC receivables from US$30.9 mm at the end of June to US$37.3 mm at YE23. This implies an underlying free cash flow generation of US$16.3 mm during 2H23.
• Following a principal repayment of US$12.6 mm in December, the remaining drawn amount under the existing RBL is US$30 mm.
• Pharos expects to produce 5.2-6.5 mboe/d in 2024 with net capex of US$27.3 mm. While the production guidance is below our expectations of 6.8 mboe/d, the net capex forecast is also below our numbers (US$30 mm).
• The key newsflow in 2024 is the securing of a farm-in partner (process ongoing) and a well drilling slot for the high impact Block 125. The licence has been extended until November 2025. The approval of an updated development plan for CNV, incorporating some horizontal wells, could also have a positive impact on reserves.
• As we incorporate the actual YE23 net debt, lower Brent price assumptions for 2024 and the FY24 guidance, we have changed our target price to £0.50 per share. Our new target price also reflects the rolling forward of our DCF by one year to YE24.
FY24 programme
The revised field development plan for TGT has been approved and the drilling at TGT in Vietnam is expected to start in 2H24. The FY24 production guidance includes 3.9-5.0 mboe/d for Vietnam and 1.3-1.5 mbbl/d for Egypt. Spending in Egypt remains constrained pending an improvement in the political and economic situation (the repatriation of US$ continues to be an issue).
Valuation
We now forecast ~6.1 mboe/d production in 2024 (6.8 mboe/d previously) and we have reduced our Brent price assumptions for 2024 from ~US$90/bbl to US$85.5/bbl. Our Core NAV and ReNAV are now £0.33/sh share and £0.51/sh respectively. The approval of a 5 year extension of the TGT and CNV licences (discussion ongoing) would unlock a total of £0.28/sh. Assuming no improvement in the situation in Egypt, we forecast the company will hold US$15 mm in net cash by YE24 after a US$5 mm dividend distribution and US$3 mm of share buybacks. Unlocking the Egyptian receivables would add ~U$37 mm.
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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