Pharos Energy Plc (LSE: PHAR): Very strong financials. Busy drilling programme in 2H24. Dividend up by 10%
• 1H24 production of 5,851 boe/d had been reported previously.• Pharos has re-iterated its FY24 production guidance of 5.2-6.5 mboe/d. The company expects to spend US$26 mm (net) capex in 2024 (US$27 mm previously).
• The highlight of this announcement is the strong financials. While the net cash of US$17.5 mm at the end of June is in line with what had been reported previously, the 1H24 operating cashflow had been negatively impacted by an inventory build of ~US$12 mm. This implies that the net cash position adjusted for this inventory build would have been ~US$12 mm above our forecasts. Because the inventory build is mostly associated with Vietnam, it is expected to be reversed in 2H24.
• In early 2H24, Pharos repaid all its outstanding bank debt.
• The company has declared an interim dividend of 0.363 p per share. This represents an increase of 10% compared to last year. Assuming a similar 10% increase in the final dividend would lead to a dividend yield of almost 5% in 2025.
• We reiterate our target price of £0.50 per share. The US$3 mm share buyback programme will provide support to the share price (only US$1.1 mm has been spent in 1H24).
Operations and newsflow
Drilling at TGT in Vietnam (two wells) has started. The first well is expected to be on stream in October with the second well following shortly thereafter. This will increase production. The El Fayum exploration commitment well has encountered hydrocarbons in the primary target. Drilling continues towards the secondary target. The key near term news flow remains the farm-out of an interest in Blocks 125 & 126 in Vietnam. Pharos has already ordered long lead items (~US$5 mm) ahead of drilling. Pharos is also negotiating the consolidation of its licences in Egypt with improved terms. This could allow the company to start targeting new plays and derisk further resources. Further improvement in the business environment in Egypt would be an important catalyst to the story as investment on Pharos’ assets would increase, resulting in material production growth. Under the current environment, all capex in Egypt is funded by internal cashflow from Egypt.
Valuation
We now expect Pharos will hold ~US$19 mm in net cash at YE24. Our Core NAV and ReNAV are broadly unchanged at £0.32/sh and £0.51/sh respectively. The approval of a 5 year extension to the TGT and CNV licences would unlock a further ~£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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