South Energy Corp. (SOUC LN/SOU CN): Returning to growth from 3Q23
• 2Q23 production stood at 2,651 boe/d, in line with 1Q23 (2,607 boe/d).• Current production (including the recently acquired asset in Gwinville) is ~2.9 mboe/d.
• Net debt at the end of March stood at ~US$26.2 mm including working capital (net debt at the end of March: US$19.7 mm). The company held ~US$2.2 mm in cash at the end of June as it paid US$15.4 mm in capex payables during 2Q23. As at the end of June, US$11.5 mm from the credit facility remains unused and available.
• During the rest of 3Q23, Southern plans to workover a number of acquired wellbores. The company is also in the process of installing the necessary pipeline infrastructure to consolidate the two existing gathering systems, allowing the company to run one central compressor station versus the five that were running before the transaction. This will eliminate ~0.25 mmcf/d of fuel gas which will be added directly to sales volumes. The remediation work for the 18-10 #3 Upper Selma Chalk well is expected to commence in late 3Q23. With two of the four drilled but uncompleted (DUC) wells expected to be completed in 4Q23, we expect production to grow to ~3 mboe/d in 3Q23 and >4 mboe/d in 4Q23.
• The two remaining DUCs are expected to be completed during 1Q24.
• As we incorporate a slightly slower production ramp-up, we have trimmed our target price from £1.60/sh to £1.50/sh, which still represents >6x the current price.
City Bank
The first City Bank horizontal well at Gwinville 18‐10#1 has now recovered ~20% of load fluid. The natural gas rate remains at ~0.6 mmcf/d. Southern believes that the most plausible explanation for the lower than expected performance is due to fracture communication with an offset well with poor cementation which had previously been produced from the deeper Tuscaloosa formation. Two such wells are located 200-240 ft away from the 18-10#1 lateral. While the 18-10#1 well initially encountered virgin pressure in the City Bank, the pressure is now unable to build up past 60% of that level, which suggests the well is in communication with a depleted zone. In future operations in City Bank horizontal wells, Southern will likely choose to create a buffer zone around the vintage abandoned Tuscaloosa wells by eliminating proximal frac stages to avoid any potential communication.
Forecast and Valuation
We now forecast 3,070 boe/d production in 2023 (with ~US$9-10 mm capex in 2H23) increasing to ~5.2 mboe/d in 2024. Our Core NAV and ReNAV stand respectively at £0.74 and £1.46 per share.
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.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.