Southern Energy Corp. (SOUC LN/SOU CN): Drilling cost down. Four wells to be completed on gas prices >US$3/mcf
• 1Q23 production stood at 2,607 boe/d, which is in line with our forecasts.• Net debt at the end of March stood at ~US$19 mm including working capital. The company held ~US$12 mm in cash, which is line with previous indications.
• Southern has achieved drilling cost efficiencies and the cost of drilling and completing new wells is expected to be around US$5.7 mm.
• The completion costs of the four drilled but uncompleted wells is ~US$3.4 mm per well.
• These are expected to be completed at gas prices >US$3/mcf. We are now assuming that this will take place in 4Q23.
• The acquisition of the Gwinville assets from PetroTx has provided Southern with additional access to the Florida Gas Transmission System that provides access to a market with much higher gas price premium than achieved by Southern in the past.
• We re-iterate our target price of £1.60/sh.
More details on wells not on stream yet
The four wells that are awaiting completion include two Lower Selma Chalk laterals, one City Bank lateral and one Upper Selma Chalk lateral. These were drilled with an average lateral length of approximately 5,400 ft and were steered within the high‐graded intervals for an average of 95% of the wellbore length. The remediation operations at the 18-10#3 Upper Selma Chalk well is expected to take place in late 2Q23. The first City Bank Hz well at Gwinville 18‐10 #1 has only recovered 13% of the load fluid. Peak gas flow rates are expected to be reached once the well has recovered 20% of the load fluid. This is also expected to be reached towards the end of 2Q23.
Valuation
Our Core NAV and ReNAV are unchanged at £0.83 and £1.58 per share. Southern needs higher HH gas prices than currently to return to growth. With available undrawn credit facilities of ~US$14.5 mm and corporate cashflow break even of ~US$1.8-1.9/mcf (Henry Hub), the company is well positioned to wait for a rebound in gas prices.
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.
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