Southern Energy Corp. (SOUC LN/SOU CN): IP30 flow rate at first DUC could derisk up to 45 new locations in the Lower Selma Chalk

• The GH LSC 13-13 #2 well (Lower Selma Chalk) commenced production at ~4.0 mmcf/d and averaged 3.6 mmcf/d over its IP30 period. Although below the initial 5.5 mmcf/d forecast, the observed decline rate is notably shallower than expected, with flow rates holding at 3.4 mmcf/d after one month (~15% decline).
• This performance benchmarks favourably against Upper Selma Chalk (USC) wells, which typically exhibit higher IP30 rates of 5.0–6.5 mmcf/d but decline more steeply, often down to ~3.0 mmcf/d within the first month. The LSC 13-13 #2 well also displays more stable wellhead pressure—likely a result of larger connected gas volumes in the Lower Selma reservoir. Based on these trends, estimated recovery over a year and ultimate recovery remain in line with earlier expectations (ultimate recovery of ~3.5 bcf/well) and may exceed that of USC wells.
• Completion costs for the GH LSC 13-13 #2 well came in at US$2.2 mm, with full-cycle costs for future LSC wells now forecast at ~US$4.0 mm—20% below the original estimate (US$5.0 mm). Water flowback rates are over 70% lower than USC wells, yielding initial operating cost savings of ~US$0.20/mcfe. Payback for completing the DUC is estimated at 13–14 months for LSC 13-13 #2, with further improvement anticipated to 10–11 months for future wells.
• Confirmation of shallower decline profiles and reduced cost structure could materially impact YE25 reserves booking. The current reserves audit assumes US$5.0 mm per well; updating this to US$4.0 mm would enhance reserves metrics. The Lower Selma Chalk inventory includes 45 unbooked drilling locations, representing ~26 mmboe of potential reserves—nearly matching YE24 2P reserves of 28 mmboe.
• As we incorporate a flatter type curve and lower cost for the LSC wells, we re-iterate our target price of £0.25 per share, which is based on our ReNAV. Our Unrisked NAV for the is £0.50 per share.

Valuation
We have revised our 3Q25 and 4Q25 Henry Hub price assumptions downward—from US$4.00/mcf and US$5.00/mcf to US$3.20/mcf and US$4.00/mcf, respectively. This impact is partially mitigated by a stronger realized basis premium to Henry Hub, currently at ~17% (US$0.50/mcf vs. our previous assumption of US$0.30/mcf). Under these revised price assumptions, we now model a one-quarter delay in ramping up production. Our 2P NAV for Southern is ~£0.09/sh (~3x the current s/p). The lower Selma Chalk additional 45 locations have an unrisked NAV of £0.10/sh. Our ReNAV for the company is £0.23 per share. The shares trade at EV/DACF multiples of 3.4x for 2026 and 2.3x for 2027.