Southern Energy Corp. (SOUC LN/SOU CN): Preparing to relaunch the growth activity programme
• 3Q23 production stood at 2,814 boe/d, broadly in line with our expectations.• Current production continues to be ~2.9 mboe/d (as reported in August). This does not include the potential addition of ~0.25 mmcf/d of fuel gas that will now be sold as Southern consolidates the existing gathering systems. Southern has also initiated workover operations on two shut-in wells to re-establish production that could add a further 0.8 mmcf/d.
• In light of the recent recovery in US natural gas prices to above US$3/mmcf, Southern is in the process of re-bidding completion services in connection with the four uncompleted horizontal wells (DUCs) drilled earlier in 2023 at Gwinville. These four wells could add a total of 18-24 mmcf/d.
• We are now assuming that the first two DUCs will be in production in 1Q24 (we previously assumed 4Q23) with the two remaining DUCs on stream in 2Q24 (1Q24 previously).
• Given our assumed later production ramp-up, we have trimmed our target price from £1.50/sh to £1.40/sh, which still represents ~7x the current price.
Reflections on Well 18-10 #3
Southern did not manage to mechanically remediate the casing on the 18 10 #3 Upper Selma Chalk horizontal well. The well has therefore been put in production at a rate of 1.2 mmcf/d. Given that only the heel section of the lateral (10 of 48 stages, 1,060 feet total lateral length, and 740 feet of effective lateral length) is contributing to production, we view the achieved flow rate as a good result. Assuming the inaccessible 38 stages would have contributed proportionally to production would suggest an implied flow rate for the entire well of almost 6 mmcf/d (48/10 x 1.2 mmcf/d). The Company is considering alternative casing remediation methods for possible execution in 1Q24.
Forecast and Valuation
We have reduced our capex forecast for 4Q23 and 1Q24 in line with the new timing to complete the four DUCs. We now forecast 3.0 mboe/d production in 4Q23, 3.6 mboe/d in 1Q24, 4.7 mboe/d in 2Q24 (with an average of 4.5 mboe/d in 2024) increasing to 5.5 mboe/d in 2025. Our Core NAV and ReNAV stand respectively at £0.72 and £1.42 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.
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