Southern Energy Corp. (SOUC LN/SOU CN): Reserves resilient to low US gas prices
• Southern achieved production of 2,259 boe/d in 4Q24, close to with our forecasts of 2,192 boe/d. The YE24 working capital deficit of US$24.9 mm also met our expectations.• YE24 1P and 2P reserves were estimated at 12.7 mmboe and 27.9 mmboe, respectively. Accounting for 0.9 mmboe production in 2024, the reduction from YE23 to YE24 is attributed to technical factors (0.3 mmboe due to a minor shrinkage adjustments in Gwinville) and economic factors (0.5 mmboe).
• Despite Southern investing only US$0.9 million in capex during 2024, and the reserves auditor lowering its US gas price assumptions for 2025-2033 by approximately 5-10%, the very small reserves reduction underscores the robustness of the company’s assets, which demonstrate strong resilience to low gas price environments.
• Southern’s YE24 NPV10% (before tax) for 1P and 2P reserves is also resilient at US$58 and US$110 mm, respectively, compared to US$62 mm and US$119 mm at YE23. The future development costs for the 1P and 2P reserves are estimated respectively US$56 mm and US$162 mm (unchanged from YE23).
• By the end of 2Q25, Southern will launch a programme to complete the three drilled and uncompleted (DUC) wells from 1Q23 at Gwinville. The programme will begin with the two Lower Selma Chalk DUCs, followed by the City Bank DUC. These two reservoirs hold significant untapped potential, with over 75 additional drilling locations representing more than 40 mmboe resources that are not yet included in the reserves.
• We re-iterate our target price of £0.25 per share.
Value build-up
Our 2P NAV for the company based on its YE24 2P reserves is £0.11 per share (x3.5 the current price). This assumes a progressive production ramp-up funded by cash flow. There are 80-90 locations at Gwinville not included in the 2P reserves. Derisking the 45 additional drilling locations in the Lower Selma Chalk could add £0.12 per share (55% chance of success), while the 30+ locations in the Gwinville City Bank contribute a further £0.08 per share (30% chance of success). This results in a total NAV of £0.32 per share, ~10 times the current share price. Success in the 2025-2026 programme in the Mechanicsburg (2 wells), could add £0.01 per share (55% chance of success). The unrisked NAV for Williamsburg stands at £0.23 per share (25% chance of success). Overall our unrisked NAV is £0.57 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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