Southern Energy Corp. (SOUC LN/SOU CN): Resilient quarter. Waiting on higher US gas prices
• 3Q23 production of 2,814 boe/d had been previously reported.• While the level of drilling activity is closely tied to the evolution of gas prices in the USA, the financial performance in 3Q23 showcases the resilience of the business in the current low gas price environment.
• While Henry Hub gas prices were only US$2.55/mcf in 3Q23, Southern captured a premium of US$0.28/mcf.
• Even at these low levels for gas prices, net debt increased by only ~US$ 1mm in the three months to the end of September.
• Southern held US$1.9 mm in cash at the end of September. The company has currently US$10 mm of unused capacity on its credit facility. Southern has also raised US$5 mm of new equity in 4Q23.
• With a forward strip gas price of US$2.7/mcf in December, we have reduced our Henry Hub gas price forecast to US$3.30/mcf (from US$4/mcf) close to the forecasts the EIA published earlier this week. We have also reduced our Henry Hub forecasts for 2024 from US$4.4/mcf to ~US$3.65/mcf. Given the supply/demand dynamics in the USA, we continue to expect Henry Hub gas prices to increase to ~US$5/mcf by YE24.
• The first DUC well (14-6 #3 - Upper Selma Chalk) is expected to be completed by YE23. IP30 rates are expected to be available towards the end of January.
• On our gas price assumptions, we forecast that Southern could fund a programme to grow production to 4.8 mboe/d in 4Q24, 5.3 mboe/d in 4Q25 and 6.9 mboe/d in 4Q26.
• We re-iterate our target price of £1.20 per share. Southern continues to be a play on the recovery of US gas prices.
Valuation
Our Core NAV and ReNAV stand respectively at £0.57 and £1.20 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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