Market Update: 25 May 2023
Sound Energy PLC (AIM:SOU)* - NAV Update - Tax dispute settled, project moving forward
Pharos Energy (LSE:PHAR) - Positive well results
Reconnaissance Energy Africa (OTCMKTS: RECWF) - Technical studies advance
Energy News
Brent Oil US$77.3/bbl vs US$77.9/bbl yesterday
WTI Oil US$73.3/bbl vs US$74.3/bbl yesterday
Henry Hub Gas US$2.38/mmBtu vs US$2.34/mmBtu yesterday
UK NBP Futures 62p/therm vs 66p/therm yesterday
TTF Dutch Futures €27/MWh vs €29/MWh yesterday
- Crude oil prices edged lower despite the EIA reporting a 12.4mb US crude inventory draw last week, as well as 2mb gasoline and 0.5mb distillate stock draws, with refinery utilisation decreasing slightly by 0.3% to 91.7%.
- European energy prices are below $300 per thousand cubic meters for the first time in two years as EU natural gas storage levels rose 2.2% w/w to 66.5% full (vs 48.1% 5-year average), with strong builds in France, Germany, Italy and the Netherlands contributing to aggregate storage of 751TWh.
Company News
Sound Energy PLC (AIM:SOU)* 1.76p, Mkt Cap £33m: NAV Update - Tax dispute settled, project moving forward
Valuation: 7.3p/sh, BUY
- Sound Energy is now within 12 months of first gas and revenues from the micro-LNG Phase 1 development of the Tendrara project (75% WI), with the larger pipeline-led Phase 2 development expected to FID in 2H23.
- The recent tax settlement with the Moroccan tax authorities has also removed an unhelpful overhang on the stock.
- We update our financial forecasts and NAV for recent corporate updates and reiterate our BUY rating and 7.3p/share target price, offering over 300% potential upside to the current share price.
*SP Angel acts as Corporate Broker to ATOME Energy
Pharos Energy (LSE:PHAR) 23p, Market Cap £99m: Positive well results
- Pharos reported average 4M23 net production of 6.8kboe/d, which generated $49m in revenues and kept net debt at $29m, with the Egypt receivable position increasing to $29m ($24m at YE22).
- The Company reported positive initial flow rates on the 2PST1 development well at the CNV field in Vietnam and a commercial discovery at the first of two exploration wells in the North Beni Suef concession in Egypt.
- Pharos reiterated average FY23 net production guidance of between 6-7.5kboe/d and $38m cash capex for this year (c.$23m after Egyptian carry by IPR) spread over both Vietnam and Egypt.
- The Company has proposed a 1p/sh dividend (4.3% implied yield) for approval at today’s AGM, which is in addition to the $3m already committed in January to the ongoing share buyback programme.
Pharos continues to generate robust cashflows from a steady operational performance, even with the increase to the Egyptian receivables position. There has been a positive start to the 2023 capex programme and we look to see continued drilling success from the multi-well programme. The Company is also continuing farm-out discussions to bring in a partner ahead of a planned high impact exploration well next year on Block 125 (70% WI), offshore Vietnam. Near term, investors should look for improvements in the receivables balance and towards the Egypt drilling campaign.
Reconnaissance Energy Africa (RECO CN) C$1.10, Market Cap C$222m: Technical studies advance
- ReconAfrica (TSX-V:RECO) announced the initial results of the first phase of the Enhanced Full Tensor Gravity (eFTG) surveys and 2D seismic acquisition recently conducted in the PEL73 exploration licence (90% WI), onshore Namibia.
- The results show a high quality eFTG sub-surface image, with the rift bounding faults and other structural features delineated, which assists in predicting lateral continuity and mapping structures on the 2D seismic.
- Further processing and integration with the second phase eFTG data is expected to enhance the sub-surface imaging of the whole area, enabling de-risking and greater well control for the upcoming drilling programme.
We believe the Company is taking a more prudent approach ahead of drilling the next well in the exploration campaign, with the additional technical studies and resultant prospect ranking assisting in risk mitigation and well path optimization for the upcoming well. The recent geophysical data has confirmed larger structures and less complex geology in the Damara Fold Belt, which is also supported by a natural gas seep located on top of one of these elongated anticlines. All of this new data should greatly support the ongoing farm-out process, which the Company anticipates will bring in a partner with additional capital and expertise and independently validate the acreage’s intrinsic value. The Company plans to integrate all of the data sets (well data, 2D seismic, eFTG and VSP), and develop a risked inventory of prospects to drill, with drilling operations likely starting in 3Q/4Q following the completion of the farm-out process.
Research
David Mirzai – David.Mirzai@spangel.co.uk – 0203 470 0473
Sales
Richard Parlons – Richard.Parlons@spangel.co.uk - 0203 470 0472
Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471
Rob Rees – Rob.Rees@spangel.co.uk - 0203 470 0535
Abigail Wayne – Abigail.Wayne@spangel.co.uk - 0203 470 0534
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Sources of commodity prices
Oil Brent - ICE
Natural Gas - NYMEX
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