Southern Energy Corp (TSX-V:SOU, AIM:SOUC, OTC:MAXMD)'s share price should more than double, analysts at WH Ireland believe, as following its solid third quarter results focus turns to the completion of four drilled uncompleted wells (DUCs) at its Gwinville gas field in Mississippi, the United States.
The analysts wrote in a note to clients that they see the stock’s valuation reaching 30.1p, up from 13.5p at Monday’s close in London.
“We expect the DUCs to propel production upwards to circa 24,258 thousand cubic feet equivalent per day (mcfe/d), or 4,043 barrels of oil equivalent per day (boe/d) in 2024, representing an uplift of 50.8% relative to our expectations for 2023 – these are high-impact completions,” they wrote.
“We see our investment thesis for Southern Energy – premised on the scale, location, quality, deliverability, low-cost nature of the company’s Gwinville gas field in Mississippi, USA – very much strengthening based on our structural commodity price outlook and our growing confidence in the highly prolific Gwinville gas field, sharpening our interest in the forthcoming DUCs.”
They estimate that, based on a realized natural gas price of circa $3.75 per Metric Million British Thermal Unit (mmbtu), drilling new Gwinville wells would generate an internal rate of return of 43%, net present values of $3.3 million per well and pay-outs in under two years.
“Gwinville is easily one of the best natural gas fields in the U.S., based on our economic assessment,” they wrote.
They also highlighted that the company has very low fixed variable costs of approximately $0.73/mcfe in 2024 comprised of variable operating expenses of $0.34/mcfe, transportation costs of $0.26/mcfe and production taxes of $0.13/mcfe.
“With the bulk of the operating costs being fixed, we see all-in fixed costs declining from $1.48/mcfe to $0.97/mcfe due to the expected production growth in 2024,” they wrote.
“For reference, our $0.97/mcfe all-in fixed cost estimate includes fixed operating costs of $0.48/mcfe and administrative costs of $0.48/mcfe. With growth, we see further fixed cost erosion ahead for Southern Energy.”
On Southern Energy’s 3Q results, the analysts noted that these were broadly in line with their estimates, with the notable deviation being that production of 16,881 mcfe/d (2,814 boe/d) exceeded their initial forecasts of 16,223 mcfe/d (2,704 boe/d) reflecting the success of workover work.
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