Shale gas and oil have been the main focus of US energy companies over the past decade and the preponderance of that form of exploration has been a depressant on pricing.
But it has also led to opportunities for those companies prepared to hunt down conventional assets and re-energise them as pricing has become more favourable.
One such firm is Southern Energy Corp (TSX-V:SOU, AIM:SOUC, OTC:MAXMD), a Toronto and London-listed natural gas exploration and production company with a primary focus on acquiring and developing conventional natural gas and light oil resources in the south-eastern US Gulf of Mexico states.
The Calgary, Alberta-based company’s primary assets are located in Southern Mississippi, in the Mississippi Interior Salt Basin (MISB) in addition to minor properties in North Eastern Mississippi, in the Black Warrior Basin; as well as in Alabama, where the company holds a 0.6% interest in a NW Brooklyn oil production unit.
Across its portfolio, Southern Energy has an interest in 230 net producing and 90 non-producing wells which are comprised of conventional, low-decline, long-life reserves in fields with abundant infrastructure, low operating costs and premium commodity pricing.
At the end of January 2022, Southern Energy Corp (TSX-V:SOU, AIM:SOUC, OTC:MAXMD) announced the spudding of its three Selma Chalk horizontal wells in Gwinville in Mississippi. If everything goes according to plan, first production from the wells is expected in April 2022, the company has said.
Southern Energy Corp (TSX-V:SOU, AIM:SOUC, OTC:MAXMD)’s management team has a long and successful history working together and have created significant shareholder value through accretive acquisitions, optimization of existing oil and natural gas fields and the utilization of re-development strategies utilizing horizontal drilling and multi-staged fracture completion techniques.
Proactive caught up with Southern Energy CEO Ian Atkinson to find out more.
Proactive: Southern Energy is focused on consolidating high-quality conventional assets in under-exploited basins in the US Gulf Coast states. How easy are these to come by?
Ian Atkinson: We've made two acquisitions of this nature in the last three years. Over the last 10 years, US companies have been very focused on shale plays, which leaves these conventional assets, I think, somewhat non-core in their portfolios.
We have a very disciplined tactical approach to making these acquisitions which offers significant redevelopment opportunities for us.
Across its portfolio, Southern Energy currently has over 200 net producing and 90 non-producing wells. What further expansion could be undertaken?
We're currently expanding our footprint here by drilling a three-well pad at one of our main assets called Gwinville, which is expected to be on stream in April of this year.
Upon the success of that, later this year we’ll look to initiate our next phase of drilling, which could be up to 15 horizontal wells per year.
How is the pricing of natural gas in the US Gulf Coast area key to Southern Energy’s assets?
Natural gas prices have recovered since their lows here of a few years ago, but it's really something we don't have direct control over, the price that we sell at. But what we can control is the cost to produce that gas and over the last three or four years, we've driven down our operating costs by over 40% after we acquired these assets in 2017 and 2019.
So now being a low-cost operator allows us to maximize our profitability as we look to expand our production in a substantially higher gas price environment.
Southern Energy listed in London last August, adding to its main Toronto listing. What does this offer the company?
Adding that London listing to our current Canadian listing was a real key piece of business for us in 2021. Not only does it facilitate a more global access to capital to accelerate our business plan, but it also allows direct access for investors in Canada, UK and Europe to get exposure to that premium natural gas pricing. And, frankly, to a company like us who has pretty significant growth plans.
The company’s management has great experience in the area. What do you think you bring to the company as its CEO?
You should ask this question to my parents maybe. But, you know, as a CEO of an energy company, I have to wear many hats. As a background, I'm an engineer with a broad base of technical experience. I'm also an entrepreneur in this business. So I fundamentally understand the economics of our business.
Lastly, I'm a shareholder. I'm a big shareholder of this company, I've put in my risked capital alongside of other shareholders, which creates that good alignment in how we approach creating value.
So what should Southern Energy shareholders expect in the near to medium term?
In the last three years, with low commodity prices, we were focused more on battening down the hatches and reducing costs. But with a shift to higher prices now, and our recent equity financing at the end of 2021, we feel we're very well positioned for some significant growth.
So, in the near term, we plan on continuing our organic growth, as well as going through consolidation opportunities we see in our area of interest. And in the medium to long term, we certainly see adding a dividend policy to our value proposition for shareholders alongside of that growth.
We're at a pivotal point, as I mentioned. The last few years we're not about growth, the markets weren't incentivising growth, the capital availability wasn't necessarily there. But as we've seen the change in gas prices, so we have seen the interest in buying shares in companies like ours.
I think we're on the precipice here of some very significant growth. So we look forward to continuing to communicate with our shareholders on this and bringing some good news in April after our drilling program.
Contact the author at jon.hopkins@proactiveinvestors.com