Southern Energy Corp (TSX-V:SOU, AIM:SOUC, OTC:MAXMD) has announced selected highlights of its year-end independent oil and gas reserves evaluation (NSAI Report) as of December 31, 2021, and provided an update on the company's three-well drilling program at the Gwinville field and a non-core asset cash disposition.
In a statement, Ian Atkinson, president and chief executive officer of Southern Energy said: "We are delighted to report our 2021 year-end reserves report which highlights the quality of our asset base, our unique operational expertise and the capability for significant reserves growth potential in our assets as we progress our organic growth program.
"We are particularly excited by the additional probable drilling locations identified at Gwinville, which are based on results from previous Selma Chalk horizontal drilling successes and does not incorporate our new well completion design. Identification of these drilling locations demonstrates how our strategy of applying modern completion techniques can bring new life, and production, to high quality, mid-life assets.
"The NSAI report demonstrates that we have substantially extended the running room and future development potential of our asset which will complement our strategy to generate long term sustainable free funds flow and organic growth in development of our existing asset base," the Southern Energy CEO added.
READ: Southern Energy announces spudding of its three well drilling program in the Gwinville gas field in Mississippi
The NSAI Report was prepared by Southern's independent qualified reserves evaluator, Netherland, Sewell and Associates Inc and highlights include:
- An increase in proved developed producing (PDP) reserves by 9% to 5.7 MMboe,
- Consistent total proved (1P) reserves at 10.5 MMboe and an increase in total proved plus probable (2P) reserves by 73% to 20.2 MMboe in 2021;
- A PDP reserve life index (RLI) of 9 years and 15 year RLI for 2P reserves
- Additional drilling locations identified at Gwinville, based on previous Selma Chalk horizontal drilling successes, which could add material levels of production;
- Before-tax net present value (NPV) of reserves, discounted at 10% (NPV10), is $32.4 million on a PDP basis, $53.5 million on a 1P basis and $88.3 million on a 2P basis evaluated using the average forecast pricing of four independent reserve evaluators as at January 2022
- •Material progression of before tax NPV-10 per share to C$0.53/share, C$0.88/share, and C$1.45/share for PDP, 1P, and 2P categories
- The ongoing three well drilling program at Gwinville proceeding on schedule and on budget, with completion operations expected to begin in early April 2022
- Disposition of two non-core oil properties for $1.3 million, net of closing adjustments
- Aggregate production from the two properties was approximately 40 boe/d
In addition to the summary information, the company said more detailed information regarding Southern's oil and gas reserves will be included in the company's AIF to be filed on SEDAR - www.sedar.com.
The company also said it anticipates announcing its fourth quarter and audited year-end 2021 financial results and filing an annual information form (AIF) for the year ended December 31, 2021, in April 2022.
Operations Update
The company noted that since Energy Drilling Rig #15 spudded the first well on the Gwinville three-well padsite on January 28, 2022, surface casing has been run on all three wells, and it is currently drilling the third and final intermediate section prior to initiating the horizontal laterals.
Southern Energy said it anticipates that drilling operations will conclude in late March, with completion operations to follow in early April 2022. In Q1 2022, the company noted that it entered into a hedge contract through December 31, 2022, on 2,000 MMBtu/d of natural gas production at a fixed price of $4.61/MMBtu.
Gary McMurren, vice president of Engineering commented: "The team is very excited about revitalizing the Gwinville Field with modern horizontal drilling and multistage fracture technology and this first padsite will be a great measure of how effective these optimized wellbore designs are at maximizing gas delivery from Selma Chalk horizontals.
"Following the completion operations, we will immediately be flowing the wells back through our company-owned, high pressure gathering system to sales, thereby eliminating any flaring emissions and lost revenue. By the end of Q2 2022 we should have a good idea of how the initial well rates match our type curve expectations."
Southern Energy also announced that recently, in two separate transactions, it disposed of two small, non-core oil properties located outside of the company's focused asset base in central Mississippi. Total working-interest production from the assets was approximately 40 boe/d for a consideration of $1.3 million net of closing adjustments. The implied sale metrics of approximately $32,500/boepd and 3x fourth quarter 2021 annualized cash flow are strong considering the limited upside potential from the assets.
Commenting on the disposals, Ian Atkinson said: "Divesting these small interests is consistent with our core strategy to focus on high working interest, operated assets with re-development opportunities for our shareholders."
Change in reporting currency
The company also announced that it is electing to change its reporting currency from Canadian dollars to US dollars since the majority of its natural gas and crude oil properties are in the USA. The change in reporting currency is a voluntary change that is accounted for retrospectively. All prior periods will be restated to US dollars, it added.
Southern Energy also announced that it has issued 20,000 new common shares to satisfy an exercise of warrants at a price of C$0.32 per common share.
The company revealed too that a new corporate presentation, dated March 2022, is now available on the company website at www.southernenergycorp.com.
Southern Energy is a natural gas exploration and production company. It has a primary focus on acquiring and developing conventional natural gas and light oil resources in the southeast Gulf States of Mississippi, Louisiana, and East Texas.
The company'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.
Contact the author at jon.hopkins@proactiveinvestors.com