Southern Energy Corp. (SOU:TSX; SOUTF:OTCQX; SOUC:AIM) achieved a production rate in Q2/23 that was only in line with that of Q1/23 due to the City Bank 18-10 1 well at Gwinville underperforming, reported Auctus Advisors analyst Stephane Foucaud in an August 18 research note.
To reflect a slightly slower production ramp-up there, Auctus lowered its target price on the Canadian oil and gas company to £1.50 per share from £1.60, "which still represents greater than six times the current price," Foucaud noted.
552% Possible Gain
Despite the reduced target price, Alberta-headquartered Southern Energy still offers investors a remarkable potential return of 552%, Foucaud wrote.
This is implied in the difference between the new £1.50 per share target and the company's current share price of £0.22.
Production at a Glance
Foucaud presented the highlights of Southern Energy's Q2/23 results. Its three main assets are in the Mississippi Interior Salt Basin, in the Gwinville, Mechanicsburg, and Mount Olive East fields.
Total production was 2,651 barrels of oil equivalent per day (2,651 boe/d). This was slightly above production in the previous quarter of 2,607 boe/d.
Q2/23 production was hindered by the underperformance of 18-10 1, the first City Bank horizontal well at Gwinville, Foucaud reported. After being brought online in February, its natural gas rate increased to 600,000 cubic feet per day (600 Mcf/d) and then remained flat. Pressure in the well was unable to build up past 60% of the initial level achieved, the analyst added, "which suggests the well is in communication with a depleted zone."
Management attributes this to "fracture communication with an offset well with poor cementation which had previously been produced from the deeper Tuscaloosa formation," added Foucaud.
Consequently, to prevent this from happening in the future, Southern will create a buffer zone around the historical Tuscaloosa wells by doing away with proximal fracking stages.
Southern's current production, in August 2023, including that from the Gwinville field interest acquired on June 1, 2023, is about 2,900 boe/d.
As for production during the rest of 2023, Auctus now forecasts 3,070 boe/d in Q3 and greater than 4,000 boe/d in Q4, Foucaud wrote.
Cash on Hand
At Q2/23's end, Southern Energy had about US$2.2 million (US$2.2M) in cash at the end of June, having paid US$15.4M in capex during the quarter.
As of June 30, 2023, there were still US$11.5M from the credit facility that were unused and available.
On the Horizon
Regarding its newly acquired Gwinville assets, Southern Energy is now installing the necessary pipeline infrastructure to consolidate the two existing gathering systems. This will reduce the required compressor stations to one from five. It also will save 250 Mcf/d of fuel gas that the company will add to sales volumes.
During the rest of Q3/23, the company plans to work over some of the acquired Gwinville well bores and start remediation work for the 18-10 3 Upper Selma Chalk well.
When gas prices are such that Southern can materially improve its per-thousand cubic feet equivalent operating expenses, it plans to quickly complete and bring online four of its drilled but uncompleted wells.
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- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
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Disclosures for Auctus Advisors, Southern Energy Corp., August 18, 2023
Southern Energy (“Southern” or the “Company”) is a corporate client of Auctus Advisors LLP (“Auctus”). Auctus receives, and has received in the past 12 months, compensation for providing corporate broking and/or investment banking services to the Company, including the publication and dissemination of marketing material from time to time.
MiFID II Disclosures This document, being paid for by a corporate issuer, is believed by Auctus to be an ‘acceptable minor non-monetary benefit’ as set out in Article 12 (3) of the Commission Delegated Act C(2016) 2031 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. It is produced solely in support of our corporate broking and corporate finance business. Auctus does not offer a secondary execution service in the UK. This note is a marketing communication and NOT independent research. As such, it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and this note is NOT subject to the prohibition on dealing ahead of the dissemination of investment research. Author The research analyst who prepared this research report was Stephane Foucaud, a partner of Auctus.
Not an offer to buy or sell Under no circumstances is this note to be construed to be an offer to buy or sell or deal in any security and/or derivative instruments. It is not an initiation or an inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000.
Note prepared in good faith and in reliance on publicly available information Comments made in this note have been arrived at in good faith and are based, at least in part, on current public information that Auctus considers reliable, but which it does not represent to be accurate or complete, and it should not be relied on as such. The information, opinions, forecasts and estimates contained in this document are current as of the date of this document and are subject to change without prior notification. No representation or warranty either actual or implied is made as to the accuracy, precision, completeness or correctness of the statements, opinions and judgements contained in this document.
Auctus’ and related interests The persons who produced this note may be partners, employees and/or associates of Auctus. Auctus and/or its employees and/or partners and associates may or may not hold shares, warrants, options, other derivative instruments or other financial interests in the Company and reserve the right to acquire, hold or dispose of such positions in the future and without prior notification to the Company or any other person. Information purposes only This document is intended to be for background information purposes only and should be treated as such. This note is furnished on the basis and understanding that Auctus is under no responsibility or liability whatsoever in respect thereof, whether to the Company or any other person. Investment Risk Warning The value of any potential investment made in relation to companies mentioned in this document may rise or fall and sums realised may be less than those originally invested. Any reference to past performance should not be construed as being a guide to future performance. Investment in small companies, and especially upstream oil & gas companies, carries a high degree of risk and investment in the companies or commodities mentioned in this document may be affected by related currency variations. Changes in the pricing of related currencies and or commodities mentioned in this document may have an adverse effect on the value, price or income of the investment. Distribution This document is directed at persons having professional experience in matters relating to investments to whom Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 ("FPO") applies, or high net worth organisations to whom Article 49 of the FPO applies. The investment or investment activity to which this communication relates is available only to such persons and other persons to whom this communication may lawfully be made (“relevant persons”) and will be engaged in only with such persons. This Document must not be acted upon or relied upon by persons who are not relevant persons. Without limiting the foregoing, this note may not be distributed to any persons (or groups of persons), to whom such distribution would contravene the UK Financial Services and Markets Act 2000 or would constitute a contravention of the corresponding statute or statutory instrument in any other jurisdiction.
Disclaimer This note has been forwarded to you solely for information purposes only and should not be considered as an offer or solicitation of an offer to sell, buy or subscribe to any securities or any derivative instrument or any other rights pertaining thereto (“financial instruments”). This note is intended for use by professional and business investors only. This note may not be reproduced without the prior written consent of Auctus. The information and opinions expressed in this note have been compiled from sources believed to be reliable but, neither Auctus, nor any of its partners, officers, or employees accept liability from any loss arising from the use hereof or makes any representations as to its accuracy and completeness. Any opinions, forecasts or estimates herein constitute a judgement as at the date of this note. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or estimates. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied is made regarding future performance. This information is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company and its subsidiaries. Auctus is not agreeing to nor is it required to update the opinions, forecasts or estimates contained herein. The value of any securities or financial instruments mentioned in this note can fall as well as rise. Foreign currency denominated securities and financial instruments are subject to fluctuations in exchange rates that may have a positive or adverse effect on the value, price or income of such securities or financial instruments. Certain transactions, including those involving futures, options and other derivative instruments, can give rise to substantial risk and are not suitable for all investors. This note does not have regard to the specific instrument objectives, financial situation and the particular needs of any specific person who may receive this note. Auctus (or its partners, officers or employees) may, to the extent permitted by law, own or have a position in the securities or financial instruments (including derivative instruments or any other rights pertaining thereto) of the Company or any related or other company referred to herein, and may add to or dispose of any such position or may make a market or act as principle in any transaction in such securities or financial instruments. Partners of Auctus may also be directors of the Company or any other of the companies mentioned in this note. Auctus may, from time to time, provide or solicit investment banking or other financial services to, for or from the Company or any other company referred to herein. Auctus (or its partners, officers or employees) may, to the extent permitted by law, act upon or use the information or opinions presented herein, or research or analysis on which they are based prior to the material being published.
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