WTI (June) $83.57 +76c, Brent (June) $89.01 +99c, Diff -$5.44 +23c
USNG (May) $1.64 -1c, UKNG (May) 77.0p +3.0p, TTF (May) €30.115 +€0.595

Oil price

Worries about the US economy abound, one think tank said yesterday that there was only a 50% chance of a rate cut at all this year, the dollar weakened ahead of the PCE data today. With crude up about 60 cents today oil will end up on the week, again. 

Southern Energy Corp

Southern has  announced its fourth quarter and year end December 31, 2023 financial and operating results. Selected financial and operational information is outlined below and should be read in conjunction with the Company’s audited consolidated financial statements and related management’s discussion and analysis (the “MD&A”) for the three and twelve months ended December 31, 2023, as well as the Company’s annual information form for the year ended December 31, 2023, (the “AIF”), all of which are available on the Company’s website at www.southernenergycorp.com and have been filed under the Company’s profile on SEDAR+ at www.sedarplus.ca. 

All figures referred to in this news release are denominated in U.S. dollars, unless otherwise noted.

FOURTH QUARTER AND YEAR END 2023 HIGHLIGHTS

• ·Average production of 16,755[1] Mcfe/d (2,793 boe/d) (96% natural gas) during Q4 2023 and 16,305[2] Mcfe/d (2,718 boe/d) (95% natural gas) for the year ended December 31, 2023, an increase of 4% and 5% from the same periods in 2022, respectively
• On June 1, 2023, Southern completed a strategic and highly synergistic acquisition in Gwinville of assets producing approximately 400 boe/d (99% natural gas) for cash consideration of $3.2 million (the “Gwinville Acquisition“)
• Generated $0.8 million of adjusted funds flow from operations[3] in Q4 2023 ($0.01 per share basic and diluted) and $3.2 million for the year ended December 31, 2023 ($0.02 per share basic and diluted)
• Petroleum and natural gas sales were $5.1 million in Q4 2023 and $19.3 million for the year ended December 31, 2023, a decrease of 48% and 57% from the same periods in 2022, respectively, largely due to a significant depreciation in the natural gas price
• Average realized natural gas and oil prices for Q4 2023 of $2.95/Mcf and $76.97/bbl compared to $6.35/Mcf and $81.98/bbl in Q4 2022
• Net loss of $39.6 million ($0.26 per share basic and diluted) and $46.8 million ($0.33 per share basic and diluted) for the three and twelve months ended December 31, 2023, respectively, due to a $38.0 million non-cash impairment charge recorded at December 31, 2023
• Year-end 2023 proved developed producing (“PDP“) reserves were 7.5 MMboe and total proved plus probable (“2P“) reserves were 29.6 MMboe, an increase of 21% and 16% from year-end 2022 and reflecting a reserve life index of eight years and 31 years, respectively
• Reserve replacement of 229% in PDP, 96% in total proved (“1P“), and 521% in 2P 2023 reserve categories
• Drilled six net wells at Gwinville in Q1 2023 from three padsites, with each subsequent pad drilling operation resulting in fewer drilling days per well depth adjusted
• On November 9, 2023, successfully closed an equity financing raising aggregate gross proceeds of $5.0 million
• In December 2023, Southern successfully completed the first of its four high quality uncompleted horizontal wells (“DUCs“) from the Q1 2023 drilling program – the GH 14-06 #3 wellbore. The operation was completed safely and under budget

SUBSEQUENT EVENTS

• On February 28, 2024, entered into the sixth amendment (the “Sixth Amendment“) to the Company’s senior secured term loan (the “Credit Facility“), which among other amendments, included extending the term of the Credit Facility from August 31, 2025 to December 31, 2026 (see “Liquidity and Capital Resources – Credit Facility” in the December 31, 2023 MD&A for full details of the amendment)
• Southern monetized its fixed price swap derivative contracts to take advantage of the positive unrealized gain position, realizing net proceeds of $1.1 million.
• Entered into a fixed price swap derivative contract of 5,000 MMBtu/d for the period of May 2024 – December 2026 at a price of $3.40/MMBtu

Ian Atkinson, President and Chief Executive Officer of Southern, commented:
“Looking at 2023, Southern is pleased to have made significant progress re-developing its large scale Gwinville asset, highlighted by the recent completion of the GH 14-06 #3 well, which achieved an IP30 rate of 5.2 MMcf/d, while deploying 40% less capital than early 2023 completion costs. We have three remaining high impact DUCs at Gwinville that we plan to complete and bring online as natural gas prices are expected to continue to recover into Q3 and Q4 of 2024. Completing the highly accretive acquisition at Gwinville in Q2 2023 illustrates our ability to execute on the inorganic focus of our business plan in lower commodity price cycles. Southern believes the strategy of accretive acquisitions in commodity price troughs, coupled with cost-effective organic growth heading into commodity price peaks, strikes a balance to create long term shareholder value in volatile commodity price environments.

“We continue to be encouraged by the outlook of supply and demand dynamics for U.S. natural gas as the new Gulf Coast LNG export facilities will start accepting feed gas later this summer, significantly increasing demand for natural gas in the region. Additionally, we are now seeing some material increases in domestic power demand through artificial intelligence (“AI”) data center build out, crypto-currency mining and the electrification of transportation which will add to the overall demand for gas-fired power generation. The supply dynamic is also changing as we are starting to see the effects of large U.S. natural gas producers’ willingness to both curtail current production and significantly reduce drilling and completion activity. This is manifesting into the supply side of the equation with U.S. production below 100 bcf/d at the start of April 2024, down from the Q4 2023 peak of 106 bcf/d.

“Southern is well positioned to capitalize on rising natural gas prices with production behind pipe which can be brought on stream in a short time frame and we are excited to continue to grow the business with our new and longstanding shareholders.”

Southern is continuing to prove up the fact that they are not only amongst the most accomplished operators in the US natural gas space but that they have strategies that are designed to fit markets that are sometimes difficult to read. Perhaps more importantly, with this strategy being designed to take on the larger players in the industry who are reluctant to stay in the space in difficult times, Southern can use their flexibility and nimble footedness to make good operating profits which should get better later this year.

A great deal of the success in such times is that Southern are making ‘significant progress’ in re-developing the large scale Gwinville asset I have discussed before. This can especially be seen at the GH 14-06 #3 well which has produced at 5.2 MMcf/d whilst deploying 40% less capital than early 2023 costs. And this was only the first of the four DUC’s from last year’s programme, the remainder to come online in what is expected to be a higher natural gas price in the 3rd and 4th quarter this year.

In my view there are two important facts to draw from the statements today, firstly Year-end 2023 proved developed producing (“PDP“) reserves were 7.5 MMboe and total proved plus probable (“2P“) reserves were 29.6 MMboe, an increase of 21% and 16% from year-end 2022 and reflecting a reserve life index of eight years and 31 years, respectively’. That these numbers were so good is in my view can be put down to the inorganic vs organic growth strategy.

The company practices a policy of inorganic focus in the lower commodity price cycles, this is when accretive acquisitions can be made in the troughs of the gas price as the effects of the large U.S. natural gas producers’ willingness to both curtail current production and significantly reduce drilling and completion activity. This is where Southern’s team can take advantage of nimble moves in the natural gas market. 

And of course the organic part of the business can use its very successful cost effective growth policies, making it possible to make more money when prices peak. This proves that it is incorrect to call SOUC as a pure gas price play, it has enough fire power to be able to make very good shareholder returns in most markets. Accordingly at todays price of  10p its place in the bucket list is assured. 

Arrow Exploration Corp

I have been talking a bit about the fact that the 21.2% stake in Arrow held by Canacol was up for sale and I am glad to see that the cross has just printed at 18.5p. Talking around I think that Canacol sold to an institutional investor and associates.

Arrow is showing a change in trajectory now that this stake from former founders Canacol Energy is now held I understand by a new group of investors lead by industry veteran and independent energy investor Gavin Wilson.

Arrow, a notable performer, had surged since its introduction to London’s Aim market in October 2021, experiencing a remarkable 60% increase this year alone. Canacol Energy then revealed its intention to sell assets due to balance sheet pressures, initiating the stake’s availability last month impacting the Arrow price.

This change of investors is likely a source of satisfaction for Arrow, as the stake had been casting a shadow on the market, causing shares to dip from recent highs. With the stake having been hanging over the market, this clearance today, and to a highly respected investor is clearly good news.

Chief Investment Officer Gavin Wilson’s extensive experience, coupled with his involvement in other major invested companies such as Afentra, TAG Oil, and PetroTal Corp., further solidifies the credibility of this move. He has built up a reputation for supporting smaller exploration companies and offering expertise in the sector, often taking a board seat, that results in turn-around results for world class energy investments that have latent potential. The placement signals confidence in Arrow’s potential.

Arrow has been a favoured stock of mine for a while and has been on the Bucket List almost since it came to the London market in 2021. Having fallen from the recent peak and with stability back in the market place I suspect that the shares are now looking very attractive.

Trinity Exploration & Production

Trinity has provided an update on operations for the three-month period ended 31 March 2024.  The information contained herein has not been audited and may be subject to further review and amendment.

Jeremy Bridglalsingh, Chief Executive Officer of Trinity, commented:
“Trinity’s core business remains robust and cash-generative, with no long-term debt.  We are focused on three immediate priorities:

1) Maximising cash flow from our existing producing assets in a safe and efficient manner.
2) Rebuilding cash following the drilling of the Jacobin well in 2023 with a strong focus on cost management; and
3) Maturing detailed engineering for our two principal projects, particularly Phase 1 (Trintes 2P) of the Galeota Development and preparing plans for the exploration of the Buenos Ayres block, to a point that they can attract new investment capital or being monetised through sale or farm-down.

I look forward to updating shareholders throughout the year as we execute our activities.”

Trinity remain in the Catch-22 situation of flat lining production, made possible admittedly by a very good workover programme that keeps production at current levels. And CEO Jeremy Bridglalsingh is right to say that the company’s core is robust and cash generative but that is not very much cash and is certainly not enough following Jacobin.

The peer group in Trinidad is very mixed and although Trinity does not have deep pockets I suspect that some creative M&A activity is the only way bar a farm-out that Trinity can get to the next base in country.

Jacobin-1 Operations

By mid-January production rates and flowing pressures from Jacobin had fallen to approximately 10 bopd with the well struggling to flow naturally, so the decision was taken to convert the well to pump.  The pump was run in late February and fluids were brought to surface on 1 March 2024.  However, significant quantities of sand were also being produced and, by late March, the pump failed with a sand blockage.

The forward plan for Jacobin, which has been submitted to Heritage Petroleum Company Limited and the Ministry of Energy and Energy Industries for approval, is to recomplete the Jacobin well up-hole in the Lower Forest horizon with production expected in the second half of May 2024.

Galeota / Trintes Development

Work on Phase 1 (Trintes 2P infill drilling) continued in Q1 and was focused on using the updated static and dynamic reservoir models to complete the primary target well bottom hole locations and well paths for infill wells, assuming drilling from the Trintes Delta platform.  The updated static model for Trintes will be expanded to include the entire Galeota anticline structure during the remainder of 2024, including the TGAL area that the Mobile Production Unit concept would initially focus on.

Buenos Ayres Block

On Buenos Ayres, work on the Environmental Impact Assessment continues to progress with the Certificate of Environmental Clearance Application expected to be submitted in late Q2 / early Q3 2024, along with ongoing subsurface evaluation.

Idle Well Study

Trinity has embarked on an idle well study, with the initial phase including technical reviews of approximately 250 wells, with field investigations having commenced on the first 30 of these wells which has added additional wells to the swabbing programme.

Reserves

Further to the Company’s announcement on 15 April 2024 the following tables provide a reconciliation, by operating area, of the revisions between Year-End 2022 and Year-End 2023.  All data is Net Working Interest (“Net WI”).

Comparison of YE 2022 vs YE 2023 2P Reserves

Comparison of YE 2022 vs YE 2023 2C Resources

Q1 2024 Operational Highlights

• Q1 2024 sales volumes averaged 2,669 bopd (Q1 2023: 2,899 bopd, Q4 2023: 2,736 bopd).
• The Company maintains its Full-Year 2024 sales volume guidance of 2,600-2,700 bopd.

Average Annual and Quarterly Sales by Region

During Q1 2024:

• 33 workovers were completed (Q1 2023: 39; Q4 2023: 33).
• There was one recompletion in the Period (Q1 2023: two; Q4 2023: three).
• Swabbing operations continued across Onshore and West Coast assets.

Q1 2024 Financial Highlights

The Group reports its consolidated financial information half yearly, in its Annual Report & Accounts and Interim Results, in accordance with UK adopted International Accounting Standards and the London Stock Exchange’s AIM Rules for Companies.  Quarterly, the Group provides unaudited information for guidance.

• Average realised oil price of USD 69.9/bbl for Q1 2024 (Q1 2023: USD 67.9/bbl; Q4 2023: USD 71.6/bbl).
• EBITDA, pre-hedging1 in Q1 2024 of USD 4.0 million (unaudited) (Q1 2023 USD 5.3 million).

·    Operating break-even2, pre-hedging1, Q1 2024 of USD 44.3/bbl (Q1 2023: USD 35.4/bbl; Q4 2023: USD 39.8/bbl).

1 The Group had no hedging in place in 2023 or 2024.
2 Operating break-even is the realised price/bbl where the adjusted EBITDA/bbl for the Group is equal to zero.

• Cash balance of USD 8.6 million (unaudited) at 31 March 2024 versus USD 9.8 million (unaudited) at 31 December 2023 and USD 11.4 million (unaudited) at 31 March 2023.
• The Group had drawn borrowings (overdraft) of USD 4.0 million at 31 March 2024 (USD 4.0 million at 31 December 2023 and USD 2.3 million at 31 March 2023).
• VAT refunds collected in Q1 2024 totalled USD 0.8 million.  VAT refunds outstanding as at 31 March 2024 are USD 5.1 million reflecting expenditures, principally on the Jacobin well in 2023.

KeyFacts Energy Industry Directory: Malcy's Blog