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Auctus on Friday - 15/012021

Bahamas Petroleum Company (BPC LN)C; Target Price: 6.70p: Funding update – BPC has exercised a put option to raise £3.75 mm priced at 2p per share. PetroTal (PTAL LN/TAL CN)C: Target Price increased from £0.45 to £0.50: US$100 mm bond to accelerate activities and grow production - PetroTal is launching a bond issue to raise US$100 mm. This would allow the firm to accelerate drilling and development activities at Bretana (~US$40 mm), clean up its balance sheet, put in place a hedging programme and allow the firm to consider regional acquisitions. Assuming the extra funding is put in place, we are increasing our capex programme for 2021 from US$40 mm to US$90 mm. We are also increasing our production forecast for 2021 from ~11 mbbl/d to ~15 mbbl/d that we maintain broadly flat in 2023 as we assume PetroTal will drill additional wells before production starts to decline from 2024. We note that the 3P case only assumes five additional wells (~US$70 mm) compared to the 2P case. With more production, we are now forecasting operating cashflow of ~US$170 mm in 2022 and ~US$155 mm in 2023. We are also increasing our Core NAV from £0.43 per share to £0.52 per share. The additional funding would also allow the company to drill exploration wells such as the 70 mmbbl Constitucion prospect (£0.40 per share Unrisked). Pharos Energy (PHAR LN)C; Increasing our target price from £0.35 to £0.40 per share on reserves uplift – The highlight of Pharos’ operational update is the ~40% increase in 2P reserves in Egypt expected as at YE20 (YE19 28.5 mmbbl). This reflects improved waterflood performance based on recent field data, and a new drilling and workover plan for 2021 onwards. Drilling is expected to recommence in Vietnam in 3Q21, a quarter earlier than previously announced. We have increased our target price from £0.35 per share to £0.40 per share to factor in the expected increase in reserves in Egypt. We estimate the value of Pharos based on Vietnam only at £0.23-0.27 per share. This is 15-35% above the current share price. Securing a partner to fund a development programme with four rigs in Egypt would increase the value of the ~ 40 mmbbl 2P reserves in Eqypt and unlock the contingent and 108 mmbbl prospective resources. Our incremental unrisked value for the four rig programme is £0.17-0.19 per share (~85% upside to the current share price). Successfully negotiating new terms with EGPC could lead to an improvement of up to US$6/bbl in the breakeven price. We have previously estimated that securing similar terms to TransGlobe would boost our Core NAV by £0.10-0.12 per share and ReNAV by £0.13-0.15 per share. TransGlobe Energy’s share price has tripled since the new terms on its licences were announced. Tethys Oil (TETY SS)C; Target Price: SEK75.00: Production update in Oman – Production at Block 3&4 in December was 11,481 bbl/d. Vaalco Energy (EGY LN/US)C; Target Price: £4.00: Initiating Coverage - VAALCO is a US and UK listed ~£75 mm market cap, ~10 mbbl/d oil producer (pro-forma) with West African assets. VAALCO has an excellent track record as an operator having grown a 30 mmbbl discovery in Gabon to a field that has produced >118 mmbbl so far with an additional 37 mmbbl remaining 2P reserves plus ~80 mmbbl upside at YE19. The shares have suffered in the past from (1) a lack of materiality as VAALCO held only ~31% of its main asset, with G&A viewed as representing a disproportionate amount of cash flow and (2) lack of visibility on how the significant amount of cash on the balance sheet would be deployed. The US$44 mm acquisition of an additional ~28% WI in Etame announced in November, thereby almost doubling production, reserves and resources overnight, has addressed these issues. The story is now about continuing to grow reserves at the producing Gabonese field and to replicate this success elsewhere. With estimated net cash of >US$25 mm at the end of 1Q21, VAALCO’ s shares trade at less than half our 2P NAV of ~£2.70 per share. The current share price discounts an EV/DACF multiple of 1.2x in 2021. Low risk infill drilling of contingent resources could add ~£0.45 per share (30% of share price) with an overall unrisked value for the upside at the producing asset of £4.80 per share (~4x the current share price). Finalizing the farm out of its asset in Equatorial Guinea could start unlocking a further £4.20 of unrisked value. Our target price of £4.00 per share (~ our ReNAV) represents ~230% upside. Wentworth Resources (WEN LN)C; Target Price: £0.40: >100 mmcf/d reached in December - FY20 gross production was 65.36 mmcf/d (in the middle of the 60-70 mmcf/d guidance) with ~83 mmcf/d on average during the month of December. Repairs to the MB-2 flowline were completed on 9 December, increasing the capacity of the field to over 100 mmcf/d. Production reached 103 mmcf/d for five days during that month. Gross production guidance for FY21 is 65-75 mmcf/d, below the 80 mmcf/d we were carrying as production growth is pushed back by a year. Cash on hand of ~US$18 mm is in line with our expectations. With 70 mmcf/d gross production in 2021 and almost no capex, we forecast FY21 Free Cash Flow of ~US$10 mm. With FY20 dividends of only US$3.2 mm and ~US$18 mm in cash, we believe there is scope to increase the dividend. At the current share price, the FY20 dividend represents a yield of ~6%. Even after the recent share price appreciation, the shares continue to trade at EV/DACF multiples of 2.9x in 2021 and 2.2x in 2022. This compares with 3.8x for 2020, suggesting there is room for multiple expansion given the stable nature of the business. IN OTHER NEWS ________________________________________ AMERICAS 88 Energy (88E LN/AU): Acquisition in Alaska – 88 Energy is acquiring the Umiat Oil Field, located on the North Slope of Alaska. The proceeds consist of a 4% overriding royalty interest and the assumption of the abandonment liability of two historic wells (at an estimated cost of ~US$1 mm). Umiat is an historic oil discovery, made in 1945 in shallow Brookian (Nanushuk) sandstones, located immediately adjacent to southern boundary of Project Peregrine. The Umiat-23H well was flow tested at a sustained rate of 200 bbl/d with no water in 2014. Gross 2P reserves were estimated at 123.7 mmbbl on 1 December 2015. Equinor (EQNR NO): Farming down Argentinian offshore exploration to Shell - Equinor and YPF farm-down 30% interests in the CAN 100 block, located in the North Argentinian Basin to Shell. Pantheon Resources (PANR LN): Dispute in East Texas and acquisition of new acreage - Kinder Morgan has filed a petition against Pantheon, seeking payment of ~US$3.35mm with respect to the early termination of a Gas Treating Agreement between Kinder Morgan and Vision Operating Company. In a separate statement, the company indicated it has acquired 100% interest in ~66,000 acres in the State of Alaska's North Slope Areawide Lease Sale. The new leases are positioned in two areas contiguous to the company’s current acreage. Parex Resources (PXT CN): Operation update in Colombia – 4Q20 production was 46,550 boe/d compared to Parex’ guidance of 45,500-47,500 boe/d. 1Q21 production is expected to average 46,500-47,500 boe/d. The Brent/Vasconia differential is currently ~US$2/bbl. Parex estimates a cash position of US$325 mm at YE20. Total (FP FP): Discovery in Suriname - The Keskesi East-1 well, in Block 58, encountered a total of 63 meters net pay of hydrocarbons, comprised of 58 meters net black oil, volatile oil, and gas pay in good quality Campano-Maastrichtian reservoirs, along with 5 meters of net volatile oil pay in Santonian reservoirs. EUROPE Independent Oil & Gas (IOG LN): Operating update in the UK – Phase 1 remains on schedule for First Gas in 3Q21. Drilling is expected to start in early 2Q21. Hurricane Energy (HUR LN): Operating update in the UK North Sea - Production for the final four months of 2020 averaged 12,500 bbl/d. Current water cut is 25%. YE20 net free cash was US$106 mm, compared to US$87 mm at 30 November 2020. Lundin Energy (LUNE SS): Resources increase in Norway – YE20 2P reserves are 670.9 mmboe (+ 39.3 mmboe versus YE19). The YE20 2C resources are 275.5 mmboe (+90.2 mmboe et YE19). OMV (OMV AG): Trading update – 4Q20 production was 472 mboe/d including 290 mboe/d of natural gas. FORMER SOVIET UNION Enwell Energy (ENW LN): Operating update in the Ukraine – 4Q20 production was 4,444 boe/d. At YE20, the company held US$61 mm in cash. Petroneft (PTR LN): Potential acquisition in Russia – Petroneft is looking to acquire an additional 40% interest in Licence 67 from Belgrave Naftogas for US$2.9 mm including US$1.2 mm in shares and the balance in cash. MIDDLE EAST AND NORTH AFRICA Gulf Keystone Petroleum (GKP LN): Operating update in Kurdistan – FY20 gross production at Shaikan was 36,625 bbl/d with current production of 44,000 bbl/d. As at 12 January 2021, the Company had a cash balance of US$147 mm. FY21 gross production guidance has been set at 40,000 to 44,000 bbl/d with US$15 to $20 mm net capex and US$2.5 to US$2.9/bbl opex. ShaMaran Petroleum (SNM CN): Terms update for bonds – ShaMaran is looking to use free cash in excess of US$15 mm to buy back its Bonds in the market to satisfy the cash sweep redemption requirements. United Oil & Gas (UOG LN): Production update in Egypt – 2H20 WI production was 2,340 boe/d in line with guidance for the period of 2,300 boe/d. SUB-SAHARAN AFRICA BW Energy (NEW NO): Farm-in transaction in Namibia – BW Energy is acquiring 39% WI in the Kudu offshore licence from the National Petroleum Corporation of Namibia (NAMCOR). BW will pay US$4 mm in cash and carry NAMCOR’s share of development costs until first gas. NAMCOR will also have the opportunity to acquire an additional 5% working interest post first gas. Orca Energy (ORC.A/B CN): Update in Tanzania – FY20 sales volumes were 57.7 mmcf/d. Cash and short-term investments totalled US$103.8 mm at YE20. As at YE20 there were no current receivables due from TANESCO. The TANESCO long-term trade receivable was US$27.6 mm. EVENTS TO WATCH NEXT WEEK ________________________________________ 18/01/2021: Repsol (REP SM) – Trading update 19/01/2021: Genel Energy (GENL LN) – 4Q20 trading update 20/01/2021: Cairn Energy (CNE LN): Trading update

  • 15 Jan 21
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Wentworth Resources PLC
Wentworth Resources plc (AIM: WEN): >100 mmcf/d reached in December

• FY20 gross production was 65.36 mmcf/d (in the middle of the 60-70 mmcf/d guidance) with ~83 mmcf/d on average during the month of December. • Repairs to the MB-2 flowline were completed on 9 December, increasing the capacity of the field to over 100 mmcf/d. Production reached 103 mmcf/d for five days during that month. • Gross production guidance for FY21 is 65-75 mmcf/d, below the 80 mmcf/d we were carrying as production growth is pushed back by a year. We believe that the guidance also reflects caution given the relatively low demand during the first part of 2020. • Net capex guidance is only US$0.2 mm. • Cash on hand of ~US$18 mm is in line with our expectations as TPDC continue to be fully current with payments. The only remaining receivables still due to Wentworth are US$1.3 mm from TANESCO. • Wentworth has started discussions on growth opportunities within Tanzania to expand the company’s footprint in the country. Dividend increase in 2021? With 70 mmcf/d gross production in 2021 and almost no capex, we forecast FY21 Free Cash Flow of ~US$10 mm. With FY20 dividends of only US$3.2 mm and ~US$18 mm in cash, we believe there is scope to increase the dividend. At the current share price, the FY20 dividend represents a yield of ~6%. Value and sustainability Even after the recent share price appreciation, the shares continue to trade at EV/DACF multiples of 2.9x in 2021 and 2.2x in 2022. This compares with 3.8x for 2020, suggesting there is room for multiple expansion given the stable nature of the business. Our NAV based on the company’s 2P reserves stands at £0.26 per share. Growing sales to 110 mmcf/d would take our 2P NAV to £0.30 per share. Extending the Mnazi Bay licence would unlock the 3P case with an overall value of £0.56 per share for the company. The shares also offer investors exposure to a company solely focused on natural gas, the cleanest fossil fuel (and the preferred transition fuel to renewable energy).

  • 14 Jan 21
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Pharos Energy PLC
Pharos Energy Plc (LSE: PHAR): Increasing our target price on reserves uplift

• The highlight of Pharos’ operational update is the ~40% increase in 2P reserves in Egypt expected as at YE20 (YE19: 28.5 mmbbl). This reflects improved waterflood performance based on recent field data, and a new drilling and workover plan for 2021 onwards. • Drilling is expected to recommence in Vietnam in 3Q21, a quarter earlier than previously announced. • Pharos reported FY20 production of 11,373 boe/d in line with our expectations and the company’s guidance. FY20 production includes 5,270 bbl/d for Egypt and the balance in Vietnam. • FY20 revenue is also in line with our expectations and YE20 net debt was US$33 mm (including US$24 mm in cash). • We have increased our target price from £0.35 per share to £0.40 per share to factor in the expected increase in reserves in Egypt. Our three and four rig cases previously included the contribution of some contingent resources. These two cases are now entirely supported by the new 2P reserves, making these two scenarios more robust. Trading below the value of Vietnam alone. Transformational near term newsflow in Egypt • We estimate the value of Pharos based on Vietnam only at £0.23-0.27 per share. This is 15-35% above the current share price. • A formal farm-out process for the Egyptian assets has started and securing a partner to fund a development programme with four rigs in Egypt would increase the value of the Egyptian ~ 40 mmbbl 2P reserves and unlock the contingent and 108 mmbbl prospective resources. Our incremental unrisked value for the four rig programme is £0.17-0.19 per share (~85% upside to the current share price). Even assuming that the farm-in transaction would leave Pharos with only 75% of the value of its Egyptian assets would unlock £0.13-0.15 of additional value net to Pharos (~65% upside to the current share price). • Pharos continues to negotiate with EGPC concerning potential improvements in the Concession Agreement terms. If successful, this could lead to an improvement of up to US$6/bbl in the breakeven price. We have previously estimated that securing similar terms to TransGlobe would boost our Core NAV by £0.10-0.12 per share and ReNAV by £0.13 0.15 per share. TransGlobe Energy’s share price has tripled since the new terms on its licences were announced. Updating our valuation We have incorporated in our valuation the YE20 net debt and have increased the likelihood of the three and four rig cases by 20% to 50% to reflect the fact that they are entirely supported by the 2P cases. We have increased our ReNAV from £0.34 to £0.39 per share, which excludes any upside associated with exploration. Our new target price has been set in line with that figure.

  • 13 Jan 21
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VAALCO Energy, Inc.
Vaalco Energy (LSE: EGY): Initiating Coverage

VAALCO is a US and UK listed ~£75 mm market cap, ~10 mbbl/d oil producer (pro-forma) with West African assets. VAALCO has an excellent track record as an operator having grown a 30 mmbbl discovery in Gabon to a field that has produced >118 mmbbl so far with an additional 37 mmbbl remaining 2P reserves plus ~80 mmbbl upside at YE19. The shares have suffered in the past from (1) a lack of materiality as VAALCO held only ~31% of its main asset, with G&A viewed as representing a disproportionate amount of cash flow and (2) lack of visibility on how the significant amount of cash on the balance sheet would be deployed. The US$44 mm acquisition of an additional ~28% WI in Etame announced in November, thereby almost doubling production, reserves and resources overnight, has addressed these issues. The story is now about continuing to grow reserves at the producing Gabonese field and to replicate this success elsewhere. Good assets become better VAALCO’s main asset is a 58.8% WI in the Etame Marin light oil field with ~22 mmbbl WI 2P reserves and ~10 mbbl/d WI production (both pro forma for the recent acquisition). The 2019/2020 drilling programme has already boosted production by ~40% between FY19 and FY20. The planned 2021/2022 programme will maintain the production plateau but will also target low risk resources to add reserves. The overall upside for the field comprises 16 mmbbl WI contingent resources mostly associated with licence extension beyond 2028 and future drilling plus 30 mmbl WI prospective resources mostly associated with unswept areas. Contingent plus prospective resources represent 2x the current 2P reserves and carry a very high probability of success (55-75%). Ongoing 3D seismic is expected to grow the prize further. Large Upside in Equatorial Guinea (EG) Offshore EG, VAALCO holds 43% WI in two discoveries with 20+ mmboe contingent resources and a 164 mmboe exploration opportunity at SW Grande. The company is in discussion with Levene HydroCarbon with regards to Levene taking half of VAALCO’s interests in return for funding the SW Grande well. Value build-up With estimated net cash of >US$25 mm at the end of 1Q21, VAALCO’ s shares trade at less than half our 2P NAV of ~£2.70 per share. The current share price discounts EV/DACF multiples of 1.2x in 2021. Low risk infill drilling of contingent resources could add ~£0.45 per share (30% of share price) with an overall unrisked value for the upside at the producing asset of £4.80 per share (~4x the current share price). Finalizing the EG farm out transaction could start unlocking a further £4.20 of unrisked value. Our target price of £4.00 per share (~ our ReNAV) represents ~230% upside.

  • 13 Jan 21
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PetroTal Corp.
PetroTal Corp (AIM: PTAL): US$100 mm bond to accelerate activities and grow production

• PetroTal is launching a bond issue to raise US$100 mm. This would allow the firm to accelerate drilling and development activities at Bretana (~US$40 mm), put in place a hedging programme and allow the firm to consider regional acquisitions. • Some of the proceeds of the bond issue will be used to repay the US$16.6 mm derivative liabilities to Petroperu that was formalized in November. However, with the recent upwards shift of the forward curve, the potential derivative liabilities is now an asset and Petroperu is expected to owe PetroTal ~US$8 mm. Under the current forward curve, PetroTal should therefore now receive a total of ~US$25 mm (=US$16.6 mm + US$8 mm) from Petroperu from the settled oil profits during 1Q21. • Assuming the extra funding is put in place, we are increasing our capex programme for 2021 from US$40 mm to US$90 mm. We are also increasing our production forecast for 2021 from ~11 mbbl/d to ~15 mbbl/d that we maintain broadly flat in 2023 as we assume PetroTal will drill additional wells before starting to decline from 2024. We note that the 3P case only assumes five additional wells (~US$70 mm) compared to the 2P case. • Current production has now increased from 9.5 mbbl/d last week to 10 mbbl/d. • PetroTal has now also signed an agreement for a second pilot shipment through Brazil in February 2021, of up to 220,000 barrels of oil. Positive impact on cash flow and NAV With more production, we are now forecasting operating cashflow of ~US$170 mm in 2022 and ~US$155 mm in 2023. We are also increasing our Core NAV from £0.43 per share to £0.52 per share. The additional funding would also allow the company to drill exploration wells such as the 70 mmbbl Constitucion prospect (£0.40 per share Unrisked). We are increasing our target price from £0.45 per share to £0.50 per share in line with our new Core NAV. Our target price represents over 3x the current share price.

  • 13 Jan 21
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GeoPark Ltd
GeoPark Limited (NYSE: GPRK): Delivering on production guidance. Very busy drilling programme in 2021

• GeoPark produced 39.3 mboe/d in 4Q20 and 40.2 mboe/d in 2020 within the FY20 production guidance of 40-42 mboe/d. • WI Production at Llanos-34 in 4Q20 was a bit light on slower production recovery due to limited drilling and maintenance activities. This was offset by strong production at CPO-5 and over the rest of the Colombia portfolio. Production at Llanos-34 is expected to return to 27-28 mbbl/d in 1Q21. • The Aguila-1 prospect at CPO-5 was not commercial. The Grulla-1 re-entry showed non-commercial oil accumulation. We carried these two wells at only US$0.45 per share in our valuation. The Aguila-1 well results have no impact on the overall perspectivity that the company has identified on the CPO-5 block with >20 leads and prospects identified to date, plus incremental exploration opportunities that are expected to be added from 3D seismic acquisition activities currently starting on the block (approximately 300 km2). The 2021 drilling programme is unchanged. • GeoPark held US$201 mm in cash at YE20. • FY21 production guidance of 40-42 mboe/d has been reiterated. More on CPO-5 • The Indico-2 well is currently producing 6.2 mbbl/d, up from the production rate of 5.5 mbbl/d achieved during the well test. 4Q20 production at CPO-5 was 55% higher than in 3Q20. • The FY21 drilling programme at CPO-5 continues to include 5-6 wells plus the acquisition of 3D seismic. Our unrisked value for the Colombia drilling programme in 2021 is >US$8 per share. Valuation Our Core NAV is~30% above the current share price. Our target price of US$20 per share represents ~60% upside to the current levels.

  • 08 Jan 21
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