Are Prospex now an exciting prospect for 2024?
“…Whatever course the market takes, PXEN seems better positioned than it has for some time, with a reliable income stream from two onshore assets, permit applications underway to drill five wells in Spain and three wells in Italy, and closure of its debt issues…”
Prospex Energy (AIM:PXEN) is keenly anticipating 2024, having added a second producing and revenue generating field to its portfolio of European gas assets, with the prospect of further drilling in the year ahead, and progress towards debt-free status.
Selva comes online
While continuing to sell gas at the El Romeral power plant in Carmona in southern Spain, PXEN’s focus last year was the commencement of production at the Selva Malvezzi plant in Italy’s Po Valley, in which the company has a 37pc working interest. After securing an 18-month agreement with BP for gas sales to the Italian grid last February, and completing plant construction and permitting on schedule and budget, PXEN and its partners were able to deliver first gas in the summer, with receipts following in August.
A Q3 operations update – for the three months to 30 September – reported that the field’s PM-1 well was flowing at daily production levels of around 72,000 standard cubic metres per day (scm/d) during the initial testing period, which was scheduled to complete the end of the year. The partners are targeting longer term production rates of ‘at least 80,000 scm/d’.
Gross quarterly production was 5,658,117 scm, with 2,093,503 scm net to PXEN, and gross revenue for the quarter was €1,937,072, with €716,717 net to PXEN. The venture was beginning to benefit from rising gas prices (linked to the Dutch TTF spot price) which had increased from from €0.32/scm (€30.3/MWhr) to €0.53/scm (€50.3/MWhr). PXEN said the forward curve for TTF gas prices predicted a gradual increase to €50/MWhr through to the end of Q1 2025. The partners plan to drill at least three further wells at Selva to boost proven developed resources, subject to completion of the permitting process.
Continued development in Spain
El Romeral, meanwhile, continued to be cash generative and self-sustaining. PXEN’s H1 2023 results reported that gross monthly electricity sales from the plant averaged €160,677 between January and June 2023, and forecast gross revenues of about €1.8m in 2023 with approximately €0.9m net to PXEN. Since acquiring its interest in El Romeral in March 2021, the company has invested significantly in the plant’s capacity to drive higher revenues. It hopes to increase output by a further 60pc through the ongoing Project Helios, the installation of a 5MW solar panel on 20 hectares of land adjacent to the plant. Applications for permits to drill five further wells at El Romeral, and convert the concession’s Tesorillo exploration permit to an exploitation permit, have been submitted to regulators.
Debt reduction progress
PXEN funded its contribution to Selva’s development through the issue of Convertible Loan Notes worth £500,000 convertible at 5.5p. The second of three capital repayments plus accrued interest was due to be paid on 31 December 2023. A final quarterly payment – expected to be £175,240 – will be due on 31 March. The company will also repay the last of three capital repayments, plus interest due on non-convertible loan notes issued in June 2021, clearing its long-term debt. PXEN CEO Mark Routh said: ‘It is satisfying to be able to go into the New Year with a much stronger balance sheet. The debt reduction coupled with cash generation from Italy and Spain means that Prospex is well positioned to capitalise on other investment opportunities with a focus on diversified European energy projects.’ The company’s H1 2023 report stated cash of £395,202. With ‘multiple producing assets principally in lower risk, onshore European markets with ready access to infrastructure’ it expects ‘to be fully funded to meet all existing operational and financial commitments.’
Outlook
PXEN continues to look out for new opportunities, ‘highly prospective open-acreage in proven onshore basins in Europe’, affordable through organic revenues. Last year the company said it ‘either worked up or was offered more than 25 deals or farm-ins in its core geographical area of interest of Europe focussing on natural gas and power projects.’ It was ready to make an offer on one prospective farm-in, which advanced to heads of terms, but pulled out due to ‘continued challenging market conditions’ which ‘would not support a fundraise of any magnitude before the New Year’.
Selva has come online as European gas prices have continued to normalise after the freakish conditions of 2022. The continent has developed resilience since the Ukraine invasion forced its rapid pivot from Russian gas, securing alternative supplies and building storage capacity. EU storage levels have been maintained at 90pc so far this winter, well above the previous five-year average. The TTF has been trading at a third of its level 12 months ago. But the market remains vulnerable to Russian instransigence in Ukraine, and escalating conflict in the Middle East.
Whatever course the market takes, PXEN seems better positioned than it has for some time, with a reliable income stream from two onshore assets, permit applications underway to drill five wells in Spain and three wells in Italy, and closure of its debt issues. Priced 5.5p at the time of writing, with a market cap of just under £20m, PXEN may now be set for a positive run after losing some 60pc of its value last year.
View the “what happened” in 2023 presentation here
.
