Renewables JV excites as frustrations persist

Petro Matad provided an operational update on 25 April. The company continues to be frustrated in its attempts to get central government to complete the certification process confirming the exploitation area for Block XX as State Special Purpose Land. However, local government approval shows signs of being attainable and would allow the company to start work on completing Heron-1 as a producing well. Petro Matad also announced that its renewables joint venture, SunSteppe Renewable Energy (SRE), is making good progress on two exciting new projects that could have a significant impact on earnings.

Renewables JV excites as frustrations persist

Pharos Energy reported FY23 results on 27 March. Group net production of 6,508 boepd (FY22: 7,166 boepd) was in line with guidance, assisted by successful development drilling in Vietnam and exploration successes in Egypt. Pharos’s strong cash generation resulted in a stronger balance sheet, with net debt reduced to US$6.6m (from US$28.9m at the end of 2022) and cash balances totalling US$32.6m. This left the group free to return more cash to shareholders, including a 10% increase in dividends, and to start to increase investment in 2024, including exploration in Block 125 in Vietnam, which if successful would be a key driver of shareholder value.

Delivering on operations and balance sheet

Hydrogen Utopia (HUI) has re-agreed terms for a 50/50 joint venture with Powerhouse Energy Group (PHE) for the development of a waste plastics to hydrogen plant at a facility in County Longford in the Republic of Ireland. The Longford Project JV was originally agreed in March 2023. This new agreement is an important step for HUI towards getting its first plant up and running, with the combined skillsets of the companies helping to bring this project to fruition. Separately, HUI has recently provided updates on initial sales at Ohrid Organics and an exciting potential acquisition of a bio-fuels business.

Longford Project joint venture re-energised

Petro Matad, the Mongolia-focused E&P company, has announced that its application for land access for 2024 operations has been approved by the Matad District Committee. This means that a land use agreement can be prepared, which, once signed, will allow operations to proceed, including the completion of the Heron-1 discovery well as an oil production well. This will allow Petro Matad to start generating cash flow that can be used to grow the business and add shareholder value. Although this is a step forward, the company still faces a delay to the State Special Purpose Certification process.

Moving forward

Pharos Energy has released a trading update for FY23, ahead of the release of its final results on 27 March. Production over the last year was 6,508 boe/day, in line with guidance set at the interim results release in September. The balance sheet has strengthened further, with net debt of c.US$6.5m as at 31 December compared with US$16.4m at the half year (30 June). This net debt reduction comes despite the increase in Egyptian receivables, the payment of a final dividend and the share buyback programme.

FY23 update – production in-line, net debt down

Hydrogen Utopia International (HUI), the waste plastic to hydrogen company, has announced that it has exercised its option to acquire a 49% stake in Ohrid Organics, the North Macedonian medical cannabis producer. The cash flows from Ohrid Organics are expected to provide the funding for HUI to develop its pioneering waste plastic to hydrogen projects, with the initial focus on progressing its proposed plant in County Longford, Ireland. HUI is developing a portfolio of prospective plants across Europe, although it will not be pursuing its projects in Greater Poland for now because of local political resistance.

2024 starting well

Pharos Energy has announced that it is looking to pay an interim dividend and continue its share buyback programme as part of its policy of returning cash to shareholders. This further demonstrates management’s desire to align with shareholder interests. The company has also updated the market on its Net Zero roadmap, which is targeting net zero Scope 1 & Scope 2 GHG (greenhouse gas) emissions by 2050.

Shareholder returns continue; Net Zero roadmap

The intended acquisition of a stake in Ohrid Organics Limited (Ohrid Organics), a UK holding company of a North Macedonian subsidiary producing medicinal cannabis, provides Hydrogen Utopia International (HUI) with a potential innovative source of financing without having to resort to a dilutive share issue. The initial indications are that Ohrid Organics has a high-quality product that is attracting significant interest. The cash flows from Ohrid Organics should facilitate the development and application of HUI’s pioneering waste plastic to hydrogen technology. In this report, we recap on HUI’s technology and progress towards its first plant, describe the funding plans and cover recent management changes.

Innovative funding model for hydrogen tech

Pharos Energy reported its interim results on 13 September. Although profits were lower than forecast, this was predominantly due to a non-cash impairment charge. The key message is the strength of the balance sheet, which has seen net debt reduced to US$16.4m at the end of June 2023 from US$28.9m at the end of 2022. This leaves the group free to return more cash to shareholders and to start to increase investment, including commitment exploration, which we believe should be a key driver of shareholder value.

Interim results show balance sheet strength

Petro Matad has this morning reported interim results for the six months to 30 June. The company is pushing to resolve the land access issue that would allow it to complete the Heron-1 well as an oil producer. Although progress has been made with Mongolia’s central government, the provincial government has been slow to respond, and it remains uncertain that this well can be completed before the winter shutdown. Elsewhere Petro Matad is making exciting progress on its renewable energy operations, and management has submitted applications for new blocks in the exploration tender round.

Interim results reflect progress and frustrations

Like the rest of the industry, Pharos Energy was impacted by the Covid-induced collapse in the oil price, at a time when the company was heavily investing in Egypt. Net debt rose to US$57.5m at end-FY21. However, management has farmed out 55% of its Egyptian assets and put through significant cost-cutting measures, reducing debt to a more modest level of c.US$16m at the end of June 2023. Pharos is now in a position to restart returning cash to shareholders (via a dividend and buyback) and we believe it is set to increase investment, including commitment exploration, which should be a significant driver of shareholder value.

Initiating coverage: Back to growth

Petro Matad has announced that the Cabinet of the Mongolian Government has approved the certification of the Block XX Exploitation Area as special purpose land. This is good news as it should allow the company to move ahead with the completion of the Heron-1 well as an oil producer and start generating cash flow. The company has also announced that its Velociraptor exploration well found water rather than oil. Although this is disappointing, it was a high-risk well, and in our view is outweighed by the positive news that Petro Matad can now start to plan the Heron development.