Member Info for Harka

At ~18p, you’re buying Jadestone for ~£100m market cap (EV ~$233m). For context:

- Production: H1 averaged 20,368 boe/d, FY guidance raised to 19.5–21.5k. That’s ~$400m revenue even at $55–60 oil.

- Cash flow: $270–360m free cash flow (2025–27) reaffirmed after Skua’s overrun.

- Liquidity: ~$160m cash/liquidity available, plus 1.8m bbl hedged at ~$70 into Sept 2026 (~$130m locked-in revenue).

- Debt: Net debt $108m at 30 June, being worked down from cash flow.

Insider buying (2025):

- 16 June – Tyrus lifted stake to 27.42%.

- 23 July – Tyrus up again to 28.48%.

No insider sells.

Valuations at £100m mkt cap:

- EV/Revenue 2025E: ~0.6× (peers >1×).

- EV/EBITDA 2026E: ~1.2–1.5× (peers 3–4×).

- 2P NPV10 post-tax: $799m vs EV $233m.

- SE Asia M&A comps: 35–50p/share.

- Global peer yardsticks: 55–75p/share.

Add in the new UK plc entity (July) which clearly sets them up for acquisitions/JVs, and the upside is obvious.

£100m market cap for this kind of cashflow is definitely crazy cheap... more patience required - but in my view hopefully for not much longer! A few 'boring' quarters showing steady production / revenue etc will see market confidence return.

I agree with you Neil. Using a discounted balance sheet approach, SOUC has a solid margin of safety, especially at the current market capitalisation which is incredibly low, given our large cash position and realistic growth prospects. Given the macro picture, this cyclical low in HH gas will be painful and just something we have to bear. However on the flipside, I wish I could enter the stock now at the current level! A great opportunity whilst there is blood on the streets (a favourite John Templeton quote of mine).

The share price is almost like a leveraged play on the HH gas price and like the rest of the sector we seem to have followed it down. We make 22% more cashflow per share for every $1 increase in HH. There are multiple catalysts from Spring / Summer to hopefully rerate HH gas so I remain cautiously optimistic.

Sadly I am not Viable haha. I worked as IM for 5 years and then have been an IFA for the past 3 years. I've followed a concentrated value approach into small cap cyclicals (mainly O&G) for the last 7 years.

I use Sharescope Gold (with no level 2 access) for screening...

SOUC current price movements are definitely painful atm and slightly make the stomach churn... however cyclical lows in gas won't last forever (they never do) and the long term demand picture for LNG remains strong with global undersupply projected from 2025 onwards by the likes of Shell (their Gas Outlook), McKinsey etc.

LNG developers signed nearly 34 million tons per annum (MTPA) of long-term LNG contracts in 2022, representing a 68% increase over the last record set in 2021. Most of these contracts anchor new or expanded liquefaction projects that aim to reach financial investment decisions in late 2022 and 2023 (Deloitte - 2023 Outlook for Oil & Gas).

The volatility of these kind of stocks is definitely not for everyone and tests even those with the most ice-cold detachment from investor emotions and behaviours.

GLA

I think for me, anyone with an investment horizon that extends over 1 year can clearly see this company is in a good position to take advantage of the global LNG export market. In Q3 2022, SOUC had one of the lowest all-in per unit operating costs of $0.64/Mcfe and expects to continue receive a premium to Nymex for its gas in 2023, albeit at a lot lower margins for the time being.

The gas price this year is a major frustration. From the presentation, I know that assuming a GEN 2 type curve, the wells at Gwinville are projected to generate an IRR of 33% @ $4 HH. GEN 3+ tech is expected to generate returns significantly better than that, however in the current climate they need to wait until gas is at least $3.25 to make the economics worthwhile... I therefore think delaying capex is sensible.

I would really like management to execute some M&A, taking advantage of the low gas price, their significant well inventory data and healthy cash balance. I think patience is key as deals often take a long time to materialise and negotiations to complete.

That being said, with Southern being valued at near cash, we are definitely more of a takeover target in the short term. An approach would certainly act as a catalyst but I would hope it be rejected in light of the company's long term potential and positioning.

I would love to hear others views. I think its a shame HH gas is struggling at the moment but I do think there are catalysts which should help rerate it as we approach summer...

'How Gas From Texas Becomes Cooking Fuel in France' - WSJ 03.03.2023

The U.S. currently hosts seven multibillion-dollar liquefaction plants with enough capacity to export more than 13 billion cubic feet of gas a day—more than a 10th of U.S. production. By 2030, new plants coming online are expected to push that capacity to around 23 billion cubic feet, according to S&P Global, requiring many more new gas wells.....

A mild winter and gargantuan imports of U.S. LNG helped restore gas storage back to healthy levels. But potential outages in gas-exporting Norway, an economic rebound in China, and renewed competition for cargoes from southeast Asia if LNG prices keep falling could deplete Europe’s inventories, said Eugene Kim, a research director at energy-consulting firm Wood Mackenzie. In that scenario, “the onus to refill will be even higher,” he said.

Drill results:
Results from the 18-10 pad are expected to be announced this month. The pad is targeting multi-zone potential in the Upper Selma Chalk along-side the first Gen-3 technology well drilled into the City Bank, where SOU does not have any booked reserves despite significant historical production from Vt wells. As a result, the pad could provide material reserve adds if proven successful. Remember, SOU employed directional drilling technology with this pad, which gives us confidence in the potential to see early indications of improvements relative to the 19-3 pad.

M&A Potential:
M&A now more important with management believing the environment is ripe for acquisitions given lower gas prices that all else equal increases the willingness to sell. Management has built an incredible database (~25k wells) and knowledge and experience around its focus area...

We expect Company to target purchase of assets at close to PDP value, with the emphasis on acquiring de-risked reservoirs where it can deploy Gen-3 tech. For context, the Company’s cash balance could support the acquisition of ~2,000 boe/d (2-3x; 2x its base).

Capex Outlook:
Management has laid out a US$78.1 MM capital budget for 1H23 which includes 13 horizontal wells targeting multi-zone potential in the Upper/Lower Selma Chalk and City Bank formation. However, with the precipitous drop in gas prices, we would not be surprised if the Company elects to defer capital until a gas price recovery. We are of the view that showing a degree of capital discipline to changing natural gas conditions and preserving undeveloped inventory for better pricing is prudent, particularly given the vast opportunity set to incrementally execute accretive M&A in the US.

Pure-play exposure to premium-priced NA natural gas prices:
SOU’s production base is >90% natural gas, with 100% of its natural gas sales fetching floating prices that approximate HHUB in 2023, which is attracting a premium over its Canadian equivalent. Moreover, SOU’s hedging strategy offers investors some of the best cash flow torque to rising gas prices, with every $1/MMbtu move in HHUB equating to a +22% increase in CFPS.

SOU provides one of the best 23’ debt-adjusted production and CFPS growth in the sector. Importantly, this can be achieved even when assuming Gen-2 well results.

Upside to 5yr development outlook:
Management is targeting organic production of ~17 mboe/d by ’26 by drilling 15 wells per year. This maps to ~60% CAGR from 2022-2026 and supports cash flow growth of ~50% (CAGR) at strip... However based on older Gen-2 results; assumes development of the Selma Chalk only (not inc. City Bank); deeper prospective zones in the Hosston and Cotton Valley remain untapped; Co. could actually drill up to 21 wells per year.

Catalysts. 1) Well results from 18-10 3-well pad; 2) Gen-3+ type curve (1Q23) – important for business planning and formal Street guidance; 3) Reserve report (March 2023); 4) M&A poten

If one attempts to think rationally, it appears to me to make no sense to sell when investors have not yet heard the outcome of the restructuring arrangement. Uncertain as this may be, the company is still operationally viable; it's the balance sheet which crucially needs to be restructured for working capital requirements to be resolved. Admittedly this is uncertain, however, if you think carefully about incentives, are NewGen likely to think that Rambler would be unable to pay them back if they extend current terms and lend an additional amount on top?

The company have stated they are confident that this can be achieved. This news was promised to be released either in conjunction with the HY results or before the end of September, so we will know soon enough.

Although I understand this is a serious situation, I would far prefer to actually know the outcome of any funding arranged then wildly guess, panic and postulate.

If you take a long term view, and take the company at their word, which may seem hard to do, this situation can be resolved.

Taken from the RNS:

Based upon the board's discussions with the Company's brokers and debt funders, the Board reasonably believes that it will be successful in securing the necessary required fundings.

Again, taken from Toby Bradbury’s statement at the end of the RNS:

The need to bring capital into the business is to ensure that long-standing legacy commitments are met and not to support on-going operations. The current drop in copper price is one which we believe to be temporary, but we also recognise the volatility in the market.

We are in discussions with all relevant parties about the need to restructure our liabilities and believe that practical solutions will be found all round…

These are significant sums for a £282mn market capitalisation company (using the enlarged share count). Moreover, the board intends to return 50 per cent of free cash flow back to shareholders by way of dividends, and proposes to issue existing shareholders with $40mn of preference shares to be redeemed 42 months after the major capital reorganisation completes.

I view the transactions as favourable for San Leon's shareholders and expect them to be approved at the general meeting on 5 August. Having included the shares, at 27.5p, in my market beating 2021 Bargain Shares Portfolio, I see fair value around 80p. Buy.

SLE, a Nigeria-focused exploration and production company, has announced a major capital reorganisation that will see the company quadruple its interest to 44.1 per cent in the Eroton-operated 1,035 sq km Niger Delta licence, OML 18. Located 500 km from Lagos, OML 18’s other shareholder is Nigeria state oil company NNPC.

As part of the incredibly complex transaction, the Aim Admission Document runs to 380 pages, San Leon’s current 13.18 per cent shareholder Midwestern Oil & Gas will become the majority shareholder, holding 50.8 per cent of the enlarged shares in issue. Toscafund Asset Management’s stake reduces from 72.6 per cent to 37.6 per cent.

In addition, San Leon is taking a majority interest (50.6 per cent) in ELI, a midstream infrastructure group and the operator of a new subsea 100,000 bopd capacity Alternative Crude Oil Evacuation System (ACOES) export pipeline within the OML 18 acreage that runs to an offshore Floating Storage and Offloading (FSO) vessel which has capacity of 2mn barrels of oil. The export pipeline is expected to become fully operational in the fourth quarter of 2022. It is a real game changer, too.

That’s because the existing Nembe Creek Tunnel line from OML 18 to the Bonny Terminal suffers from high levels of downtime and eye-watering pipeline losses (due to vandalism) which averaged 73 per cent in 2021. The ACOES export pipeline is expected to reduce pipeline losses to 5 per cent, a major positive for cash flow given that only 2,300 barrels of oil per day (bopd) was delivered from OML 18 to the Bonny Terminal in the first quarter this year, or 90 per cent below the average for 2020.

Getting ACOES up and running as quickly as possible is therefore crucial, hence why San Leon is making a new $16mn loan to ELI to help part fund the outstanding $42mn of development costs. Following a complex reorganisation with other associated parties (including Midwestern’s indirect 13.7 per cent interest in ELI), San Leon’s interest in ELI will increase five-fold to 50.6 per cent and the company will also hold $48.3mn of high interest loans made to ELI. San Leon has entered a $50mn loan facility with MM Capital to fund its ELI investments and provide working capital requirements.

Key for San Leon’s shareholders is for Eroton to not only return OML 18 deliveries back to normal levels, but to generate further shareholder value by embarking on a $2.9bn development programme funded from internal cash flow. Based on 1P reserves alone, a competent person’s report indicates that the net present value (NPV) of San Leon’s interest in the nine OML 18 fields is worth $0.9bn using a 10 per cent discount rate. 2P resources of 323mn barrels of oil equivalent (net to San Leon) have a NPV of $1.1bn.

Financial modelling indicates that San Leon could be earning $131mn of cash flow from OML 18 by 2025 based on an unhedged oil price of $70, doubling the year after.

I think the company has been perfectly clear with the reasons for the cash raise. They did it at an optimal time too, exploiting the strong share price appreciation off the back of record high Henry Hub prices. They are looking to aggressively accelerate the drilling program at Gwinville in Q4 as well as continue to look for value-accretive acquisitions (a strategy clearly articulated on the company website, it's admission document and in their corporate presentation). After this stage they look to use future cashflows to fund their organic and inorganic growth plans.

Not sure what stock screens any of you guys use but looking at number of metrics on mine I would argue that the valuation is incredibly undemanding and the FCF yield and profitability of the company over the next 5 years should be very strong.

I really struggle to understand those investors who are nervous, impatient, misinformed or not familiar with irrational short term share price movements. Read some Ben Graham or Peter Lynch and see if that helps!

The proposed transaction will consolidate Midwestern Oil and Gas's current shareholdings in San Leon and Midwestern Leon Petroleum Limited (MLPL) into a single holding in the former. San Leon currently has a 40 per cent equity interest in MLPL, with the remaining interest being owned by Midwestern. MLPL has a 98 per cent economic interest in Eroton which in turn owns 27 per cent of OML 18. As part of the transaction, the US$100mn loan note balance owed to San Leon by MLPL will be taken account of and eliminated from the resulting company structure.

At the same time, Eroton (in which San Leon currently has an indirect 39.2 per cent economic interest) has agreed terms with Africa Import Export Bank for a prospective US$750mn senior secured reserve-based lending facility. It will be used to refinance Eroton’s existing US$196mn debt and provide funding to acquire an additional 18 per cent interest in OML 18 from two other partners. In my analysis 12 months ago, I estimated that San Leon’s 10.58 per cent interest in OML 18 was worth US$353mn (58p a share), a valuation that’s not far off the read-through valuation of Eroton’s proposed acquisition of an additional 18 per cent stake in OML 18.

It’s clearly a highly complex transaction, hence why San Leon’s shares have been suspended since last summer pending completion of what is a reverse takeover. Indeed, the consideration for San Leon acquiring all the outstanding shares in MLPL, Midwestern's indirect debt and equity interest in Energy Link Infrastructure (the operator of the export pipeline), will be satisfied by the issue of a substantial number of new shares in San Leon to Midwestern, such that it will become the majority shareholder of San Leon.

The board expects to publish an Aim admission document for the proposed transaction by the end of February, after which trading in the shares will be restored. The capital reorganisation is well worth carrying out, as the resulting company will effectively hold a direct 44.1 per cent stake in Eroton, so bringing into sharp focus the chronic undervaluation of San Leon’s interests in OML 18 and the export pipeline, as well as its loan note holdings. Cumulatively, I estimate these are worth around US$500mn (82p a share). Buy.