Prospex Energy set for continued growth after a year of milestones

Prospex Energy (PXEN) Follow | PXEN, an investor in European gas and power projects, announced its audited final results for FY23 ended December 31, 2023.

Prospex's two main assets are the El Romeral gas and power project in southern Spain (49% interest through PXEN's investment in Tarba Energía) and the Podere Maiar-1 (PM-1) gas facility at Selva field, Italy (37% interest). The latter was commissioned in August 2023, adding a second revenue stream to PXEN.

PM-1 is operating under an 18-month gas sales contract with BP Gas Marketing, signed in February 2023 with the option to extend. PXEN expressed confidence that the contract would be extended before the end of the term. After a period of testing, PM-1 production settled at a consistent 80,000 scm/d. In H2 2023, PM-1 produced 9.83 million scm and €3.71m in gross revenues. An estimated 38 million scm of natural gas is expected to be supplied to BPGM under the contract.

At the same time, El Romeral supplies gas to an 8.1MW power plant near Carmona in southern Spain. The asset is owned and operated by Tarba Energía, which is 49.9%-owned by PXEN. El Romeral is currently operating at c. 30% of name plate capacity as Tarba waits on permits to drill more natural gas wells on the concession. In May 2023, 20 hectares of land adjacent El Romeral was leased for the 5MW solar project Helios that will cogenerate with the gas plant. In FY23, El Romeral generated gross revenues of €1.8m.

PXEN recorded a £1.23m loss for the year, from a £7.13m profit in FY22. This was caused by normalisation of commodity prices following highly inflated gas prices in FY22 due to the Russia-Ukraine conflict. Last year's profit also reflected PXEN's increasing its working interest in Selva from 17% to 37%.

PXEN also strengthened its balance sheet in FY23 as a result of conversion or repayment of the bulk of its interest-bearing debts. Post-period, the company repaid all remaining debt plus interest. As of March 31, 2024, PXEN is debt free and cash generative.

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Overall, a positive year for Prospex as the company added a second asset at Selva Field with significant gas production, materially boosting cash generation and derisking the business. With two producing onshore assets in Europe and no debt, PXEN is well-positioned for continued growth. The swing to a loss in FY23 was fully expected and not reflective of a decrease in either asset's value or company fundamentals. As commodity prices in Europe normalised from highly inflated levels in FY22 resulting from the conflict in Ukraine, any gas producer on the continent saw significantly reduced profits in FY23.

Now that PM-1 is producing and ramped up to 80,000 scm/d sold to BP, production and revenues are expected to be significantly higher in FY24 over FY23. In Q1 alone, PM-1 produced 6.4 million scm of gas, with gross revenue for the quarter of €1.9m. Selva has further upside as operator Po Valley is advancing agreements with local landowners and permitting in order to deliver planned drilling programmes at Selva North, South, and East. Production income from PM-1 will help fund development drilling for Selva North and Selva South, and to convert prospective resources at Selva East into proved, developed and producing reserves in the near term.

Meanwhile at El Romeral, Tarba is advancing permits for 5 more wells expected to boost capacity to the name plate 8.1MW from 2.7MW currently. Moreover, the adjacent solar project Helios should add a further 5MW of electricity generation. Combined, the two programmes represent significant upside over the next year.

Prospex is also evaluating a number of onshore assets in Europe for potential further investment.

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