Sintana Energy plc (LON:SEI) is the topic of conversation when Auctus Advisors’ Head of Research Stephane Foucard caught up with DirectorsTalk for an exclusive interview.
Q1: Stéphane, I wanted to talk to you today about Sintana Energy. Can you just remind us of their story?
A1: I find the story very interesting because it has a very, in my view, unique profile. So, the company has, give or take, a market cap of about £100 million. It’s an explorer and it’s listed in Toronto and London, and in London, I think the company is a category of its own and there are a few reasons for this.
First, I think relative to many other explorers, Sintana has a good size market cap, but what is very special is that Sintana is geographically diversified, yet there is a geological common theme across all its assets. So, it offers diversified exposure to multiple jurisdictions in some of the most attractive basins around the world. At the same time, all the assets are unified by common geological trends on both sides of the South Atlantic conjugate margin. That rare combination of good size market cap with diversification in hot places and a common theme, I think, makes the company attractive even for larger funds. So, that’s the first point.
I think, secondly, the share price is more than supported by the value of its interest in the super giant Mopane discovery that’s operated by TotalEnergies. Having such an anchor valuation, I think it’s quite unique among explorer peers.
My third point is that this is a quite special time to look at the shares. Sintana just raised some equity funding and took advantage of a strong equity market to do that. Now, we’ve got an extensive multi-licence, multi-country activity programme that’s about to start, and for which the company is fully funded. So, we talk of up to 10 wells that could be drilled during the coming 24 months and importantly, each of these wells is potentially a company maker.
I think the last point is that the operator, the partners, and most of Sintana’s licences are either TotalEnergies or Chevron. I think that does not only speak about the materiality of the asset, it also means that the execution risk when you’ve got an operator of that quality is much lower than for typical explorers.
Q2: Could you just talk to us about the upcoming sequence of events?
A2: I think this is what really makes the story particularly appealing at the moment. So, all these events are uncorrelated and are all hugely material.
So, as a reminder, Sintana owns assets across three countries, Namibia, Angola, and Uruguay. Perhaps, let me start with the share price. So, currently, we’re around 18p per share, it’s about 1.8, the market has been a bit soft, and the Mopane discovery alone is probably worth north of 30p per share, 3-0. So, the shares are really quite cheap.
Now, let’s go year by year about what’s going to happen. So, if we start in 2026, the action will kick off in Namibia with an exploration well to be drilled on PEL 83 by TotalEnergies. PEL 83 is the same licence on which the Mopane discovery has been made. So, success there in this upcoming well, it’s 13p per share, 1-3. So, about 70% of the company’s share price.
Chevron will then drill an exploration well on PEL 90, again in Namibia. This is a big one. A success here is worth 40p per share, 4-0, twice the current share price. In Uruguay, we should have a partner for AREA OFF-3. Remember that all the offshore blocks in Uruguay have already very large partners, except this one. So, watch the space.
If we move to 2027, two more wells, exploration well, appraisal well, will be drilled on PEL 83. Again, in Namibia, the licence on which Mopane is. Each of these wells is 13p per share, 1-3. Chevron will drill a play opener on PEL 82 in a different basin, another 13p per share in case of success. We also expect a well on KON-16 in Angola, that’s 8p per share.
Finally, 2028, we anticipate FID at Mopane in Namibia, which should unlock its value. Remember the discount between the current share price and the value of Mopane and more importantly, we should have our first exploration well in Uruguay on AREA OFF-1. This is a very big one because Sintana has such a large working interest and the well is operated by Chevron.
So, all in all, the unrisked value of this programme is about £2 per share for Africa and about the same for Uruguay. So, each continent is 10 times the current share price. This is really material and the beauty of all this is that Sintana is funded either by its existing cash, but in most situations because it is carried by the operator.
Q3: You spoke about Mopane. Do you have any reflections on that?
A3: This is important because Namibia is the initial area of focus for the company and Mopane, as I mentioned, is the anchor for the value for the shares.
So, let’s step back a second and look at Namibia as a new jurisdiction. So, the Namibian administrative environment has just settled. We have a new minister for energy, we have a new oil commissioner, and we have a new head of NAMCOR, that’s a national oil company. They have all been recently appointed, and that’s important for stability.
Back to Mopane, last year some investors were hoping that Mopane would be sold for a huge premium to the share price, that has not happened and the share price as a result has slid a bit. So, the net result is that the shares of Sintana currently trade at about half the value of Mopane. So, purely on value, one could justify holding Sintana shares for Mopane alone, even without any additional drilling success on the licence.
So, taking FID for the project in 2028 will hopefully allow the closing of that gap or maybe there will be somebody coming to buy it. Remember that Sintana is carried by TotalEnergies during all the development to first oil, which makes that stake all the more valuable. Particularly in the context of those large oil fields outside of the Middle East that are probably all the more strategic, given what’s happening in the area.
