Prospex Energy (PXEN)
Prospex Energy (PXEN LN) has announced updated production figures for its Italian asset, Selva, and a positive update on the regulatory environment in Italy, underpinning the ability to execute organic growth and generate new potential catalysts for the share price.
PXEN reported 10.81MMscm gas produced YTD with 4.43MMscm produced in Q2 2024 so far, confirming that production has been maintained at 78-80,000scmd with a monthly run rate of between 1.9-2.3MMscm. This has generated revenue net to PXEN of €1.3m in 2024 to date and €2.6m since production commenced. Gas prices have been stable during 2024 tracking the base of the recent trading range and the Dutch TTF benchmark currently trades at around €35/MWh. PXEN has highlighted that it receives a premium to this benchmark according to its marketing agreement; this premium is in line with historical Italian pricing against the European benchmark. Despite the pullback in gas prices, PXEN has confirmed that the asset is generating robust profits.
Following a mild winter in Europe, gas storage has been comfortably filled and prices have softened. However, Europe’s new reliance on imported LNG which must be liquified, transported and regasified comes with a higher regional cost structure limiting further downside risk, in our view. Aside from the upside risk to pricing which would benefit PXEN’s operations, this lack of energy security and exposure to pricing vulnerability has been recognised by the Italian Government which has made significant legislative changes to encourage domestic oil and gas production.
The major outcome has been the annulment of the PiTESAI which restricted hydrocarbon exploration in certain areas. This directly impacts exploration opportunities at Selva and PXEN is working with its partner Po Valley Energy (PVE AU) to optimise an exploration programme for the revised permitting regime. The initial implications suggest more optimal drilling locations could be permitted, more quickly and that these would reduce cost and technical risk. The exploration upside at Selva is a key source of potential organic growth and forms a significant proportion of our target valuation.
We reiterate our Buy recommendation and target price of 18p/sh.
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