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TICKERS: PGNYF; HHR

Gas Assets Farm-Out To Yield AU$196 Million
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These gross proceeds will help fund the Australian energy company's path to first gas production, noted an Auctus Advisors report.

Hartshead Resources NL (PGNYF:OTCMKTS;HHR:ASX) agreed to farm out some of its assets and is raising AU$20M in equity, reported Auctus Advisors analyst Stephane Foucaud in an April 5 research note. Based on these developments, Auctus lowered its target price on the Australian oil and gas company to AU$0.17 per share from AU$0.18.

"Overall, this transaction provides an industry valuation on Hartshead's equity well of AU$0.088–0.117 per share, which is well above the current share price," AU$0.043, Foucaud wrote. "It also provides Hartshead with enough funding to reach first gas."

Consideration in Detail

Hartshead agreed to farm out 60% of its Southern Gas Basin assets in the United Kingdom (U.K.) to RockRose Energy, an independent oil and gas production and infrastructure company.

In exchange, RockRose will pay Hartshead AU$52.9M in cash in three tranches and carry Hartshead's net development cost for up to AU$95M for phase one, starting at the time of the final investment decision (FID).

As for the timing of the payments, AU$12.2M is due on closing of the deal, AU$9.8M is to be paid on FID and AU$31.7M is due when the final development plan is approved, expected later in 2023.

Added Tax Benefit

Foucaud pointed out Hartshead will also gain a significant tax break with the transaction. Because part of the consideration is cash versus a net carry, Hartshead can fund a larger share of capex and, thus, capitalize on a related, U.K. tax advantage, amounting to about AU$48M in this case. That is that companies can deduct about 90% of U.K. capex from payable taxes.

AU$196M in Total Proceeds

The total consideration to be paid by RockRose comes to about AU$148M, or AU$0.053 per share, Foucaud noted. This is well above the price of the equity raise, which is AU$0.04 per share.

Adding the tax benefit boosts overall net proceeds to Hartshead to about AU$196M or AU$0.07 per share.

The value of the 40% of U.K. assets Hartshead is retaining is about AU$99M, or AU$0.035–0.047 per share.

Funded to First Gas

Hartshead's portion of gross capex to start gas production is US$100M. The company will fund this with proceeds from its asset farm-out and its equity raise.  


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Disclosures For Auctus Advisors, Hartshead Resources NL, April 5, 2023

Hartshead Resources (“Hartshead” or the “Company”) is a corporate client of Auctus Advisors LLP (“Auctus”). Auctus receives, and has received in the past 12 months, compensation for providing corporate broking and/or investment banking services to the Company, including the publication and dissemination of marketing material from time to time.

MiFID II Disclosures This document, being paid for by a corporate issuer, is believed by Auctus to be an ‘acceptable minor non-monetary benefit’ as set out in Article 12 (3) of the Commission Delegated Act C(2016) 2031 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. It is produced solely in support of our corporate broking and corporate finance business. Auctus does not offer a secondary execution service in the UK. This note is a marketing communication and NOT independent research. As such, it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and this note is NOT subject to the prohibition on dealing ahead of the dissemination of investment research.

Author The research analyst who prepared this research report was Stephane Foucaud, a partner of Auctus.

Not an offer to buy or sell Under no circumstances is this note to be construed to be an offer to buy or sell or deal in any security and/or derivative instruments. It is not an initiation or an inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000.

Note prepared in good faith and in reliance on publicly available information Comments made in this note have been arrived at in good faith and are based, at least in part, on current public information that Auctus considers reliable, but which it does not represent to be accurate or complete, and it should not be relied on as such. The information, opinions, forecasts and estimates contained in this document are current as of the date of this document and are subject to change without prior notification. No representation or warranty either actual or implied is made as to the accuracy, precision, completeness or correctness of the statements, opinions and judgements contained in this document.

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