Prospex Energy

New lease of life.

Good Morning Team.

I’m pretty selective when it comes to Oil & Gas plays. There’s a simple reason for this, which is that the vast majority are (to an extent) binary.

You’re betting your favoured small cap will secure a farm-in with a major, and then go drill a blockbuster well that sends the share price into the stratosphere.

The risk-reward is extreme. United Oil & Gas in Jamaica. Upland in South East Asia.

Hopes you’ll be at the forefront of the new Namibia. You better have a superlative risk-reward prospect.

Or you can look at lower risk plays. Buccaneer with its producing wells - nothing major but respectable numbers that can be beefed up with waterflooding.

Most recently, Apertura - at the forefront of the Venezuelan reopening, with a team of hyperspecialised management going after the largest prize in the hydrocarbon world.

But between the risk plays and the steady producers is another kind of stock. One which is already producing, but also offers blue sky potential to deliver significant returns - and potential buyout potential. And which is geopolitically reinforced by a structural need for energy security.

No, not Afentra, though it fits this description aptly.

I’m talking, of course, about Prospex Energy.

And this one is a lot cheaper.

A couple of years ago, I speculated that the company might end up subject to a takeover offer - it seemed to make very obvious sense. Doubtless those offers were hanging around at the time, but ultimately this didn’t happen (possibly because the offer on the table wasn’t seen as reasonable enough).

Instead, we got the classic AIM share price movement - a steep fall into a bear market.

Not ideal.

But ultimately, these assets which were already solid have significantly progressed, new management knows what they’re doing, and there’s enough cash to keep any wolves at bay for the near future.

What does that future look like?

Let me break it down for you.

Prospex’s prospects

The thing is with Prospex is that unlike Apertura or United, it’s not going to appear in the top risers.

This is for two key reasons.

First, it’s complex. Complex companies with multiple assets are hard to analyse, and hard to understand. Many investors want to back a single high return asset partially because high risk, high reward is more entertaining, but also because we are all running portfolios, and tracking companies with lots of moving parts is simply more effort.

Investors, often, take the easiest route.

Second, there has undeniably been several operational setbacks. For much of 2025, it delivered exactly the kind of grinding disappointments that drive retail investors to throw in the towel.

But.

If you take the time to actually understand what Prospex owns, what it’s been building, what’s changed at the leadership level, and what’s expected to unfold across its assets over the next 18 months, a compelling investment case begins to take shape.

This is not a get-rich-quick story.

I back enough of these.

This isn’t built on a single wildcat well or a speculative resource number pulled from a corporate deck. It’s built on producing assets generating cold hard cash, a coherent strategy for adding value to those assets, a new management team with the right emphasis on capital discipline, and a macroeconomic backdrop that has arguably never been more supportive for domestic European gas producers.

Let’s dive in.

The Macro: Why Domestic European Gas Matters More Than Ever

The Russian invasion of Ukraine in early 2022 fundamentally altered the European energy landscape.

Before that inflection point, Europe’s energy policy was built on two pillars: accelerating the transition to renewables and maintaining cheap, reliable access to Russian pipeline gas in the interim.

That second pillar collapsed almost overnight.

Since then, Europe has pivoted heavily towards imported liquefied natural gas. On the surface, the transition appeared orderly. In practice, it has exposed the continent to significant fragility.

As Prospex’s new CEO Tom Reynolds noted in his March 2026 letter to shareholders, the recent temporary closure of the Qatari LNG export terminal sent TTF European gas prices surging by roughly 75%.

A single disruption to a single export facility thousands of miles away translated almost immediately into an energy price shock across the continent.

And while I remain of the view that Hormuz will reopen in the near future, the infrastructure damage will take years to repair. And the trust - the trust in Russian availability, in Qatari availability - that trust is gone.

Unlike wind, trust is not a renewable resource.

The new sense of fragility is structural, not temporary.

And LNG is a global commodity.

When demand spikes in Asia, or when export capacity is disrupted anywhere along the supply chain, Europe competes for the same molecules as everyone else.

Pipeline gas from a domestic field, by contrast, is not competing on a global spot market. It flows directly into national grid infrastructure at contracted prices typically indexed to, but often at a premium to, TTF.

What this means practically for investors is that onshore European gas producers are not actually commodity price plays but strategic infrastructure assets.

Domestic production reduces import dependency, lowers lifecycle carbon emissions compared to liquefied and shipped LNG, and supports energy security objectives that have become a political priority across every major European government.

Prospex operates producing assets in Italy and Spain, holds exploration licences in Poland, and is actively pursuing development programmes across all three jurisdictions.

This positioning is key to the investment case.

Understanding What Prospex Actually Is

Before examining the assets, it’s worth understanding the corporate structure, because it is mildly unusual and it explains why some investors find the company difficult to follow.

As Prospex qualifies as an AIM-quoted investment company with a specific focus on European energy assets under IFRS 10, its subsidiaries are not consolidated into its statutory accounts.

Instead, investments are carried at fair value through the profit and loss. The result is that Prospex’s audited annual accounts look a tad different from what most investors expect when they think of an energy company.

The practical implication is that the reported loss for 2025 — £2.8 million — is dominated by a £2.5 million unrealised revaluation loss on investments, primarily driven by reserve depletion at Selva Malvezzi and lower gas prices used for year-end valuation purposes.

That’s an accounting entry, not a cash loss.

The actual operational cash flows from the portfolio tell a different story, and the company has been commendably transparent in publishing quarterly unaudited cash flow summaries that allow investors to see through the accounting noise.

The investment company structure also provides strategic flexibility. Management can acquire assets, farm into projects, farm out interests to partners, introduce co-investors at the asset level, sell assets when valuations become compelling, and recycle capital into new opportunities.

Every asset in the portfolio is, in principle, available for sale if the price is right.

Reynolds has been explicit about this.

His investment framework rests on three pillars:

1. Real assets producing essential commodities.

2. Clearly defined pathways to add value through development and de-risking.

3. The increasing strategic value of domestic European energy resources.

All three of those pillars are, at minimum, intellectually coherent and, at the current moment in European energy markets, increasingly difficult to argue against.

The Portfolio: Asset by Asset

Selva Malvezzi — Company Foundation

If there is one asset that has consistently done what it was supposed to do, it’s Selva Malvezzi.

Located in Italy’s Po Valley — one of the most historically productive gas basins in Europe, originally developed by ENI (incidentally home to great wines including the criminally underrated Lambrusco) — Prospex holds a 37% non-operated working interest in this concession alongside operator Po Valley Energy, which holds the remaining 63%.

The field has been producing consistently from the Podere Maiar-1 well since first gas in July 2023.

The numbers from the most recent reporting periods are straightforward and solid.

In Q1 2026, gross production averaged approximately 80,700 standard cubic metres per day. Net production attributable to Prospex’s 37% interest was 2.69 million scm for the quarter, sold at an average realised price of €0.43 per scm, generating €1.155 million in net revenue for the period.

Full year 2025 net revenue attributable to Prospex was €4.1 million on net production of 10.4 million scm.

Crucially, cumulative gross production has now exceeded 72.9 million scm, surpassing the certified P1 reserves outlined in the July 2022 competent person’s report.

This demonstrates the field has been managed effectively and confirms the production model. It also sets the stage for the next phase of development.

Operating costs at Selva are exceptionally low — around €1.1 per thousand cubic feet. The gas is sold directly to the Hera Group under a 12-month supply agreement priced against the Italian Gas Index, which typically trades at a premium to TTF.

The asset is, in short, generating reliable cash flow at attractive margins with minimal technical risk.

The growth story sits within the wider development programme.

In December 2025, Po Valley Energy completed a 3D seismic acquisition campaign covering approximately 140 square kilometres, on time and within budget. That data is currently being processed by Schlumberger Italy and is expected to yield an updated subsurface model supporting an upgraded competent person’s report shortly.

Meanwhile, Environmental Impact Assessment updates for four planned development wells — Casale Guida-1d, Ronchi-1d, Bagnarola-1d, and Selva Malvezzi-1d — are being progressed, incorporating Ministry feedback, with drilling authorisations targeted for H1 2027.

The four-well programme targets material resource upside.

The concession holds gross 2C contingent resources of approximately 14 Bcf alongside gross prospective resources in the best estimate case of some 88 Bcf across multiple targets including the Selva North and South extensions, the East Selva prospect, and the deeper Riccardina structure.

The infrastructure to commercialise any discoveries — including the Podere Maiar production facility and connection to the SNAM national gas grid — already exists. First production from any successful new well could therefore come relatively quickly after drilling.

Selva currently performs two functions simultaneously.

It provides downside support through consistent cash generation, but perhaps more importantly, it contains a development programme that could materially increase production and reserves if the seismic interpretation and subsequent drilling deliver on their promise.

Viura — The Long Game

Viura is Spain’s largest producing onshore gas field.

It’s also the most structurally complex of Prospex’s holdings to understand.

Because when is anything ever easy? Sigh.

Prospex holds a 7.24% net economic interest in Viura via a 15% ownership of Class B shares in HEYCO Energy Iberia S.L. (HEI), which operates the field and holds a 96.5% interest in the concession.

More than $90 million has been invested in Viura’s infrastructure to date, none of which Prospex was required to fund at entry. In other words, Prospex isn’t paying for the construction of a greenfield development but participating in the optimisation and expansion of an already-built gas field.

That is a key distinction that gets lost in translation at times.

The B share structure provides additional protection. During the current investment phase, all net cash flows from production are retained within HEI to cover general corporate costs and accrue for future capital expenditure.

Once steady-state production is established following the planned drilling campaign, dividends will be paid exclusively to Class B shareholders — including Prospex at its 15% proportionate share — until the B shareholders have fully recovered their invested capital plus a 10% premium.

Only after that payback threshold is crossed do distributions revert to a standard pro-rata basis.

This means Prospex has preferential economics on the path to recovery.

Again, an important and positive complication.

However, 2025 was a difficult year operationally.

A tubing leak on the Viura-1B well in April 2025 resulted in shutdown and a workover programme. Wireline issues complicated testing in August. The well was brought back online in October 2025 and achieved average rates of around 190,000 scm per day during November 2025.

Progress, but not without frustration.

In Q1 2026, HEI ran a series of deliberate production trials under varying parameters specifically to calibrate a dynamic reservoir model. Average rates of approximately 107,800 scm per day of gas and 163 scm per day of water were recorded during the quarter, but these are explicitly not indicative of steady-state production.

The modelling work was designed to inform the placement and construction of two major development wells — Viura-3A and 3B — planned for late 2026 and 2027, targeting the field’s 90 Bcf gross 2P reserve base.

The 2026 focus at Viura is specifically on obtaining an independent reserves report that could underpin a debt facility at the HEI level, providing development capital without diluting Prospex shareholders.

That is the right approach, and it reflects the broader capital discipline that Reynolds has brought to the company.

At Prospex’s scale, the leverage to Viura success is meaningful. If the development wells deliver and production scales towards the projected volumes, the annual field revenue potential — at European gas prices — becomes material relative to Prospex’s current market capitalisation.

El Romeral — Development Catalyst

El Romeral may be the asset with the most near-term catalytic potential, and also the one that has tested investor patience the most.

To summarise:

Prospex owns 100% of Tarba Energía, which in turn holds three exploitation licences covering the El Romeral gas-to-power project in Andalucía, southern Spain (yes, the home of sherry).

The model is straightforward - gas from shallow biogenic wells feeds directly into an on-site power generation facility, which exports electricity to the Spanish wholesale grid.

The plant was offline from July 2025 due to transformer failure — a frustrating operational setback. And the replacement process proved complicated by the almost unique voltage and power specifications of the required equipment.

Because of course, what can go wrong, does.

A rental transformer was finally contracted in January 2026, delivered and installed in late January, and electricity generation successfully resumed in February 2026 following recommissioning.

The asset is generating revenue again.

The more important story at El Romeral is the five-well drilling programme awaiting permits. Tarba applied for permission to drill five new shallow wells — Sevilla-3E, Santa Clara-2, Nuevo Gamo, Santa Rita, and Romeral 2S — targeting approximately 18.2 Bcf of prospective resources at an average geological chance of success reportedly of circa 75%.

That’s, objectively, great odds.

At roughly 700 metres depth, these are low-cost, short-duration wells — each estimated at three to four weeks to drill once a rig is mobilised. And the existing infrastructure, including the power plant, local pipeline network, and processing facilities, is already in place.

The permitting process is in its final stage. The full EIA documentation was submitted to Spain’s Ministry for the Ecological Transition in November 2025, internally forwarded to the Environmental Department in December 2025, and the Ministry’s stated timeline for this final step is 90 to 180 days.

Importantly, the EIA consultation process completed without any objections from statutory consultees, regulators, local authorities, NGOs or the public — an unusually clean outcome that substantially de-risks the regulatory pathway.

To be honest, while there are plenty of places one might think it reasonable to object, this isn’t one of them.

In June 2026, the company announced a strategic collaboration with the IMMAGE scientific drilling project, an international initiative investigating the Messinian Salinity Crisis and its climate impacts.

IMMAGE will contribute up to $1.5 million to fund coring and logging operations across a subset of the Romeral planned wells.

This covers Prospex’s coring costs entirely and brings additional scientific credibility and global visibility to the project. As a development of the existing programme, it also de-risks one of the key cost elements of the drilling campaign.

Management is also pursuing direct gas export from El Romeral, having submitted applications to connect the wells to the Enagas 26-inch national trunkline.

That would bypass electricity generation for a portion of production, improving margins by capturing the full gas price rather than the electricity conversion rate.

It also creates strategic optionality.

And would let them sit at a more important table.

Reynolds confirmed in the March 2026 shareholder letter that early expressions of interest from prospective farm-in investors had been received. A successful farm-in would provide the drilling capital without equity dilution, which is the model management has committed to pursuing.

Tesorillo — Free Option?

Tesorillo and Ruedalabola are two large exploration permits covering approximately 38,000 hectares in southern Spain, held 100% through Tarba Energía subject to a 5% gross overriding royalty.

The licences are currently suspended.

Yes, I know.

A well drilled in the 1950s struck gas on Tesorillo, and historical estimates point to unrisked prospective resources in excess of 800 Bcf.

Yep.

Exactly.

I can read your thoughts from here.

Prospex has been engaging with Spanish regulators since 2021 seeking permission to resume investigative fieldwork, and that engagement continues.

There is no near-term catalyst here, and investors should not be pricing in any activity on these licences in the foreseeable future.

However, the optionality is real.

If regulatory circumstances change and Prospex is permitted to advance work on Tesorillo, the scale of potential resource dwarfs everything else in the portfolio.

Any progress would be additional upside that the market is currently ‘free.’

And Spain needs increased domestic energy security.

Poland — New Frontier

Prospex entered Poland in early 2026 with the award of two 100% owned exploration licences in the Carpathian Foreland Basin of southern Poland — one of the country’s most prolific gas-producing regions.

The San licence was formally awarded on 1 April 2026, while the Dunajec licence followed on 22 April 2026.

Both are held through PXEN Tatra Sp, a wholly owned subsidiary, and both sit on proven hydrocarbon trends with limited modern activity since 2000 — overlooked acreage that could yield value when modern seismic and evaluation techniques are applied.

The Dunajec licence includes the Mniszów oil discovery, originally encountered by multiple wells in 1966. The Mniszów-3 well confirmed a 13-metre oil-saturated interval in a fractured carbonate reservoir at approximately 600 metres depth, and a cased-hole test flowed at 45 barrels per day following acid stimulation.

The field was left undeveloped at the time simply because its estimated 2 million barrels of oil in place was too small relative to nearby giant fields that demanded operator attention in the 1960s.

With modern techniques, relatively shallow depth and 100% ownership, Prospex believes there is a near-term commercial opportunity worth considering.

Remember, what’s too small for a major can be a company maker for a junior.

The near-term work programme involves data compilation and historical well log review across both licences, with a plan expected in H1 2027 for physical drilling at Mniszów targeting near-term commercial oil production.

Poland has a supportive regulatory framework, an active domestic oil and gas services industry and acute structural demand for domestic energy supply.

They don’t like the Russians (to put it mildly). The more independent they can make their energy base, the better.

New Management

It is difficult to overstate how much the tone and emphasis have changed at Prospex since Tom Reynolds became CEO in February.

Previous communications were operationally focused — asset updates, production reports, permitting milestones. Necessary, but not always giving investors a clear sense of strategic direction or capital allocation philosophy.

Reynolds’ first substantive communication as CEO was a letter to shareholders in March 2026 that read very differently.

He laid out a clear investment thesis.

He acknowledged that the company cannot fully advance every opportunity simultaneously and that the strategy involves introducing partners and external capital where appropriate.

He committed to four shareholder engagement events per year.

He was explicit about the objective of growing value per share rather than simply growing assets.

The subsequent appointment of Simon Ashby-Rudd as a non-exec in May 2026 adds further credibility. The chap brings over 35 years of energy banking experience, with a track record across equity capital markets, debt and corporate transactions across the world.

This is a board being deliberately constructed for the next phase — one where capital allocation, asset monetisation and strategic partnerships matter as much as operational execution.

Capital Discipline: CLN?

Consider the outcome of its Convertible Loan Note offering.

The original target was £1.6 million — a modest raise designed to fund specific identified capital expenditure items across the portfolio through 2026 without issuing new equity.

When the raise was announced in December 2025, it was a CLN rather than a placing because management wanted to avoid diluting shareholders at what they viewed as a distressed share price.

The raise was oversubscribed before it officially closed.

Management extended it, capped the total at £2 million — 25% above the original target — and adjusted terms for late subscribers to protect earlier investors by locking out conversion rights for a full year from subscription.

The final raise closed in March 2026 at exactly £2 million.

That outcome tells you several things.

1. There is genuine investor conviction in the story at a private level even when the public market has been indifferent.

2. Management was willing to limit the raise rather than take unlimited capital — a sign of discipline rather than reflexive fundraising.

3. The terms were adjusted to protect existing shareholders, which is not always a given in micro-cap energy companies.

As of the end of Q1 2026, the company held £907,000 in cash, compared to £42,000 at the end of 2025. Gas revenues from Selva are expected to keep the operational base funded through 2026, with the CLN capital available for asset-level investments. The company is not burning through cash and management has been explicit that 2026 capex requirements are covered.

The heavier capital requirements come in 2027, when multi-well drilling programmes across Selva, Viura, and El Romeral are expected to converge.

The stated plan for funding those programmes is farm-outs, co-investment, and asset-level debt.

The IMMAGE collaboration providing up to $1.5 million for El Romeral coring work is the first concrete example of that strategy producing results.

It’s also why I wrote this article - because it evidences that the strategy is viable.

And that makes this story undervalued.

Valuation: What Are You Paying For?

Independent research from Hannam & Partners has estimated a risked net asset value for Prospex of approximately 13.6p per share on a fully diluted basis.

That analysis uses a long-term gas price assumption of €36 per MWh and a standard 10% discount rate.

And against a share price trading around 3p, this represents an implied discount of roughly 60% to risked NAV.

What makes that figure particularly interesting is the breakdown.

The 2P reserves and 2C contingent resources across Selva Malvezzi and Viura alone — the assets already producing or in development — are attributed a risked value of approximately 7.5p per share.

This means that at current prices, an investor buying Prospex is, in theory, acquiring the discovered and partially developed resource base at a large discount while receiving the entire development and exploration pipeline at no additional cost.

The El Romeral five-well programme, with its 75% average geological chance of success and existing infrastructure, contributes to a total risked exploration value of approximately 5.9p per share.

Additional corporate items and balance sheet contribute the remainder.

The unrisked scenario — requiring material success across multiple planned drill programmes — is estimated at approximately 32p per share. That is not the base case, and investors should not anchor to it. However, it frames the potential scale of outcomes if execution goes well.

At the current EBITDA run rate of approximately €5.6 million, the implied enterprise value to EBITDA multiple is modest. If management’s projected growth in net production to around 13.8 mmcf per day by 2028 is achieved, and EBITDA expands towards the modelled €29 to €39 million, the current valuation would imply a sub-one times EV/EBITDA multiple.

Small-cap European E&P peers typically trade at two to four times. That differential is either an opportunity or a warning — depending on one’s view of execution risk.

It’s also worth noting that the year-end 2025 balance sheet showed net assets of £22.9 million on a standalone investment company basis. With a market cap far below that figure, the shares trade at a solid discount to reported book value as well.

Which, as a fundamental investor, is all good news to me.

There are risks here of course and pretending there aren’t helps nobody.

My view is that funding risk remains the elephant in the room. The 2027 drilling programmes require capital that the company does not currently have.

Farm-outs, debt, and co-investment will need to materialise. The first step has come in the form of IMMAGE - and early El Romeral farm-in interest - but if those discussions take longer than expected, this could be a problem.

But the bottom line for me is that this is hard to understand.

It’s structurally complex. Multi-jurisdictional, multi-asset, investment company accounting, minority positions, B shares, complexity in who pays for what — these create barriers to investor engagement that can suppress valuations for extended periods.

Until someone comes along to explain them in plain English.

Then it can re-rate.

Catalyst Timeline

What makes the next 18 months interesting is not any single event but the convergence of multiple potential catalysts across a portfolio that, for much of 2025, seemed to be firing on very few cylinders.

In the near term, Selva’s 3D seismic interpretation by Schlumberger Italy is expected to conclude in 2026, delivering a high-resolution subsurface model and supporting an updated CPR in H2 2026 that could upgrade resource estimates and strengthen the development case.

EIA specialist studies are expected to reach the Ministry in Q2 2026, progressing the four-well programme towards formal authorisation targeted in H1 2027.

At Viura, the dynamic reservoir model calibration is expected to complete around mid-2026, establishing the steady-state production regime and providing the foundation for the independent reserves report that would underpin a debt financing facility.

That facility, if secured, would fund the Viura-3A and 3B development wells without requiring equity from Prospex.

At El Romeral, the permit decision from Spain’s environmental ministry is expected within the 90-to-180-day window from the December 2025 internal referral, putting a potential announcement imminently. A successful permit followed by a farm-in announcement would be a significant catalyst.

The IMMAGE collaboration announcement is already a positive signal on the scientific and regulatory credibility front.

In Poland, data compilation and historical assessment work across the San and Dunajec licences is underway, with an exploitation plan for the Mniszów oil discovery targeted in H1 2027.

At the corporate level, the introduction of Simon Ashby-Rudd to the board signals an active effort to build capital markets relationships appropriate for the next phase of growth. Farm-out and co-investment discussions are ongoing.

The AGM provides another engagement opportunity.

Together, across an 18-month window, this all creates an unusually active news flow for a company of this size.

The Bottom Line

The Prospex investment case, stripped to its essentials, rests on a small number of propositions.

First, that existing producing assets — principally Selva Malvezzi, with supporting contributions from El Romeral and eventually Viura — provide a floor of real value that the current share price does not adequately reflect.

Second, that a series of development and appraisal programmes across those same assets have a reasonable probability of adding material value over the next two years, and that the market is currently assigning little or no value to that probability.

Third, that the new management team has the right instincts about capital allocation and shareholder value creation, and that the addition of Simon Ashby-Rudd significantly improves the company’s ability to access non-dilutive capital.

Fourth, that the macro backdrop for domestic European gas producers — whatever one thinks of the long-term energy transition — is supportive in the medium term and potentially improves the strategic value of the company’s assets over time.

This combination of existing production providing downside support, multiple near-term catalysts, a management team with the right philosophy, and a share price that appears to reflect a distinctly pessimistic view of the future does seem, on balance, to represent an interesting setup.

The coming year will see whether the company converts potential into profit.

When that happens, the market often exchanges pessimism for capital growth.