Southern Energy’s Q2 2025: Gas price tailwind, lower volumes, and a key well online
Southern Energy Corp. has posted a steadier second quarter, helped by firmer natural gas prices and a successful well completion in Mississippi. Revenue nudged up despite lower production, and net losses narrowed year-on-year. The company also strengthened the balance sheet in April with fresh equity and the conversion of debentures, setting up a more active back half of 2025.
The standout operational news is the GH LSC 13-13 #2 well in the Gwinville field, the first Lower Selma Chalk (LSC) lateral completed by Southern from its inventory of drilled but uncompleted wells (DUCs – wells that have been drilled but not yet fracked and tied in). Early flowback is encouraging, and notably, the job came in more than 10% under budget.
Headline numbers investors should know
| Metric | Q2 2025 | Q2 2024 |
|---|---|---|
| Petroleum & natural gas sales | $3.989 million | $3.889 million |
| Average production | 11,295 Mcfe/d (1,883 boe/d) | Not disclosed (down 27% YoY) |
| Realised gas price | $3.63/Mcf | $2.26/Mcf |
| Realised oil price | $62.60/bbl | $80.06/bbl |
| Adjusted funds flow from operations (AFFO) | $0.592 million | $0.770 million |
| Net loss | $(0.411) million | $(2.622) million |
| Capital expenditures | $2.285 million | $0.060 million |
| Common shares outstanding (period end) | 336.255 million | 166.497 million |
| Net debt | $(19.784) million | $(24.159) million |
Notes: Southern reports in U.S. dollars. A negative net debt figure is generally indicative of a net cash position on the company’s definition of the measure.
Gas pricing finally helped – and Southern captured a premium
Average realised gas prices rose to $3.63/Mcf, up from $2.26/Mcf a year ago – a 61% jump. Southern also achieved a $0.19/Mcf premium to the NYMEX Henry Hub benchmark in the quarter (about 6%). The CEO adds that the new GH LSC 13-13 #2 well benefited from an approximate 17% premium in early sales due to strong Southeast U.S. power demand at the start of summer.
That premium matters. Basis differentials (regional pricing differences vs Henry Hub) can make or break margins for Gulf States gas producers. The combination of higher outright prices and a premium basis put some much-needed wind in Southern’s sails this quarter.
Gwinville’s LSC well: under budget, higher intensity, and promising early rates
Operationally, the company completed the GH LSC 13-13 #2 well in June – the second of four high quality DUCs from its Q1 2023 programme, and its first Lower Selma Chalk lateral. Over the first 30 days, the well averaged 3.6 MMcfe/d (99% gas), more than double the average of the original LSC horizontals drilled by previous operators in Gwinville. Gas has been sold since 26 June, directly into Southern’s facilities.
Completion design was beefed up: 25 fracture stages and over 5.3 million lbs of proppant (the sand-like material pumped into a well to keep fractures open), representing a 70% increase in proppant intensity versus first‑generation completions. Crucially, the completion cost came in at $2.2 million – more than 10% below pre-job estimates. Water flowback has been over 70% lower than Upper Selma Chalk wells, which Southern says translates to initial operating cost savings of about $0.20/Mcfe.
Management will monitor both regional gas prices and the well’s performance over the coming months before deciding when to complete the remaining two DUCs. That’s prudent capital allocation in a still-volatile gas market. Do remember the company’s own caution: short-term rates such as initial 30-day averages are encouraging but not indicative of long-term performance.
Volumes down, but losses narrowed and cash generation held positive
Production averaged 11,295 Mcfe/d (1,883 boe/d), down 27% year-on-year. Even so, higher gas prices and premiums helped lift sales by 3% and narrow the net loss to $0.4 million from $2.6 million. Adjusted funds flow from operations was $0.6 million in the quarter – modest, but positive.
The flip side is dilution. In April, Southern raised $5.0 million of gross proceeds by issuing 102,482,673 new units, and converted $3.1 million of debentures into 62,759,286 new units, plus 1,627,170 units for accrued interest. Shares outstanding at period end more than doubled to 336.255 million from 166.497 million a year earlier. It shores up the balance sheet and funds activity, but it does spread future earnings over a larger base.
Balance sheet, covenants, and hedging provide a buffer
Southern highlighted restructuring of financial covenants with lender support in 2025 and reported net debt of $(19.8) million. The company also carries a fixed‑price swap of 5,000 MMBtu/d at $3.40/MMBtu through December 2026, offering downside protection on a slice of volumes. That hedge, alongside improving regional pricing, helps underpin cash flows as the new well ramps and decisions loom on the remaining DUCs.
Regulatory wrinkle: FERC dispute and shut-ins expected to resolve in Q3
About 400 boe/d remains shut-in at Mechanicsburg and Greens Creek due to a transportation dispute under review by the Federal Energy Regulatory Commission (FERC – the U.S. energy regulator). Southern expects the rate determination process to be resolved sometime in Q3 2025, after which those volumes should return. If timing lands as suggested, that could be another helpful lift to H2 production and cash flow.
Outlook and my take: cautious optimism with clear catalysts
There’s a lot to like in this update: a stronger gas price deck, a premium to Henry Hub, a high‑quality LSC well completed under budget with promising early rates, and hedging that softens the downside. The anticipated return of ~400 boe/d post‑FERC and two more DUCs in hand provide tangible near‑term catalysts.
The two main watch-outs are the 27% drop in volumes year-on-year and dilution from the equity raise and debenture conversion. The company is still loss-making on a GAAP basis, and the strategy leans on gas prices holding up and basis premiums persisting – both plausible, but not guaranteed.
All in, I’d call this update mildly positive. Execution on the Gwinville LSC well and firmer pricing have started to feed through, and if management times the remaining DUC completions against strong regional prices, Q3 and Q4 could look meaningfully better.
What to watch into Q3 2025
- Cash flow uplift from GH LSC 13-13 #2 and any disclosed production trajectory.
- FERC outcome and the timing of bringing ~400 boe/d back online.
- Decision on completing the remaining two DUCs, and any updated capital guidance.
- Basis differentials in the Southeast U.S. and whether the Henry Hub premium persists.
- Hedging updates beyond the existing 5,000 MMBtu/d at $3.40/MMBtu through December 2026.
Dates and housekeeping
Southern’s Annual Meeting of Shareholders will be held on Monday, 27 October 2025 at 10:00 a.m. (Calgary time), in person and via webcast. Further meeting details are available via the company’s usual channels.
