BW Energy Ltd

OSE:BWE

Earnings Call Analysis

BW Energy Reaches Record Production and Achieves Strong Financial Growth

In Q3 2024, BW Energy experienced a remarkable increase in production, averaging 25,570 barrels per day. Dussafu's production peaked at 40,000 barrels per day, contributing to a substantial EBITDA of $130 million and a net profit of $48 million. Revenue jumped to $206 million, a $41 million increase from Q2. Operating expenses per barrel fell to $20.5, down 17% from the previous quarter. Looking forward, the company maintains a production guidance of 10-11 million barrels for the year and projects operating costs to decrease to $30-$32 per barrel. They are also on track for the first oil from the Ruche well by year-end.

Company Overview and Production Highlights

BW Energy recently reported its third quarter results for 2024, which showcased significant production growth. Net production reached 25,570 barrels per day, despite a planned maintenance shutdown at Golfinho. The Dussafu field achieved a record gross production of 2.5 million barrels, setting a high since its inception. Production rates have been impressive, currently averaging around 40,000 barrels per day. This demonstrates not only strong operational efficiency but also a significantly enhanced production profile.

Financial Performance Examination

The third quarter EBITDA came in at $130 million, reflecting a robust increase driven by higher production figures and improved operational efficiency. Net income for the quarter also saw a notable rise, amounting to $48 million. Revenue stood at $206 million, marking a $41 million increase compared to the previous quarter, largely due to higher oil prices and expanded production volumes. BW Energy's financials indicate a strong operational cash flow of $145 million, underscoring its solid financial position.

Operational Efficiency and Cost Management

Operating expenses per barrel fell to $20.5, a reduction of 17% year-over-year and 7.3% compared to the prior quarter. This decline in costs, along with increased production, greatly contributed to substantial EBITDA growth. The company is strategically focused on optimizing operations to maintain and improve profitability as they gear up for upcoming drilling projects.

Future Production Guidance and Developments

Looking forward, the company has maintained its production guidance between 10 million to 11 million barrels net for the year. For Q4, they expect production to be approximately 20% higher than Q3, suggesting a range of 32,000 to 33,000 barrels per day from Dussafu. Additionally, they plan to complete the existing ESP change-out program by year-end, which could further enhance production rates. The company also announced that they are targeting first oil from the Ruche well by the end of this quarter, marking a significant milestone.

Investment and Exploration Activities

BW Energy is actively expanding its resource portfolio with new exploration licenses in Gabon, holding a 37.5% interest in two new blocks covering around 5,000 square kilometers. They are also preparing to drill at the Bourdon field early next year, where they estimate recoverable reserves could be around 30 million barrels. The company is making significant strides in its Maromba development, with an expected Final Investment Decision (FID) slated for early 2025.

Strategic Position in the Market

Overall, BW Energy's third quarter results indicate a company on stable footing with strong operational metrics and a clear plan for future growth. The reduction in operating costs, combined with rising production levels, places BW Energy in a favorable position within the market. Their commitment to optimizing existing assets while pursuing new opportunities bodes well for long-term value creation.

Earnings Call Transcript 2024-Q3

[Operator]

At this time, I would like to welcome everyone to this BW Energy's Third Quarter 2024 Presentation. Today's call is being recorded. If you have any objections, please disconnect at this time. [Operator Instructions].

I would now like to introduce CEO, Carl Arnet. Carl, you may now begin.

[Carl Arnet, executive]

Thank you, operator. A warm welcome to this Third Quarter 2024 presentation by BW Energy. This presentation will, as usual, be hosted by our CFO, Brice Morlot, and our Chief Operating Officer, Lin Espey; and myself, Carl Arnet.

Quickly on to the disclaimer. Please note it, I take that as read, and we go on to the highlights. The highlights of the third quarter were that production was significantly up and net production was 25,570 barrels per day that was including the planned Golfinho maintenance shutdown. Dussafu had a quarterly gross production of 2.5 million barrels, which is the highest since production started at Dussafu. Currently, Dussafu is producing 40,000 barrels per day gross, and it's -- well, the ESPs that we have changed out are functioning extremely well. We also became operator of the Niosi Marin and Guduma Marin exploration blocks offshore Gabon and we will cover that in more detail later.

The third quarter EBITDA stood at $130 million with a net profit of 48 million. We had 3 liftings totaling 2.5 million barrels with a net average price of $82 per barrel. So this gave a record quarterly operational cash flow of 145 million, and our cash position was very healthy at 210 million.

So third quarter key figures. Our net production was significantly up compared to previous quarter and last year. Our revenue was, of course, also significantly up compared to last quarter and previous year. Our OpEx per barrel came down by about 17% compared to last quarter and 7.3% compared to third quarter last year. This gave us the EBITDA, which was also, of course, significantly up net of income that multiplied many, many times since comparable quarter and of course, also the same with the operating cash flow. So this is the production profile, and we can see the effect of the ESP change out and the impact on production. We can also see the Golfinho planned maintenance shutdown that was conducted in the quarter.

In terms of LTIs, we recorded 0 LTIs in the quarter, and we also recorded 0 environmental incidents. And this also goes for to date in 2024. Then on to Gabon and our primary assets, Dussafu. Q3 net production to company was 1.9 million barrels, equal to 20,150 barrels per day. We had a very high operational uptime on Adolo and MaBoMo and as I said previously, the wells performed extremely well. We are now, of course, completing the change-out program, and we will see a further improvement in our production and regularity. The OpEx per barrel came down with increasing production to $20.5 per barrel.

We are nearing our completion of the Hibiscus/Ruche Phase 1 drilling campaign. We have some ESP replacement to do, and we will, before end of the year, put 2 more Hibiscus wells and Ruche well, and we will then have first oil from Ruche as well in the fourth quarter. The last activity in the current drilling program is the Bourdon appraisal well that will be drilled early in 2025. And you can see here in the caption the Bourdon field outline. And we are going after risked gross recoverable reserves of 30 million barrels as we have infrastructure in place, we can trigger a development of the Bourdon or should we be successful in our campaign, we can trigger developments at fairly low reserve basis.

Further developments in Gabon is that we are expanding our resource potential. We have just signed PSCs for the Niosi Marin and Guduma Marin exploration blocks. BW Energy holds 37.5% working interest and is operator of these 2 licenses. They are surrounding the known Tom and Dussafu fields as well as some fields closer to shore, and it has a total acreage of close to 5,000 square kilometers.

Then on to Brazil. The Golfinho production was affected by the annual FPSO maintenance program and came out at around 500,000 barrels total, which equals to 5,400 barrels per day. This, of course, also affected the average dollar per barrel. So we had a production cost of $63.3 due to the lower production. The availability of the unit is expected to improve after start-up as we have done extensive maintenance on the equipment. The focus going forward is going to be on optimizing production capacity and availability and, of course, operating costs.

The Maromba development is progressing according to plan. Maromba, just to remind everybody, this is an oil field that we intend to develop. It's in a very good region. You see some of our neighbors that are Peregrino, Papa Terra and it's oil-rich area. And we expect to have our FID in early 2025, and we are targeting first oil 36 months after FID. We are looking at a highly efficient concept reusing the FPSO that we have already acquired and a platform with dry trees and drilling capabilities. The plan is for an initial production of 50,000 barrels per day from 6 wells.

Then on to Namibia and Kudu. The Kudu appraisal program is progressing to plan. We have named our first appraisal well. It will be named Kharas and we have defined the location for this well. We have also secured all the long lead items to undertake this drilling campaign in the second half of 2025. We are currently reviewing rig bids and we are pleased to say that the current bids look attractive, and we have -- we see price levels that are below or somewhat below the expectations we had so that is good. We have now completed, of course, the 3D seismic processing of the fast PSDM and that is -- we are -- have a number of good locations for also future appraisal wells. The Kudu gas-to-power field development plan is progressing, and we expect to deliver an FTP into the government early 2025.

So with that, I will hand over to Brice.

[Brice Morlot, executive]

Thank you, Carl. It's very satisfying to see production so high, and it's reflected in the financial figures. So let's dive in the Q3 financial section. To the income statement for the third quarter, we had an operating revenue of $206 million. It's plus $41 million compared to Q2. We had 3 liftings, 2 for Dussafu and 1 for Golfinho, 2.3 million barrels compared to 1.8 million in the last quarter and 8.6 million of unrealized gains on hedging. It reflects the highest quarterly production since inception and as Carl mentioned, we are now in Q4, producing over 40,000 barrel oil per day growth.

Operating expenses are on the right track, $85 million, minus 3 million compared to last quarter, which gave us an EBITDA of $130 million for the third quarter, it's plus $44 million compared to Q2. This is an excellent quarter for BW Energy with strong production growth on track for ESP change out by year-end and with 3 ESPs, 3 wells remaining in the workover program. Depreciation, the difference with last quarter is related to the lease of our supply boat in Brazil for Golfinho. This lease contracts were effective from February, but they were not identified as leases and accounted for under IFRS-16 until September. So in Q3, we recognized the catch-up impact for Q1, Q2 and Q3 giving us an operating profit for the quarter of $78 million, it's plus $37.9 million compared to Q2.

Interest income, we have 1.6 million of MaBoMo sale and leaseback interest from JV partners. We had interest expense of 10 million versus 5.6 million in Q2. The main difference you see here is an increase due to 2.5 million corporate bond interest and 2.5 million due to less interest capitalized for Dussafu project. So profit before tax of $75 million, it's plus 34 compared to Q2 and income tax expenses of $17 million. So we end the third quarter with a net profit of $48 million.

To the balance sheet, tangible assets there is a downward adjustment of 25 million on Golfinho asset retirement costs. The borderline dates were delayed from previous estimated 2032 -- 2033 to 2042. Therefore, the discounted PV for the future liability is now smaller. Right-of-use assets, net impact from adding the new leases of our support in Brazil for Golfinho. Intangible assets, we have an increase of $10 million. The studies are capitalized to intangible assets before FID. This is mainly studies on Kudu and Maromba.

Other noncurrent assets, $30 million investment in ReconAfrica shares. The original investment is $16 million, but we recognized the decrease in fair value of shares of $2.6 million. Trade and receivables, we had 41 million Q2 Golfinho lifting proceeds collected in Q3 and 14 million of DMO sales. And we end the quarter with 209.8 million in cash.

Over to the equity liability side of the balance sheet, we can also see the effect of interest-bearing debt of Golfinho oil prepayment facility that started to amortize with first amortization during the August lifting. We can see a decrease in asset retirement obligation by 58 million. This is the Brazil ARO recalculation due to revised abandonment date.

Lease liability increase, this is the new vessel lease of Golfinho. And you can see that we have a very high activity on the investing side, giving us high trade and other payables mainly due to drilling and workover program. So all in all, a very strong balance sheet with 42% of equity ratio and interest-bearing debt of about $556 million.

To the cash flow overview, we had the cash at the end of September of close to $210 million that was $244 end of June. We had an operating cash flow of $145 million that was $63 last quarter and net investment of $98.6 million, that was $125 million in Q2, mainly related to Dussafu development, but also the investment in ReconAfrica shares. Then net financing activities of $80.7 million that was $155 last quarter and that gives us $210 cash position for this quarter.

Here, you have some guidance to our lifting schedule and also on hedging. On Dussafu, we had 2 liftings in Q3, 796,000 barrels with an average realized price of $83 per barrel and another lifting of 779,000 barrels with a realized price of $80 per barrel. In Golfinho, we had 1 lifting in Q3 of 487 barrels in April at $81 per barrel. So we will have 3 liftings for Dussafu in Q3 and 1 for Golfinho. So the numbers might be good also for Q4.

A few word on hedging. We have requirement to hedge in the RBL facility for Dussafu, where we have to hedge 40% of the production year 1 and 25% for year 2. This is completed, and we are also hedging part of the production of Golfinho about 25% of the annual production in 2025. So currently, we have 4.9 million barrels hedged for 2025, '26, and this is a mix of puts, zero cost collars and swaps.

Over to the summary. We are on track to maintain our production guidance of 10 million to 11 million barrels net to BW Energy. On the production cost, we reduced our guidance this quarter to $30 to $32 per barrel. So this is a very good news instead of $35 and we are on track to respect our guidance on CapEx and G&A.

And to the final slide of the summary, on the production side, our target is to complete all ESPs change out with commercial ESPs before the end of the year. Production is at peak right now at 40,000 barrel oil per day, and we still have 3 wells to come online before next year. We'll continue to optimize Golfinho, many things to do on our current well portfolio. On the exploration side, we plan to drill Bourdon appraisal in February and to drill an appraisal well in Namibia to assess the Kudu potential. Since we acquired 2 new blocks in Gabon, we are preparing 3D seismic to assess the potential of those 2 blocks. On the development side, we continue to optimize Maromba development plan and hope to complete all the studies early Q1 and also continue to progress the Kudu Gas to Power project. And on the corporate side, we focused our effort of boosting -- on boosting our operational cash flow and to complete Maromba financing before the end of the year.

So that will bring us to the end of the presentation, and then I leave the word to the operator for questions from the audience, and then we will continue here with the questions we have received from the web. Thank you.

[Operator]

[Operator Instructions] Our first question comes from the line of Teodor Sveen-Nilsen from SB1 Markets.

[Teodor Nilsen, analyst]

Congrats on a good report. A few questions for me. First, on Dussafu positive to see that the production now is at 40,000 barrels. I just wonder, to Q4, how much could we model, I guess it would be too aggressive to assume 40,000 barrels for the entire fourth quarter. Second question, that is on your long-term production guidance. I noticed that we have now removed the slide that you previously used in the presentation. We showed production revenues out to 2028, maybe. Could you say anything about how we should think around the level of production in 2027, 2028? Of course, I understand that it's very sensitive to Maromba startup, but any thoughts would also be useful.

And then a final question that is on Golfinho and the production heading into 2025. Been substantially declined on Maromba recently. How should we think about the level for 2025? And will you consider or what will trigger that you will consider new wells on Golfinho next year?

[Carl Arnet, executive]

Yes, I don't know. Maybe you should take the first one, Lin, did you get it?

[Lin Espey, executive]

Yes. What I heard was the thoughts on production in Q4 from Dussafu. And then -- so production, as you heard, as Carl mentioned, is we've achieved 40,000 barrels a day. And unfortunately, no, we will not average 40,000 barrels a day for the quarter, but we will be up from our Q3 average production that we showed here earlier in the presentation. So it's -- anyway, so I think it's going to be roughly 20% up or so in Q4 relative to Q3. But it's -- it is a little bit variable because we are bringing new wells on and the timing of that. So there is going to be a lot of fluctuation with that, but production will be up from Q3.

And then I think the other question I heard was Golfinho, about Golfinho production. And Golfinho production, we have had some operational problems. In Q3, we had the scheduled maintenance and a host of other gas compressor, gas lift compressor issues. What we do think is that we'll be able to restore uptime, one of the gas lift compressors had to be sent onshore for repair and maintenance, and it should be back in Q1. But overall, I think we would expect to see our production to stabilize in '25.

[Carl Arnet, executive]

There was a third question. Did I -- I didn't quite get it. That was about the production until '28, was it?

[Teodor Nilsen, analyst]

Yes, I just noticed that you have removed this illustration where you previously have shown the production to 2028. Could you give any color on what you expect from now until 2028 in the production trajectory? Does it be substantially from what we have sold months before?

[Carl Arnet, executive]

Well, 2028 -- until 2028 will be a lot of things happening among the Maromba. So the other thing is, of course, we will drill Bourdon and we have a second phase of drilling on the Hibiscus/Ruche. So we do -- we are very optimistic on the production levels from the Hibiscus/Ruche area because we did prove up significant additional reserves, particularly in the Hibiscus South and Hibiscus. And we do expect to be able to maintain our production plateau from the Hibiscus/Ruche at a higher level than previously. But I don't know if you want to kind of give it a flavor Lin of.

[Lin Espey, executive]

Yes. No, I think you got it. I think we feel very good about the Dussafu production. And we feel there's no change in guidance. I think long-term guidance from the Dussafu, if anything, I think we're more bullish buoyed by the -- we had reserve adds last year with the discoveries Hibiscus South, et cetera. And so our production guidance for Dussafu, I think largely remains intact. So we're very, very pleased with the performance so far.

[Carl Arnet, executive]

Okay. I hope that gives you flavor or do you have something or a follow-up question?

[Teodor Nilsen, analyst]

Yes, absolutely a good answer, but I'll just follow up on the question regarding the Dussafu gross production in Q4, Lin you said 20% higher than Q3. So does that mean we should expect like somewhere between 32,000 and 33,000 barrels per day gross from Dussafu in Q4?

[Lin Espey, executive]

Yes. I think that's in the right ballpark, but I may put a wider bracket band. Again, we're doing all these workovers. We're bringing wells online and the timing of it kind of affects -- can affect the overall average in a single quarter, but that is -- that's the ballpark. I think that's reasonable.

[Carl Arnet, executive]

And I think, Lin, we should also mention that we do a bit of testing as we put these wells online. So we're not getting full production all through the period. There is a bit of testing and prudent operatorship dictates that you do test a bit when you put wells on.

[Lin Espey, executive]

Exactly.

[Operator]

Our next question will be from the line of Tom Erik from Pareto Securities.

[Tom Kristiansen, analyst]

Congrats on a good quarter and getting Dussafu up at 40,000 barrels per day. First question on that. How long do you think it can stay at that level? And what kind of time should you expect into next year and how long can you then have that, that's all going before you need to drill more wells? And when will you actually do that?

And then second question on Maromba. Can you talk a bit about how the CapEx figure that is developing? Has there been any major changes good year-to-date on that?

[Carl Arnet, executive]

Lin, yes, okay, maybe you take the first part of the question, and I'll do the Maromba part, Lin.

[Lin Espey, executive]

Yes. So -- the first part, what I understood was a production guide -- or how long we're going to be on plateau and production guidance for next year. And I don't know if we've officially given out the production guidance, but our expectation is that we have now achieved our production plateau and our intent is to maintain it, and we think we'll be able to maintain it through 2025.

Now, achieving 40,000 with our annual shutdowns and maintenance shutdowns and just various ups and downs from operations, we're not going to be able to average that. I think it's going to be 40,000 less 10% or so. But I think later, we'll come out with our official guidance figures for 2025.

[Carl Arnet, executive]

Okay. So then to Maromba. Well, we -- as we have explained previously, we have pivoted to a design where we have a fixed installation and dry Christmas trees, dry well bay and drilling facilities. We are exploring various options, and we have a number of feasibility studies going on. We see significant potential in optimizing the surf, i.e., putting the FPSO closer to the fixed facility. And we have also -- we also see significant upside in the potential reuse of facilities for the fixed platform.

So all in, we see significant or potential for significant improvement in the overall investment in the project. And we expect to conclude all the work. We are doing a soil survey in early next year, January and we expect to complete our feasibility studies very soon thereafter. We have kept the pressure on in China. So the FPSO, which is today the long lead item of the development is being progressed, and we are pre-investing in steel replacement already as we speak. So we are planning to have the financing concluded early next year. And then when we are ready to FID the whole project, we expect to get going on everything.

So it's looking extremely promising. I don't want to come with specific figures yet because we are doing a number of, let's say, high impact studies that the results are quite -- they're quite important to get the price, but it's looking very, very promising. And we are, I would say, we today are 95% certain that we will FID this project in the course of the first quarter next year.

[Tom Kristiansen, analyst]

Okay. Just one follow-up on Dussafu. There has also been some talk there about the increasing nameplate capacity of the FPSO. How difficult is it to do that?

[Carl Arnet, executive]

To go above the nameplate. Well, the nameplate is a somewhat theoretical figure based on a, let's say, typical oil being processed through plant, and it's based on retention time and output. So you have -- you need to knock the gas out, you need to get -- achieve the basic solids and water quality in the oil. I would say it's looking very promising that we will be able to increase the nameplate. We will do some studies because we do have to study the safety equipment, PSVs, control valves, et cetera, we have to study this. But we are I would say we are very confident that we will reach a higher nameplate. And we expect to conclude this work again early next year. Now, we have the capacity, the well capacity, and we can also do testing and see where we are hitting any restrictions in the plant.

[Operator]

There's no one else is lined up for questions in this call. I'll now hand it back to the speakers for any written questions.

[Brice Morlot, executive]

Thank you, operator. We have a couple of questions in the webcast. Many questions on high production and more wells to come. Can we talk about plan to explore debottlenecking, et cetera?

Well, I think as Lin mentioned, we hope to maintain the plateau in 2025.

And could we raise production target?

Yes, maybe. As Carl mentioned, we believe that the FPSO is designed for more probably 45,000. We are working closely with BW Offshore team to secure this target. Production plateau could be challenged as well, higher production. The actual constraints in the separation capacity, but we think we can find a smart solution to improve this, and that could be triggered after the Bourdon appraisal. So let's see how it goes in Q1 next year.

Question on ReconAfrica, PEL 73 license, where are the 2 exploration wells in the program?

Well, we are not at the target depth yet, drilling is still ongoing. So we'll have more conclusion by the end of the month. Maromba FID, as we said, we hope to close all the remaining studies by the end of Q1 next year and to have the financing in place by the end of the year.

What would be the water depth while the platform is going to be located at Maromba?

The water depth is around 150 meters, I think.

[Carl Arnet, executive]

100 -- well, it depends a little bit on where we will locate the platform. And that's where the soil survey is coming in. So in 150- to 170-meter water depth is what we expect.

[Brice Morlot, executive]

Thank you, Carl. And the last question on how do PSC terms for the 2 new PSCs in Gabon compared to the Dussafu PSC?

Yes, the terms are quite similar. And while we are very excited with this new investment and to continue to expand in Gabon we will, maybe planned a seismic survey by the end of next year to assess any potential of this block.

Then I think we covered the question from the web. If you have other questions, please do not hesitate to send us a mail at [e-mail]. Thank you very much for your participation, and I leave it to you, Carl to close.

[Carl Arnet, executive]

Well, again, just to chime in. Thank you for your participation and questions. We have very interesting times ahead, and we are looking forward to next time we're presenting as I think we will have a number of conclusions to relate to you at that time as well as very, very good results. So it's a good time. It's for us, we have turned the corner. We have managed to come back from the ESP issues that has plagued us through '24. So we are extremely optimistic about the future and it's going to be exciting times for BW Energy.

So thank you. And to those who follow us, thank you for participating.