Panoro Energy ASA

OSE:PEN

Earnings Call Transcript 2023-Q2

[John Hamilton, executive]

Good morning, everyone, and thank you for joining our Second Quarter Results Presentation. This is John Hamilton, Chief Executive Officer of Panoro Energy ASA. I'm joined today by a number of colleagues as well, who will be available to assist with any questions that you might have following a short presentation.

As a reminder, today's conference call contains certain statements that are or may be deemed to be forward-looking statements, which include all statements other than statements of historical fact. Forward-looking statements involve making certain assumptions based on the company's experience and perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances.

Although we believe the expectations reflected in these forward-looking statements are reasonable, actual events or results may differ materially from those projected or implied in such forward-looking statements due to known or unknown risks, uncertainties and other factors. And for your reference, our results announcement was released this morning and is available also on our website, www.panoroenergy.com.

So as a reminder, for those of you who've been here before, for those of you who haven't, you have the ability to ask questions. You can either type in a question, as you can see on the left pane there, and we'll endeavor to answer that question, if it hasn't already been asked or you can raise your hand as you can see on the right panel there, we will unmute you and you can then ask a question and there will be ample time after the presentation to do so.

Next slide, please. So just some highlights. The second quarter was obviously a slow quarter for us. That was all well communicated in terms of liftings. We didn't really have any liftings in the second quarter. So we're kind of focusing on the things that we think matter here. We recently had record production rates of up to 11,000 barrels a day. This is a record for Panoro. So it's been a very, very -- a good recent set of events for us, triggered largely by the increase in production in Dussafu, which we'll talk a little bit about.

We had crude liftings of a little over 800,000 barrels in the first half of the year. The second half is going to be much more active, and I will talk a little bit about that as well. Our CapEx is trending on line with guidance at the moment.

On the financial highlights, again, revenue of $66 million, EBITDA of $39 million. Again, we will see that increase in the second half of the year as our liftings increased during the course of the year. And then there's some balance sheet figures as well as an inventory position as of the end of 30th of June of inventory of oil on the vessel to our entitlement.

And today, we also announced a second quarter cash dividend of NOK 0.342 per share, which is approximately NOK 40 million, which is a material increase from our first quarter dividend of NOK 31 million. So all in all, we think a very credible performance and within guidance.

Next slide, please. So again, just looking at the trajectory of the business, if I can put it that way, as we always show this slide with quarterly performance on the production side, where we are hoping to get to in 2023. And most importantly, where we think we're going to get to the peak rate of in excess of 13,000 barrels a day once the -- all 6 Hibiscus developed Ruche wells are online, which should be around the end of the year, perhaps slipping into the first bit of next year, but right around that period. And that is really what we're aiming for is to try and get that momentum up to that 13,000 barrels a day. And we're well on track to do that.

Next slide, please. This is our lifting schedule. Again, this is a slide we always show to try and show where our liftings are. As a reminder, we recognize revenue and cash flow, not based on a daily basis as we produce the oil, but only when we sell it. And that creates quarters like the second quarter where we hardly had any liftings at all. Again, that was well communicated.

The second half of the year is obviously where it's going to be much more active. The third quarter, in fact, looks like it's going to be an extremely big quarter for us with over 1.5 million barrels of oil being lifted, which you'll see coming through in the third quarter P&L. And obviously, some of the cash that comes usually 30 days later after the lifting. So some of the cash may actually accumulate only into the fourth quarter. But nonetheless, it's going to be a very active third quarter for us and a very interesting fourth quarter for us as well.

Next slide, please. I won't dwell on this slide much, but we always like to provide the detailed granular information around our balance sheet, our debt amortizations. We are paying something like $26 million worth of debt back this year. And our CapEx is trending as per guidance, as per expectation around the $75 million mark is where we expect it to be by the end of the year.

Next slide, please. And again, a cash flow waterfall where you can see the movements in cash. I don't think there's terribly much to point out here. But again, for avoidance of any confusion, we like to really lay out the exact pattern of cash flow during the first half of the year, ending with a cash balance of around $31 million.

Next slide, please. So I want to talk about each of our 3 assets at the moment, our 3 production assets. Most in focus is going to be Gabon right now, given the -- all the activity there. There was some grumpiness perhaps, some negativity in the news yesterday around the Gabon in particular. So I do want to make sure that we address what we think is an extremely successful ongoing development in Gabon. I'm going to ask my colleague, Richard Morton, who incidentally discovered the Ruche and Tortue fields originally and has been involved with this asset for 15 years now, to talk a little bit about what's going on in Gabon. Richard?

[Richard Morton, executive]

Yes. Thank you. Thank you, John. Good morning, everyone. I'm the Technical Director for Panoro. As John said, I've been working on this project for a number of years. So it's great to see this go from an exploration project in the early days of Panoro's history to a real core of the company and a production asset that's performing extremely well now.

So we had a lot of activity in this asset the first part of the year. The first activities were the installation of the new platform at MaBoMo, at the Hibiscus field, and the installation of the pipeline down to the FPSO. So brand-new facilities installed according to plan. The rig arrived and drilled 3 wells in Hibiscus. They were all extremely good results in terms of reservoir quality. We've got long horizontal section in very good quality sandstone and very productive wells for the first 3 wells: Hibiscus 3, 4 and 5. And those wells kick off at a gross rate of around 6,000 barrels a day, which is well within -- in fact, exceeds our expectations for the reservoir. So we're very happy with that.

The fourth well, #6, is currently completing. We'll have that on production shortly. Then the rig will move to drill the first 2 wells in the Ruche field to the northeast, to the east of the platform, to tie that back in. So we've got plenty of activity upcoming and news flow for Hibiscus and Ruche.

The rig still has a couple of options available. We're showing a couple more wells, possibly in 2024. We may have another production more to add to that. That's an optional thing. The joint venture needs to agree on that. And then there's an opportunity for us in some more exciting exploration in the area as well, which we're discussing.

Down at Tortue, we've put on a new gas lift compressor to increase the capacity there. And that means we can run all of the 6 Tortue wells concurrently. So we're looking forward to -- once these new Hibiscus wells [ run all on ], looking forward to some real gains in production towards the end of this year, and the Tortue contributing as well with the new gas lift.

So I'll go to the next slide and talk a little bit about the project in EG. So we've got plenty of activity happening in EG as well. We have some ongoing work on the field, ESP conversions and some life extension projects, which are currently underway, being carried out by Trident, the operator. There's also a gas compression project at Okume, which is being started and that will help utilize gas injection to reduce flaring on the asset.

The exciting news coming up here is we have a rig coming. That rig will drill 3 infill wells, at Ceiba first and then 2 wells at Okume, a total of 3 wells. And then the rig will move down to drill an exploration well in Block S. So Block S is a new project for us. We farmed into this asset at the end of last year, alongside Kosmos and Trident who also are in Block G fields. And we have 12% of the project. It's a new play. We're testing, that is very, very close to the FPSO, so about 10 kilometers from the FPSO, which means it's quite an easy tieback should we be successful.

We also have acquired the Block EG-01, which you see on the map to the right, and that one is operated by ourselves with a partner, Kosmos. There, we don't have a well commitment, but we see some very interesting prospectivity, which extends east from Block S into this asset as well.

So we'll go to the next one, please. Here is a little geoseismic cross-section on the left-hand side showing the Akeng Deep target. So basically, it's a very large [ foreway ], which we've identified 10 kilometers away from the FPSO. We've got a gross mean prospective resource in this of 180 million barrels. So it is potentially -- if it comes in, potentially a significant game changer for the area and easily tied back into the production facilities in Equatorial Guinea.

So thanks. I'll hand back to John now.

[John Hamilton, executive]

Thanks, Richard. Yes, we're very excited with this exploration prospect, and we can probably talk about it a little bit more in due course. Next slide, please.

Tunisia. There's quite a bit going on in Tunisia as well. We, as everybody knows, bought this asset when it was doing about 3,500 barrels a day. We have recently been producing in excess of 5,000 barrels a day. So we see this as a great success where we are a joint operator together with [ the state ] on this one. We still have an ambition to get to 6,000 barrels a day. It's hard work every day to do it. But we have definitely been showing some movements, positive movements to get towards those levels.

The big news in the quarter here was that we acquired a minority interest that we held in this asset. So we consolidated our position here. I think we announced that back in April. Most people will have followed it, but that happened in the quarter, which added another 3 million barrels, roughly net 2P to us and around 800 to 900 barrels a day of production at the time of the acquisition. So we're very, very happy with developments in Tunisia as well.

Next slide, please. It's the final slide, and we're repeating the messages that we have here. We have a very, very active work program ongoing in Panoro. We have at least 10 wells drilling with 3 admittedly have already been completed to date. But this is -- we're sort of just still in the beginning of a very, very active period for the company. And we have options over additional rig slots.

Excellent results from the first new production wells, the first 3, Richard touched on it. And again, we're extremely pleased. The timing of those 3 wells admittedly is a month or 2 behind the original schedule, which, of course, skews things. But again, there was a little bit of negativity in the market yesterday. We would counter that very strongly and say that we're extremely pleased with the progress and the development of these 3 wells to date and the overall Hibiscus Ruche development.

Picking off right, as we're finishing off in Gabon, we're moving into a 3-well infill drilling program in Equatorial Guinea. So there's going to be more -- much more news flow as we come into 2024. The rig that's contracted is due to arrive in early Q4, and we'll start drilling this well probably towards the end of the fourth quarter.

The next exciting thing is that there are up to 3 exploration wells that we're going to be drilling in the next 12 months, with the Akeng Deep one, which Richard touched on, is firm and planned. But we have these 2 additional slots in Gabon as well, and there is a debate within the joint venture about what to do with those 2 slots. It's too early to say what the decisions on those are. However, there is very much a positive sentiment towards drilling at least 1 exploration well. We would like to see that happen as Panoro.

Our consolidated Tunisian business has really kind of given us extra momentum in the country, and that's really helped solidify the company even further. And we've made a very, very clear framework, clear shareholder returns policy for 2023. Our 2024 shareholder policy will obviously come out in due course in November. When we announce our third quarter results, we'll get some more information on 2024. But we've been very clear in today's announcement around the dividend. I think it's a very positive indication in terms of the Board's sentiment towards shareholder returns.

So with that, I'll conclude and open the mic or the panel on the left, you can see, to type any questions if you don't want to speak. Andy -- my colleague Andy is going to officiate here.

[Unknown Executive]

Thank you, John. Stephane, I think you have to unmute.

[Unknown Executive]

Yes. Sorry, the first question is from Stephane Foucaud. Stephane, you're unmuted. Please go ahead.

[Stephane Guy Foucaud, analyst]

I have a few. The first one is around Dussafu. What is the current [indiscernible] so forth. I know you reached 30,000 a day at the end of July, but what's the situation now? That's my first question.

Second question, if we look at 2024 and we look at the second phase of development for [ Ruche ] Hibiscus, what sort of CapEx are you expecting for that? And I'm not talking about sort of the ongoing drilling program but more what we should expect for [ this Phase 2 ]?

And perhaps lastly, the production in Q2 in Tunisia was really, really good. Could you perhaps comment on that on how the work [indiscernible] has performed? What part it means for reserve, what it means for perhaps 2024 production? How do you feel about what you have achieved so far?

[John Hamilton, executive]

Thanks, Stephane. So our partner, BW Energy announced yesterday, and they mentioned current production at Dussafu around 27,500 barrels a day. The field had achieved 30,000 or in fact even in excess of 30,000 when the gas lift compressor was working. The operator also announced yesterday that the ESP, the electrical submersible pump on one of the new Hibiscus wells was down. So that's the delta as it were. That is something that the operator is busy trying to figure out just how to replace it. These ESPs are reasonably straightforward to replace. So it's -- I think it's a temporary thing. But that was disclosed by the operator yesterday.

So it's around 27,500. The field really should be doing 30,000 or perhaps even slightly in excess of 30,000. And then we have a new well, as Richard touched on, coming online, we hope in the next couple of weeks. So I think you'll see us comfortably into the 30s as long as everything is working fine, which at the moment it is, in the next couple of weeks.

Your second question around Phase 2 CapEx, I don't have that number to hand. I'm just looking at my colleagues to see if anybody knows the number off-hand. But it will be consistent, we believe, with the numbers that you have in your model, most of the analysts do because those have all come out of previous guidance. At the moment, obviously, we're seeing cost inflation across the sector. But at the moment, we don't have a newer number than the one that you probably already have, Stephane. I'm not sure if that's helpful in answering your question. I just don't have the exact number to hand. But we can circle back with you off-line and validate that separately.

Tunisia, yes. So Tunisia, we had a -- first quarter, as already disclosed, our first quarter production pretty much across all the assets for various reasons was a little bit down on budget. But Tunisia really kind of came into a great swing of things. In the second quarter, we had a very successful work over a couple, which really sort of got production 4,500, 5,000 barrels a day gross, sometimes in excess of 5,000 barrels a day. We have a number of wells in production at any given time working on how many, 15 wells at any given time, Nigel?

[Nigel Mckim, executive]

That's right, up to 15.

[John Hamilton, executive]

Up to 15 wells. So sometimes when we'll need an ESP replacement or something like that. But we've had some very good success around that. Is there anything you'd like to add to that, Nigel?

[Nigel Mckim, executive]

No. I mean as in some of the other assets that we're involved with, we are continuing to optimize production, particularly around the ESPs. And so in the last couple of months, we've put particular focus on that in Tunisia. We've brought in an expert on the ESP operations. And we're fine-tuning the setting of the pumps and the operational procedures in Tunisia. We see further potential. But this is a case that we're working through well by well and looking at how we can optimize each well's setting, pump setting. So we're currently very pleased with performance, but we still believe there's further to go.

[Stephane Guy Foucaud, analyst]

As a follow-on, that would be, given this performance, you're achieving some positive read-through for reserves? Or is it too early to say?

[Nigel Mckim, executive]

Yes. On the reserves, I mean, one of the main fields that's in focus currently is the Guebiba field, and that's where a lot of the workover activity has been just recently. And as said, we recompleted the [indiscernible] 10 well on the Douleb reservoir for the first time earlier this year. And there we would expect to see some additional reserves coming through. But we're in the process of updating the, firstly, the static model for the field and secondly, the dynamic simulation model. And that's work that we're in the thick of right now.

What we hope is that out of that exercise come recommendations for further drilling, probably injection wells in the northern part of the field, but also potentially [indiscernible]. Now if we're successful in identifying such opportunities, clearly, additional reserves could come. But we're not there yet. We're doing that work.

[Unknown Executive]

The next question is from Teodor Sveen-Nilsen.

[Teodor Nilsen, analyst]

First, a question more in the long term. Looking ahead like the next 3 to 4, 5 years, how much priority would you give [indiscernible] versus harvesting from your current portfolio? And which areas in particular do you think are attractive?

Second question is on CapEx next year. I understand that you don't have any precise estimate yet. Could you just directionally indicate there where CapEx should go next year?

And third and last question is on the revenue recognition for third quarter. John, you said that some of the liftings may slip into -- or payment for the liftings may slip into fourth quarter. Would that also impact revenue recognition, meaning that we should expect some of the liftings for the third quarter to actually be recognized as a revenue in fourth quarter?

[John Hamilton, executive]

Sure. I'll do them in reverse order. The revenue recognition is at the time of loading of the -- the bill of lading of the loading of the crude. So those will all happen in the third quarter. So in terms of P&L, it will all be third quarter activity, unless, for some reason, one of the liftings for operational reasons slips into the fourth quarter, which we don't, at the moment, anticipate. So all be third quarter P&L activity.

My only point around the cash was that the cash usually comes 30 days after that. So you may not see it come through the cash flow until the fourth quarter because a couple of the liftings are in the second half of September, actually. So again, based on what we know now, it will all be -- all that activity will happen in the third quarter and be in the third quarter P&L.

CapEx in 2024. What we've generally said, as you point out, we haven't gone through all the JV meetings, which is when the budgets get set for the next year. That typically happens in September, maybe October. So we'll give a little bit more clarity in the third quarter results. And then obviously, we'll do a trading update early in the new year, which will give very firm numbers.

But I would expect it to be -- I think we've guided around $50 million or in that range. It could be a little bit more than that. But $50 million, $60 million would probably be a good guidance for the moment. But that's a little bit early, and that's just a guess. But we'll come back with more specific numbers in due course.

In terms of M&A versus organic. I mean, what we've obviously positioned the company through these developments in Gabon, Equatorial Guinea, the acquisitions we've made in the past, the recent acquisition we made in Tunisia as well, is really focusing on organic. We believe that, as you say, the next 2, 3 years, we've got a great trajectory of production. If oil prices stay sensible, it'll be a great time of harvest for the company with a lot of the CapEx behind us. New projects will always emerge through the organic portfolio. If any of this exploration activity in Dussafu or in Equatorial Guinea yields results, those are infrastructure-led exploration opportunities that will be easy and much cheaper than going off and buying new assets, much cheaper just to develop and put right into our existing infrastructure.

So I think you'll see perhaps a bias towards organic growth in the case of exploration success. But a company like Panoro, we always need to remain opportunistic. And so we're always looking at M&A opportunities. Assets are coming for sale on a regular basis. You asked about areas of interest, I would think the current areas we're in. So selectively in North Africa, Tunisia, and West Africa are key areas of focus there.

So I think we're a growing company. We've gotten to a certain size. I think there's always opportunity to do more. But we really are focusing at the moment on delivering what we've set out in front of us here. But nonetheless, we have to -- it's our duty towards ourselves and our stakeholders and our shareholders to try and continue to grow the business, and we'll always do that.

[Unknown Executive]

The next question is from Alex Smith. Alex?

[Alex Smith, analyst]

So just a question on Tunisia. Maybe a bit more detail on the expected synergies and incremental value from the recent acquisition. And additionally, can you provide some detail on the receivable increase? And is this relatively normal levels? And if so, how do you plan to manage that if it's not -- just a bit more clarity on that would be great.

[John Hamilton, executive]

Alex, I think the -- it's a good question. I think the main synergy for us other than just looking at pure M&A metrics, dollar per barrel that we acquired the reserves and the production [ out ], which we believe were attractive and accretive to the business. The real synergy for us came from -- it's a little more mundane, I would say, a little more internal focused than the market-focused synergies in the sense that we had a 40% shareholder. So we had separate Board meetings, separate technical sessions with that partner.

We now have the ability basically to keep the exact same overheads that we have that support that business, both in London and in Tunis, where we have a team, a technical and financial and country management team. That is now entirely focused on Panoro. We can do exactly what we like with that team, with that support, we can make decisions on our own, and we're not really spending any more money to do it. So we've kind of acquired assets without having to have an overlay -- an additional overlay of management of those new assets. If those assets have been bought in an entirely new concession in any country, we would have to have the full infrastructure -- organizational infrastructural support of that. We don't have that here. So that's the key synergy on that one.

The receivable in Tunisia, yes, there's always kind of a receivable position in Tunisia. This arises from our domestic sales obligations, which are -- form part of the taxation regime in many, many countries, including Tunisia, where the state's oil company sells some of our crude and then they pay us in due course. That due course can sometimes be a little bit drawn out.

And when we made the acquisition of Tunisia, obviously, we acquired 40% of the share of the receivables as part of that acquisition. So the receivable went up, and we just felt it was prudent to highlight that because the number had gone up.

We are seeing in Tunisia a slowing of payment of those receivables. So it does happen occasionally in other countries as well as well in Tunisia. Sometimes they're a little slower, sometimes they're much faster. And we're just in a period of time where there's been a little bit of a slowdown in terms of the payment of those receivables. So we just felt it was prudent to point it out. We do fully expect to be paid for those. But it also helps because the number, $16 million, we're waiting to see that come through the cash flow statement. So we felt it was prudent to mention it.

[Unknown Executive]

The next question is from Chris [indiscernible].

[Unknown Analyst]

I've got a couple of questions. The first one is on Hibiscus Ruche drilling. Can you please tell us when are you thinking of doing [indiscernible] 2 drilling?

[John Hamilton, executive]

Yes. I mean we don't have any particular firm news on that one at the moment. I think we are looking at that next phase. And obviously, the results of this first phase are going to inform both our technical and our operational assessment of that next phase and when it's best to do it and how best to do it. We have these additional well slots now. Are we going to use them? Are we not going to use them? So there's still some uncertainty there in terms of exactly when we might sanction the next phase. So it's a little premature to give you much additional guidance on that other than to say that clearly there are the 6 wells that we're drilling now, and Hibiscus Ruche area are not sufficient at all [ considering ] the considerable reserves that are there. So there is certainly at the room for a second phase.

Obviously, if we have success through the exploration, if we're going to drill exploration wells here, that might also change the configuration of any Phase 2. So it's a little bit early on, but there is plenty of reserve left there to do, but it's a little early in terms of the timing. We have a total of 12 well slots on the platform, the MaBoMo, and we fully intend to fill all 12 of those in due course.

[Unknown Analyst]

And my second question is on cash. Would it be fair to say that Q2 is kind of the trough given your liftings in the second half? And if you can give a bit of color on how you think cash is -- the cash outlook, given the [indiscernible] in advance, how does that affect Q3 cash and Q4 cash, whether that's from Q3, whether that's from Q4? A bit of color there, that would help.

[John Hamilton, executive]

Sure. I think we've got all the elements in our presentation and our disclosures to try and build. The uncertainties that we have are simply around exactly when we're lifting oil, exactly when the cash calls on the capital expenditure come. Do some of them leak into next year or some of them accelerated this year? So there are always a lot of moving parts. So I wouldn't want to give you an extremely specific answer other than to say that I think we've got all the elements in our disclosures that you should be able to pick it out.

I would say that obviously, as people who follow us know, 2023 is very much a year of investment. So while we are starting to produce more, we're starting to sell a little bit more. We are also in a heavy spending phase, and that will continue. A lot of this depends on oil price as well. I mean oil is about $80 a barrel now, which is a good level for us. We like this level. Obviously, [ its nice it's ] higher. But a lot of it is also dependent on the oil price as and when we lift these barrels. So I don't think I can give you a more specific answer than that, Chris.

[Unknown Executive]

And the next question is from [indiscernible], are you there? You might need to unmute yourself.

Okay. That concludes the Q&A for today. Thank you very much, John.

[John Hamilton, executive]

Thanks, everybody. Thank you for sharing this time with us, and we look forward to updating you further. Again, I think it's going to be an active 9 months for us. So hopefully, we'll be reporting good things back to you in that period. Thank you very much.