Panoro Energy ASA

OSE:PEN

Earnings Call Transcript 2018-Q4

[Operator]

Hello, and welcome to Panoro Energy 4Q 2018 Results Conference Call. My name is Shaun, and I will be your coordinator for today's event. [Operator Instructions].I will now hand you over to your host, John Hamilton, to begin today's conference. Thank you.

[John Andrew Hamilton, Chief Executive Officer]

Thank you, Shaun. Good morning, everybody, and thank you also for joining today for our fourth quarter 2018 conference call. On the call with me this morning are Qazi Qadeer, our CFO; and Richard Morton, our Technical Director. I'll make a few comments, after which, Richard will take you through a description of what's happened with our assets, and then we'll turn over to Qazi and finish up with some closing remarks and chance for people to ask questions, if they would like. 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.For your reference, our results announcement was released this morning at 7:00 a.m. CET. A copy of the press release and our fourth quarter 2018 report are available on our website at www.panoroenergy.com. Now taking a step back. On our Q3 2018 conference call, we took you through the rationale and the details of our proposed acquisition of OMV's so-called TPS assets in Tunisia and how importantly they link with our Sfax offshore permit acquired as part of the DNO transaction earlier in the summer. We're pleased to have announced on December 21 that we completed the acquisition from OMV in what was a very competitive auction situation. So we're very pleased to have completed that transaction during the quarter.In combination with our first oil announcement in Dussafu in September, these Tunisian deals completed during the year completely transformed Panoro's outlook and prospects. Our reserves, resources and exploration have all materially increased.Headline numbers speak for themselves. Group production has increased sixfold year-on-year. Oil reserves have increased fourfold or 24% on a total 2P reserve basis, including the Aje gas. With current production at approximately 2,500 barrels a day net to Panoro, we created a platform for the company to grow further. Both near and medium-term production and reserve upsides have been identified in Tunisia, some of which we are focused on delivering during 2019. Dussafu Phase II will also contribute new production starting the first quarter of 2020. Exploration in both Gabon and Tunisia is also a key focus. In total, Panoro will be [ spudding ] at least 6 new wells in the coming 15 months.Importantly, the complexion of the company has changed where we are now operator. We're near to it on 2 key assets. This is not the company needed to change with key hires made both in London and in Tunisia. I'll take you -- I'll turn you over now to Richard to walk you through the asset operational update. Richard?

[Richard Morton, Technical Director]

Thank you, John, and good morning to everyone. Firstly, in Tunisia. In the Sfax offshore exploration permit, we've reached an agreement with the Tunisian Directorate General of Hydrocarbons, or DGH, regarding the permit renewal terms for the license. We've been in discussion with the Tunisian authorities regarding the terms and timing of drilling the well committed to by the previous owner, DNO, under the current first renewal period of the license. As a precondition to the entry into the second renewal period for an additional 3-year term, we have now agreed to fulfill the outstanding drilling obligation as soon as possible. This means that we are now progressing and proposing to drill the Salloum West-1 well in order to fully satisfy the commitment well.We're currently working closely with our partner, ETAP, regarding the technical program and the formalization of drilling plans, including the well planning, location and approvals for drilling and testing.The primary target of the well is the Bireno formation, which produces in TPS at approximately 3,200 vertical meters depth where we've identified, on 2D and 3D seismic, what we believe to be an independent block located west of the discovery well. The new well will target an independent full compartment [ up deep ] from the discovery well, which was drilled by British Gas in 1992 and tested the Bireno formation at a rate of 1,846 barrels of oil per day. So the objective of this well is to prove up additional resources in the vicinity of the Salloum-1 well and to aggregate them in order to fast track the development of Salloum through a tie-in to existing adjacent oil infrastructure already installed at TPS. Therefore, following successful drilling, we're now looking at options of bringing the well onstream as an extended well test.The other exploration license acquired as part of the DNO transaction, the Hammamet Offshore Exploration Permit expired in September and is in the process of being formally relinquished. On TPS, we completed the acquisition of the Australian company in 21st of December, 2018. And following this acquisition, we now have interest in 5 producing concessions in Tunisia. This is El Hajeb/Guebiba, that's the first one; Gremda/El Ain, the second; Rhemoura, the third; Cercina, the fourth; Cercina South is the fifth.The gross average production during December 2018 was approximately 3,900 barrels of oil per day, and production in January 2019 averaged approximately 3,700 barrels of oil per day gross. During the month of January, one of the wells was temporarily shut in to replace a pump. That well is now back online. We've appointed members of the expanded Panoro team to perform Deputy General Manager and Development Manager roles within TPS, which is the long-standing Tunisian-based operating company for the 5 oil-producing concessions. The initial focus at TPS has been on successful transition, integration and prioritization of both near and medium-term production growth opportunities. The highest impact near-term opportunity we see is a resumption of production at the El Ain field. The El Ain field is located in the Gremda concession, which legally expired in December 2018 and where the wells have been shut in for over a year. Panoro and ETAP are in the process of being granted a new concession and are currently planning the resumption of production from the 2 existing wells immediately after formal authorization from the Tunisian authorities to continue operations. The other initiatives we're looking at include production improvements on individual wells and facility upgrades to remove potential bottlenecks and improve recovery efficiency. Medium-term initiatives include sidetracks and an enhanced water injection program at the Guebiba field, where we believe reserves and production could be materially increased. We believe the near-term opportunities could provide a significant production uplift of up to 15% to 20% during Q3 compared to the current, approximately 4,000 barrels of oil per day gross production. The first lifting from TPS for the company is expected in March 2019, with an expected 90,000 barrels of oil net to Panoro. Meanwhile in Gabon, production from the Tortue field continued from the DTM-2H and the DTM-3H wells during the quarter at an average gross rate of 11,800 barrels of oil per day. Total production net to Panoro during the quarter was approximately 90,000 barrels. During this period, the wells were temporarily shut in for pressure buildup tests. The average OpEx per barrel for the period was $23, including various one-off costs associated with the field start-up. The first cargo of oil from Dussafu was successfully offloaded from the Adolo FPSO on December 2, 2018. A total of 550,000 barrels were transferred from the FPSO, and the achieved price was approximately $56 per barrel. A second lifting of 310 barrels to -- 310,000 barrels for the government of Gabon was completed later in December. After the period end, production during January 2019 has continued strongly, with a monthly average of almost 13,000 barrels of oil per day. To date, there has been no occurrence of wax detected and no water produced from the field. A third lifting of 650,000 barrels was achieved at the beginning of February with a sales price of $59 per barrel. We anticipate a further lifting will take place at the end of March 2019. Given the large FX operating cost of the FPSO development, OpEx per barrel is highly dependent on production rates, and we anticipate the OpEx per barrel will optimize in our favor once the Phase 2 production is online. The Phase 2 planning activities are well underway, and the drilling is due to commence in the second half of this year. In the second phase of Tortue, up to 4 development wells will be drilled in the Gamba and Dentale reservoirs, which are currently on production. The production start-up with the Phase 2 wells is expected in the first half of 2020. Once all the Phase 1 and Phase 2 wells at Tortue are in production, targeted initial rates are anticipated to be over 20,000 barrels of oil per day from the field. The Phase 2 drilling will also comprise of at least 2 exploration wells in the Dussafu PSC area, locations of which are currently being decided by the joint venture.As a result of the successful 2018 development drilling at Tortue, previously reported Contingent Resources from the western flank of the field have now been recategorized as reserves. Consequently, the 2P gross remaining reserves at Tortue have increased by 11.6 million barrels, approximately 50% higher compared to the year-end 2017. The Netherlands, Sewell estimates are based on a total of 6 wells at the field. The reserves review does not yet include volumetric estimates for the other 4 discovered fields in the EEA, which are Ruche, Ruche north East, Moubenga and Walt Whitman. The estimates for these will be updated in due course. In addition, the reserves review does not include prospective resources associated with the numerous prospects and leads already identified inside the EEA area.The NSAI review has calculated the following estimates for the total gross economically recoverable oil reserves as at the end of 2018 derived from the assumed production from 6 oil wells at the field. So the proved 1P reserves stand at 25.9 million barrels; the proved and probable, that's 2P reserves, stand at 35.1 million barrels; and the proved, probable and possible 3P reserves stand at 48.3 million barrels.In Nigeria at the Aje field, production averaged 368 barrels of oil per day net to Panoro during the quarter, and this compares to 386 barrels of oil per day net in Q3 2018. Production from the Aje field continued from the Aje-4 and 5 wells, with the Aje-4 well producing from the Cenomanian oil reservoir and the 5 well producing from the oil rim of the Turonian reservoir. A crude lifting was carried out in November 2018 and the next lifting is scheduled for March 2019. Proceeds from the crude sales are being applied by the joint venture towards the operating expenses and the reduction of historical payables. The JV partners are continuing to discuss the next phase of activity at the field based around the Turonian gas field development plan and the possible exploitation of the Turonian oil rim. The operator has received Ministerial consent for the OML 113 license renewal for an additional 20 years, subject to the satisfaction of certain financial conditions and a commitment to exploit the Turonian gas potential. Those financial conditions included the license renewal fee, which is paid during the quarter from crude oil proceeds.So that concludes this quarter's operational update, and I'll now hand you over to Qazi, our CFO, to take you through our quarterly financials. Qazi?

[Qazi Qadeer, Chief Financial Officer]

Thank you, Richard, and good morning, everyone. In our results announced this morning, we have, as usual, included a detailed narrative on line-by-line analysis comparing the previous quarters. Therefore, on this call today, I'm only going to cover the key highlights of the fourth quarter 2018 results. It is also customary to note here that the results for this morning and discussed on this call are unaudited. There were 2 key events during the quarter, which is, one, the acquisition of OMV Tunisia Upstream GmbH and also strategic partnership with Beender Tunisia Petroleum Limited. In December 2018, Panoro entered into a strategic agreement with Beender, a privately held oil and gas company. The strategic agreement optimize Panoro and Beender's participation in Tunisian growth opportunities on a 60-40 basis through a holding company, Sfax Petroleum Corporation AS, with an effective date of 1st of July 2018.Panoro and Beender respectively holds 60% and 40% of shares in this company. As a result, all the assets, liability and work obligations and results have been consulted by Panoro Energy as -- at 60% on a line-by-line basis to whatever is under this Sfax Petroleum Corporation Structure. There are 2 key subsidiaries that are owned by Sfax Petroleum Corporation AS. One is OMV Tunisia Upstream and the other one is DNO Tunisia AS. We have since renamed these 2 companies, which is detailed in the last financial statements.For the consolidation of OMV Tunisia Upstream in the fourth quarter, Panoro has included the balance sheet at 60% on a line-by-line basis. The results of OMV Tunisia Upstream are not included as the transaction only completed on the 21st of December. We will start consolidating the results from the 1st of January 2019. For DNO Tunisia AS, the results have been included at 60% again from 30th July 2018, which is Panoro's share under this strategic arrangement.Now coming to the results. For the fourth quarter 2018, Panoro reported an improved EBITDA of negative $13,000 compared to a negative $2 million in the previous quarter. The improvement was driven by revenue from the sale of crude oil of $4.8 million, which was recognized under the accounting principles of lifting method. We have had 2 liftings during the quarter, one from Aje and one from Dussafu. All of our group sales from all our producing areas are accounted for under the lifting method, and the sale for Tunisia will also be on a lifting method from the following quarter.Secondly, we had lower exploration-related costs, which were just $130,000 during the quarter and also a lower G&A costs [ included to get the ] nonrecurring costs, which decreased from $2 million in the third quarter to the -- to $1.6 million in the fourth quarter. As a result, net loss was $1.2 million from continuing operations for the fourth quarter, decreasing by $1.8 million in comparison to the third quarter 2018. On the balance sheet side, cash and cash equivalents stood at $23.1 million at December 31, 2018, increasing from $19.4 million in the previous quarter. There are a number of factors to explain the net movement in cash during the quarter, which is $3.7 million. We issued some shares. And in the private placement, it will be raised to about $28 million net of costs. Out of these proceeds, a large proportion was utilized to pay for the OMV Tunisia Upstream acquisition, our share, and also to fund the Dussafu [ cash cost ] , which was about $5.3 million. And the higher equities at the balance sheet level reflects the completion of the equity private placements and offset by the loss for the fourth quarter.The overall liabilities of the company have -- or the group have increased compared to previous quarter principally due to drawdown of Mercuria Senior Loan facility of $16.2 million net to Panoro and the addition of Tunisian decommissioning liability of $17 million, again, net to Panoro. The Mercuria facility was used to fund part of the OMV Tunisia Upstream acquisition for us. As of 31st December 2018, Panoro's balance of BWE nonrecourse loan was at the maximum amount of $12 million with an accrued interest of [ $0.6 ] million on top.This concludes my review of our financials, and I will now turn back the call to our CEO, John Hamilton, for closing remarks and open up for questions.

[John Andrew Hamilton, Chief Executive Officer]

Thank you. To conclude, we have now a full cycle company with a long-term foundation. We have production assets in 3 countries across 18 different wells. We have near-term opportunities to exploit our reserves and our contingent resources, and we also have exciting exploration potential. Six months ago, we were producing only a few hundred barrels a day at Aje, and now we have 2,500 barrels a day net to Panoro. The Dussafu Phase 2 and with some drilling in Tunisia, we can see the trajectory of production growth from here over the next 15 to 18 months. We would like to thank our shareholders, both old and new, for their very strong support during 2018 in making this transition for the company. We hope you all share our excitement in this transformational set of transactions that have occurred also in the drill bit at Dussafu. And I'd like to now, Shaun, open up for questions, if there are any.

[Operator]

[Operator Instructions] The first question is on the line of Teodor Nilsen.

[Teodor Sveen-Nilsen]

A couple of quick question. First, you say that you'll evaluate further growth opportunities. I just wonder if you could shed some more light on that. Are you primarily talking about organic growth? Or will you also continue to pursue M&A opportunities? And if yes, in which area should we expect you to do M&A? And my second question is related to first quarter 2019, which I guess will be a much more exciting quarter than the fourth quarter due to the annual consolidated Tunisian assets. So should we expect positive net income in the first quarter '19 at the current oil price level?

[John Andrew Hamilton, Chief Executive Officer]

Thanks, Teodor. Yes, in terms of the growth opportunities, we -- I think we normally state that in our quarterly results. We are a growing company. We clearly have a very, very good stock market listing. We have what we think to be an excellent board, we believe we need to continue to try and grow the company. And I think what we've done through the transactions that we've got and obviously with the momentum at Dussafu, we've put ourselves in a position where that growth can be generated organically within the portfolio we have. But we always do also look at other opportunities, the ones that need to be smart for the company and for its shareholders. And the principal areas that we would focus on there are probably in and around our core areas, so Gabon, Tunisia, probably Nigeria less so. Nigeria is not a current growth focus for the company. And opportunistically, there may be other opportunities that pop up. We've had very, very strong support, as everybody can tell from the likes of Mercuria and a number of other industrial partners that talk to us about cooperating on things. So we're always looking. I think our priority at the moment really is to focus on what we've got. Again, the TPS acquisition from OMV is a large acquisition for the company. It entails a lot of change to the organization and focus on the organization and trying to make sure that we extract the best we can out of that set of assets. So the moment that -- the key focus is internal, if I could put it at that way at the moment, but we're always alive to opportunity. In respect of your second question, yes, I mean, I think quarter 1, the way I like to look at it is quarter 4 was a bit of a -- the financials, of course, matter, but it's basically Aje plus the very first Dussafu lifting, and I think you'll see in the first quarter is when we really become a company where the financials are going to generate a lot more interest from the likes of the analysts and the shareholder community. As Qazi has said, the revenue recognition is around the liftings. So quarter by quarter, we expect that there is going to be some variation in terms of how many lifting is in the quarter. We could have, depending on where the liftings of Aje, Dussafu and now Tunisia are, you could have situations where certain quarters are lumpy either negatively or positively. So I think that what we're going to need to do is to work with the analyst community a little bit as we get into this first quarter, try and really guide where we see that happening. We've tried to give a couple of yardsticks out there in the recent announcements. So we had a lifting in January, early February at Dussafu. We expect a lifting during the month of March in Aje, and we expect a lifting of our first lifting in Tunisia during the month of March.So I think we'll expect 3 lift -- if everything goes to plan, 3 liftings during the current quarter. So hopefully it gives you an indication, Teodor, and we can continue to work with you and the other analysts to make sure we start trying to manage the information flow as we're coming into this new phase for the company.

[Operator]

The next question is coming from the line of [ Teddy Jansson ], private investor.

[Unknown Attendee]

I have questions regarding the Aje license. My first question is, in earlier quarterly statements, it's been said that the remaining cash call at the Aje will be fully paid in 2018, I'm wondering whether that's still the case or if there are still cash calls outstanding. And my second question is regarding also Aje. It's been said earlier that Aje license is for sale. Is that still the case?

[John Andrew Hamilton, Chief Executive Officer]

Yes. Thank you for your questions. Yes, I mean, the Aje, the payables situation in Aje, if -- for those of you who may not recall, transpired when we were having some of our difficulties on the license. We were effectively out of the license during that time. The partnership ended up having some difficulties drilling and incurred quite a number of costs. The joint venture then agreed, as people will recall, that rather than cash call partners for these amounts of money, that they would be worked off through production, and that is what has continued to happen during 2018 and continues to happen. They are not yet paid off. You will see in the third quarter and even in the fourth quarter. You can follow the evolution of those by looking at the payables, notes and on the balance sheet as to those situation. The reason they're not quite paid off yet is that, first of all, we had some volatility in the oil price. And the second reason is we actually ended up also paying the license renewal fee from -- to grant an extra 20 years on the license from crude proceeds. So that money was used to extend the license rather than pay down some of those payables. But every lifting that comes along, the amounts are being chipped away at. Again, you can see the evolution of those if you look at each of our quarterly statements, but they're not yet resolved. And the Aje license being for sale, my personal view, I'm happy to share it, I share it to anybody who ask, is that Aje is entering a different phase now. The oil production, as you can see, is remarkably stable. It's not very high, but it's stable, and current oil prices generates an operating profit, which is good. The next phase of the project needs to see the gas development progress, which is a very, very large project. And my personal view is that the joint venture partnership, which currently has 5 partners in it, at any given time, some of the partners have different views on life and strategy and financing possibilities. And then what really needs to happen is there needs to be a consolidation of the joint venture partners at Aje. And in that respect, I mean, Panoro has kind of always mentioned that it's potentially for sale, and that continues to be the case. But we continue to work with our partners in terms of how to best try to move forward into Phase 2. I don't expect any material news flow on Aje in the coming few months, but obviously there's -- it's still an important asset for the company. I think we've now concentrating as one can tell on Tunisia and Gabon quite a bit more than Nigeria. But nonetheless, we're still looking to maximize the position that we have there at Aje. Thank you.

[Operator]

The next question is from private investor, [ Frederick Slough ].

[Unknown Attendee]

I have a question related to the Dussafu block and the planning of the drilling. Given the current outlook, you're planning 4 production wells -- up to 4 production wells and 2 exploration wells. You have option for another 2 exploration wells. When do you expect to finalize the -- which prospects within the Dussafu block you're going to drill? And I'm referring to the exploration part. Obviously, there's a -- there are hundreds of millions of barrels of these exploration prospects, which I obviously think the company should or the partners should go for. So it'd be interesting to hear a little bit more about the finalization of -- which of these prospects you will go for first and the thinking around it.

[John Andrew Hamilton, Chief Executive Officer]

Perfect. Yes. Thank you, and it's a good question. Those of you who follow Dussafu know we have 5 existing field discoveries there. We have recently have a very, very strong track record of success in the drill bit, both on the exploration appraisal and production wells that we've drilled. And for those of you who can remember looking at the map and all the shapes and the polygons on the map, there exist many more prospects and leads on the block. I can't -- I don't have the number right in front of me, I think it's 14 prospects, another dozen leads or something. So this is the largest exploration block as -- excuse me, exploitation block ever granted in Gabon. So it really encircles a lot of [ prospective ] of additional fields to be found in this area. And Frederick, you've noted the current campaign, the Phase 2 will include 2, possibly 4 new exploration wells to be drilled as part of the production drilling campaign. And the choices which wells will be drilled is currently coming to a conclusion with the operator. There will be meetings internally in the joint venture over the next month or so to conclude that matter. What are the considerations? The considerations are, where do we have the best seismic information? We have seismic covering the whole block, but certain areas have higher quality than others. Where do we have a chance of making sure with the site survey that we can use the current rig that we have contracted to drill those wells? The deeper the water, the more challenging it becomes, but we have site survey work, which identified certain key areas. The considerations are also around trying to perhaps aggregate reserves in and around the Ruche area to justify development of the Ruche area where we have the 2 discovered fields. So we're all extremely excited by the inventory there, and it just comes down to really trying to make the right technical, economic and strategic decisions around that, and I expect that we will certainly be making the choice of the very first exploration well, which will be the first well of the drilling campaign. We'll be making that choice in the next few weeks and I hope to update the market in that respect. The choice of the second/third/fourth well will probably come a little bit later in terms of decision-making as we look to continue to reprocess some of the 3D data that we have on the block. But again, we're very, very excited by the choices we have. It's a question of just trying to stack them in which order. And again, hopefully, we'll be able to share that in the coming weeks with the shareholders.

[Unknown Attendee]

A couple of follow-ups. In terms of the current 2 wells producing, one is the Gamba well and the other is the Dentale well. The Gamba well produces around 7,500 wells. The Dentale around 5,000 roughly. Does this production rate from each of the reservoirs impact how you think about exploration?

[Richard Morton, Technical Director]

That's good question, and it's Richard here. Yes, I'll answer that one. So it's a good question. So yes, we're seeing very good production from Tortue and we're very encouraged by that. One of the key things we're seeing, which we didn't expect, is there's no water production to date. Both ourselves and BW had modeled water coming through before this date, but we don't see any. So we know that the reservoirs are performing better than expected. The Dentale, as you pointed out, is slightly lower production than the Gamba, but we do expect to see Dentale prospectivity in most of the sites we're considering for the exploration drilling. So that will be kind of a jewel target prospects as Ruche North East was. We had Dentale and Gamba reservoirs discovered. Ruche, we have the same. And Tortue, we're producing from both reservoirs. So we're considering both the Dentale and the Gamba in all of the prospects. Of course, Gamba is the better reservoir generally, and that will inform our decision-making a little bit as well.

[Unknown Attendee]

Okay. And my final question is for Tunisia. You're going to drill those Salloum West exploration well, and you have the Salloum discovery. The way I read your quarterly report, it looks to me you're planning in drilling these around Q3 in the -- or in the Q3 period. Is that a fair estimate?

[John Andrew Hamilton, Chief Executive Officer]

I think somewhere in there, Frederick. I mean, it could leak into Q4. I think what we're -- there are number of considerations in terms of this. So first and most important is rig availability, and you've also got some seasonal considerations in Tunisia. We are in a coastal environment there. You do have [ holiday makers ] and that sort of thing. So we're going to have to wait for the sort of summer season to pass before we consider material operations, [ and we're going to try and do it ] before the summer, which, given the time it took with the government, it was not possible. So now we're probably looking towards late third quarter, if you want to call it third quarter or perhaps early fourth quarter is probably our best guesstimate at the moment of when we plan to do that. There's a lot of work being done on the contracting side, speaking the likes of Schlumberger, people like that, the rig contractor, a lot of local approvals and things like that. So we're going through all the steps that are required. We're not quite ready to tell you exactly what the spud date would be yet, but that's our ambition, yes.

[Unknown Attendee]

Then my final question will then be around the reserve -- the comments you made on reserves in the previous stock market announcement. You said this report, you're going to ramp up production on the OMV assets 15% to 20%, but you also said in your previous announcement that you did look at raising the reserves [ at the core of [ BWE ] assets. ] Can you give us a bit little more insights into that part?

[John Andrew Hamilton, Chief Executive Officer]

Yes. So we've now been -- so with our feet under the desk, so to speak, for close to 2 months on the assets, we've installed our development manager who used to run [ Marathon Oil ] and HESS in Algeria, a very experienced development manager. And his view in cooperation obviously with the London team, Richard's team here, is that, particularly for instance in one of the fields, the onshore field called Guebiba, that there are some real possibilities to look at waterflooding, for instance, to try and enhance the reserve position. It's work that's ongoing. Again, we've only been there 2 months now properly, but I think the indication we're trying to give is that we feel that both on the production and the reserve side that we have upside compared to what it is we looked at together with Gaffney Cline at the time of the acquisition. So we remain with a bullish posture on what it is that we purchased from OMV.

[Unknown Attendee]

Okay. So you don't want to quantify at this stage, but we can assume it's a significant upside to reserves based on your current assessment of the situation.

[John Andrew Hamilton, Chief Executive Officer]

Yes, yes, I think it's just -- it's too early to be drawing a number, but it's work that we -- again, we've just been there a couple of months, so we need to do a lot of work still. But yes, I think we're -- like I said, we have a positive posture on it.

[Operator]

The next question is from private investor, [ Avant Simpson ].

[Unknown Attendee]

I have a few question on Gabon and then Nigeria. Gabon first. You are fully financed on Tortue Phase 2 with the current cash and cash flow, as to my understanding. BWO have in their last presentation the Ruche development with a CapEx of 400 MS dollar (sic) [ USD 400 million ], that's approximately 30 MS dollar (sic) [ USD 30 million ] to Panoro. Is it likely to get funding from the company's free cash flow? Or do you see a credit facility on this?

[John Andrew Hamilton, Chief Executive Officer]

Yes, it's a very good question. I think it's still quite early days on this. I know that BW have talked about the Ruche development, and obviously we're very excited by having drilled the Ruche North East discovery, which really helps aggregate the required reserves to develop that. BW and ourselves both have interaction with your typical type of credit lenders for this type of project, reserve loans, development loans, that kind of thing from large commercial banks that play in this area and that are comfortable dealing in Gabon, and they're quite a few that are. So ultimately, I would expect that there is some introduction of debt financing associated with that Ruche phase, but it's very early days. I think BW have signaled to the market that they are talking irrespective of reserve base loans, but it's still quite early. The focus really now is on Dussafu Phase 2. The Ruche development, we will start trying to focus on during the course of this year as well, but obviously it comes in second fiddle to making sure Dussafu Phase 2 kicks off properly.

[Unknown Attendee]

When is it likely that the Tullow process may be announced? Is there a kind of good and fruitful progress? And what amount can we expect for Panoro?

[John Andrew Hamilton, Chief Executive Officer]

Yes, it's good question. So the Tullow indicated to both ourselves and BW that they consider themselves back in. The nitty-gritty of that is that there's documentation. There's amendments to the joint operating agreements. There are PSC, I don't know, that need to be completed. So until those are done, I don't think ourselves or BW or Tullow for that matter would say that they are fully and finally in. But the indications and the intent of Tullow seems to be that they are choosing to back in, which is what we've communicated to the market and BW as well. In terms of the amounts for Panoro, those are also part of the discussion. The ideas that they pay for the back costs is a question of which back costs they'd pay for. But hopefully, we'll have some progress on -- during this first quarter on that, so in the next 2 or 3 months. Sometimes these things just take time.

[Unknown Attendee]

And to Nigeria, the Front Puffin contract has been terminated with effect from this summer. Is there a possibility that Front Puffin may be replaced with another FPSO? And will this have an impact on the Aje production? Or do we see some shut in during the summer?

[John Andrew Hamilton, Chief Executive Officer]

Yes. So the -- contractually, the contract expires in the summer. What does that mean? That means, I guess, in one option the vessel could get up and leave if they find they have another interesting contract to do or they can choose to try and stay to negotiate with the Aje joint venture in terms of an extension of that contract, and those are commercial discussions that are ongoing. The fact that it expires doesn't mean that the field is going to be shut in or the FPSO leave. Of course, that is a possibility. But at the moment, what I would characterize it is a commercial discussion.

[Unknown Attendee]

It has been quite still for a long time on the Aje assets. There was a mention on a simulation study earlier, and is the simulation study finished? And can we expect some more progress on the license soon?

[John Andrew Hamilton, Chief Executive Officer]

Yes. So I think one of our partners had announced a simulation study being done. That work is just about complete. It is a piece of work to look at updating the reservoir models based on the production that we have seen. I think it's an interesting study. I'm not sure it is a big stock market headline kind of thing on it is more an internal technical review that's been done. And as I said earlier, I think the key with Aje really is that the -- what needs to happen on Aje is some sort of alignment amongst the partners, whether the old ones or new ones coming in to proceed with the second phase of the project, which would be to pursue the gas, the condensate and the oil in the Turonian through a new drilling program that would envision also trying to monetize the enormous gas resource that is there. That is the priority for Nigeria. For the operator, it is to try and bring this gas to [ Lagos ] or put it into West African gas pipeline. And again, that's a big project, it's a -- I don't know, $0.5 billion project. So everything needs to be well aligned. People need to think about the financing of that. And it's more of these strategic issues, which are I think driving the timetable rather than a simulation study or something like that. Simulation study obviously helps inform people's opinions of subsurface, but again -- so I think it'll continue to be a little bit quiet for a little while on Aje.

[Unknown Attendee]

You mentioned that you see some -- that there has to be some -- something with -- done with the Aje joint venture. I see that some of the partners have struggled financially. And as you mentioned, there is quite big CapEx on the gas development phase. You have tried to sell these assets before for several years, and you almost succeeded with Lekoil. But how do you see the financing of the Aje gas development? It seems like Panoro is stuck on Aje. Even though it's not a core area, you have to pay 16% of the development CapEx. That's quite a big amount. How do you see the financing on this one?

[John Andrew Hamilton, Chief Executive Officer]

Yes. Sure. I think let me answer that question, and perhaps I'm not sure if we have any other questions, we can move on. I think what we've said consistently for a couple of years on Aje is we don't think that the profile of that second phase of CapEx and development is something that is right for Panoro for the reasons you mentioned, 16% and $500 million, if you get some debt financing in there is a large number for a company of our size even though we have grown in the meantime. So our strategic desire with Aje is to minimize the exposure to that through selling Aje or doing a deal where we have a smaller stake in Aje. And again, it gets back to my personal view that the joint venture needs a little bit -- for the reasons you mentioned, needs a little bit of a reset. I think we need some fresh partners in there with deeper pockets, operating capability, that kind of thing to really kick that off and then attract that debt financing and the equity financing that's required for that. It's Panoro's view that, that is not for us. I think we've been pretty clear in saying that for the past couple of years. How that evolves over the coming months, I can't quite predict at the moment. There are a number of discussions going on because this is the key to unlocking Aje, is to deal with the partnership issues, the ones that you've highlighted in your question.So Shaun, are there any more questions?

[Operator]

We currently have no questions coming through. [Operator Instructions]

[John Andrew Hamilton, Chief Executive Officer]

Okay. Well, I'd like to thank you all again very much for joining the call. We've had some very, very good questions today and quite a good attendance on the call. And I would encourage you, particularly if there are people that had additional questions, to send us an email. We'll try and respond as we can and say anything that we can possibly say. So please reach out by email if you have additional questions or you didn't feel were answered or you didn't want to ask on a public call. And again, thank you all very much. We look forward to updating you in the near future. Bye-bye.

[Operator]

Thank you for joining today's call. You may now disconnect your lines.