Panoro Energy ASA

OSE:PEN

Earnings Call Transcript 2022-Q4

[John Hamilton, executive]

Good morning, everyone, and welcome to Panoro Energy's Fourth Quarter 2022 Trading Update and Results. I'm John Hamilton, I'm joined today by my colleagues, Qazi Qadeer, our CFO; Richard Morton, and Nigel McKim from our technical and project side of the business. And I'll be going through some slides as usual, and we'll open it up to Q&A at the end.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 that 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 or other factors.Next slide, please. As a reminder, you can join in the Q&A. You can either type a question in in the window pane as you see on the left there. You can type a question, we'll endeavor to answer it, unless it is already been answered by a previous question or you can raise your hand with the hand icon as you can see on the right there, which we can unmute you, so you can ask your question verbally, which everybody can hear. If you don't want to ask your question publicly, please send us an e-mail to the e-mail that's on the press releases, and we will endeavor to answer those by e-mail as well.Next slide, please. So this is a record financial year for Panoro, and we also are today announcing a maiden cash dividend for the company at USD3 million, which is in line with expectation, NOK0.2639 per share, payable in March. And this is a dividend that is coming 6 months earlier than we'd originally forecast at the time of making the Tullow acquisition. So we're very, very happy as the big landmark day for Panoro to announce its first cash dividend.Revenue lines, $188 million with a very strong EBITDA of $126 million, cash flow from operations of $98 million. Our balance sheet is strong with net debt of $46.8 million. So a net debt-to-EBITDA ratio of 0.37x, which is a very, very modest leverage we find. So the company is in good shape, both on the P&L and on the balance sheet we find, and that's, of course, allowed us to initiate this first cash dividend.Next slide, please. So as a reminder of what our 2023 shareholder return policy looks like, this is exactly the same as we have previously communicated. And as a reminder, this is not 2024. This is 2023, 2024 should look even different than this, hopefully to the positive. But what we're targeting is a core dividend this year of USD20 million on a quarterly basis, which is starting in March and weighted towards the second half. This is subject to oil realizations being in excess of $80 a barrel and no material change in the operations. So we're sticking by this. Obviously, if oil prices are higher, we're going to try and do better than that, but this is very much what we still have to do under those conditions. And today's announcement, I think, is the first step towards that. And so again, we're very, very happy to announce that today.Next slide, please. Production. You can see on the left side in the brighter colors, what the past 5 quarters have looked like and what the full year looked like in terms of production. This has already been communicated. We've also previously and today, again, reiterating guidance for the year between 9,000 and 11,000 barrels a day on average for the course of the year with a target of reaching 12,500 barrels a day or higher towards the end of the year when the 6 Hibiscus Ruche wells are coming online, which we'll talk a little bit more about.There's upside beyond this as well, which I'll touch on as well, and that is really in the form of additional wells in Equatorial Guinea, which we still have not added to our guidance, those are probably early 2024 events rather than 2023, but there is some upside to that number. It's also worth pointing out that our first quarter 2023 production will be between 7,000 and 7,500 barrels a day, largely due to the shutdown of the FPSO in Gabon. This has already been pre-communicated, which is required from the tie-in of the new wells and the new production facility in Gabon. So -- that's how you'll see production grow during the year from a [ lower space ]. And every time a new Dussafu well comes online, that production should increase, getting us towards that target towards the end of the year. So this is all in line with our previous communications and guidance.Next slide, please. Liftings. A lot of the business, the P&L and our cash flow is dominated by these liftings. We produce oil every day. We don't sell it every day. And so from a revenue recognition and a cash perspective, these liftings are quite important for us. As everybody knows, who follows us, 2022 is a bit lumpy. We didn't have much going on in the first half of the year. And then we suddenly had record quarters in the third and fourth quarter last year as we had some big liftings happen. And we lifted approximately 1.8 million barrels of entitlement barrels for us during the course of last year. This year is looking much better. In 2024, we'll look, I think even much better than that. So we're really on a growth trajectory here. Here, we're anticipating little better than 750,000 barrels in the first quarter of this year, that is Equatorial Guinea in about a week's time and a lifting in Tunisia in March.At the moment, second quarter looks a little bit light. There could be some movement there. We're -- this is our best guess at the moment. And then we'll have 3 liftings in the second half of the year, 3 big liftings supplemented by some smaller Tunisian liftings. So again, when we talk about the dividend buildup during the course of the year, this is what we have in mind. It's when our new wells are coming online and we're producing and selling more oil. And we hope that on our best assumptions at the moment, we should be lifting about 50% more than we did last year. So as much as 2.9 million barrels during the course of this fiscal year. So all other things being equal, this should be a new record year for the company as well.Next slide, please. Something just on CapEx and our balance sheet. There's nothing new here really just in reiterating guidance. We anticipate during the course of the year, repaying a minimum of approximately $20 million under our loan facilities this year. We have some scope. Obviously, loan prices are strong to accelerate some of that, which we may choose to do. And our CapEx, as previously guided, is around $75 million for the course of the year. This is Equatorial Guinea for our drilling program that we have coming up. It's for Gabon, where we have the big drilling program going on as well and a small slice in Tunisia as well. This includes some exploration spend as well in Equatorial Guinea principally, where we have announced a couple of things on the exploration side. These are small cost items, but they have been included here, and we'll touch a little bit more on those exploration activities as well in the next slides.Next slide, please. I won't dwell on this slide. It just -- we try every quarter to show the reconciliation of the cash flow. So be as transparent as possible in terms of when the cash comes in and where it goes out and how that affects our cash position, and we'll continue to produce a slide that looks like this every quarter, but I won't dwell on it here now. I think the numbers probably speak for themselves very strong.Net cash from operations $98 million of cash from operations. Obviously, we're still spending a lot of money, the $54 million of CapEx this year, everything should look bigger, but we're still spending CapEx this year. 2024 is when I think the CapEx will slow down a little bit. And obviously, we'll be harvesting cash in 2024 to a higher extent than we are this year.Next slide, please. So a slide on each of our assets for the moment. Dussafu is going to plan. As those that follow us know we are in the middle of a -- or starting a 6-well production well program, which is starting with the very first well in Hibiscus, which is drilling. We have preannounced that, and we're expecting oil -- first oil from that by the end of March. So sometime soon, everything is going to plan there.And from there, we're going to be drilling 5 more production wells. In this area, Hibiscus Ruche erosion time is back to the FPSO, which is [ backed ] at Tortue, the Adolo. We have additional well slots under this rig contract, a minimum of 2 additional wells. The joint venture is still deciding what to do with those well slots, whether we activate them or not. But you could see some interest perhaps in 2024 after we drilled the 6 production wells maybe looking at an exploration target in this prolific license that we have here in Dussafu. Not something to talk about today, but just to note that we do have 2 extra slots on that rig contract that we could activate.Next slide, please. Ceiba and Okume, we're very busy there with ongoing ESP conversion work. Reap proliferations, all kinds of activity. But the thing to really look forward to here, I think, from the market's perspective is that we have a rig contracted from Ireland drilling to come and drill 3 production wells at Ceiba and Okume. That rig should arrive probably in the early fourth quarter, and we'll be drilling 3 new production wells there.And again, our production guidance for 2024, we've not provided yet, but clearly, 3 new wells here is going to add to the plot as we get the new Dussafu wells online that are taking us towards the 12,500, this should then supplement that. So during the course of the year, as we get a little closer to it, we'll start providing a little bit more guidance in terms of what we see for perhaps 2024 production. But clearly, we're building a nice head of steam here on the production front.That rig contract also has a slot on it earmarked for an exploration well in Block S, which is Akeng Deep. And what I'd like to do briefly is because we've made some announcements recently, both on the farm into Block S, which you can see on the left side there and EG-01, which is in board there on the left -- excuse me, on the right. And we've made some announcements recently on that.I'd like to ask my colleague, Richard Morton, our Technical Director, to talk a little bit about what our thinking is on these 2 exploration blocks. Richard, do you have a couple of words to say there?

[Richard Morton, executive]

Yes. Thanks, John. So good morning, everyone. So the recent acquisitions in EG is really built around a philosophy where we're trying to have a portfolio in the company that will deliver drilling opportunities that can be quickly and easily tying back to producing infrastructure that we have interest in. So hence, the farming in October, we announced to Block s, we've taken a 12% interest in that one. The partners there are Kosmos and Trident. So we're fully aligned with the group producing at Ceiba and Okume. That block has got a number of wells driven in the past and is also covered with good quality 3D seismic.We're targeting an Albian prospect, which is a really massive defined 4-way structure, which is only 15 kilometers from the FPSO. So it's kind of one of those prospects that is a little bit unique in the exploration world in that we have an FPSO right now we're under 4-way. So that's find many of those states where it was an attractive prospect for us to farm into. So as John mentioned, we're looking forward to drilling that in 2024 at the end of the Block G campaign.And then we announced on Monday that we formed in Block EG-01, we been awarded by EG-01, which is shown on the bottom right of the map right next to the Okume and Ceiba same complex. This one, a slightly different joint venture. We will operate with 56%. We have Kosmos as a partner and GEPetrol. The block got 2 wells on it already, that have been drilled by previous operators and has oil and gas shows at multiple levels.Some plays here to that we see in Block G and Block S and that we have Albian prospectivity. We have [ Companion ] prospectivity. [ Companion ] in is the main production from Block G. And we have some gas prospectivity as well in the ESG. So quite a number of different prospects to go forward. We lost covenant 3D seismic already, so we don't need to reshoot. We've got a 3-year period here where we're going to do some detailed reprocessing G&G studies to work up that prospect or inventory. And then we have an option to enter into a 2-year period which will involve drilling a well. So that's, again, the concept here is to deliver a drilling target that we can tie back to the FPSO quite quickly.So that's a quick summary of our exploration plans. Thank you, John.

[John Hamilton, executive]

Thank you, Richard. Can we move on to the next slide? Thank you. So in Tunisia, we are busy optimizing production there. We have a continued target of trying to reach about 6,000 barrels a day, which we think that this on a gross basis, which we believe these assets can generate, indeed, we've come quite close a couple of times, not on a sustained basis, but we have come close. So we're doing a number of workover activities now to try to boost that production. And we also have identified a rig to come in and target a particular well, which we think has a particularly high chance of success on it in the Guebiba field, which we'll be talking a little bit more about once we get that activity underway. But this asset continues to be a steady oil producer, and we believe still retains quite a bit of upside to it. So hopefully, we'll be able to talk a little bit more about that during the course of the year.Next slide, please. Our TCP in South Africa, this is the helium and biogenic gas play that we are incubating in South Africa. This is -- just to repeat, this is not a change of strategy, but this is part of our commitment towards ESG, trying to use our subsurface skills to try to help South Africa in this case, figure out whether there's means of displacing the use of coal or it's power generation. There are other companies, some large, some small looking at the same play system. It's quite an emerging area, both for helium and for gas production. And we have another half year left on our TCP, which is simply a desktop study license at which point we can elect to take that into an exploration phase and turn this into a license. Our capital commitments here are minimal, and they will remain very, very small. But nonetheless, this is something that we think is quite interesting and being on the forefront of some very interesting developments here in South Africa.Next slide, please. Just a quick word. I'm not sure people know it. We are going to put out our first sustainability report this year, which we think is an important step for Panoro as we've grown as a company. We've always held closely our responsibilities towards sustainability and ESG. And I think that's well reflected in our reporting in our Board, in our disclosures and the way that we operate our business. But here in the next couple of months, you'll see us alongside our annual report published our maiden sustainability report, which is a further commitment to that transparency and to that responsibility that we hold. So this is something that we're going to be quite proud of. And obviously, a number of investors do look at this quite closely. So we're glad to be able to produce more information and more insightful information more analytics, more data to help those investors that focus on this recognize the strides that we've taken as a company and our commitment to this. So look out for that one.And the final slide is a summary, which is -- just to remind people of the trajectory that we're on this year, producing full year 7,500 barrels a day last year, trying to get towards the end of the year to in excess of 12,500 barrels a day. Further upside beyond that with the Block G wells in Equatorial Guinea, the 3 new wells that are coming there. So really entering into an exciting period where we're drilling at least 10 wells in the next 12 months or so, 9 production wells and 1 exploration well, those are committed with options over further rig slots. So we really do have an interesting inventory, I think, of drilling going on over the next 12 months.Our production is unhedged at the moment. We will seek to do a little bit of hedging around our liftings just to maximize the price that we think we can get around those liftings. We have inaugurated our cash dividends. We have a very clear framework we believe, in terms of the shareholder return policy, so we're holding that quite close.And as you can see with what Richard talked about in Equatorial Guinea, we are looking at strategic positioning in acreage around our core production assets. So infrastructure-led exploration strategy where we will never expose the company to very, very big amounts of financial exposure to the exploration activities, but we feel that this is an important part of replacing reserves, finding new oil to put through existing infrastructure rather than going for something that's a wildcat somewhere that would take years to develop, something that we can plug and play back into an existing infrastructure. So hopefully, that gives a feeling for the company's performance, its commitment to ESG, its strong production growth that we have ahead of us, a little bit around our strategy as well.And with that, I'd like to turn it over to any questions we may have.Here's a reminder of how to do that in case you need a reminder. You can type the question in. You can send us an e-mail if you don't want to do so publicly or you can raise your hand.My colleague, Andy Diamond is going to navigate the questions.

[Andy Diamond, executive]

Thank you, John. The first question is from Stephane Foucaud.

[Stephane Guy Foucaud, analyst]

Yes, I've got a few. Let me start by the operational. So if we come back to the EG-01 license, could you come back on a bit the history, who previously had the license? Why did they decide to really increase? And what do you potentially see difference from the previous operator? That's my first question.My second question is about Tunisia. The Q4 '22 production is very strong about. Would you expect that very strong production to continue in 1H to 1Q and 2Q of 2023?And I've got then some accounting questions.

[John Hamilton, executive]

I'll lead with the Tunisia question quickly and then maybe ask Richard to comment a little bit on the history of Block EG-01 and what we see there. And on the Tunisian side, yes, we did have a strong quarter. We have a number of wells producing there. I think the well count is around 15 wells or something like that. So we sometimes have strong months and then weaker ones, depending if the well needs an intervention and a pump replacement, something like that. So we would expect some variability quarter-to-quarter on those assets. But directionally, on an annualized basis, we would expect that strong performance to repeat itself during the course of this year. It all depends quarter-to-quarter, and we're always -- these are onshore assets. You're always working with this well stock you've got. But we have some ambition also to do better than we did in the fourth quarter -- during the course of the year. But let's see -- but we do expect, at least on an annualized basis, Stephane for that strong production to maintain itself. EG, Richard, do you want to step back in there, talk particularly a little bit around the Albian play, I guess, which is kind of what's changed a little bit.

[Richard Morton, executive]

Yes. So thanks, Stephane, for the question. Good question. The -- so EG-01 has been around for a little while. The former operator, it was the only asset in Africa, a very isolated small asset. I think the difference with the current joint venture that's been assembled ourselves and Kosmos going for this thing is that we have a regional understanding that the previous operator didn't have. So obviously, we're in Block G. We understand that play very clearly. We are now in Block S, so we can see that the [indiscernible] regional and the newer play that's emerging in the Albian, it's also present, of course, in EG-01. So we're flexing on something slightly different. We've got a regional approach. We've got more regional data. So I think we can unlock this thing a bit better than previous attempts. The previous well drilled in this plant was a number of years ago, 2016, and it did have some shows. I think that is inside the one place, but I think we can do better with reprocessing that we're planning and deliver a compelling prospect into the block.

[Stephane Guy Foucaud, analyst]

Okay. Parts of my continued question, let's talk on -- you can take a question from others, and I'll come back to that afterwards.

[Andy Diamond, executive]

The next question is from Teodor Sveen-Nilsen.

[Teodor Nilsen, analyst]

Thank you for the update. There are 3 questions for me. John, you mentioned that the 2024 CapEx is expected to decline. Just wondering if you could provide some more color on that, how much it will decline compared to this year's level. And second question, production cost on this relatively high this quarter. Just wonder if you could indicate which level we should expect when Hibiscus is on stream, assuming also the costs there are fixed, meaning that the cost per barrel will be much lower by end 2023 than what we saw in the fourth quarter in 2022?And then final question on Block G. Regarding the infill wells. I assume those wells are targeting barrels that already are booked as reserves.

[John Hamilton, executive]

So yes is the answer to the last question. Those are -- we're targeting existing reserves. They are meant to be targeting non accumulations, these are not exploration wells, they're production wells. So yes. On the Dussafu operating costs, yes, as BW have guided, operating costs are still quite high at Dussafu and that's been well understood, I think, by everybody because what we have there is a very, very high fixed cost of an FPSO, a leased FPSO that has an O&M contract on it. So your cost base is rather fixed. So the more barrels you put across the vessel, the lower your OpEx gets. And obviously, while we've been waiting for this new development to come online, OpEx is -- and production has been in decline, natural decline on the existing wells that OpEx is stubbornly high. Where I expect it to get to is probably in the mid- to upper teens once we get the new production online. It could be lower than that as well, Teodor, but directionally, you should see it having from the fourth quarter number, I would thought once things are online properly. And this asset then really should, as long as it's sitting there, plateau, should be a nice, low operating cost asset.In terms of the CapEx for 2024, we're not quite there yet. I think my point is that this year, last year, we're particularly high years, I would expect 2024 to be a lower number. It's not going to be 0. But maybe if you have to put something in the model, maybe something around $40 million for next year because we'll still have some of that Block G drilling going on. But it's a little early to provide clear guidance on it. But I think directionally, we'll that definitely be lower.So hope that answers your questions?

[Teodor Nilsen, analyst]

Yes, absolutely.

[Andy Diamond, executive]

John, a further question from Stephane.

[Stephane Guy Foucaud, analyst]

Some more boring questions. So if I look at the cash flow statement, there is, I think, $10 million of the noncash positive movements in Q4, and I was knowing what it was. And likewise, on the CapEx, and there is a comment on that in the press release, but there was a $55 million investment in the cash flow segment, but the headline is $65 million. And I was wondering what's the 10 difference and whether we should add that back its working capital to your '23 CapEx number?

[John Hamilton, executive]

Yes. I'll answer the second one. Maybe ask Qazi to respond to your first question. We provide CapEx guidance. Sometimes, the way that we account for some of that CapEx falls into OpEx and that benefits us from a tax perspective and under the production sharing contracts as well. So I think what we've tried to do is just try and highlight that the CapEx number you might see in the cash flow statement is a little different than the $65 million we've guided. We have spent the $65 million. The difference really is nonrecurring costs that are being held in the operating cost line. So this will be basically around the Equatorial Guinea asset where it's a midlife asset. There's lots of ongoing work on facilities upgrades on pipelines, things like that, that may not fall into your traditional CapEx lines that captured more by the accountants and certainly for the purposes of cost recovery under the production sharing contracts, operating costs. But we see them as one-off project costs, we call them. And so we're just trying to make a little bit of differentiation there to make sure that our $65 million reconciles with the $55 million that you see in the cash flow statement on the capital expenditure side. We'll continue to try to show the difference on those. But when we give the gross CapEx, we're including these one-off project costs that we have that are typically mostly, to be fair, on the Equatorial Guinea asset.Qazi, do you want to take a stab at this first question?

[Qazi Qadeer, executive]

Yes, Stephane. I think this is basically largely -- we call it -- well, we have assigned it to one-off cost, but there is some portion of cost that we have to allocate to investing activities. So that comes as a kind of a swing as a positive item and then basically, let's say, deductible against in the CapEx cost, which is shown in the cash flow statement. So $9 million is largely those costs, which are basically part of the $14 million as a payment going out in the CapEx side.It's basically how the mechanics of the cash flow works that you need to add back all the items to the nature that are of CapEx. And then basically, deduct it back and then.

[Andy Diamond, executive]

John, a question that's been submitted online. Could you please try and elaborate a little bit and indicate what the potential in the portfolio is taking a slightly longer-term view of production opportunities and production growth potential?

[John Hamilton, executive]

Yes, it's a great question. I mean we -- I think that we start with Dussafu, which is probably the one that has such a great potential still on. As a reminder, the Dussafu block is the largest exploitation block ever granted in the history of Gabon. It's got numerous prospects and needs on the exploration front, which is an area where we found already lots of oil. So I think that with Dussafu, we've got another 16 years on the license term, we can always ask for another extension. So I think what you're going to see with Dussafu, particularly if we can continue to find more exploration barrels to add to our 2P reserves, you're going to see in the shorter term, over the next, say, 3 or 4 years, a nice plateau of production as we drill these production wells there.And if we're successful, and I think we will be ultimately in finding more oil in this area, that will just serve to extend out that plateau for quite some time. So rather than going into decline from that plateau of 2, 3, 4 years' production that we have in front of us now, we would hope to be able to continue to keep that plateau going for longer by finding more oil, obviously, then we have to find it first. But I think that there is lots of potential there over the longer term to continue to find book new reserves at Dussafu.Equatorial Guinea, there is potential as well. We'll be drilling these 3 new production wells. We do have a number of contingent resources there as well. And as we continue to work that asset and hopefully, these 3 wells will go well, will probably be presented with the opportunity to come and drill more wells. Obviously, what Richard on -- talked about with the exploration potential in around the block is what I think could provide a huge upside. Admittedly, it's exploration. So I don't want to get too far ahead of ourselves there. But it's this deeper Albian play that Richard referred to, can be derisked. We're going to find lots of opportunity in this region for more Albian structures here, which could tie back into that infrastructure. We've now extended those field life -- sorry, our licenses out to 2040 on that. So to the extent that we can find additional new reserves through exploration and exploitation of the existing assets, you could really see a nice loan plateau there as well.And I think that's probably where the greatest potential is. I don't want to leave Tunisia untapped either. But Tunisia, we get quite excited about 1 particular reservoir in the Guebiba field there that we're going to try and test out this year. We're going to recomplete a well on that. And that could also provide relative to the size of the Tunisian asset quite a good lift there. So we're quite happy with the portfolio as we've got it. We think it's good for the short term and the medium term and even the longer term, particularly if we can get some of these exploration wells coming in successfully.So hopefully, that answers that question.

[Andy Diamond, executive]

Thank you, John, and that concludes the Q&A.

[John Hamilton, executive]

Perfect. Well, thanks, everybody, for listening, and I appreciate you taking the time to stay with us during this call and follow us in the future. Thank you very much.