Maha Energy AB
STO:MAHA A
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Maha Energy AB
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[Foreign Language] Well, hello, and welcome, and it's a great pleasure to welcome Kjetil and Roberto here live into the studio. Gentlemen, it's very nice to have you here.
Thank you.
How are things?
Things are excellent. It's fantastic weather in Stockholm these days. So you come to summer holidays in beautiful Stockholm, that's a pleasure.
Exactly. Cherish it while it lasts. Well, as always, when you have a quarterly, it's a lot of things going on. So Kjetil, please take it away.
Absolutely. Thank you. And let me start with the disclaimer, of course, as always appropriate. And let me also introduce, very quickly, Roberto as the new CFO. I think it's, again, a very undramatic change. Basically, Roberto has been with us from the very start when Starboard DBO came into Maha, then in charge of M&A and business -- new business development and worked very closely together with Guilherme. And we basically decided 2 things fitted very well together. There was a need for Guilherme and Starboard and we thought that Roberto could basically cover both positions with his excellent capacity. So a warm welcome to Roberto as also then covering CFO role.Yes, there is a lot of things going on. So it's just a year ago that we concluded the transaction with DBO. And we have then already kind of almost closed out that business, and I will come into the details of how that has influenced the company. So during this last year, we have also then received the final payments on the PetroReconcavo. We still have some earn-outs to collect in PetroReconcavo, but that was a very important deal for us. Then of course, we started the adventure with PDVSA and Venezuela, which I will spend quite some time in going into more details about today. And I'm very enthusiastic about what we have in Venezuela. I think it's going to be something super exciting for ourselves, working there and for our shareholders.We had to exit Oman. We talked a bit about that last time. I'm not going to dwell with that. I think we wish our partner, at the time we were there, all the best luck going forward. We have an earn-out. So I really hope that, that project will materialize. I think they will spend quite a lot of time. It was not for us. And of course, we wish the partner all the best of luck in his endeavors.Then at the beginning of the year, we took a brave decision actually going back into 3R and buying 5% equity stake. So we'll talk a bit about how that has developed. We think that was a super interesting move. We continued then also in PDVSA with Venezuela with signing the definitive agreement. So that is basically now waiting for approvals and licenses and so on. And then back to the 3R Enauta, launching the merger that will basically create the largest privately-owned independent company in Latin America, and I'm very proud to be part of a team that basically has created those kind of structures. And lastly, we are again -- we'll talk a bit about that. We are, again, developing Illinois, drilling more wells. We are starting already next week in drilling additional wells in Illinois. So things are going quite well forward. And as you can see, it's not like a lack of news related to Maha.So a bit back to what we talked about on 3R. So we have done 2 things here. We bought the 5% shares in the market. And going there a little bit first was basically a fantastic opportunity for us. We thought that we knew -- we know these assets in 3R better than anyone as we founded the company 3R, as I'm sure you all remember. DBO and Starboard together was the first investors into 3R, creating 3R and made it into what it is today. And we thought that the company was extremely undervalued, saw the opportunity, bought into the company and managed to, in the dialogue with the shareholders, get the strong position in the company and then forcing this merger between 3R and Enauta, which I think is going to form a fantastic exciting company in Latin America.So -- but the other part of this was, of course, our own shares in 3R Offshore, which we then decided to roll into the new company, 3R Enauta. And of course, what you then can see is that we have already, within the last year, kind of actually doubled the value of these DBO investments that was done, where we merged DBO into Maha Energy. So today -- at that time, it had a value about $30 million. Now it's north of $60 million. So it's basically a very nice return on that investment for Maha shareholders. I personally do believe and we do believe that the share price has a huge upside in the combined company, which I'm coming back to on the next page. But I think this has already proven that together, this is the bit of the business idea we have. We are -- we're doing deals. We try to enhance the shareholder value as quickly as possible and create better structure for the assets that we get into.So with -- on this page, basically just talking about what's the rationale, what's the background, why I'm so enthusiastic about Enauta and 3R. And I think that we have, first of all, combining 2 companies that have very different debt situation. So basically, Enauta has, practically speaking, very little debt. 3R has much more leverage. Combining these 2 companies and putting in a very healthy balance sheet together, I think they can significantly reduce the debt costs. I think we will see a very robust cash flow generation. Basically, there is even now a more diversified portfolio with multiple wells yielding high-quality oil and gas production. I think there will be significant synergies. Also as we are putting this into now, we're a very experienced management team, the joint management team that was selected from Enauta and 3R.And just a reminder also, this is a very investor-friendly jurisdiction. I mean, I think we said this before. Here, you have royalties below 10%, very nice tax relief in the northeastern part of Brazil. So this is really -- among oil and gas companies in the world, this is something with the best conditions that you will find.I think the exciting here on the numbers that you can see, which are basically from the analysts covering the companies in Brazil, you can see that there is a -- what we are creating is a company that potentially or has the potential basically to produce more than 100,000 barrels next year. So this is -- with that, we will basically be the largest independent in Latin America. And I think it's a company that has a lot of upside. I think a lot of the upside has not really been appreciated. We believe that a lot of this will come very -- should be realized by the market fairly quickly, and we look forward to see how this is going to trade going forward.So that's basically the rationale. I'm very proud of what Maha has done here with a 5% stake and combining with the position we have in 3R Offshore, we basically created a fantastic Latin American company.So a bit of the operations. Let me start with what we are doing in Illinois. It's -- first of all, I would thank our people in Illinois. They are basically 2 guys that are running all our operations in Illinois. So Alan, I hope you see this. Thanks a lot for a fantastic work and the same to you, Kirby. I think what 2 guys are able to do is following up 60 producing wells on a daily basis and drilled 3 new production wells last year and also put into operation a new production battery, tank farm that basically stores the oil from the production.So we have significantly then increased the production, as you can see, ramped up more than 100% than compared to fourth quarter last year. And we are now starting on a new drilling campaign. We think the payback time here is more or less a year. So it's a very interesting and fantastic work that these 2 guys are doing, creating positive cash flow to Maha, very proud of those guys working up in Illinois.Then on -- maybe the most exciting thing we are doing right now is in Venezuela. And I know there will be tons of questions about how can we operate in such a place, is it predictable, is it -- so I'm sure we'll come back to that in the Q&A. So first of all, a bit of the formalities here. We are now getting more acquainted with the field and the people there. I'm going to show a little bit of that. We have applied for the license from the Americans. And I would say on both these areas, we start to get good data from the field, from the PDVSA and the feedback I get a bit informally from the process in the U.S. is that we have all reasons to be very optimistic that we will get a special license for operating in Venezuela. So we can talk more about it later.Maybe just very quickly, the General License 44, was, as it says, a general license for to operate in Venezuela. That was later removed and we went back to a situation that we actually had in the first place. So for us, our plan of going into Venezuela was not assuming General License 44. We always expected that we need a special license. So we are back to where we were. We have very good feedback, and I think we'll get the license.This just highlights -- I think nobody has any doubts about the potential of finding oil in Venezuela. It's the country in the world with the most reserves. The potential here is enormous, almost 9 billion barrels of oil in place. And I think there is even upside into that number. And of course, every percentage that we can increase the recovery factor represents almost 100 million barrels of oil. So there is an enormous potential. They've only produced 16% of the -- according to the numbers that we get from PDVSA, only produced 16% of the oil in place volume. So the potential is enormous.I actually had the pleasure of being now quite a lot in Venezuela last 6 months. And I think we have already established a very good relationship with the PetroUrdaneta team, gotten to know the professionals there and they are really professionals, good people. We have identified what works and what doesn't work in the field. Of course, it's well known that it's been a lack of maintenance, been a lack of investment because of the sanctions, less access to equipment and so on and so on. So we have now identified pretty much what actually works, which is a good basis for starting up the activity again. We will consider changing lifting mechanism. That's a bit technical, but it basically -- in the picture here, I'm standing in front of a gas lifted well. We do believe that installing ESPs down -- deep down in the well in some of these wells will have a much better effect on the production. So we'll come back to that. This is part of what we are planning as we speak.As I already mentioned, I think we are in a good process to receive both the OFAC license and getting the necessary regulatory approvals in Venezuela. And we are targeting, yes, kind of having the same framework agreements and the same contracts as Chevron and Maurel & Prom has in Venezuela. I think altogether, I'm very confident that we will be able to increase the production significantly. And currently, at least I see it as very, very likely that we will be able to increase the production to north of 20,000 barrels per day, which is a fantastic result, starting with 600 barrels as it is today. So there will be more news on Venezuela as we move forward, and I look forward to come back to you with -- when we get the approval from OFAC, when we get the approvals from the authorities, when we start up the activity, I hope that we can start up already at the end of this year.So with this, I think we have, again, come back a bit to this, which we have talked about before. Everybody talks about, of course, the share price. There are no CEOs that are happy with their share price, so there's no surprise that I'm not. But anyway, this is now basically looking at, we have the market cap and you can get to the market cap with less than what we have of net cash and equivalents and the 5% shares in 3R and our 15% stake that is now part of the shares in 3R Enauta. We do believe there is value in the U.S., as I already covered, and there are earn-outs and receivables to be done with the existing portfolio.And then, of course, we do think that the combined company should be repriced. This is a price that's -- more or less, that's 30% of the -- a company called PetroRio, which is of similar size. I think even next year, we might even pass PetroRio in production numbers. So we should be somehow more compared to that company. And we have even, I think, better terms on the taxation and so on the average. So we should really expect that somehow this will be appreciated in the market. And that represents a huge upside in these shares, which we do believe that will be realized in the next 6 to 12 months.And then finally, of course, I'm a very, very enthusiastic CEO for what we see in Venezuela. PetroUrdaneta has huge potential. There are several independent projects, and I'm really looking forward to be able to talk more about that in future presentations.So with that, I think there should be a documented significant upside to our share price. We are anyway doing what we think is the right thing for the company. We are believing that these decisions that we have taken over the last year has created significant value for the shareholders, and that's exactly how we're going to keep on moving forward as well.So with that, I think I'll hand it over to Mr. Roberto, and the floor is yours.
So thank you, Kjetil. It's really a pleasure to be here for my first time to present here our financial highlights for Q1.So moving here for the first page, we have our financial highlights from the income statement. But it's important to note that 3R Offshore is equity accounted as -- and of course, consequently, is not fully reflected in our Q1 report. So starting on the production, as Kjetil was mentioning, we got a pro forma considering also 3R Offshore production of around 2,000 barrels per day. And if you just consider Illinois, which is reflecting our financials, we have this 334, which is increasing quarter-over-quarter.And then, of course, our revenues has this increase, considering this plan and these new drilling wells that we made last year. They are currently being reflected in our revenues. And of course, we have this interesting growth of more than 80% since last quarter, end of the year. And this is very important when you see the operating netback that add us around $1.2 million in additional cash. So this is why we are very excited on the Illinois Basin results. And for the first quarter since a long time, we have this positive EBITDA of around $440,000, mainly impacted, of course, by the earn-outs we receive and collect from PetroReconcavo.And about the net result, we have this huge net income, mainly related to the financial results of the 3R shares unrealized gains, which was very important for this quarter. But of course, this is market to market price, and we, of course, cannot count for this quarter-over-quarter.And this -- so going here for the next page, we are going to explain a little bit more of our financial income, which was very important for the quarter. So it grew like 7% -- more than 7,000% since last quarter, mainly impacted, if you read the right side of the slide of 3R shares appreciation, which are always inherent and volatile. And we, of course, have our financial expenses related to our debt which has been decreasing quarter-over-quarter and year-over-year because as we are amortizing, this will be reduced in the next 12 months when we got the bank almost or 100% fully paid.And about our share of income for investment in associate, it is the 15% of the net income from 3R Offshore. We have an impact from Papa Terra ongoing interventions in their wells. So this is why we have a reduction from last quarter, but we really expect that this will be way better from the next half of the year.Going here for the financial highlights from balance sheet, G&A and CapEx, starting with the balance sheet. We have, as end of quarter, a bank debt of $29 million which, as I mentioned before, is decreasing quarter-over-quarter as we are paying this debt before restricted cash. Also our shareholder equity of around $159 million was pretty stable since last quarter, but there was this positive income of $6 million impacting positively. And we also have around $200 million of assets also [ pretty in line ] with last quarters.And when we see our G&A for the quarter, has been reduced since last quarter by the end of last year. But if you take out the nonrecurring expenses, is pretty much in line with last year, first quarter of 2023. These nonrecurring expenses are mainly related to M&A costs, these consultant onetime works that we've been working with all these changes that has been happening at Maha and also an important nonrecurring expenses related to closing of our Calgary office with some extraordinary expenses as well. So bottom line, we have around $1.3 million of recurring expenses and around $2.3 million of total G&A expense.When we look at the CapEx part, we reduced the CapEx in the first quarter. It's also related to Illinois Basin development. So we have been decreased. But as mentioned -- as Kjetil was mentioning, we expect this to increase for the next quarter as we are having good results on Illinois Basin.Here, we have the financial highlights of our cash flow from last quarter going through the end of this quarter in 2024. Basically, we used to have $131 million in cash plus restricted cash and our financial investment, which is basically fixed income investments. And we have, during the first quarter, this positive EBITDA of around $400,000, which help us in this cash flow from operation generation, but we have this negative working capital mainly related to the Illinois payments of our drilling program last year. And also, we have this negative noncash adjustment, which is basically related to the 3R Offshore income, which is noncash. It's just accountable. And then we have this $127 million or $128 million of cash after operations.Then we have this CapEx from the quarter, which is basically related to Illinois as well. Then, as Kjetil was mentioning, we paid the first installment of exclusivity premium to Novonor as we signed a definitive agreement of around $5 million. We also paid around $5.2 million amortization of our debt, but also we received the first installment of our debenture with 3R Offshore of around $1.2 million, amounting this $4.2 million negative impact from this debt amortization. And also, we have this financial income, mainly related to 3R share gains. After we bought this position, the share has increased, and we got, in the end of the quarter, this $9.5 million positive income.And then, of course, we have the latest column here, which is the interest we paid for the debt. So by the end of the quarter, we finished with around $127 million, being $47 million our available cash plus this restricted cash. This is -- the majority part of it is used to pay our debt. And we also have $79 million in the short-term investment in 3R Offshore. And of course, all these numbers is not including our $12.7 million of long-term investment, which is basically our investment in this debenture of 3R Offshore, also our investment in the Bolivian gas pipeline, GTB and also our investment related to Venezuela and PetroUrdaneta. And it's important to note also, if you take a look, by the end of last year and this current quarter, we have this $97 million of net cash plus short-term investments, which were pretty stable during the quarter.So here now some final closing remarks. Looking forward, Maha is experiencing or continue experiencing a series of transformational events, mainly now related to this 3R and Enauta merge, setting up the stage for the next years to come. Also, our financial books does not reflect yet the full potential of all of these movements. We still remain with a very solid capital structure with a solid cash and investment position of around $127 million. And if you exclude our debt out of it, we continue with a net cash plus short-term investments position of around $97 million. And this is, of course, not considering our $30 million approximately of long-term investments, neither our roll up of our 15% stake at 3R Offshore. And additionally, we still remain with this around $40 million of earn-outs to collect from the next years. So we have this very enhanced capital structure by the end of this quarter.And talking a little bit about our inorganic growth strategy. We have this potential acquisition of PetroUrdaneta as mentioned -- as Kjetil was mentioning, we are pretty confident on this project. And Maha being the first mover and seizing opportunities like that one before other one is very important. Also our 5% stake in 3R and Enauta merge outlines our leading role in this consolidation process in Brazil, which is a very important move here. And we are also engaged, of course, for further opportunities throughout Latin America that could leverage and boost financial value for our shareholders.So I would like to thank you all, and now I will pass to Kjetil to make the final remarks.
Thank you, Roberto. Excellent. And you can all see for yourself that we have an excellent replacement in Roberto from Guilherme, which is, as I said, he's been there all the time anyway in the first place.Not much more to say. I think we are really very excited about the year that we have put behind us from May or the beginning of last year to where we are right now. I think we all look forward to really closing in a way and a fantastic chapter for us as shareholders in Maha with our engagement in 3R, which, as I said, we know a lot, and we look forward to really close that out and really focusing now on the value creation potential in Venezuela. So it's an exciting moment. I'm excited. I think the team in Maha is super excited, and we look forward to make all of you shareholders equally excited.
Excellent. Thank you so much, Kjetil. And as always, we have received a couple of questions here, and I can see the questions coming in here. So I will try to structure it and starting by focusing on, let's say, NewCo as it would be to my -- in my uneducated eyes here.And I will address the new CFO because obviously, as Kjetil said, you've been around in Maha for a while and responsible for M&A, as I understand it. But what is Maha now? Is it an investment company buying cheap assets and selling them at higher price? Or is it an oil company exploring good opportunities like one could see in Venezuela?
I would say, we always like to say that we are now looking like a private equity firm focused on oil and gas, looking for opportunities of having these low entry multiples and try to enhance and create value for our shareholders.
And that would then address one of the questions that came in here is like -- so if I have a Maha share, why wouldn't I swap that into the 3R directly? And basically, as I can see that if you are with Maha, you will have 3R and you will have the opportunities elsewhere, and you would focus on Venezuela.
Yes. No, I think -- no, that's fair. Be my guest, so to speak, but you miss out on a fantastic journey in Venezuela. And also, I would say that I think that what we have proven over the last year, again exemplified with the DBO transaction, which was good for us and excellent for Maha, doubling the value of that transaction just in 1 year, which was an important transaction, just demonstrate, I think, a bit of what I believe that shareholders should expect going forward.
And I also have some questions here regarding 3R, which obviously will be difficult for you to reply because it has to do with how they operate. But let me rephrase it and say, do you have any impact on their decision-making as impacting on the Board or coming with advice? Or is it just purely financial here?
No. I would say that in the situation we have been and still are, we have been instrumental in the change of 3R and the merger between Enauta and 3R. I think going forward, we want to step out, we want to have flexibility. We believe that Maha shareholders are better off with having this flexibility so that we do expect to see a significant increase in the value of the company, and we want to be kind of free to transfer that into cash and to deploy this cash into new opportunities or enhancing the value for the shareholders in other ways.
Okay. So -- and that's a good segue actually to one of the questions I received -- I had here. How will you monetize the investment as you are a minority? And I think you replied in a way here because basically, you will be able to, let's say, sell them on the market. And that's the way to get cash flow.
Yes, yes. So maybe just [ online ]. What we do now is that we are basically exchanging our participation in 3R Offshore into shares. And then the first thing -- and 5% was basically shares bought in the market. So now we have like, of the combined company, 4.76% of those shares. So those are liquid shares. And when the transaction closes, we believe end of July, we are completely free to sell that at our own discretion. We, of course, are not going to sell that on day 1 because, one, we don't need the cash right now. So there is no immediate cash need. Secondly, we believe that the share price has a significant upside. So on the other side, I would also say we don't expect to sit as shareholders in 5 years.
Okay. That's fine. And let's swap into Venezuela. I have a couple of questions here on Venezuelan. One is, is it much heavy oil in Venezuela? Or is it an easy handling?
Excellent. Thanks. Great question. There is a lot of oil in Venezuela. It's a lot of light oil. There's a lot of condensate. There's an extreme amount of heavy oil. So what we are very happy with is that we see that actually where we go in, because we go into a field that has more than 100 years of experience, so to say, already, so there is a lot of light oil in the field we are going into. And so, so far, we are also looking into opportunities in the more heavy oil Orinoco belt and similar structure. But I would say, Venezuela, there is a lot of oil. And I've never been to a place -- sorry for being a bit detailed here, but I have never been to any other opportunities where you have 1,500 meters of oil column to work with. That's -- I worked in very many good places, but that's like unbeatable.
And will you get consolidated cash flow from the joint venture in Venezuela? It seems like a fairly premature question. But what's the plan there?
Well, I think that -- yes, talking about the cash flow, of course, what we're doing right now is that we are working on the plan on how to put as little CapEx, to be very blunt, as possible into proving an enormous potential. So of course, the most important triggers, I would say to the shareholders, is to get the OFAC license to get the approvals to go in there. And then we will start with, like I mentioned, changing some of the lifting mechanisms into ESPs. I think that will give us an immediate answer to how potential or how good that technology could work in these wells. I'm very optimistic on that based on what we have seen on the historic data. And we also have a part of the field that has never been produced, sounds incredible, but it's the reality. So I expect also good results from that area.And so, of course, there will be a period of investments. But as we are thinking right now, I think that we plan to do the investments so that we will immediately start to get cash flow back. Of course, then I do think, as we see this actually is working, that we will continue to deploy that cash back into Venezuela to increase further the value of the investment there.
And then one could expect perhaps, because I believe Roberto mentioned that the CapEx were coming down and that was mainly due to Illinois, so basically, one should see that if you increase your [ CapExes ] because you're successful in Venezuela.
Yes.
And the time line for Venezuela, the permits and production, it's a lot of question of when can we expect things and how important are you for the next step for, let's say, authorities' approval?
No, I think that it's, of course, extremely difficult to give precise answers to those questions. Answers to those questions doesn't exist. But I do believe that we are in process of getting an OFAC license. So at least I would have expectations that we will, for sure, get it within this year. I'm actually expecting to get it within the coming quarter. I think when it comes to approvals in PDVSA, it's -- of course, it's bureaucratic, it's Latin American in that sense that things are not moving very fast. But now I felt -- I was there last week, had very good meetings with the authorities. And I think that it's -- in these places, you have to spend several -- I have spent time in really explaining what are you guys, and who are you and what are you here for and so on. I think we have now passed that moment. I think they really appreciate what Maha stands for. I think they appreciate our resilience in demonstrating what we want to do. And I think they appreciate the preliminary plan that we have presented to them. And so I expect a swift approval process, as you can expect in Venezuela.
And then I can round it off here with one more question, which I like the framing of it, connecting to your explanation here. Will Maha be an operator leader then in Venezuela because you seem to -- you know your stuff, you've been there in comparison to other oil majors, you're from the continent? What can we expect?
No, I should say thank you for that question to whoever wrote it. I really take that as a -- I take that as a huge appreciation of what we are doing. I do think that I would still like to stand out as modest compared to Chevron for example which we are already. So I mean that's a fairly known company. So I think they have capabilities that still is a little bit north of what we have in Maha. But I would say that we have been very warmly welcomed also by Chevron. So I'm meeting with Chevron every time I go there, meeting with Maurel & Prom, meeting with Shell, meeting with Repsol, all the guys that have the current licenses already. We are having a very good collaboration, sharing ideas about how to move forward, learning from the guys that have been there about how to be most efficient in getting licenses, getting approvals, moving operations forward and so on.So it's a very -- I'm very grateful for actually the -- finding such a collaborative environment also in -- between the international companies in Venezuela. It's actually very nice. And I think it's probably a result of -- it is a challenging place, and it has been a very challenging place and it makes total sense to have a very good collaboration and Maha is part of the team.
And fortune favors the bravest, they would say. Thank you for that. And my last question here before we round up is, so it's been -- I mean, the last 12 months has been very, very hectic. And now you seem to perhaps consolidate. And obviously, it's easier to ask a question then for you to reply to it. But do you think that the rest of the year would be more of a consolidation or what can we expect, let's say, for the coming quarters?
No, I would answer this way that I don't think anybody expect it to be a quiet 6 months coming. I think that there is a lot of work to be done. I think we are still working hard on other business opportunities. Of course, we're making sure that we are closing out properly what we have already started to close with the 3R. But, now, this is a company where I think the shareholders should expect news. They should expect new things to be looked at. As Roberto excellently proved and went through, we have a very solid cash position, but we're not going for a holiday. It's going to be very busy in the next 6 months, in the next 12 months, in the next 24 months. So look forward to seeing some news coming forward as well.
Excellent. Well, Kjetil, Roberto and all of you who put forward questions ahead and during, thank you very much. And thank you all. [Foreign Language] Thanks, gentlemen. [Foreign Language]