Maha Energy AB
STO:MAHA A
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Maha Energy AB
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[Foreign Language] Hello, guys, can you hear me?
Hi, Kaarlo.
Hi, Jonas. Andres, can you hear me?
Yes. Loud and clear.
Excellent. I believe you are in different locations. Where are you guys today?
I'm in Brazil today. .
How nice.
And I'm back in Calgary.
Yes. Well, Jonas, yet again an eventful quarter, leading up to a half year report, I would call it, with a mixed bag. So please take us through the reported numbers and all the events.
Thanks, Kaarlo, and thanks again for tuning into yet another quarterly webcast. I'm joined by Andres Modarelli, like Kaarlos said, our CFO. We are in different locations at the moment.
And like you said, Kaarlo, it was a mixed bag this quarter. I'm pleased with the half year report numbers, but I'm not so happy with the quarterly numbers that we showed for the second quarter.
Before we get into the formal presentation. I just want to remind everybody that you can place your questions in the YouTube field below or you can send it also to Victoria at mahaenergy.ca. And we'll do our best to answer your questions at the end of the presentation.
So without further ado then, I would like to hand over to Andres Modarelli in Calgary to go through the quarterly numbers. And then I will go through the operational update. And then we can take questions. Andres?
Thanks, Jonas, and thanks, everyone, for joining in today to another webcast. I'm pleased to present today our Q2 results.
So jumping right to it, on our financial highlights slide, we present our current quarter and how it compares to the most recent 4 quarters. And this was another strong quarter, supported by high prices and a record half, as you will see.
Revenue was $24 million. That was down 22% versus Q1 2022 and that was up 58% versus the quarter a year ago. Our EBITDA of $14.6 million was down 34% versus Q1 2022 and it was up 63% versus the quarter a year ago. And lastly, our net result in the table showing $8.1 million was down 32% versus the most recent quarter and was up more than 3x versus a quarter a year ago. Just to remind everyone, Q1 2022 was a record quarter for us so that's why the comparatives are looking lower.
In terms of the half, revenue was $55 million for this half. That was up 77% for the first half of 2021. EBITDA was $36.7 million for the half, and that was up 91% versus the half a year ago. Our net result has been $20 million -- $20.2 million for this first half, and that's up more than 2.5x for the -- when compared to the half a year ago.
This was mostly from our compression and the high oil prices. Production this quarter was just shy of 3,300 BOEPDs. That was up 6% versus the comparable period a year ago and down 28% from our record Q1 2022 production. When compared against the first half of 2021, production was up 15%.
Again, these -- the results were supported by the strong oil prices. Brent averaged just under $109 per barrel. That was up 65% from the comparable period a year ago and up 8% versus Q1 of 2022.
Operating netbacks remained really strong. They were up 83% from the comparable year -- impairable period a year ago and 12% from Q1 2022. All these -- production and the high prices contribute to our high EBITDA of $14.6 million, a net result of $8.2 million, resulting in an EPS of $0.07 per share for the quarter.
If we go to the next slide where we present certain balance sheet items. You will see our balance sheet remains strong and conservatively leveraged. Our net cash ended up 20 -- just shy of $24 million. That was mainly -- it's lower from Q1, mainly from our first principal repayment made this quarter on June 30 and also as a result of the high capital activity going on in Brazil.
Our working capital was lower. We have about $1.6 million surplus at -- as at June 30. And that, as a result, as I just described, our back debt being -- our first principal payment being made and the high capital activity during Q1. We also recognized this quarter around $3 million of tax credits that were claimed in Brazil. Our net debt is just under $29 million, and there is no dividends planned at the moment.
Moving to Slide 6, we present our quarterly production and oil prices. So as you can see, high oil prices supported this strong quarter. Prices have -- if you see the chart to the right, the top right, you can see since the pandemic how prices have come back strongly and averaging over $100 per barrel for this half. Our production was up 6% versus the quarter a year ago and was down 28% versus the most -- the record quarter in Q1, but 15% higher when we compare this half versus the past half a year ago.
If we jump to the next slide, Slide 7, that's where we present some key metrics I would like to follow.
Firstly, our netbacks, which remain increasingly healthy, mainly driven by the high oil prices and also from the royalty rate reductions that we have benefited from in Brazil. Netbacks this quarter were 83% higher versus the quarter a year ago and 12% higher versus Q1 2022.
To the right, we obviously keep track of our cash balances. And as referred to earlier, this quarter, cash came down as we started paying down our principal and also as a result of the strong drilling campaign as the company continues to invest in its growth.
Lastly, another metric we keep -- we monitor closely is our operating costs, this quarter, were $14.6 per barrel. This meant -- the operating cost per barrel are higher as the lower production meant a fixed cost were distributed over less barrels this quarter. Also, Tie-4 was placed in -- on production, which increased costs for operating that well. And we have seen this year an increase in transportation cost due to trucking rate increases from a result of higher diesel prices.
And lastly, on the next slide, we keep a close look at our net result, which continues -- we've been continuing our streak of positive net results. This was a record half, and it's -- it was 2 -- over 2.5x higher than the first half of last year, mostly supported by the higher oil prices and the high production for -- in the first half. We have also seen our operating netbacks improve. And we're benefiting from the attractive fiscal terms in Brazil. So basically, when we look at the Q2-- you can see how it went up more than 3x. And it did come down 32% versus our record order in Q1 2022.
So without any -- without further ado, I hope this helped understand our results a bit better. There's other key ratios that you can look at in our report. And I will pass it back to Jonas.
Thanks, Andres.
If we can go to the next slide then. So we'll start with an operational update. But before we go into the sort of the meat of the operations in Brazil, I just wanted to highlight a few things.
The netback of say almost $65 per barrel is the highest we've ever seen. Of course, that is supported by primarily high oil prices. Andres mentioned that our OpEx this quarter was slightly higher than what we had liked, and that was primarily due to a lower barrels being produced for the quarter, but also the increase of cost of transportation.
Andres, can you go on mute? I think your -- we can hear you. Thank you very much.
So we have some increase in costs with respect to the Tie Field with Tie-4 coming on and also the increased transportation cost. But also, we kicked off quite an extensive workover program that I will touch on here in the Tie Field.
Like Kaarlo mentioned at the beginning, we did have a mixed bag of results for the quarter. Some are great and some are not so great. We'll start with the not so great, and that is that our primary driver in our company, at the moment, the Tie Field, we essentially only produce from 2 wells during the quarter. And that's because we had 2 key wells go down at GTE-4 and -- sorry, Tie-1 went down due to tubing leaks and stuck jet pumps.
We did commission a workover rig, and we'll talk about this later. With the high oil prices being where they are, we have a rush of activity, particularly in Brazil for many reasons. And it's becoming harder and harder to secure services. So we finally managed to contract the workover rig, and it's been on our payroll since the beginning of June. And the first thing the rig did was to complete Tie-5 with an ESP, and then it moved over to the discovery well called ALV-2, which was converted to gas injection well.
Now that's important because we have, as you know, quite a lot of gas and we are under restrictions to -- not to clear more than 3% on our field. And so we reinject in the spillover gas, and that needed an update with the gas tight connections on that well. Now that's been completed. And the workover rig is currently over GTE-3, which will now be converted to an ESP and will add valuable production here as soon as that comes back online. These wells are somewhat complex. They are duly completed. So there's 2 strings of pipe that needs to be retrieved and reset. After GTE-3, we'll go to GTE-4 and then Tie-1, and both those wells were recompleted. They have tubing leaks. And I think in Tie-1, there are some stock pumps that we can't get out so we'll have to fish that out with the rig.
We will also later in the year convert Tie-2, which is currently a free flowing well. It's been a great well for us. We'll recomplete that with an ESP pump so we can boost production there. So we have a lot of work ahead of us, mostly are, let's call it, the maintenance work. They're not new drills. They are operationally workovers. And we will look forward to bringing on all 6 of these wells. If you just compare to what we did in the second quarter with just 2 wells, you can see what's coming towards the second half of the year.
So the really good news was this quarter. Actually, it was after the quarter ended was that we completed Tie-6. Tie-6 was supposed to be a water injector on the southwestern flank of the field. Water is desperately needed to maintain pressure in the field. And when we drill that -- and this is an area where we have relatively little well control, we encountered the reservoir 12 meters higher than anticipated. And that really means that our seismic interpretation of the field needs to be revisited again. And it adds valuable barrels in terms of reserves, but also because the -- where this well is located on the structure now with 12 meters higher, we are well above the oil-water contact. So we are investing in right now, plans on turning this also into a producer to produce valuable oil in that area before we go to start to inject water just like we did on Tie-3.
So we can see probably if our efforts pay off there, we will add a seventh well in the near term to the Tie field. So we'll have 7 wells producing hopefully before the end of the year. So I'm really, really pleased about the outcome of the Tie-6.
On Tie-5, we completed -- it was the first horizontal well in the field. It was challenging. Operationally, we persevered. And we managed to complete the 240-meter of horizontal section. And that well came on after the second quarter's end and are not part of the second quarter production numbers. It came on -- we were somewhat disappointed with the initial rate of Tie-5 -- we -- it was bothered by a lot of gas, and gas continues to be an issue on Tie-5. It is on pump at the moment, has been producing very, very steadily since we turned it on, on the 13th of July. The nice thing with Tie-5 is that we've seen hardly any water, which is very, very good news for us because it is on the crest of the structure, which means that we have not encroached that area with water.
Water is our enemy in the field that we have less than 0.2% of water cut on there. So we expect Tie-5 to remain a robust producer for many, many years to come. We may elect at some stage to revisit the completion of Tie-5 as we suspect that potentially part of the reservoir is not producing because of the reservoir damage, but the jury is still out on that, and we'll see where that comes. But the important thing to note is that the Tie-5 did not contribute at all to the second quarter production numbers.
If we go to Tartaruga on the next slide, not much to say at Tartaruga. It was steady. Total of almost 20,000 barrels were delivered during the quarter. It's doing just fine. It's leveled out, and we have a few plans for Tartaruga coming up. But for the time being, Petrobras divestment process is still ongoing. Bids are due at the end of August. And of course, we are participating in that arena. We'll see what comes out of that process as and when it progresses.
If you go to the next slide, please, Kaarlo.
Oman, yes. A lot of things happened in Oman. I was very annoyed and disappointed that the contracted rig that we had with GBS was withdrawn. When oil prices get this high, strange things happen. And I think this was a result of increased competition. But the guys in Oman acted very, very quickly. And we replaced GBS 1 rig with Rig-109.
109 contract was signed earlier in August. And we will be mobilizing that rig at the end of September, early October for spot sometime in October. I'm very hopeful. Things are going very well there for the time being. And that's going to be a very exciting campaign. We have a total of a minimum of 6 wells to drill. We will drill 4 pilot production wells that we will be put on long-term test to see how the reservoir produces in terms of oil and water. And we will also then drill 2 appraisal wells to define the oil water contact on the structure so that we can ascertain the actual size of this price. It is a very relatively simple for bounded and decline where we don't know how big this thing is.
We have indications. As you know, there's 5 wells drilled on the structure. So we have what we call a oil down to contact and a water up to, but the specific water contact needs to be addressed. We will also drill on the crusted structure to try and ascertain fracture orientation and the best way to localize all these wells.
After the quarter ended, we farmed out 35% to local Omani company called Mafraq Energy. This is something that the Board had tasked us with a long time ago. We've been working very, very diligently over the last year or so to find a partner for us in Oman. There was interest, but we decided in the end that Mafraq Energy provided not only the technical expertise and the financial wherewithal, but also the strategic partnership we're looking for in Oman for further growth.
Let's go to last but not least, the U.S. On LAK Ranch, I'm pleased to report that we have started that field up. It was part of regulatory requirements. And we have also at -- in parallel to that, we've initiated a strategic process to see what we can -- what value we can take out of LAK as it is such a small part of our portfolio.
Last but not least, in the Illinois Basin, that's been very steady for the quarter. It's averaged about 420 barrels per day compared to 464 barrels per day for Q1. And we continue to monitor production there and see how best to proceed in that area in the second half or beginning of next year.
Let's go to the next slide. Before we go to questions, we have a very busy start of the fall. As you can see, upcoming events. I encourage everyone to tune into these. The first thing is we Erik Penser company day in Stockholm on the 24th of August. We also have ABGSC. That's in Stockholm on the 13th of September. And then Pareto has a big energy conference in Oslo, where we will be presenting. We also have our Annual Maha Investor Day in Stockholm on the 6th of October. And that's -- that will be our first in-person physical event that we've had since pre-COVID. So that should be quite a fun event. And here, you will hear from most of the management, and also, the Board will be on hand to meet with shareholders and possible future investors in Maha after the presentation.
It's usually well attended. And I encourage everyone to attend if you are in Stockholm in those days. And then, of course, Q3 report will happen on the 15th of November. And I'm confident that we will continue to grow our production from our or 2 wells in Tie-2 to more wells at the end of Q3.
So with that, I'd like to turn it back over to Kaarlo. I think you have a few questions lined up for us.
Yes, indeed, it seems to be a rather busy commentators feel here. But we'll start with the first thing here, and that is more addressed to you, Jonas, and that is the CEO succession. So -- and obviously, given the situation, we'd like to expand on your thought process which led to your decision to pass the reins at Maha and what should we expect going forward on the time frame.
Yes, Kaarlo. So I made the announcement at the end of June that I will be stepping down in due course. It's been 10 years since I started the Maha. It's been great 10 years. We've grown the company. I think we are now a firmly established junior oil and gas company. It's in secure hands financially. And it's time for somebody else to take over and grow it further.
I think we've amassed a great asset base, with Oman accounts for almost half of our future reserves and resources. So I see the next 5 years that we will quadruple our production again to 15,000, 16,000 barrels a day. But I believe that it's better served that somebody else comes in with new energy and new passion to take their aims forward on that.
With respect to the process, we -- the Board has tasked a third-party to come up with some contenders. I'm obviously very involved in that process for -- obviously, I am still a major shareholder of the company. I'm one of the founders. I'm on the Board. And of course, I have a keen interest in making sure that the reins are handed over to a very capable and passionate person like myself.
I will stay on for as long as it takes. I made that clear from day 1. And we'll see what happens. I mean, these processes typically take anywhere between 4 and 6 months when you're recruiting somebody outside the organization, which it looks like we will be doing. But like I said, I mean, I'll stay on and I'll be available as and when required.
I think we had one question from a concerned shareholder at the time. And the question was, how motivated is Jonas now that he will be stepping down? Well, I am motivated. I have almost 5 million shares in the company, so there's no greater motivation than that.
So you have skin in the game and it will be steady as she goes, I'll take it.
I have another question here. The actual production is on the lower level of the 2022 guidance. Are you confident you will keep the guidance for the rest of the year? And is there a chance you're even challenging the upper level of 5,000 -- of 5,000, that is?
Yes. It's hard to say at this point. I would say that the second quarter was challenging for us. We had 2 key wells that went down and we lost very valuable barrels. We were somewhat saved by the very strong Q1. But with this new 12-meter high pay coming in, in Tie-6, and that's unexpected production for us, I'm hopeful that we can repeat Q1 production numbers in the second half of the year. But I sound like a broken record here. Brazil is a very challenging place. We have definitely been impacted by the supply chain issues that is affecting us. And the COVID, the COVID situation, the consequences of COVID really, for me, completely unexpected. We've been hit in areas where I had no idea that it might affect us. I mean, delivery times on, say, rotors and stators for ESPs have gone from 16 weeks to 52 weeks. So those are real issues that we are facing, and we're scrambling.
Additionally, in Brazil, with the divestment that Petrobras has been doing, there are more players in the onshore arena, and that means greater competition for us. I mean I was very, very pleased when we were able to sign up this Brasserv workover rig that we are currently working on GTE-3 out and the Tie field.And we're not going to let that go until we get all our work done. So it's a challenging situation, but I'm confident that we will do our very, very best to meet all expectations that we have set forth.
Excellent. I have a couple of questions regarding Oman here. And if you could elaborate on the situation for the Farmouts in Oman and the drilling contracts as it were. And then there will also be some questions about the government and its approval. But if you start with the situation on the Farmout, please.
Yes. Well, I think that goes hand-in-hand with government approval. So the Board mandated management to go out and derisk Oman somewhat. It's important to state here that even though oil prices are higher compared to when we started in Oman, nothing has happened in subsurface, right? So I mean, that's the biggest risk on Mafraq, it's the subsurface. So it was believed that it will serve the company best to derisk Mafraq by reducing the interest there.
And that will also, of course, will spread our cost. We will share our cost with Mafraq Energy. They will participate on a ground floor basis so they will pay all their share of future cash costs. But I want to underscore here that this is subject to Omani government approval. There is a process for that. I don't exactly know the time line for that, but I would anticipate it would be anywhere between 2 and 4 months, but it's hard to say. It depends on how much due diligence the Omani government wishes to do on Mafraq Energy.
And a follow-up question there. Was there a lot of interest for this Block 70?
It came in waves. Yes, there was interest. I think we had a total of 3 companies that really were interested. Similar terms on all 3. And we elected to go with Mafraq Energy, primarily because they have intimate technical knowledge of -- particularly the Schwab reservoir in this area of the country. The guys are all ex Shell and Oxy people, that -- they have knowledge, intense and serious knowledge about the fields.
And -- but also they provide a strategic partnership for us in Oman. There is a huge push inside Oman for keeping the money in the country and keeping sort of what they call the in-country value. So there's a real incentive for not only the government, but also for local companies to do business and expand business in the country. So we believe that hopefully that will lead to more opportunities being unlocked in Oman.
And I have a financial question here or a balance sheet question rather. How big is the debt after this payment? And then how should we regard this?
I'm going to leave that to Andres, and he's going to have to unmute.
Yes. Thank you. So after this principal, we made a principal payment of $3.7 million. Our loan is -- was originally $60 million. So that would give us $56 million to $50 million of outstanding loan, which is spread between a current portion and a long-term portion that can -- you can see that in our balance sheet. But basically, we have short-term, $16.5 million, and the remaining portion would be the long term.
Thank you for that. And you've been very clear on almost every presentation that there will be no dividend that you will reinvest in the company. But nevertheless, there is a lot of questions here regarding share buyback, which one could argue would be a sort of dividend. Any thoughts about that?
Yes. I mean, that's something that we are actively looking at. I got to remind everyone again that we are restricted under our loan agreement with our creditor, what we can do. But of course, if it makes financial sense, I'm sure that the creditor would be open for at least a dialogue on that. But that is something that we're looking at. That's the -- yes.
And finally, and you touched upon this when you mentioned coming out of COVID and the -- well, the effect it did have on you. Now we're facing an inflation environment and there have been some bottlenecks in deliveries, I'll take it. What is the CapEx situation for yourselves?
Well, I can tell you, the way I see it, we've noticed, particularly here in Brazil, there's been inflationary pressure, particularly on some of the services side. But I see that is abating. Meaning that we saw a rapid increase in prices and a lot of increase in pressure in the first half of the year. In the last 3 -- 2 to 3 months, I see it's leveled off.
And I think we also see the same in the United States with respect to the inflationary pressure that we see there. And gasoline prices are now below $4 per gallon in the U.S. And so definitely, there's been a leveling off. And I believe that inflationary pressure will decline here with time for the second half of the year.
Final question here from the viewers here, is there any talk of selling the company? Are you up for sale, say?
Even if we were, I could not comment on that. So it's a -- I can't say anything about that. That's outside the remit here, so.
It's a board decision?
Well, I mean, if there was an offer for the company, then I would be obliged to take it to the Board. And then the Board would evaluate such an offer. And if the Board decides it's for the best for the company, then it will be presented to shareholders. But those things are -- obviously, I cannot comment on anything like that.
No. Well, Jonas, Andres, thank you very much for this. Very enlightening and interesting. And obviously, if there is any further questions and if anyone feels that they need an in-depth answer to the questions that you've sent in here, you're -- please don't hesitate to e-mail Victoria at Maha.
And with that, we're looking forward to see the development to the next quarter, and obviously, your shareholder meeting. So with that, I will thank you, the viewers, and Maha. Thank you very much.