Maha Energy AB
STO:MAHA A
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[Foreign Language] (00:00:07-00:00:44)
Hello, guys. Can you hear me?
We can indeed there, Kaarlo.
Excellent. And you are all all right. I take it?
We're doing fine. Thank you.
All right. Good to hear. Jonas today you and Andres delivered the Q4 result. And in my mind, this is a set of numbers characterized by a significant improvement on all accounts, particularly if you look at year-on-year comparables. Could you please walk us through the numbers and give us a feel for the future?
Absolutely. Thanks Kaarlo and welcome everyone to yet another quarterly report and we're pleased to present. With me is Andres Modarelli. And before I hand over to him to go to us – go walk us through the numbers, I just want to remind our viewers, if you have any questions, please you can email them to Victoria@mahaenergy.ca or you can ask them right in the YouTube comment field on the screen there. So please send us your questions.
So before I hand over to Andres I just wanted to make a few remarks. First off, the quarter was quite a spectacular one in the sense that we saw quite a significant increase in oil price. In fact, we haven't this kind of oil price since October 2014, so – and that certainly helped us what was otherwise a quite weak production quarter for us for various reasons which I'll get into later in the presentation. But subsequent events, I might want to add that we broke a few records again this quarter. First off, of course, Tie-4, the well test that we delivered at the beginning of January, over 4,600, almost 4,700 BOEs. It's a record well for Maha. It's also the third highest volume onshore Brazil ever recorded from a single well, so we're very, very happy with that. Tie-4 continues to deliver us as we expected but we also had a record EBITDA for the quarter and I think also depending on how you do the numbers but I'll let Andres talk to you about that and that is we also had a very good net result for the quarter. Of course, all of that was helped by the high oil price like I mentioned that we hadn't seen this kind of oil prices since October in 2014. I think Andres will also mention that we have had royalty reductions now start to take effect.
We were very pleased to announce during the quarter that we have a reduction in our royalties, onshore Brazil, and it really speaks to the great fiscal terms that we have in Brazil and a very quick, fast payback of all our investments in Brazil. We did have some challenging times during the quarter; GTE-3 developed some tubing leaks, so the GTE-3 which is a producer onshore on the Tie field. We had to do some workovers on that and we were unable to fix that. So that is scheduled for workover renovation later in the year. Tartaruga was also impacted by a tubing leak on Tartaruga-1 which was subsequently fixed and dewatered, and we also suffered delays not only for the drilling on Tie-4 but also in the Illinois Basin, but I'll get into that in a little bit more detail when we get to the operational update.
Before I hand over to Anders, all these issues are behind us. I think we started out 2022 with great vigor. All our wells are in production. We are producing record levels across the fields. So we're very pleased with that. So, Anders why don't you walk us through the figures? So we need to go to the next slide there. Thank you.
Absolutely. Thank you, Kaarlo for having us once again and good afternoon, everyone, and thanks for joining us. I will be presenting certain financial highlights that we'd like to show.
On slide 4, you will see how we compare the current quarter against the four most recent quarters. As Jonas was referring to, this was a very strong quarter. We had revenues of $17.8 million that was down 8% from the most recent quarter but up 105% from the quarter a year ago. EBITDA which was a record $5.6 million (sic) [$15.6 million] (00:05:20) million was up 20% from the previous record in Q3 of $12.9 million and also up by almost six times from the quarter a year ago. The net result just shy of $7.4 million that was up 21% versus Q3 and 100% – almost 150% on absolute terms at least from the loss a year ago that was characterized by an impairment charge in the LAK assets. And the main drivers for these was the production of 3,098 BOEs, that was up 13% versus a year ago and down 14% versus the most recent quarter for the reasons that Jonas was going through. This was helped by the higher pricing environment. Brent averaged $79.61 per barrel for the quarter that was up 79% from the comparable period and up 8% from the most recent quarter. This altogether lifted our netbacks, which were $42.37 per BOE, that's up 140% from the comparable period a year ago and up 2% from the most recent quarter. As referred to earlier in just the beginning, this all contributed to the record EBITDA of $15.6 million, almost $50 million on a full-year basis and up 100% – just over 160% from a year ago and also our net result of $7.4 million would be a record if we ignore some deferred income tax recoveries that we had back in Q4 of 2018, but definitely a record on a before tax basis. And all these benefit – and then the result also benefited by some one-time, non-cash gains from provision revisions this quarter.
On the next slide, slide number 5, we present certain balance sheet items. Overall, you can see the balance sheet remains strong. Net cash of about $25.5 million and assets – total assets just under $170 million and shareholders' equity over $90 million.
Our working capital was $5.8 million surplus for the quarter. This is following the refinancing transaction that took place earlier this year and also the high capital activity during 2021. This is up from the $10 million deficit that we've had at the end of 2020 and also includes the short-term portion of the bank loan for $11.3 million approximately which we will be paying in over the next 12 months. Also in terms of balance sheet, we did have reversals of
[ph]
pre-strategic (00:09:00) book provisions; one was short-term in relation to a waiver that we obtained for the 224 Block in terms of working commitments and also in long-term provisions, we have $3 million of provisions for the 117 and 118 Blocks which now got an extension up to the end of 2024, so almost three years which would also allow for further easing of those commitments. There were no dividends planned at the moment. Our net debt was $29.9 million, just shy of $30 million. And I also – I refer you to other key ratios that we present in our Q4 report.
Our next slide is where we look at production a bit more closely. This quarter, the average was $3,098 BOPDs. That was down approximately 14% from Q3 for some of the leaks, the two units that Jonas was describing earlier. In turn, we were – we first see the increase in Brent prices and have been benefited by that, 8% versus 3Q, 79% versus a year ago. And as we can see in the chart on the top-right, we've seen a steady oil price recovery since 2020 with prices almost doubling and not looking at averages since then, with a bit of a dip there in November when Omicron hit us but now since the beginning of this year again strongly recovered and surpassing $100
[ph]
set out (00:11:16) last week. So, together with this pricing environment and the Q4 results, we're looking at a very promising Q1.
So, on our next slide 7, please. These are some metrics that we like to keep track of and firstly is the netbacks, which is the return on every barrel sold after we pay royalties and operating expenses. And this quarter, the netback was $42.37, that was up 140% versus a year ago and 2% versus Q3 where Brent was up 8%, but at the same time we did have some one-time operating expenses that increased our operating cost there to $12.85. Basically, these were some slickline operations to get the wells repaired, also maintenance cost on certain wells have gone up with the focus of keeping uptime higher and also we are continuing to seeing electricity costs high as we – the power grid has become less, less stable in the recent months.
Lastly, we always keep a close eye in our cash balances and we ended the year at $25.5 million, following a high capital activity this year and interest payments on our bank loan. And last and not least on our next slide, we obviously keep track of our net result. This was the highest ever net result for the company if we exclude those deferred income tax recoveries from 2008. The main contributors were the strong oil prices during the quarter, one-time gains on the provision reversals and also the competitive Brazilian fiscal terms that we are eligible for. This would have been the 7th – probably the – I think 17th profitable quarter in a row if we exclude the non-cash impairment charge from a year ago. And we expect – as I was referring to you earlier, we expect a very strong Q1 in front of us – ahead of us with now the production from the Tie-4 well, the oil prices that have continued to increase, and we are also now starting in February benefiting from the royalty rate reduction of 2.5% lower in Brazil. So, yes, all-in-all very strong quarter.
And I'll hand it back to you, Jonas.
[Technical Difficulty] (00:15:03-00:15:07).
Ah! There we go. A classic one. We'll start now then with an operational update. Thanks, Andres. We'll start with our cash cow, the Tie, our core asset in Brazil. A little bit worried about COVID. COVID is not affecting us as much anymore. Brazil actually obviously has been affected like everyone else with this Omicron variant but Brazil has been extremely diligent and effective on getting the population vaccinated. I think over – almost 75% of the entire population has now got their two doses of the vaccine, so we're doing quite well on that side there.
We did suffer some production setbacks on the Tie field during the quarter. I alluded to that at the beginning, particularly GTE-3 which was the main producer on jet pump producing from two strings; one from Agua Grande and one from Sergi. Both of those strings unfortunately have developed leak, so the pump has lost complete suction and will require a major workover to get that back up and running. We are planning to put an ESP in there. If you recall, Tie-4 which was our record well which was delivered at the beginning or middle of January was configured with an ESP or Electric Submersible Pump. It has – those have the great advantage that they can create a lot more drawdown than a jet pump. But they are also, on the other hand, like the name suggests electric so they are a little bit more finicky when it comes to operational issues.
Nevertheless, the plans are to re-complete GTE-3 sometime during the first-half of 2022 to restore production from both Agua Grande and Sergi well. Tie-4 also contributed to some production losses in there – in the way that we have delayed the production from that well. Tie-4 was really a well from hell. We have three sidetracks on that. It cost us quite a bit of time and quite a bit of money in the end. There was a silver lining. Once we decided to reconfigure the well as a vertical producer in the field, we very quickly reached a total depth of 2,200 meters just before Christmas. And as we all know the well
[indiscernible]
(00:17:32) and tested really, really well with the ESP. That well continues to deliver and the Tie field now is almost at it's full capacity, waiting out Tie-5. An important note I want to make to that is Tie-5 is our first horizontal in the Agua Grande and between all the wells now we should have sufficient spare capacity so that in the event, for example, like GTE-3 goes down, we now have spare capacity that we can maintain our plateau – our planned plateau, irrespective of what happens with one or two wells. So, that is much welcome for the guys in the field.
Andres already mentioned, they reduced royalty. We welcome that. That's at the top line. And that's basically 2.5% more oil that's provided to us. So that has taken effect I think – I don't know if it was the 1st of February or 1st to March but that's taking effect as we speak. I already mentioned Tie-4, the excellent well test on that on the 17th of January. So as of that date we started seeing quite large volumes coming through the Tie station.
Tie-5 spudded but 10 days later. We are currently at 1,192 meters. We just set 9-5/8" casing right above the Lower Candeias. One of the things that we learned whilst drilling Tie-4, we systematically try to pinpoint what the issues were, why we were having problems at high angles. And the problem has been pinpointed to the Lower Candeias which is a very thin shale section right above our Agua Grande's reservoir. So in order to be successful delivering that horizontal well, we had to completely redesign Tie-5 from Tie-4, and that means that we're setting our intermediate casing, the 9-5/8", we're setting that deeper. We just did that this morning. We're drilling a much shorter section in the Lower Candeias. It's only about 250 meters and we're keeping our inclination below 60 degrees so that we don't agitate that extremely fragile shale. And that will end up building two horizontal in the Agua Grande. The Agua Grande is thick enough for us to do that and we're actually chasing the reservoir structurally, so it actually works in our in our favor there. Last but not least, we might want to mention that Tie-3 which was that hybrid producer/water injector, we are in dire need of putting backwater pressure, water injector pressure into our field. Tie-3 is in the process of being converted so we can get much needed pressure maintenance into the Agua Grande reservoir on the flank of the field.
Next slide please. I'll switch over to Tartaruga. Tartaruga has been – two wells are producing there. We did have a disappointment at the end of last year, beginning of this year 2021 rather in that we still cannot figure out why the northern fault block continues to produce water in Tartaruga-3, so that well is shut-in. And during the quarter, the Tartaruga-1 developed a tubing leak which has subsequently been repaired but that well took a long time to dewater. We lost a lot of water whilst we were working that well over. Took us almost five weeks, six weeks to dewater that well and hence the low production rate from the Tartaruga which affected us for the quarter. That is now behind us and we are planning to start drilling there again towards the end of this year. We are making progress on obtaining licenses and long lead equipment.
A note on the Petrobras divestment process, I did meet with Petrobras last week directly and the process is still in play. They were unable to give us an update other than it was at the very high level in the organization and they would make a decision on that very soon. Again, also here, the royalty was reduced from 10% to 7.5%. So that has a very good effect on us in Tartaruga as well. Next slide.
In the USA at the LAK Ranch, we continued to have that field shut-in. We are evaluating different options on how to proceed with LAK at the moment especially with these high oil prices. Focused in on the Illinois Basin. Illinois Basin, we drilled 12 wells last year. We produced just over – or just under 23,000 barrels during the quarter, an average of 246 barrels of oil per day. That was below what we were expecting for the quarter and that's primarily due to two reasons: One was the delay in the stimulation program of those wells back in – at the tail end of the summer; and also that the five – the Ford and Pfifer wells that were drilled took four to six weeks longer to dewater the stimulation fluids than we had expected. Production is ramping up. As we can see, the January average was 405 barrels of oil per day and February to-date averages 476 barrels of oil per day from the Illinois Basin, so we can see production starting to come up there.
We are drilling two more wells in the first-half of this year. We should spud our first well probably tomorrow, the Glaze 11-05 (sic) [11-5] (00:23:22) and then we have one more joint venture well that we want to drill as soon as [indiscernible] (00:23:28) drilling rig. We will be evaluating the results from Illinois Basin before we make any further investment decisions. I expect that we will look at that towards the summer of this year. We'll have enough production data so that we can ensure that we've applied the right technology at the right places, that we're drilling the right spots going forward before we'd make any investments. Of course, we will also monitor the oil price during that time as well. Go to the next slide, please.
So that wraps up really the operational update. I just want to give a shout-out for some of our upcoming events. We have our yearly SpareBank1 presentation in Oslo, day after tomorrow that will be a webcasted event as well. Then that's followed up by ABGSC presentation, also Web-based. Our annual report is due to come out on the 11th of April. Then, the big Pareto E&P Conference where we will be presenting on the 26th of April. And then we have another web event on 11th of May. And finally, the Q1 report is due on the 19th of May before our AGM. I want to remind everybody also that we are followed by some key analyst houses; ABG, Arctic, Pareto, and SpareBank1 are among some of the ones that follow us on a quarterly basis.
So with that, I would like to turn it back to you, Kaarlo, for any questions. I'm sure that you have received some questions.
Well, thanks. Thanks for that. Yes, we have received a lot of questions both beforehand and also as I can see from actual – from the web here. But I'll kick off with the obvious question relating to the Russian invasion of Ukraine. Does this have any kind of impact on Maha's business apart from oil price being quite volatile?
No. It has no impact on our business.
And looking at major events here, you mentioned COVID in your presentation but do you see any improvement in the situation as it were for Brazil that was very hard hit or is it the same?
No. We're seeing improvements like I mentioned at the onset. Obviously, we were also hit by Omicron. I think pretty much everyone in our organization has probably had COVID now but Brazil is really in the forefront of vaccinations. Almost 75% of the population is fully vaccinated so we're seeing less and less effect of COVID physically affecting us.
Well, that's good to hear. And we'll just jump in with technical questions on the different fields here. We have one here based on the new drilling approach with the Tie-5 versus Tie-4, how confident are you with being successful with Tie-5 and why?
And as I understood it, I mean you will take a lot of knowledge and experience from the Tie-4. So, I guess the focus of this question will be on confidence rather than why.
Yeah. Of course, we – the Tie-4 well was really a tough well for us. We had three sidetracks. We lost three BHAs in the hole. It took a long time. We deferred a lot of production during the year. It hit us very hard. I think it almost deferred – I think almost 450 BOEs per day for the entire year. So, it had a major impact unfortunately on our production.
Having said that, as we say in Swedish
[indiscernible]
(00:27:19). We systematically approached the problem at the beginning. We did a lot of things to address the issue. The first thing we did was we addressed the mud system. We changed out the base oil mud system completely from the previous well. We redesigned the well completely when it comes to the casing design. Instead of running an intermediate casing at 1,500 meters, we ran it to the top of the Lower Candeias where we had pinpointed the problem. We're keeping our inclination below, the troublesome 65 to 75 degrees inclination in the wellbore and we're making a very short section and we'll case that off immediately once we've drilled through it.
So with these changes, I'm very confident that we will be successful. We have already like I said this morning we have run the 9-5/8" casing to depth. It went in with no problems. So that really reinforces our belief that the Lower Candeias shale that really gives us these very unstable wellbore conditions.
Well, thank you for that. And maybe a translation that would be fortune favors the brave. I don't know but I will continue with Tie-5 here versus Tie-4, and I have a question here. You are stating that the planned workover and the hook-up of the Tie-5 well will affect Tie production volumes during 2022. How much are you expecting in terms of average lost barrels per day?
Yeah. Again, I alluded to this at the introduction or during when we talked about the Tie field. I mean the whole purpose – first off, I mean we are very happy with the results of Tie-4 right? I mean it's a record well. It is the best well-drilled onshore since 1986, I think. So, with these production rates, it gives us a lot of spare capacity.
So, with Tie-5 coming onstream, we expect similar rates and between the two then, we will have spare or reserve capacity so that in the event, for example, when we got to got work over GTE-3 or work over ALV-2 or one of the wells, it gives us that flexibility to increase production from other wells to compensate the loss of that production. So we don't actually expect any production losses during the year. There might be some of the usual shutdowns of the plant, those will be planned. Of course we also have unplanned, accidental events that can occur. But to answer your question the workovers that we have planned for the year should not affect the production volumes from Tie because of Tie-4 and Tie-5.
And you stick to your guidance then of
[ph]
4,000 to 5,000 BOEPD (00:30:14), is that correct?
Yeah. I mean we'll see. It's still early in the year. Again, I've received several questions and they are warranted questions given that the results just from Tie-4 and what we expect from Tie-5. But I think it's still very early in the year. Let's wait and see what happens here during the first-half before we start looking at revising any guidance numbers.
Thank you for that. And we'll move on to Oman here. I have a couple of questions and they are more centering around the status of the farm-down and also who your partner is?
Yeah. So I can't tell you. I can't divulge who the parties are that we are negotiating with but we are still negotiating there. We're in final negotiations. And when the contract is signed, we will make an announcement.
And LAK here, you have said that the feed was shut down due to lower oil prices and there would be – there were some questions about increasing that now and I think you partly have already answered that. But to re-change the question then, what shall we in the market look for before you are increasing your efforts in LAK, would that – is that pegged to an oil price or is there anything else?
It's partially pegged to the oil price. Obviously, if oil prices recover and stay at these levels, I think it warrants an evaluation on how to proceed with LAK. Having said that, it's clearly not necessarily a core asset for us. So we were looking at different strategic evaluation options for LAK.
And that will be the same for in Illinois Basin, I'll take it?
No. I think Illinois Basin has – it's a much more robust and more safe play than LAK in that respect. It is less risk in Illinois Basin and that is a – that's purely an oil price place. So at these oil prices I think we would we would consider investing more. But like I said I want to see the full production results from the 12 wells that were drilled before or last year before we make any decisions on where to place those wells.
And while we're in the US, we have a question here regarding cost inflation and that's been a topic in the US. So what's the situation in US and overall? Do you see any pressure here on cost?
Huge. We see huge pressure on cost and we definitely see inflation and delivery times being affected. For example, when we went out to purchase a casing in Oman, the validity of some of the quotes were ridiculous, like one week because steel prices were changing so rapidly, so we definitely see an impact on cost. We will see definitely a cost escalation with respect to casing and wellhead
[indiscernible]
(00:33:35) and the like.
And I have a question here with a favorable oil price or if for example in a position to phase-out the loan and even start repurchasing shares. So two question in one...
Yeah.
Two birds with one stone there...
Well, I mean obviously I think we would have to wait and see where the oil price goes here. I think it's still early days. It's very – the market is very fluid, particularly on the political side. So I think before we sort of comment on something like that, I think we'd want to, as they say in the Arabian Gulf, you have to catch the fish before you split it. So I think we want to wait and see where this is going.
And if we look at the company, well – or the share rather who would you like to compare yourself to? And in that case which ones and what kind of metrics would you like us to look for?
Yeah. I mean that's a good question. I think it's a complicated answer because obviously it's – you'd like to have a peer group that is indicative of or similar to your situation. And we are listed in Stockholm. So that's our market. So – and we are an onshore player and we're a junior oil and gas company. So within that realm I think we are – our peers are already here in Stockholm. I mean the mind goes immediately to the likes of Tethys, IPC and EnQuest.
And then if we want to look at internationally, we are – our core assets are in Brazil and Brazil has seen their fair share of recent IPOs with some pretty extraordinary valuations. We can talk of 3R for example who has been a great success story here that purchased some of Petrobras's divestment clusters. And then PetroReconcavo as well is another company here that's been here for a long time, been also very successful onshore Brazil.
So that would give you a flavor of sort of the valuations of other similar companies, but I want to caution you it also depends on where you're trading clearly so.
And then one answer to that question could also be given by the research firms looking at you. And then we can just reiterate your next coming event which would be SpareBank's (sic) [SpareBank1's] (00:36:25) presentation on the 3rd of March and ABG (sic) [ABGSC] (00:36:28) presentation on the 8th of March. And I'm sure that in order to cover you they need to have some peers wouldn't you agree?
Absolutely. And what we see in that space is that we continue to be I think undervalued against our peers. And I think – but I think that with the troubles of Q4 behind us, we started out 2022 on a really positive note. And I think that that will right itself as we go forward.
Excellent. Well, so now we know the next event would be on the 3rd of March and we are looking forward to see anything coming out of that.
Well, Jonas and Andres, thank you so much for the presentation and good luck.
Thank you, Kaarlo.
[Foreign Language] (00:37:22-00:37:34)