Maha Energy AB
STO:MAHA A
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Maha Energy AB
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[Foreign Language] Paulo, Bernardo, Alan, good afternoon. How are we today?
Very good. Thank you.
Good afternoon. Thank you very much. Pleasure to be here.
Hello, everybody.
Excellent. You really seem to have hit the ground running. So please -- and I will assume that be you, Paulo -- please take us through this eventful quarter.
Thank you very much. It's a pleasure here to be with you all in this presentation. I think I have myself here, Paulo. We have Bernardo Guterres, our CFO; and Alan Johnson, our Chief Operating Officer, to present today to you all. We can go next slide, please. Next slide, please.So we will start today here summarizing the recent events from the last months. As you may have seen yesterday, we have concluded the acquisition of PetroReconcavo. It's very, very important day here to Maha to have completed this milestone. You can go one slide, please. One slide. Next slide, please. Next slide, please. I think you can go one slide up, please.There is Slide #6. So I think this presentation is not the most -- but we can -- I can move forward here, telling a little bit about the recent events. So we had in November a new board members election where it was -- the Board has been modified. Also back in November 4, we had a change in management, including myself and Bernardo. We joined the company as CEO and CFO. In December 5, we announced business combination with DBO is adding 18.5 million barrels of 2P reserves. I think we can go one slide, please, because then we can catch up on what I'm saying here. Next slide, please. Perfect. Leave it there.Also in December 2022, we completed a direct issue $19 million, net of fees, to raise via direct issue. This was a very important milestone to the company to strengthen the balance sheet. And we successfully completed this transaction, bringing not only cash to the company, but also long-term investors and fundamental investors. On December 28, we signed the divestment of Maha's Brazilian entity to PetroReconcavo. We announced it before year-end. On January 28, we concluded with our partner in Oman, the joint operating agreement for Block 70, and this was the last event to complete the assignment of the stake.On February 2, we appointed a new Chief Legal Officer and a Head of Investor Relationships, Barbara and Jakob, that we are very happy to have them here onboard. On February 3, we issued a new certification of reserves from McDaniel, as we indicated back in October that we would make a reassessment of the reserves, and we concluded this in February.And finally, we're very happy here to have completed yesterday the transaction with PetroReconcavo in which we -- the Maha has already received one of -- the first installment, and the second sum we'll receive 6 months from now. And now we are very happy here to have completed this first cycle of reshuffling of the assets, and now the company is really focused on its strategy on becoming a very cash flow-oriented company with a strong balance sheet, focused on inorganic and organic growth of oil and gas, and always focused on production.So here, passing here through the Slide #8. As I mentioned, the divestment of Maha's Brazilian entity was of a total consideration of up to $186.9 million. That includes the purchase price plus the earnouts, plus working capital adjustments and the net cash that was held in the Brazilian entity, totaling $186.9 million. Regarding the DBO acquisition, the SPA was executed in February. And we -- the company has scheduled a general meeting for March 29 to have the approval here from the shareholders. We are strongly convinced that this transaction was made at a very attractive transaction multiple of 0.23 price to NAV. And this will add to the company 18.5 million barrels of oil equivalent and a production of almost 2,000 barrels of oil equivalent.Giving here an update on Oman, we are drilling the seventh well, and we expect here to start testing in the very short term within this quarter. And all the team here is very excited with this asset, and hopefully we will be announcing good results in the very short term. As I mentioned, the conclusion of the farmout agreement happened in January, and we are expecting the financial settlement within this month of March from energy of the reimbursement for the past costs and investments. Regarding USA, we have hired Energy Advisor Group to act as our financial advisor on the potential divestment of the USA assets.So here in this graph, we can show how stays the production profile for Maha post conclusion of the DBO transaction. In the last quarter, we had in Brazil, 2,145 barrels in TA and 195 in Tartaruga and 281 in IB. Excluding the divestment from Brazil and adding the PetroReconcavo [Foreign Language] closer, we reach 2,357 barrels. We basically reach almost the same production that we previously had before this divestment with a much more attractive consideration price for this acquisition. So we would be reaching almost 2,400 barrels of oil equivalent of oil and gas. I think we can move to the next slide, please.Updating here a little bit about the quarter production from TA and Tartaruga, remembering that these assets have been divested, but in the last quarter, it was still under Maha's management. During 2022, the company faced a reduction in production to lots of reasons, but one of them was a rig shortage in the local market, in addition to the natural depletion of the wells. And in the fourth quarter, the company, and congratulate a lot here Alan and the technical team for having done a successful workover campaign with help with the production recovery, GTE-3 well was converted from a dual jet pump completion to a single comingled ESP producer. We also had Tie-1 production was recompleted as a single-string jet pump producer. And GTE-4, we also have replaced, and the well is back onstream.Regarding Tartaruga, the company submitted a competitive bid for a Petrobras stake of 25%. And this was completed here, the Maha's management on these 2 assets yesterday. The production for the fourth quarter, as we mentioned, stayed in 2,621 barrels of oil equivalent per day. You can go to the next slide, please.Here, we want to go to the market a little bit about the new position of the reserves and net present value for the Maha with DBO's acquisition. And we wanted here in this slide to give more details. I think we want -- we made the breakdown of the 1P through 3P reserves and also the NPV for each of those assets. And I'm happy here to receive suggestions from the shareholders which additional breakdowns you would like to see, but we want here to be very transparent on having these breakdowns.So here, assuming the completion of Oman's asset to Mafraq Energy, and assuming the company concludes the DBO's transaction on March 29 in the general meeting, the company will have in 1P reserve is 14.2 million barrels, 21.7 million barrels of oil equivalent of 2P reserves and 27.3 of 3P. In terms of NPV10, we are talking here of a range of $120 million to $286 million being the 2P scenario of $191 million. When we add up with the current cash position and the proceeds from the sale to PetroReconcavo, the company would have a gross asset value of $335 million to almost 501 million barrels -- $501 million, sorry, and the midpoint, $406 million. Excluding the BTG's debt and the contingent payment from DBO, we are talking here of an NAV on the 2P scenario of $338 million. So we see here a very solid asset value and great part of it in cash.So the company really has here a very strong potential to close the gap price from the current market cap to a higher and more solid asset value. This excludes the contingent resources from Oman, as we can see here below. As we know, Oman, our resources, they are still contingent resources. We need still to finalize testing and submit the Declaration of Commerciality to prove the company has feasible resources, and in the future, have here also transform this into reserves and having the NPV also for these assets. So these are still separated here as contingent resources. We can go to next slide, please.I will pass here the word to Bernardo, which will pass through the financial highlights of the fourth quarter.
Okay. Thanks, Paulo. Hello, everyone. Very nice to talk with you guys again. I think we can move to the next slide. So basically here, we illustrate how was our last quarter and especially our full year in 2022.So just catching up with what Paulo mentioned in the operational highlights, we had a very strong first quarter, which supported most of our good results in the year. So that's why when comparing 2021 with 2022 in terms of revenues, EBITDA, net income netback, we have a better year when compared to 2021. Still, as of the second quarter of 2022, we had those problems with rigs and also with some wells, which lowered our production. But fortunately, as Paul mentioned, we congratulate Alan here for recovering this production in Q3 and also in Q4.So this past year, our net daily production went from 2,389 barrels of equivalent oil per day to 2,621 on a quarterly basis. So that's why we had this recovery in this fourth quarter. Still, we had a reduction in our revenue, which was basically affected by a lower average Brent price, which is our main benchmark here for pricing when we compare Q4 to Q3.In terms of EBITDA, aside from the sales price, we also had some extra costs, extra expenses with the workovers that we had to recover. So that's why our EBITDA went down from $9.6 million in Q3 to $8.7 million in Q4. And obviously, this reflected a lot our net results. It's important to say that in a yearly scenario, although we had all the stops, although we had all of this fluctuation, Brent prices, we had a much better year in 2022 when compared to 2021. You can move to the next slide.When we look into a cash flow perspective, I would like to highlight this slide here that we had those -- we had the capital raise by the year-end in late December, which was very important, as you can see in this upper graph, to support our capital structure, to enable us to have our capital structure very strong in a moment where we didn't have the confirmation or even signed the transaction with PetroReconcavo. So this capital raise was really important to prepare Maha -- to leave Maha with a balance sheet to support all of this workover operation, all of this CapEx, especially the CapEx that we had to disburse in Oman. As Paulo mentioned, Oman is entry into its 7th drilled well, so it was very capital intensive in the last 3 quarters. So we judged that it was very important for us to make this raise.If you look on a CapEx perspective, basically in Q3 -- in Q4, we maintained what we had in Q3, which basically, half of it was through the Brazilian operation for all of these CapEx disbursements that we had in TA -- especially in TA and [Foreign Language]. And in the Omani operation, we continued with our exploration investments with the drilling activity and initiating the building of some of the facilities.In terms of banking, we have continued our unique bank debt, which is our long-term debt with BTG. We fulfilled our payments. Currently, our outstanding balance is at $46 million. And we have -- and we ended the year with a very strong net cash of $23 million. I think we can go to the next slide.Here's just to compose one important metric, which is our netback. So looking to 2022 against 2021, the Brent price that is our benchmark, it's really increased here from 1 year to the other. And this supported the decrease in our total production when we compare 2022 to 2021. If we subtract the royalties and our production expense, we reach into a yearly netback of $54.72 per barrel against $38.18 per barrel in 2021, which was a really strong growth.On a quarterly basis, I think we can highlight here the increase in the expenses, right? We can see clearly that in Q1, we had $11.15 per barrel against almost more than twice in Q3 and Q4, which basically reflects the workovers, the expenses that we have in order to recover the wells that we had problem in Q2, especially at the end of Q2 and beginning of Q3. I think we can move to the next slide.And this slide basically consolidates, describes what happened in the last year, right? So we had our production increase in the last quarter. Still, we had these problems in Q2 and Q3, beginning of Q3, which reflected in this more expenses last year. Our CapEx program and exploration program really went -- it's really on track, so we are very happy to see things evolve in Oman, right? And to support this combination of events, we had to raise capital, right, which enable us to reach by the end of the quarter as we see on the first graph of $23 million.And more recently, we -- as Paulo mentioned, following our strategy of reshuffling of assets of bringing war chest for us to pursue growth. We sold that our Brazilian assets to PetroReconcavo. And right now, doesn't make part of this presentation, we understand that we are very well capitalized to pursue our strategy, our midterm strategy of growing Maha. I think we can move to the next slide.This is basically a summary of our income statement. And as you can see, we have positive results on a yearly basis, like our revenues increasing 31%, our EBITDA increasing 15%. Our net result decreased 6.2% with a reduction in our net debt in 23.7%. We think we can go to the next slide.So this is basically -- we can summarize how our share price behaved by the end of the year. We had a very good scenario when we had our peak production in the beginning of 2021 -- sorry, of 2022. But obviously, there is a very big correlation between Maha's share price and the Brent price. So I would say that in a share price scenario, aside from specific events throughout the year as like the change in management and also this recovering of some wells, our share price basically behaved together with Brent price.In terms of numbers, as I said, our current market capitalization is around $134 million with $22.3 million of net debt. This makes an enterprise value of $157 million. It's interesting to highlight that we sold the Brazilian asset for a total consideration -- we can reach a total consideration of $186 million. We have a very strong -- we ended the year with a very strong cash position of $23 million and very low leverage with only 0.41x leverage. I think this is a summary of our financial performance last year.
Thank you, Bernardo. Just to conclude here. We are very happy to have concluded this transaction with PetroReconcavo. And we are here in a very strong position to follow the strategy that we have started last year, doing this reshuffling of assets and looking here to opportunistic positions. We are very active in the pipeline. And we do believe that not only we will be able to close this gap of valuation between the NAV on the current market cap by showing the market the cash flow generation these assets can deliver, but also using this war chest the company has in its cash to buy assets at very attractive multiples. In addition to that, we are very excited and hopefully optimistic to see the results in Oman, which is an asset that can really here provide a very significant upside of the story of Maha.With that said, we conclude here the presentation of the fourth quarter results, and we are here open to questions. Thank you very much.
And as always, we have received a couple of questions beforehand, and I can see that people are stamping in a couple of questions here. So I will try to moderate them in some sort of orderly fashion here. And you ended here by mentioning Oman, and I'd like to combine the questions. One is, when will the transaction regarding the farmout in Oman be completed? And if you at that point could give us an update. I believe you, in the beginning of the presentation, mentioned March, but we're in March. And there will be some sort of general meeting as well on the 29th. So if we start with the farmout.
Perfect. So we expect to conclude the financial settlement within this week. So we expect to have it concluded. With that, the assignment is 100% completed regarding Oman. And that's very important to Maha to go on with the plans in testing the wells, which we also expect here to happen within the month of March.
So end March is something for the market to look out to. And here is a question that is easier probably said, then, for you to reply. But it's also stating of the fact, and Bernardo mentioned that at the end of his presentation. If we look at the recent transactions, you will receive the total proceeds that surpasses its current market cap. And if you then have some sort of result in Oman, then you will have a very interesting situation. I think it's worthwhile highlighting. But can you tell us anything on any strategy to close the gap?
Sure. Very, very good question. I think as we see here today, the company has almost $214 million of cash, plus receivables. And if we consider the DBO's transaction, we are talking here of an NPV of almost 100 -- sorry for that -- $166 million, right? If you add up our other assets, those [ $291 ] million, I'm talking here on the 2P scenario. We strongly believe that with the results that those assets are generating cash, we will be able to show the market that not only the company has an asset value that is cash, so that shouldn't have any discount, but the asset of DBO should really be much harder than what is being reflected in the current market cap. And not only in terms of reserves multiple, not only in terms of discount to NAV, but also in terms of, which is the most important, how much cash these assets are generating at this Brent level.So we strongly believe that this gap will narrow by the market being able to see each quarter how much cash those assets are generating. And the new investments that are being done to increase production, the very quick payback those assets have because all the infrastructure not only belongs to the consortium, but also is already ready to increase the production. But it's a little bit the answer to this question.
Yes. And also, I think it's worthwhile highlighting then, and it's -- well, it'd probably be not your position to comment there. But basically, it seems like the market has a good opportunity to invest in Maha because it seems like the markets have been very focused on geopolitical situations, and you have been pretty active in the situation here.I would like to go on here with a geopolitical question, and that's the high inflation and the high interest rates. How will that pursue, if it will pursue, your growth strategy? Assets will obviously be more expensive, but perhaps there will be more stressed assets out there. Do you see this as an opportunity or as a hurdle?
Let me start answering this question. Then I will pass you to Bernardo. But in fact, with the high interest rates, the markets are really shifting investments from equity to fixed income. We saw Brazil, for instance, the interest rate going from 2% to current almost 14%. So the fixed income is very generous. It's paying good rates. So this allows to have even higher rates for equity. So we see this as an opportunity of us having a very strong cash position to really deploy this capital at equity rates. I'm talking here of 30%, 40%, 50%. And while we believe we have this opportunity first, because there's a lot of scarcity of equity because everybody is migrating to the fixed income. So if we have cash for equity, we will be able to capture this opportunity.So we do see here this increase in the fixed income as a very strong opportunity for those who are capitalized to select very attractive and opportunistic assets. And one example of that, in my opinion, was the DBO's asset, which we acquired at very interesting levels. But Bernard, please add here the answer.
No, sure. I think Paulo covered ballpark of this answer. We're seeing a worldwide scenario not only in the oil and gas, but especially in the oil and gas companies, high-level companies which are levered having -- struggling to find not only equity, but also debt. I think the world's capital market in general, it's still, let's say, in a -- not in a sleeping mode, but it wasn't so active it was like in 2021. For example, in Brazil, it was really exciting, but nowadays, it's very difficult to compete with the fixed income product, with the fixed income strategy, right? So there's that follow -- copies from and says a lot of that cash is king at this moment.So we are very happy to do this transaction with PetroReconcavo because it enables Maha to have liquidity, to have cash, and to move fast in this transaction. This transaction, for you to be opportunistic, you need to move fast. And it provide liquidity. You need to provide equity to the seller so as to gain traction. So we do believe we have some already looking out for some targets. We have some good strategy here to move fast. And I believe that having cash and not only depending on that puts Maha in a position of attractiveness as a buyer.
Excellent. Thank you for that. Then we have, obviously, a lot of questions on where your next targets would be. And it would probably not be so smart to tell the market that you're going to buy something that it listed. But would you be focusing on Brazil, Peru, Oman, the U.S.? Can you give us any feel for what you're doing?
Yes. No, we do see here a very good opportunity in Latin America, mainly for that reason. Those were the countries that, maybe going back to the previous question, where the interest rates went up. So the available liquidity is migrating to the fixed income. So there's a lot of scarcity to equity investments in Latin America. I think U.S. is a space where we are planning to divest. I think it's a small asset. We want to have more scale in the region. And we do see here, Latin America is a very important oil region. We also have been very happy with the Omani environment. We do believe that Oman is a very interesting country to invest. But in fact, we are still in a moment where we need to prove our assets and declare it commercial, hopefully. So we think we're in a step behind in Oman still.
Thank you for that. And now I have one question here coming in from one of the viewers, and they are referring to news about the crude export tax in Brazil. Any comments on that? And if so, how will that affect you? Are you able to comment?
Well, no. I think this is a very recent event that happened yesterday. There was a provisional measure that there might have, for the next 4 months, an export tax of 9.2% on the revenues. Of course, this 9.2% you reduced from our revenues, but you also have the tax shield of 34% of this cost. In fact, is a negative impact for companies who has assets that export. Regarding the DBO's assets, one of them is gas, so it's not impacted because its export is only for oil. And regarding [ Bapaterraha ], today, this oil is not exported. It's sold to the domestic market. But that doesn't mean it's not going to export in the future.But today, we see that the assets that Maja are acquiring there, they wouldn't be impacted. But we need to understand if this export tax will keep after the 4 months, or it's only limited to 4 months. If it's only to the 4 months, we believe that we shouldn't have an impact. But for the medium term, we need to evaluate which is the impact on that. But in fact, for exporters, it was not a good news.
And just adding up to Paulo, in our growth strategy in looking for assets, obviously that -- we will factor this, and we will understand and factor this provision, this impact when we're negotiating or when we are looking for new assets. So in a growth strategy perspective, we're basically rebalancing prices here if this goes forward after the 4 months.
Excellent. And could you just give us an update on the DBO transaction? This is a question that we received ahead of the presentation. And obviously, you've been very busy here. So what are your expectations after jumping into this asset?
No, I think we have scheduled a general meeting on March 29 to have this subject taken to the shareholders. And we do believe that these are very solid assets. The reasons we have explained, they are producing assets that generate cash flow with their own infrastructure and with a very quick payback on additional investments to increase production. We also have presented to the market a fairness opinion in terms of valuation. So we do believe this is a very attractive transaction to the market. And also, we do see here with lots of good eyes, the partners that are coming here -- [ Hezban ], [ Jetu ], [ Harver ]. There's for sure shareholders that will bring lots of technical expertise, financial expertise. So we do believe this is a very good composition to Maha and to the [ beta ] shareholders.
Excellent. And I think that that will conclude the questions that we have received ahead and also during this presentation. But it's very interesting to see -- compare the current proceeds, your cash position with obviously your market cap. So it would be very interesting to follow Maha going forward. And as you mentioned, the 29th will be a headline. And I also believe that there is an oil --
March.
Yes, sorry.
March will be an important month to the company.
Yes. And there's also an oil conference going on now, as I understand it. So there will be more news, I think, around Maha during all of March. Is that correct?
Yes. I think March is an important milestone.
Excellent. Well, with that, Alan, Paulo and Bernardo, thank you very much for taking the time. Very interesting times, indeed, on a macro and on a micro view. So with that, I thank everyone who's watched and asked questions. And if there is any other questions, please look up the e-mail on the website for Maha. So with that, thank you very much, and have a continued pleasant evening.