Maha Energy AB
STO:MAHA A
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Maha Energy AB
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[Foreign Language] Hello, guys. How are we today?
We are just fine. Thank you very much, Kaarlo.
And Andrés, doing fine?
I'm very well from Calgary. Thank you for asking.
Excellent. Well, Jonas, today Maha delivered its Q2 -- the Q2 results. Could you walk us through the quarter and your outlook for the future, please?
Certainly, Kaarlo. And thank you very much for hosting this webcast again. And welcome, everyone that's watching live here on YouTube. I'm very pleased to sit here. Actually, I mean Oman today, like you said, and we are pleased to report a very busy and very eventful quarter. Before I hand over to Andrés, I just want to make a few sort of summary statements. The quarter was busy, like I said. The first thing that happened was that we closed our financing which was hard work that we culminated in the closing in -- at the end of March, and that secured really our future as a company. But that also led to the warrants being exercised. If you recall, we had some warrants that were part of the SEK 300 million that we issued back in 2017. And an astonishing 98% of warrant holders exercised their warrants per shares, which was a huge uptick for us and obviously really impacts our net cash position and also our exit net debt ratios today. The quarter saw a continued increase in oil price. It was almost a linear gradient for the quarter. We started the quarter at $65 per barrel and ended at $77. There has been some weakening since the quarter ended. Currently, we're back to about $65. But the strong oil prices really helped us. What turned out to be quite a troublesome quarter for us at the Tie Field, we did suffer some mechanical issues on one of our best producing wells, Tie-1, which was down significantly for the quarter. All in all, we lost about 880 barrels of oil per day during the quarter because of these mechanical problems. I'm pleased to report, though, that as of mid of June, they were all resolved and all our fields are producing as per plan since middle of June. So we can breathe a sigh of relief there. We also increased our -- we accelerated we our growth in the Illinois Basin Indiana area. We are currently drilling. We're very, very busy there, and we have some great results coming out of Indiana. In fact, with only 3 out of 9 wells that are currently being drilled and stimulated, we are already at almost 400 barrels per day of oil production consistently and lots more to come from Illinois. We also set a record Walgrove 11-6, which was one of the wells that we drilled here during the summer, came out on initial productivity of over 120 barrels per day, which Illinois and Indiana is an incredible achievement considering that just 5 years ago, 6 years ago, initial production from these wells will be in the 50-barrel per day range. So we're very pleased with the outcome there. And last, before I hand over to Andrés, who is jumping at the bit, we started drilling our first horizontal well in the Tie Field. We did that on the 9th of July, and I'm pleased to report that as of today, fresh off the press, we are at 1,874 meters. We're going to 90 degrees. We're currently about 37 degrees. So without further ado, I'll hand over to Andrés, who will walk us through the financial figures for the quarter.
Thank you, Jonas. Good day, everyone. Welcome to another pretty webcast, and I'll just jump into our Q2 results. We have our -- we have Slide 4 up, which is a slide where we like to present certain financial highlights for this quarter and the past 4 quarters. These are in thousands of U.S. dollars and unaudited figures. So at a quick glance, you can see this -- this was another strong quarter. Revenues surpassed $15 million. That's up 41% from a year ago and is down 4% from the most recent quarter. EBITDA was $9 million. That was up 1.6x versus a year ago and down 10% versus the recent quarter, mainly as a combination of the lower revenues and the higher OpEx that we were referring to earlier. Net result was 2.6%. That was 5.4x higher than a year ago and down 53% versus Q1 for reasons that I will go through in another slide. But one of the contributors to this, and as Jonas was referring to, is -- was the lower production this quarter, just over 3,100 BOPs, mainly due to certain planned and unplanned well interventions. This in turn was partially offset due to the increased realized price this quarter, that was up 126% from a year ago and 16% versus Q1. This also lifted our operating netbacks for the quarter. These were up 157% and from the comparable period a year ago and 5% from Q1 2021. The net result of $2.6 million translated into $0.02 of EPS for the quarter. Going to the next slide, Slide 5. We present certain balance sheet highlights. And also, as you can see at a glance, our -- the balance sheet remains increasingly strong and conservatively leveraged. Cash and cash equivalents for the quarter ended up $34 million. This increased our working capital to be at a surplus of almost $23 million, mainly following the refinancing and equity transactions of the quarter, but also after contemplating the payables that arise from the capital activity in the quarter. Total assets and shareholder equity both significantly increased due to the capitalizations from the debt and equity transactions during the quarter. The SEK 300 million bond was repaid early in May, it was early redeemed following the BTG financial transaction. And at the end of the quarter, net debt was $20.5 million. Also in connection to the bond, TO-2 warrants were exercised during May just under $7.4 million, which translated into proceeds of SEK 53 million. All in all, these warrants had an exercise rate of 98% since -- over the 4 years. And there's no dividend plans as Maha continues to grow. Going to the next slide, where we show our quarterly production. Following the record production quarter during Q1, Maha underwent certain planned and unplanned well interventions this quarter, which affected its production, lowering in the Q2. Despite this, and as we were referring earlier, revenues remained high due to the increased oil prices -- the steady recovery in oil prices, down surpassing pre-pandemic levels, we're looking at 135% increase versus a year ago at about 13% from Q1. Going to Slide 7. There are certain key metrics that we like to keep track of, netbacks being one of them being -- just netback is basically what the return that is left on every barrel sold after royalties and operating expenses. This quarter it was $35 -- almost $35.5, netback, that's 1.6x higher than a year ago and about $1.70 versus the most recent quarter. And the higher Brent was the main contributor for this with -- and this being partially offset by higher OpEx this quarter. And if we look at the chart in the lower left, we can see how these onetime items affect the unit operating cost. And in this quarter, and particularly, it's twofold, is the higher cost and also the fact that during these well interventions production had to be shut in. So basically, these grades are less cost absorption in our unit cost. Lastly, cash balances, obviously. We are -- at the end of the quarter, we were at $34 million. And now we can see that the company is well capitalized following the refinancing and equity transactions of this quarter. And last but not least, on Slide 8, we also obviously track our net results. This quarter was up $2.6 million gain, lower than Q1, basically from the lower sales, higher OpEx combination, the higher interest cost from higher loan amount, following the BTG loan drawdown and also from some unrealized FX from the USD appreciation on the USD-denominated loan. But all in all, another strong quarter. If we exclude for a moment, the LAK impairment, this will make it number #15th of consecutive positive results. So with that, I will hand it back to, Jonas in Oman.
There we go. Now you should be able to hear me. Yes. Yes. I read somewhere that the second most used phrase in 2020 was "you're on mute". So I'm guilty on that one. Thanks, Andrés, for that. I think it's fair to say that -- if we look at our first 6 months, I think our revenue for the first 6 months is coming very close to the full year revenue of 2020. And that's -- the result of that is the combination, obviously, of higher oil prices. Last year, of course, was a very tough year for the oil industry in terms of oil prices, but also our improved production. So I'll give you a little bit of an operational update here. We'll start at the Tie Field. The Tie Field was really the main culprit for our reduced production numbers for the quarter, like I mentioned at the introduction. For the quarter, we were roughly almost 900 barrels per day lost production from the Tie Field compared to plan. And the reason for that is our star producer, TA-1, was down almost for the entire quarter. It required, I think, from memory, at least 3 different separate rig interventions to not only recomplete it as a pumper, but also to clean out and recover some mechanical -- mechanically stuck issues in the short string. At one stage, we even had some [indiscernible] wires stuck in there that we had to push out. So all in all, the TA-1 well was down for 56 days straight, and that obviously hurt our production. The second issue on the TA field was we completed the drilling and the testing of TA-3. As you recall, we found Itaparica, new formation that took some time to test. And when we want to put TA-2 -- sorry, TA-3 on production, it produced -- when we put it back to the battery, it produced slightly less than what we had planned for in our forecast. TA-3 has since been recompleted and is now on pump. It was free flowing at first. So that really led to the reduction in production for our Tie Field. On a more positive note, despite this, I would say that, we delivered almost 0.25 million barrels from the Tie Field, was down slightly compared to Q1. And we continue to deliver gas to our gas customers and the new compression package that we installed in 2019, early 2020 is working well. It's dehydrating the gas and we are now waiting for more gas to come on after we finish the horizontal, which we spud at the beginning of July. So it's not really a quarterly event, but we can mention it as subsequent event. The TA-4 horizontal, it's the primary objective, it's a single horizontal, targeting only the Agua Grande reservoir. Agua Grande is about 2,000 meters below the surface. And like I mentioned at the introduction, we are very close now to the top of the Agua Grande, we're at 37 degrees to the horizontal, and we expect to be finished with this well towards the end of September. And this well, given that it is a horizontal, should produce quite handsomely. And the idea is that once this comes on production, we will be at plateau at the Tie Field. Go to the next slide, please. We'll mentioned about Tartaruga. Tartaruga was slow and steady in the quarter. The quarter was dominated by the testing of Maha-1 or the Tartaruga 3 well. Unfortunately, despite our best efforts, Tartaruga 3 continued to produce mainly water despite our hopes that it would be dewatered and oil would still -- would increase. I think we will have to announced that Tartaruga 3 will be a subject of further investigation before we can do anything with that well. We will now focus on the Southern fourth block. If you recall, also the Tartaruga 3 well was targeting a Northern fault block. And clearly, we don't fully understand the geology there yet. So we will now revert back and place more wells in the Southern block for the future. On the Petrobras divestment, we are told that Petrobras is in final negotiations for selling their 25%. We do not know who the incumbent might be. So we are still awaiting that process. Last, I just want to mention that part of the reason why Tartaruga was slightly less than planned for the quarter was the impact of the Tartaruga 3 well testing. That has now been completed and both wells are back on production. Go to the next slide, please. So we should be on slide -- yes, you are on the right slide, I see that. So LAK Ranch, nothing to report on LAK for the quarter. It is still shut down, and we're still evaluating oil price scenarios on that field. On Illinois Basin, we went out in end of May with a revised budget for the company and the revised capital program. The original capital program for Illinois Basin was 4 wells for the year. We have revised that now to 12 production wells and 1 injection well. And as of today, I can say that 9 wells have been drilled. We are drilling 3 more. Each well needs to be stimulated. And out of those 9 wells that have been drilled, most of them have now been stimulated. And like I said at the introduction, 3 out of those new -- 9 new wells are now starting to yield oil production. So we still have another 6 plus 3 wells to join the production. The average for the quarter was down at 164 barrels per day. And the reason for that is that some of the producing wells had to be shut down when we were drilling some of the new wells in that area. Right now, current production out of Illinois Basin is growing. It's been -- it's the highest it's been since Maha took over. We're steadily right now about 375 barrels per day. And production -- we anticipate production to grow further as these wells gets drilled, stimulated and dewatered. And I did mention that we have a Maha record on Illinois Basin initial productivity on Walgrove 11-6, which was 125 barrels per day of oil, and it's still doing very, very well. As of today, I see it's come down a little bit but 120 barrels per day. So the résumé or the summary for Illinois Basin. So far, it looks great, and we look forward to the United States taking a larger chunk of our corporate daily production numbers. We expect to end the year at about 700 barrels per day coming out of Illinois Basin. But if we get more wells like Walgrove we will probably exceed that. Right. I think that summarizes the operation update. If we go -- before we take questions, I just -- we have a very busy fall. Day after -- day after tomorrow, we have Aktieportföljen Live. There will be a presentation by the company. And then we are presenting at ABG Investor Day on the 14th of September. We're also part of the Pareto Oil Conference in Oslo on 15 and 16. And then on October 7, we will hold our Annual Investor and Shareholder Information Evening. Because of COVID, we will do that via this channel here, YouTube, it will be a digital event. It will not be a live event where we can meet. Hopefully, we can revert to normal operations sometime next year where we can hold a physical meeting. And then our third quarter report is released on the 22nd of November. So with that, perhaps we can go to questions, Kaarlo. I know that you have received some already?
Yes. Yes. Thank you for that. Well, the first is about the actual production versus the expectations, and in this case, my interpretation would be expectations based on not only the market but company communications. Where the expectation seems to have been higher than the outcome for Q2, would you like to elaborate a little bit on that?
Not more than I've already sort of briefed in operational update. The reason for that was TA-1 being one of our star producers. In fact, if you go to the ANP, which is the Brazilian regulatory authority on the petroleum operations in the country, you will find that 2 out of the top 3 producing wells in Brazil belongs to us. So when one of those key wells go down, it impacts us quite hard. Now of course, we are busy drilling a new horizontal. It will -- the horizontal will be followed up with another horizontal in the Sergi. And once those 2 wells are in place, we should have sufficient extra capacity, spare capacity in the system. So that in the event in the future, if a well goes down, like TA-1. TA-1, it's been producing since 2019 and it's produced over 1 million barrels to date. It's been an excellent producing well. It's currently doing about 800 barrels per day. So when a well like that goes down, we feel the effects immediately.
Well, on the fly of that, I received a question here on digital. And you can answer this at your own leisure, of course. But what is the total production at the moment now that all the wells are producing as they should, if the reader understands is correct? And what is the forecast for the upcoming month?
So current production corporately is about 4,000 BOEs per day at the moment. And we do not release month-by-month forecast production numbers. So I'm not going to -- I don't have it in front of me, but -- and we wouldn't release that anyway. All I can say is that our estimate for the year, the production forecast for the year between 4,000 and 5,000 BOEs per day is still valid. It still holds. We see no reason to change that at this point.
And there's another question here regarding Tartaruga. And given the fact that you have gone through Tartaruga, it's just a very simple question, will Tartaruga be producing on the same level as 2019? And if so, do we have any estimates?
The quick answer to that is Tartaruga will not be producing in the 2019 numbers. The primary reason for that is natural decline. What we will look into is perhaps to recomplete one of the wells. We do have some shut-in production on one of those wells, and we are looking into that right now, which would be an easy game for us. But the overall objective now will shift towards the Southern fault block. And we do have some proven reserves there that we can access relatively easy, but that will require further drilling. And in 2021, we have no drilling plans in Tartaruga.
And as you are now in Oman, do you still expect to start drilling there in the first half of 2022?
Yes, yes, indeed.
And jumping over to financials here. You mentioned that TO2, the warrant program there. And you mentioned the fantastic take-up 98%, if I'm correct. But could you elaborate a little bit more about the significance of the full utilization more or less 98% of this program?
Well, of course, it's a funny thing. Those warrants, typically, you would expect -- it's economic theory serves right, you should expect 100% uptake. But that's never the case. As long as I've been in the business, I've never seen 100% uptake on these kind of warrants. But 98% is excellent. I can only interpret that as apart from, of course, being from a capital standpoint, but I can only interpret that as a great confidence in our company. And that those funds SEK 53 million that came in, in the second quarter. Of course, that really helps us to -- in the sense that we are very, very well capitalized at the moment. I might want to add to that, that with the stronger oil prices and our current production, we are spending quite a lot of money on capital, but we are still seeing free cash flow after all expenses, all operating costs, royalties, G&A costs and CapEx and we're still seeing positive cash flow. So we're in an excellent position. I'm really happy with our current financial situation. We are gearing up costs and capital expenditures. We will be drilling now pretty much a nonstop in TA for the foreseeable future. We will also be drilling in Tartaruga sometime next year, and we are gearing up here in Oman. So this capital will find a home. But obviously, in line with that, also our production will continue to grow. So I think I'm very, very happy with our financial position at the moment with strong cash balance and very low net debt ratio really. So yes, I don't know if I answered that question? I rambled on a little bit there, but...
Well, basically...
I hope answer.
Yes. Well, basically, the strong oil price has increased the cash flow, which gives you an excellent situation and notwithstanding the warrant program. So I think that was a granular answer, if any. The Illinois Basin, you touched upon that. And you mentioned that this will be a significant part of your contribution. Would you like to put a number on that, anything in the near future?
No, I can't put a number on that. And it's not going to be a significant contribution to the corporate bottom line. I mean right now at 400 barrels per day, you're looking at 10% contribution in terms of production. What I will say, however, is that Illinois Basin at these oil prices and these netbacks, it's bread and butter. It's slow and steady. It's safe. It's low risk. It is an oil price play. If oil prices go down to, say, $40 per barrel, we might have to take another look at our investment approach in the Illinois Basin. But we have lots of locations. I think our plan calls for drilling another 60 wells over the next 5 years. And I think that will suffice quite well. And it really is a growth of a solid leg in the United States and also provides further diversification and security for the company.
And I will be jumping around here a little bit geographically because we have a question here from regarding TA-1, the Well 7 TA-1 has gone from -- and I'm just reading here, 2,460 barrels in March '20 to 961 in June '21. Any comments on apparently increasing lower output from this well?
Reading between lines there, Kaarlo, I think that the reader or the individual posting that question is referring to test data from the -- when the well was drilled and tested back in 2019, I think it came on in March or April 2019. So you will see a natural decline with these wells. Like I said, TA-1, has been on production now for, I guess, just over 2 years and has produced over cumulatively over 1 million barrels. I mean it's an excellent well, it will most likely do better than GTE-4 and GTE-3, which both the those wells have produced well over 2 million barrels each. And -- but they've been on production for well over 10 years. So I think that's what the individual is referring to. So current production is in line with normal decline of the field. And don't forget the TA-1 was on natural flow for the better part of 18 months before we converted it to pump. So that should not come as a big surprise.
And I have another question here regarding the pandemic. The expectations. Well, obviously, expectation for the COVID on the autumn/winter. Have you taken any measures there? Would you have any estimates on the future, on the effect?
No. I mean, COVID continues to affect us, primarily obviously on all 3 levels. We've got oil price, that's market volatility. I think we see that in the current oil price, the fear of this delta variant. It impacts us logistically. It's very difficult for us to move around as an example. I am currently in Oman. Oman had their borders completely closed for a better part of, I think, 4 months to all foreigners that has delayed us getting boots on the ground here. They are currently opening back up. So we will be able to start to populate this area here with our people and get things going. And getting people in and out of Brazil, although Brazil has remained open, has been a real challenge in terms of getting flights. It really becomes a logistical problem. But it's nothing that we can't overcome. It just means delays. And the third, of course, is the impact of people being sick, and We have had our fair share of COVID-sick individuals, primarily in Brazil, where we've had some senior staff been taken out of action because of COVID. So it continues to play havoc. But I think it's -- we've all adapted to these new norms and we all look forward, I think, to returning to normality as soon as we can.
And I have a question here regarding LAK Ranch. At what oil price, will you motivate a start?
Currently, we are reviewing LAK Ranch. It's hard to put a number on that because it's also depending on inflow performance. So we have taken the liberty of starting a few wells up here post second quarter, but we are still evaluating LAK Ranch. So I don't want to venture -- there's no hard number that we can speak to.
And in the previous quarterly update, you introduced the creation of an ESG team and launched a sustainability review. How is that developing? And can you give us some examples on the contributions?
Sure. Yes. I mean, ESG is obviously an important factor now that we are growing. And I think towards the end of the year, I'm hopeful will support some of our peer -- pass some of our peers in Sweden in terms of production. So it is taking more and more of a center stage. One of the examples that, for example, our ESG team is concentrating on actually at the moment is the ultimate here in Oman is requiring a greenhouse gas emissions report and also how we can monitor and improve our greenhouse gas emissions in the here. So we've been quite busy on that. We're also very busy on HS&E safety training, particularly in Brazil. We utilize this DuPont stop system, which is a safety behavioral system program. It's very beneficial. It's been around for a very long time. So a lot of efforts going into training all our people to those standards. And we're also implementing quick response teams for potential environmental spills. So they're keeping themselves very busy.
And I have another question here regarding, well, cost inflation or the price of the CapEx as it were. Given the fact that the oil price is recovering, but we have the pandemic, do you see any development in increasing prices for the goods that you require? Or is it stable, flat?
We have definitely seen an impact of -- I don't want to call it inflationary pressure because what -- with the downturn, a lot of equipment, a lot of people were laid off. And with the uptick in oil prices, there's been sort of a scramble to get to that equipment and personnel. So there's less equipment and less personnel in circulation. So -- and for example, in the Illinois Basin, I think our costs have been impacted by about 8% and more than what we had budgeted for on our drilling campaign there. In Brazil, at the moment, costs are somewhat stable, and we haven't seen as much of an impact in Brazil as we had in the U.S. But I think the reason for that is market-driven. U.S. has a different market than Brazil. So I think that explains the cost increases in the United States.
And what can we expect from Maha going forward? Consolidating existing business opportunities this acquisition or a bit of both?
We'll see that. Yes, bit of both.
Well, thank you for that. It's been an interesting quarter. And it seems like things are getting well, if not back to normal. So heading towards normality, whatever that may be. So we thank you for the presentation. And if there is any further questions, please don't hesitate and send them directly to the company and to Victoria. Well, with that, I thank all the viewers, and I thank Jonas and Andrés. Thank you.
Thank you, Kaarlo.