Maha Energy AB
STO:MAHA A
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Maha Energy AB
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[Foreign Language] So for all your non-Swedish viewers and listener, welcome to this presentation with Maha, where we have the CFO, Paulo Mendonca from Spain. Hello, Paulo, how are you?
Hello. Good afternoon. Good to be here.
And then we have Guilherme andI believe you are in Oman. Is that correct?
Correct. Thank you for having me. Pleasure to be here.
It's a pleasure. Well, gentlemen, please walk us through this eventful quarter, the figures, the facts and all the action that has been taken. The floor is yours.
Perfect. Thank you very much. Good afternoon to you all. It's a pleasure to be here again to present the second quarter earnings presentation. So we will start here. We can move to Slide 5, please.
So here, we had a very active year, which we made the new certification of reserves. We had the closing of the transaction with PetroReconcavo. By March, we commenced our production test Block 17 Block 70 in Oman. We approved the transaction with DBO on May 23 and August 2, that after some months of testing in Block 70, we decided here to request an extension for the initial case for Block 70. These all is in line with our strategy of really creating here a company with a very solid balance sheet and cash flow oriented.
So we can move to page 7, please. So moving here to the main operational highlights. As we mentioned, we made the closing of DBO on May 23 by the issuance of almost 35 million shares. We do believe it was a very attractive transaction to the multiples. And in terms of cash flow generation, which added around 2,000 barrels of production of oil equivalent and 18.8 million barrels of oil equivalent.
Regarding Oman, we will detail in the next slide, but we started testing in March with 8 wells. We have completed the commitment of Phase I for the EPSA. 5 of those wells produce an estimated niche average of 300 barrels, 3 had issues. They had to be suspended, that doesn't mean they didn't produce. We're going to intend here to return to them to sort out this and try to put them back in production and have a successful testing. And as we have been mentioning, today, we are in this challenge to provide here a chemical treatment so that we can offload the oil.
Talking here about production. We reached in July 2,200 barrels. And we are here with reserves plus resources of almost 44.7 million barrels. That includes 21 -- 22 million barrels of 2P reserves. And almost 23 million barrels of contingent resources. I think we can move one slide, please.
Here in line with the update of our certification of reserves and resources, we do have today with the reserves breakdown of December 21 on the cash position of the second quarter. A gross asset value of -- from $294 million to $430 million. And if we include this as a net asset value discount debt from $234 million to $371 million. Remembering that a substantial part of this asset value is cash. So we do have here a very solid and substantial asset valuation, mainly when compared to our market cap. And we can move the slide, please.
Regarding production of Papa Terra and Peroá and our U.S. assets, we are very glad to say that we have restored our production of almost a year ago. In July, we had 2,175 barrels accompanied by a substantial cash position. So the company not only has a very solid capital structure, but also with production that is in line, almost the same that we had a year ago.
Talking here some highlights on Peroá, the demand of gas increased a lot in Brazil. We are seeing this movement a lot and our production grew 28% from Q1 to Q2. And in July, we are offshore signed a contract with a distribution company of the state called [indiscernible], a counter-valid for 30 months until December 2025 for the supply of 400,000 cubic meters. And this price is something very attractive in terms of dollars per million bridge term units, we are talking here of almost 13.5% of the amount. It was a very attractive price of gas when compared here to other assets that also sell gas. So we had a production in July of 618 gas barrels of oil equivalent per day.
Regarding Papa Terra, we had a tough quarter. The quarter of -- second quarter had some temporary interruptions for maintenance and storage capacity limitation. However, in July, this production was reinstated and, the well Papa Terra 37 was reactivated at the release of more storage capacity. So we are hearing with 1,375. This is a stake of Maha and we do expect here this production to keep ramping up.
Regarding United States, our production reached 181 barrels, mainly due to natural decline and also to the timing of the capital expenditures.
I think we can move on to next slide, please. I will pass you the word to Guilherme, which he will make a more in-depth update of Oman.
Thank you, Paulo. Since I'm here in Oman, closer through this asset, I can give some fresh news and results of our campaign here.
So the first thing, we last quarter, had just started, testing the wells, we're drilling during our 2022, 2023 campaign in Oman. Now we have concluded this first stage of the test that is a short-term test, sequential of each well that we have drilled. In total, we have drilled 8 producing wells on top of 2 appraisal wells to try to learn more about the characteristics of the reservoir and one exploration well that was a commitment of our EPSA Our commitment was finished. So Maha has fully completed our obligation with Oman, authorities under the concession agreement, and now we are trying to plan ahead the best way to move this project forward.
Out of the 8 wells, we tested them all in sequence for 1 to 4 days each well, and we have reached varying production rates on average of 300 barrels per well. We have seen some initial figures that represented some higher readings and then lower readings saw a good average for all the wells is around the 300 barrels per day. Out of the 8 wells, 5 already produced oil to surface, 3 did not produce on the short-term test. We are troubleshooting and trying to understand what went with those wells, maybe it has [indiscernible] characteristic completion of the wells or some other aspects that where we intend to go back, test different [ optimization ] and put those wells back to production. So this we intend to do in the next phase of the testing.
Why we did this short-term testing not a longer term? Because our site is very far from other infrastructure. So we need to ship the oil by truck, and we have small tanks to store oil in the short term. And since we have produced high heavy oil, our API is between 11 and 13 API. We were not able to reach viscosity specifications to ship the oil by truck before doing some chemical treatment with the oil or different ways of dilution to reach, especially the viscosity of the oil, so that we can transport this by truck and then injecting to the main Oman oil pipeline.
We had very good results with blending of the oil and with treatment of the oil in the lab. So now we are scaling up this treatment at the field so that we can start offloading the oil and restart the production of the wells. So for now, the field is not producing any oil, but we anticipate to restart that soon. And then we will have a better reading for long-term performance of all the age production wells that we have drilled and completed.
As for the EPSA, we have reached a point of the project that we are comfortable enough to ask for an extension for the government to keep doing test. On top of the cold production that we have already done for a short period, and we are going to extend, we intend to plan for a hot trial as well to see what is the optimal way to produce this field. So in our extension that we are at this time negotiating with Oman authorities, we intend to have different methods of production you'll see the best way to go forward and to get the full potential of the very interesting asset that we have here in Oman.
Thank you very much, Guilherme. We can move forward to Page 12, please. Talking here about our second quarter results. We finished the quarter with $102.4 million in cash. This cash does not include the second installment from PetroReconcavo nor the earnouts that we receive, the segment installment of $55 million we expect to receive in a couple of days. We had here in the second quarter, and operating cash burn of $1.7 million, working capital variation of positive 1.5%. Our bank debt was reduced to $38 million with amortization in June. And we have, again, some solid balance sheet with total assets of $234 million and shareholders' equity with [ $184 million ].
Talking a little bit of our CapEx. As we concluded the commitment on Phase I, this CapEx has reduced from the first quarter to the second quarter, reaching $3.2 million in the second quarter, basically Oman. Can we move on slide, please.
Talking here about financial income, financial expenses and investment in associate. We had a very good quarter when we talk about financial income. We had a financial revenues of $4.3 million in -- while financial expenses of $1.8 million with a net financial result of $2.4 million. Here talking about our investment in associate as we are a minority shareholder of 3R Offshore, the revenues of those assets, they enter in our balance sheet, not as gross revenues, they enter as an investment in associate. In this quarter, as we made the closing on May 23, we could only reflect in our balance sheet a couple of days of net income in this asset. So this reflects only part of June's net income. Next quarter, we will be able to -- so 100% of the quarter as well as the indirect revenues, lifting costs reflected to our stake in this asset. We had a profit of $454,000 for those days, and we expect this to ramp up within the next quarters. One slide down, please.
Talking here about some highlights. In our -- in the second quarter, we increased our production from the first to the second quarter in 24%, 1,600 to 2,000 barrels. Our EBITDA, we had a cash burn as we are not including the production of Papa Terra, this does not enter as EBITDA, but as an investment in associate. And whilst we had a net revenues for the U.S. assets of $1.3 million and a net income of a positive of $19,000. Our operating netback from the U.S. assets we also had with $25 per barrel with an average of the WTI of almost $74 per barrel. We can move one slide, please.
So here, we had a very good strong cash management. We earned $4.3 million in the quarter, it was a return when compared to [ sulfur ] of almost 6x. We had a return in the quarter of 7%. And here, we also show our pro forma cash position at the end of August with the second installment received, which would total $157 million. Let's move on slide, please, Demi.
Talking here about our share price. We are currently with around SEK 9 per share with a trading volume of $0.5 million, depending here on the day. Our market capitalization, including the 35 million shares related to the DBO transaction would reach $143 million. And when we compare this to our cash -- net cash position of $119 million. This already contemplates the second installment to be received now in August. Our key financials here for the last 12 months, we had, of course, this mix a little bit with other assets, but $37 million in revenue with a 2,000 net reduction is in line here with what we have today. An EBITDA of $16 million and a margin of 43% and an operating cash flow of $34 million and basically a net result of $400,000. If we can move one slide, please.
Talking here about our key metrics. As we mentioned, we reached a position of cash of $102 million at the end of the second quarter. This will be increased with the second installment and our Maha's production only for our U.S. assets reached 211 barrels per day in the second quarter. As we mentioned, this quarter was still a transitory quarter but showing the results of the DBO's transaction.
In the next quarter, we will have it complete with a full quarter. As we mentioned also, we completed our drilling campaign in late second quarter in the month. Our CapEx for the following quarters are expected to reduce, we have a very solid cash position of $102 million, plus the second installment with [indiscernible], and we still have $36 million of earn-outs which would be in the next 2 years.
As we always say, our main focus is to deploy this cash position in very accretive opportunities, focused always in cash flow generation. And we are here very excited to conclude this in the very short term. So we do expect here, we'll be able to conclude that and assume operations of this new asset. This is -- this remains here our main focus. I think we can move one slide, please, Guilherme.
Well, to conclude here, some -- also some metrics here on Brent product, we had a reduction in the Brent prices for 118 in the second quarter to 74. As we see here, the royalties they have remain in those levels of $20. And on the other hand, the production expenses increased, is also related to the Brent prices increase and also with a netback in the second quarter for the U.S. assets of $25. Remembering that this is only related to the U.S. operations included here in the footnote. And for the next quarters, we will also include some numbers here for the whole quarter for the Papa Terra and Peroá cash flow.
I think with that, we conclude here. Again, very happy to be here, and I'm open here to questions.
Yes. Excellent. Thank you for that. I think it was clear. And I will start with a couple of questions that are coming in here regarding Oman. And it's a question about the process regarding the extension, what can we expect? And if is there a plan B in Oman?
Yes. Here, as we mentioned, we requested an extension, right? And this extension has 2 main objective, right, to keep testing the current wells in the coal production for more time. So we can have a more furnace of this -- of the production profile and also to enable us to start offloading the oil that is produced. I think we are still here working on chemical solutions. We hope to have this successfully made in the next quarter, hopefully. So this is our focus here, keep testing the coal production in parallel, being able to offload the oil. With those 2 informations, we will be able here to have a correct decision to move forward to a declaration of commerciality.
Right. Thank you for that. And we will continue with a slight focus on Oman and the chemical treatment. How long time will it take to get this efficient chemical treatment in place in Oman so that you can perform a proper test of the well quote-on-quote.
Perfect. I think that's excellent -- it's an excellent question. As Guilherme was saying, right, we -- our oil is a very heavy oil with highest quality. We need to make this oil to be suitable with the facilities to the company that acquires our oil. This could be made by chemicals or by mixing diesel, however, heavy mix diesel or lighter oils, this might harm the feasibility of the project. So imagine buying diesel for Brent plus a premium and then selling the oil with the combination. So technically possible. However, economically, needs to make sense just to mix diesel.
We are here optimistic that the chemical treatment will work and this will have a much lower cost when compared to other solutions such as diesel and others. We do expect here, and I will ask Guilherme if he agree with me, and we're not -- we're very open here. I do believe that in the next 45 days, maximum 60 days, we will have this answer to disclose to the market. But Guilherme, please.
I agree, Paulo, it took longer than we preferred as of the start this test, but now we have 2 companies that have done lab tests with our oil, and they have reached the specifications that we want. In terms of viscosity in the lab. So now we are starting the few trials. So I think the few trials could have good results in 60 days.
And again, one thing that is important, right? It's not a matter of producing oil. It's a matter of producing oil with profits, right? We could here produce this oil mixing a lot of diesel, but this would harm a lot of the financials. So we are here -- we are very sure that we are taking the correct decision, moving with this chemical treatment instead of other ones because this is a decision that will create a feasible project, not technically speaking, but also economically speaking.
Excellent. And that's a segue to the next question here because there is a question here. Is there any estimate on how the chemical treatment of the oil in Oman might affect the netback of the field? So we have the time frame here and do we have any estimates regarding the netback?
Yes. barrel is not very significant. Those chemical solutions that we are talking about less than $1 per barrel of the chemical. Of course, we will need to adjust based on the field results, but it should not be harmful. If you go for dilution, then the bill could be higher because you need a higher proportion of dilution to reach the same result.
Perfect, Guilherme. And it is a very important question.
Yes. And am I right that you have mentioned some 300 barrels a day per well in Oman. And if so, how should we interpret that? Could we extrapolate that? Or what can we see going forward?
This is an average per well of the wells that produced, so we could extrapolate this as the initial production per well. So each well starting with 300 barrels. But if we started the 5 of them immediately, they would be producing 1,500. Of course, there is the natural decline of the wells. And this is what we want to have it sure with this extension. We want to understand which is the medium -- the short-term and the medium-term performance of these wells. What are the main drivers here, right?
One well producing alone can have a specific type curve. And the 5 wells producing together, this might be a different type. So that's the main reason we want -- we need this extension here to understand the type curve of the well. I think it's a production that it's good for initial well, right, 300-barrel. If you look everywhere in the world, an initial onshore production of 300 barrels is something that is in line with the market. However, that we need to understand how this is being raised with time.
Okay. And this chemical treatment here and forgive me my ignorance and the cost of that, is that CapEx or OpEx?
That's OpEx. On an ongoing basis, yes, basically, we buy the chemicals. We use our own installation to inject that [indiscernible] and that's it. So it's an operational cost.
And then if one -- I have a question here, someone is looking for the CapEx requirement for 2023, '24. Where would you point them, in what direction would you point them?
Yes. I think 2023, we have concluded our CapEx requirements, right? So now we expect here really to test the production. And of course, and also, our OpEx of our onshore field. But in terms of CapEx, this is strongly diminished.
Yes. Excellent. And I will run through some geographical areas, and then I will finish off with a couple of questions regarding the balance sheet, the acquisitions and the way forward here. My first question is Brazil offshore acquisition. Do you have an update? And what can we expect? What should we look for?
I think we had a second quarter that had some temporarily interruptions. But in July, this production will be restored. We do expect here the second half of the year to be boosted by production and by cash flow as a new -- as a fourth well, Papa Terra 37 was restored. So we are very optimistic here in this boosting Papa Terra. I think Peroá, the gas asset is a more stable production. And of course, the great news with this new contract with the [indiscernible] that really increased the price. So we will see this also in this third quarter regarding the cash flow generation of Peroá.
And would you care to just comment on the U.S. assets as we're on our way around the globe.
I think we do see here IB as an asset that generates cash. And we intend to continue activities in IB. Regarding LAK Ranch, we expect to have the closing in this third quarter hopefully, within maybe, within this month or next.
Interesting. And last time when you had your previous quarter, you were highlighting, well, the market and the owners and the viewers about future transactions. And what sort of financing structure are you considering for future M&A transactions?
Yes. We are here very optimistic in concluding this transaction in the short term. We do want here to use our cash position to really get into assets that have very low geological risk, but need cash to increase production. So we can perform here a redevelopment and revitalization of those fields. In any of those transactions, we do expect here to have debt plus equity. But when we look to our cash position, this could be boosted by debt. I'd like to say that a healthy equity debt ratio is from 50% to 60% of equity and the remaining -- sorry, 50% to 60% of debt and 40% to 50% of equity. So when -- so if we look for these numbers, our cash position of $120 million, our fair part could be doubled. So we could have a fair part of $240 million, $250 million if we add leverage here to this map.
And what would you prefer, you're going for acquisitions? Or are you going to any other kind of return to shareholder, EI dividend or something else?
I think it's a combination of acquiring assets that are dividend generator. So getting to assets that provide very high IRRs, so we can become a company that could distribute dividends in a very strong way.
And coming back to your cash position versus the market cap. Would it be fair to say that it's a buyer's market areas, EI, with the kind of warchest you have, you're quite happy with your position.
I think, no, we are -- we are in a moment for cash -- values a lot, right? The value is more than lots of things. So I think the company -- the balance sheet of the company is fantastic. I think we are in a position to really get into assets that are -- that provide very interesting IRRs. I think the market capitalization doesn't reflect the cash and the assets we have. So -- but I think it's part of this transition of the market perceiving. We're delivering results. We're delivering EBITDA. We delivered profit. So I think we need to be very -- I think it's part of this. I'm sure that with delivering here, good financial results, good operating results, there's a natural reaction that the market cap will be corrected. I think it's part here of any company. And I think we are very, very happy with the current structure Maha has.
And will there be any discussions, any thoughts of implementing a share buyback program?
Look, this discussions, we -- unfortunately, we cannot say here. This is very confidential. I'm sorry, just not going to this question.
No, it's an easy question to ask and perhaps not so easy to answer, but we'll have to take it with that. And that's fine. I thank you for that. What would you like the market to watch out for as it comes to March. Shall we sit tight and wait for the next quarter? Or will there be anything else going on -- well, you have the time line of the Oman and the extension and the chemicals there. But would there be anything else that we should be on the lookout for?
I think we should be looking to the acquisitions that we -- the management here is strongly working on that. I think we should look really to the next quarters to the operating and financial results of our assets at Papa Terra. And I think the third point really, how does this test in Oman have an outcome. I think these are ranking 1 to 3 are the main important aspects we should be looking at.
Excellent. Very interesting. So it will be a fascinating way going forward, looking for Oman and the opportunities that you have. So Paulo and Guilherme, thank you very much. And I will now switch to Swedish.
[Foreign Language]
And Paulo and Guilherme, thank you so much for your presentation and good luck out there. Bye-bye.
Thank you very much. Good afternoon. Bye-bye.
Thank you. Bye-bye, everyone.