Maha Energy AB
STO:MAHA A
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Maha Energy AB
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[Foreign Language] Jonas, Andres, nice to see you again. Please take us through a very eventful quarter.
Thanks, Kaarlo. And we see quite literally 5 minutes before, we have a fire alarm in the office building, but I'm coming to you from my house here in Canada. So before I hand over to Andres, if he can make it, I just want to say a few things there. This marks actually our 12th consecutive quarter where we have profitable numbers. So I think that's a great achievement from the Maha team and we'll show you some figures on that later in the presentation here. The other thing I want to sort of mark here is, and it's a subsequent event to the quarter, but we have landed the Oman Block 70 acquisition, and that really completes what we consider to be our 3-legged-stool strategy where we want to diversify our risk across at least 3 jurisdictions. COVID continues to play havoc with us. I'm happy to say that we have not had to reduce production because of COVID. But you can definitely see it in terms of efficiency -- lack of efficiency, or reduction of efficiency, I should say. Lastly, before we progress here, the oil price has stabilized. I think we can start to at least begin to see the light at the end of the tunnel of this COVID pandemic and I think that we will continue on an upward trend here as the world comes out of this lockdown. So if you have any questions during the webcast, we encourage you to either mail them to Victoria at mahaenergy.ca or you can place them in the YouTube field on your screen there. So let's see if we have Andres available. Are you -- did you guys get your fire alarm sorted out? No. Apparently not. So I will have to go through the financial highlights until they get their fire alarm situation sorted. So like I said, Q3 financial highlights, we have similar production numbers to the same period as last year, third quarter last year. We had 3,593 barrels of equivalents per day. And we had very similar production numbers from our second quarter. Unfortunately, our production has not increased as much as we had planned. And I'll touch upon that later in the presentation. That generated quite a okay revenue for us this quarter. But if you compare it to last year, Q3 2019, where we had similar production numbers, of course, our revenue was much higher, $16 million. Our realized price, or I should say, selling price is -- this is all related to the Brent price, $36.39 for the quarter compared to 50 -- almost $55 per barrel in Q3 2019. So that explains the revenue numbers. We still generate a healthy EBITDA. However, our EBITDA is somewhat lower compared to, say, Q1 at the beginning of the year where we had a similar production numbers. And that's primarily due to efficiency losses in COVID. We've also added the Illinois Basin where that asset is slightly higher operating cost per barrel. Net result of a positive $1.8 million results in about $0.02 per share for the period. We continue to have a very healthy operating netback of $21 per barrel, although that's down, obviously, compared to Q3 2019 and as a result of the higher oil prices we saw last year. But even at a netback of $21, I can remember back in the '80s and '90s where we had netbacks of between $5 and $7. So it's still a very healthy netback for us. If we take a look at our balance sheet, we still maintain a very healthy balance sheet. Our cash has grown almost $2.5 million since the last quarter, which again is a testament to increased production but also higher oil prices that we've seen over the summer and early fall. We have a positive working capital surplus and we do have the bond which comes to maturity in second quarter next year. We have an interest payment here in a few days. If we go over to -- just to take a look at our quarterly production, we can see here on this chart, there's a historical chart showing our production for the last 5 quarters. You can see that it's been somewhat stable, between 3,000 and 3,500 barrels of oil per day. That's primarily due to the slowdown in the second quarter that we decided to postpone or suspend certain operations in order to conserve cash. You can see the oil price, the very, very dramatic drop back in the beginning of the second quarter. It dropped down to just under $10 per barrel for the Brent oil price back in April. Since then, we've seen a bit of a recovery. And lately, of course, it's done a rebound. And as of this morning, it was well over $45 per barrel. You can see that our average oil price for the third quarter was under $43 per barrel. Again, I spoke about the netback. The big chart on this slide is -- that's our netback table. We can show how much we pay in royalties, how much we pay in operating costs and what our royalty -- sorry, what our netback is, that $21 per barrel. Operating costs have come up somewhat. We're just over $7 per BOE in terms of operating costs. That is not going in the right direction, but that is a function of just slightly more cost on primarily Illinois Basin. Also additional water handling at the Tartaruga field along with just general efficiency losses due to COVID, things coming in later, delays and just delays in terms of permitting and transportation and such. Our cash balances, you see we took a bit of a dip there in Q2, primarily due to the extremely low oil prices. And our cash balances have somewhat regained its primary position that we have in the company. So we're standing very healthy. Net result, we can -- like I said at the onset, we still continue to show positive results. Q2, we saw just under $0.5 million of net result, which is a real testament to the hard work and the quality of our assets. Q3, $1.8 million in terms of net profit to the organization. Okay. I'll go through real quickly then operational update, what has happened during the quarter and also subsequently. So let's focus on our Tie Field. The first thing is we continue to have -- be affected by the COVID-19 pandemic. Brazil is, I think, the third largest country that has been hit by COVID in terms of numbers. And we can definitely see that we've had now, I think, 13 cases directly in the Maha organization in Brazil, and everyone has recovered. But every time somebody goes out with COVID, there is quite an elaborate isolation procedure and quarantine procedure for people that have been in close contact. So we can definitely see that COVID continues to ramp issues for us in the field. 235,000 barrels were delivered from the Tie Field with 153 million cubic feet of gas during the quarter. This is -- in terms of gas, we saw a big uptick during the quarter, primarily because one of our main customers secured an additional gas outlet. So we're happy about that. We finished the gas reinjection project during the quarter. That has now been installed. It's been commissioned and it is working. And of course, that is -- really gives us 100% redundancy in terms of gas. Even if our gas customers go down for whatever reason, we do not need to reduce that oil production as a result thereof. So that's a very important key component on a go-forward basis as we ramp up to our plateau in the Tie Field.The quarter has been quite troublesome. And also subsequent to the quarter, we continue to have problems on primarily GTE-4, Tie-1 and Tie-2, which is the well we have just finished drilling. What that results to really is that, in essence, half of all the zones that should be in production have not and is not in current production until the issues we have resolved -- get resolved. On GTE-4, the short string, Agua Grande, we cleaned that up using a workover rig. We swabbed it. And at the last run before turning it over on the pump, a blanking sleeve got stuck in a hole and subsequent fishing operations were unsuccessful. A workover rig is currently over that well right now as we speak. And we are recompleting the entire well so that both zones can come onto production. So that's quite a significant loss of production, and that has been outside our sort of normal production all the way since the end of May. So that is a big thing that has to be resolved very quickly because we're missing out quite substantial production out of Agua Grande and GTE-4. Then at the end of October, so this is subsequent to the quarter, the Tie-1Â well was shut down for about a day whilst we were doing some hookup works for new flow lines to that site, and also a firefighting system that was required for the gas compression facility. When we turned it back on, the Agua Grande did not restart the free flow. So we've had to help that. We had a local rig there for better part of 10 days to clean that well out of water. And now we've hooked that up temporarily to a jet pump. So that should start to contribute again here any day. We continue to have operational issues on our jet pumps and that's primarily due to the inconsistent power feeding the pumps. So we're trying to ascertain that and also to address that. But every time a pump goes down, of course, that's loss of production. Some good news. The Tie-2 well, which we spudded on the 22nd of September, boy, that was a tough well as well. We had a stuck pipe twice in that well. That has now been TDed. It was TDed over the weekend. And TD was 2,195. Both reservoirs were penetrated. And we will provide an operational update as soon as we have some results on that well. But that well is expected to come back onto production -- or go back into production over the next 2 weeks, knock on wood, provided the completion of the operations go well there. At the bottom of this slide, you can see I made a simple schematic just to illustrate that we're essentially missing half of Tie production at the moment. But like I said, we have lots of things going on to restore that production and to increase production further. Tie-2, of course, is the key one. That was drilled to the south of the field. That TDed over the weekend. And then we have to restore GTE-4 and Tie-1. So right now, 1 workover rig is on GTE-4 and the drilling rig is still on Tie-2. Okay. Tartaruga, a little bit less eventful. That's performing as we expect. During the quarter, we produced and sold just under 54,000 barrels. We have restarted the Maha-1 well test. The first stimulation job has been completed, and we're now flowing that well back and cleaning that well up. And again, those results will be posted in due course as well. Petrobras started a divestment process for their remaining 25% at the Tartaruga field. If you recall, we have 75% and we are operator. Petrobras has 25% working interest, and they're now looking to divest that. We have submitted an offer to Petrobras, but the outcome at this point is unknown. It is a closed bid auction -- no, not an auction, it's a bid. It's a bidding round where multiple parties can bid for this 25%. So of course, we're very hopeful that we will be able to secure those 25%. That will give us 100% working interest in the Tartaruga field. But more importantly, we also get rid of the 10% overriding royalty that is on that concession. LAK Ranch, nothing to report there. The field was shut in at the end of March. The guys mothballed that. And we will bring that back on production as soon as oil prices are conducive for that. Last but not least, we've also had a very eventful time in Illinois Basin since we took over in the beginning of April. We produced -- it's been fairly steady at about 144, 145 barrels per day. And subsequent to the end of the quarter we have drilled and completed one well together with a joint venture partner. That's the Glaze [ 5312 ]. We have about 35% working interest in that. We have also completed now the Walgrove 11-1 which was a drilled well but had not been completed. That has been completed, stimulated and is being brought into production as we speak. We also then drilled Glaze 11-1, which is on a different lease. And that well has been drilled. Now we're awaiting a stimulation crew which is expected after American Thanksgiving. So we expect to have all these 3 wells on production, generating cash flow for us by middle of December. That concludes the operational update. I can mention a few things about Oman. We signed Block 70 on the 5th of October, with the Ministry of Energy and Minerals in Muscat. That was subject to a Royal Decree, which we obtained at the end of October, early November, which marks the beginning of that production sharing agreement. And the idea there is to proceed as fast as we can. We want to delineate the oil-water contact on the Mafraq structure, and then we want to get after it and start developing that field in the fastest manner possible. But that really rounds out the presentation. I'm really pleased with the quarter. The EBITDA very strong, considering the environment in which we operate. I'm very pleased that we have now finally secured our third leg to our 3-legged-stool. We are now operating in 3 jurisdictions. We operate all our assets, which is a tremendous strength in that we can set the schedule and the timing for our developments and our expenditure. Just want to remind everybody, next report Q4, which rounds out the year, and let's hope that 2021 is much better and healthier year than 2020 was, is on the 26th of February. So we will turn it back to you, Kaarlo, then, for any questions you might have.
Well, thank you. We will just check whether we can get the CFO, Andres Modarelli, and see how far they have managed to develop their fire drill. Andres, can you hear us? Have you been able to listen in here?
He needs to unmute. Is there unmute? Then we may have to unmute.
So let's kick in with some questions here. As always, there's a lot of questions coming in here. One of the first is, where are we on the change of the lists where Maha is traded?
Yes. So thank you, Kaarlo. That's a great question. And I'm very pleased to say that we are nearing the very, very end of this very cumbersome, very -- not burdensome, but very bureaucratic process of listing to the main market. We're very, very hopeful that we will be admitted into the main market in Stockholm by middle of December, towards the end of December. So it's -- we're almost there.
And another question is regarding the financials. Q3 is strong despite problem with output production. What's going on? What's the secret?
Well, I think it -- our Tie Field is such a robust asset. And we've put a lot of time and effort and money into the Tie Field. If you recall, when we purchased that field in 2017, there was only 1 producing well on the field. Today, we have 3 and a fourth one very, very close behind, Tie-2, which is drilled to the south of the structure, which was not entirely risk-free, but we expect that to add additional production. So very low operating costs at the Tie Field. And they're very -- I mean these wells are extremely prolific. The Tie-1Â well, which was drilled in 2019 by ourselves, is one of the best wells onshore Brazil. We tested almost 3,000 barrels a day out of that well. So we're very hopeful that Tie-2 will bring in similar numbers, in which case we will be at our plateau very, very quickly here.
You mentioned Tie in your presentation here. But you are in full swing to resolve the situation. Could you give us some milestones to what we should be looking for? And any time estimates?
Yes. I don't want to give time estimates because things always take longer than what we hope and what we think and what we plan for, of course. But these -- all these things, the activities that I spoke about earlier, they're ongoing as we speak. So for example, Tie-2, that well was -- it was TDed, or reached total depth there just over the weekend. We will now log that. We will run casing and then turn it into a producer. All the flow lines, everything is prepared. So it's a very quick turnaround. So we're very hopeful we'll have that on production before the year-end. With respect to GTE-4. GTE-4, these newly completed wells are a real headache for us. And it's a real soul-searching exercise for us in order to see how best to proceed on those. A workover rig is currently working that well over. And that could be anywhere between 3 days and 2 weeks to get that recompleted. But once that's recompleted, then we should have both zones contributing from that well. And that's really important because basically right now it's only half the production coming out of that well. Same thing with Tie-1, which was -- we had to shut that in for about a day due to hookup work and commissioning stuff. That well is now being -- the Agua Grande is being placed on temporary pump to dewater part of that zone. And once that's dewatered, then that should come back to contribute the 400, 500 barrels a day it was contributing before. So all these things are -- I mean we're working -- there are people working on this right now. So I think that before the end of the year, we should be in a position where we have -- we're firing on all cylinders in the Tie Fields.
So basically you are putting in your mind and effort to this, and you are pretty comfortable that you will get into full swing, I'm quoting yourself here. I just have very quick questions regarding the oil production here. It's my understanding that you produced more or less the same amount of barrels on your Q3 this year as you did last year, is that correct?
Correct. Yes. Comparable period, yes.
Yes, exactly. So basically, the swing factor here would be the oil price. And obviously, when you get the Tie up and running, all things equal, that will have a tremendous boost to you.
Yes. Like I said, and I showed in that little schematic, I mean essentially, we're producing -- we're only firing on 4 out of 8 cylinders right now on the Tie Field. So all that oil is -- it's there, it's coming. It's coming down the pipeline very quickly. So obviously, our Q3 and our -- and our current production numbers are -- we're not happy with those. We should have been much higher in the Q3 than we were. But this is the business we're in. Things happen. You're working in very, very small dimensions. They're very, very deep and they're very high pressure and temperature conditions. So these things happen, but I'm not at all worried at all about getting these things resolved there because we know the oil is there.
And you changed your production target twice this year. What would be the main -- if there is a main reason? Or is this just a perfect storm hitting you?
I don't want to call it a perfect storm, Kaarlo. But I would say this, though, I mean we are extremely disappointed at ourselves. We're not happy about having to go out there and obviously change our forecast, especially twice during a year. I mean that's terrible. And we continue to suffer mechanical problems at the Tie Field. It just speaks for the importance for us to further invest into the Tie Field to get redundancy on redundancy wells and also to spread the risk. We need to get another large or largish oil field producing as well in another jurisdiction, too, so that we can counteract any of these mechanical things that do happen in our industry. But again, let me just stress that we are not happy. And like I said, our production should have been somewhat higher during Q3 and also the rest of the year. But it's been a tough year since -- basically since February. COVID has really -- even though, knock on wood, it hasn't impacted us sort of directly where we've had to shut things in because we don't have people capable of working, but it has affected us, not only on oil price, but also efficiency. Efficiency loss has been, I think, has been tremendous. It's 20%, 25% loss of efficiency, sort of ballpark figure, I think. So the sooner we get out of this COVID, the better it will be for everybody.
And then, of course, obviously, the forward-looking statement is something that you have to be careful as the CEO. But how comfortable should we be with your short-term outlook and production targets? And may I be the devil's advocate here and just say that you have been focusing on addressing problems here. So to my uneducated mind, there is an upside more than there is a downside. How would you like to comment that?
Yes. Look, Kaarlo, and it's important to remember that, I mean, we're doing everything we can to resolve these technical issues. And I've said -- we've said all along that there are no guarantees. We are living in this COVID world. It affects us deeply and not only from a -- obviously, from an oil price, but also on a personnel level where key people are being taken out because of COVID. So I can't make any promises. What I can promise is that we're doing everything we can to get this situation resolved.And important thing to remember is that we made a conscious decision back in April to suspend and to postpone a lot of work. For example, Tie-2 was originally going to be drilled in March-April of this year. So all these delays, they come back and they haunt you, as we can see at the moment. But like I said, we have lots of things going on. We've got one drilling rig on Tie-2. We get a workover rig on GTE-4. We got a workover rig and a test package on Maha-1 over at Tartaruga. We've had 1 rig running in Illinois Basin and a stimulation crew as well. All that's been happening in the last 6 weeks. So lots of things on the go.
And then you mentioned the 25% of Tartaruga and Petrobras here. But you did not mention a timetable here. It's a closed bid. So I would assume it's up to Petrobras, but do you have a guess? Is this is a quarter, a month, a year?
No. The process is that we submitted a bid sometime at the end of October, and Petrobras are now evaluating those bids. And once if we're lucky enough that they obviously pick us or we put a winning bid in, then I expect it to be fairly quick, but then they need government approval after that, which we anticipate to be a maximum of 90 days. So this should be done and dusted -- if we are fortunate enough to obtain the 25%, it should be done and dusted by, I would say, probably end of first quarter, second quarter next year.
And just touching on upon the Royal Decree here on Oman. Fortune favors the brave. Why now?
Sorry, Kaarlo, can you ask again?
Yes. I mean your engagement in Oman, fortune favors the brave. It's a tough period here, and you have your hands full, one could say. But still you're running along with your long-term strategy with Oman. So why here and now?
Well, one, it's something that we've been working on for quite a while. This bid round was kicked off in February 2019. We participated in it. We were selected along with 2 other companies. It was a very closely fought battle. We were very happy in the end that we came out on top. Oman is a jurisdiction well known to myself and my team. I've been in and out of Oman since 1986, and of course, know that area very, very well. So for us, it was a natural progression. And you have to take a longer-term view on these things. The production sharing agreement is good for 3 plus 15 years, plus another 5 years. So that's a long-term game. Mafraq oilfield is a fully appraised 3D seismic, 5 wells on it. It's test produced oil, over 15,000 barrels of oil over a 22 day period. We know that this oil free flows, does not need heat to bring it to the wellbore. So it's a very exciting and it's right smack where we want to be, what I sort of call on the left-hand side of the decline curve. This is at the beginning. It's been tremendously de-risked by Shell and the partners. So it's a great opportunity for us. So having said that, of course, the fact that you wonder sometimes how -- what the effect of oil price reduction in the second quarter this year did, maybe it sort of ignited the ministry there to get things done. But we're very happy with it. If we look at comparative deals in the area, we are very competitive. I don't think that we overpaid for that. Quite the opposite, I think we got a one hell of a deal for an appraised field. So you're right, fortune favors the brave, and we are ready. We will make that a great success.
Okay. Well, thank you for that. And it's a very interesting quarter, and I believe we will have a very -- an equally interesting quarter ahead of us. If there are any further questions and if you feel that you need further clarification of the questions, I will strongly advise you to e-mail those to Maha and particularly to the Head of IR, Victoria there. And with that, Jonas and also Andres, somewhere, we thank you very much for this vivid presentation. Thank you.