Maha Energy AB
STO:MAHA A
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Maha Energy AB
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[Foreign Language] Jonas, it's great to have you and Andrés with us again. Please take us through the report, and that is -- the report that is, and I'm quoting you here from the latest press release, the beginning of a new era for Maha.
Thank you, [ Carlo ]. You should have told me we were going to do this in English. I have all my notes in Swedish. So anyhow, welcome to this fourth quarter presentation of our quarterly results. It was another profitable quarter for Maha. It was -- started out a bit sluggish. We were -- had to reduce our gas sales at the end of the year, the Q4, which and then, in turn, impacted our oil production. And the delays at Tartaruga also impacted our production numbers for the quarter. Having said that, we have some fantastic news in terms of reserve and reserve replacement numbers for the year. Year-on-year, we're up 25% 2P reserve, but perhaps more importantly, our proven reserves are up 30% year-on-year. So very nice numbers. We are growing in that area. And also, our reserve replacement, which is the measure of how much proven reserves we replaced during the year compared to how much we produce, was 147%. So these are very, very good and excellent results for, in terms of reserves, particularly given that we are -- these reserve numbers come from existing producing fields. It's not -- this was organic growth, so which is really nice. Last but not least, before I hand over to my colleague in Calgary to go over the financial statements, at the beginning of 2020, we announced at last the -- finally, the long-awaited increase for our local refinery to take another 800 barrels per day of oil. And also, you will have seen, if you follow us on our press releases, the great results from 107D that we tested at the beginning of the year. So I will touch upon that later in the presentation. But right now, I will hand over to my colleague in Calgary, Andrés Modarelli.
Thanks, Jonas, and thanks, [ Carlo ], for having us today. Good afternoon, everyone. Welcome to another quarterly webcast, and I'm pleased to present our fourth quarter results. So if I can direct your attention to Slide #4 after all the legal disclaimers and the -- where to direct any questions. We are presenting some key financial results over the recent quarters. These are in thousands of U.S. dollars and is still unaudited figures. So to start off, we had revenues of almost $13.7 million. That's up 9% versus Q4 of 2018, and it's also up 46% versus the full year 2018 when compared to the full year 2019 revenues, which were $55.6 million. This is mainly derived from our increased production, about 29% from the comparable period a year ago, and about 69% versus the 2018 average of 1,800 barrels of oil equivalent. On the other hand, the realized prices were down in 2019. And that explains why the production increases aren't fully reflected in the revenue increases. EBITDA was also really strong, almost $8.4 million, mainly flat versus the comparable period a year ago for the reasons that I've just described. But when looking at this on a year-over-year basis, for 2019, our EBITDA was $36 million, and that's up 61% versus the 2018 EBITDA. The last item in the table is net result, and -- which was almost $2.7 million for the quarter. And although lower than the most recent quarters, what we had in Q4 was we prepare our tax returns for Brazil. So we had some tax adjustments that went through in the Q4, which is -- explains the lower number. Although we do have a low tax return, a low tax rate in Brazil of 15%, which keeps our tax bill lower. So also, netbacks remain strong, $35 per barrel. Slight -- down from the comparable period, again, for the lower realized prices. So this was our ninth consecutive profitable quarter, with EPS of $0.03 for this quarter, $0.20 for the year. So again, really strong results. Moving on to the balance sheet. We have an increasingly strong balance sheet, as you can see, over the recent quarters. Our cash and working capital positions are increasing, and this is following a capital program of about $25 million that we incurred last year. So basically, telling us that our capital program has been funded through our operating cash flows as well as our operating and G&A expenses. So after net cash, we show total assets and shareholders' equity. These has been increasing over the quarters, which -- it increases our equity ratio and telling us that we do have a conservative leveraged balance sheet. We have our next interest payment due in May, and we are not expecting to pay any dividends. Next is Slide #6, where we show our quarterly production averages. As you can see, another strong quarter in terms of production. It's the second strongest from the last 5 that we are showing here. On a yearly basis, our 2019 average was 3,044 barrels. That's up 69% versus 2018. And as I was referring to earlier, in the smaller chart here, you can see how the Brent price has been lowered in 2019, which has affected the 2019 realized prices for our crude. But through this increased production, we have been able to maintain our very strong results. So moving on to the next slide, Slide #7, where we show some key metrics. We have -- netbacks remained strong despite the lower realized prices this year. Our operating costs remain also low between that $6 and $7 per BOE range, which we expect this to come down as our production increases. And lastly, on the right bottom corner, where we show our cash balances. We did increase our balances of -- to up to $22.5 million, and that's after, as I was referring earlier, our capital program spending and our bond interest payments. So again, telling us that the company has been able to self-fund its operations. Following to Slide 8. Again, a strong quarter. It's been our ninth consecutive profitable quarter. And if we look at our full year 2019 result -- net result, it was $19.7 million. And if we compare this to the last year, excluding some of these non-recurring items, this is an increase of about 45%. So really strong year-over-year. So with that, I conclude my financial overview, and I'll pass it back to Jonas.
Thank you, Andrés. I guess, it's fair to say that the company is in a solid financial shape. So given the turmoil that's going on at the moment on the world stock exchanges, that's good to know. So we will finish off this presentation by going through the fields and give you sort of an operational update, what happened during the quarter and a little bit of the beginning of the year. So -- and in Tartaruga, we delivered just over 29,000 barrels. And on 7TTG, which is the new drill, we TD-ed that on the 3rd of October 2019. Subsequently to that, the rig was moved off and parked in Bahia. I want to spend a little bit of time talking about this well. It is an appraisal well. It's -- the main purpose of this well was to gather information and data about the Penedo reservoir. It's a directional well into a different part of the field. And we have a quite an extensive testing program that started in the beginning of -- sorry, at the end of January. During the drilling of this well, we took 2 cores, 1 in the Penedo-1 sand and 1 in the Penedo-6 sand. Those cores are currently being analyzed and evaluated, and we will do all kinds of tests on those cores. And we also took over 40 sidewall cores in all the formations, in all the 27 sands that we have there. The electric logs that we ran, and we ran a whole bunch, I can tell you. I think there was 3 separate runs, all kinds of logs, identified what our petrophysicists considered to be 72 meters of total net pay in that well. So it looks like a good well, and we are looking forward to the results of this very extensive testing program that we're doing. We expect we are on schedule, and we expect to have full results by sort of 90 days later. So that would be sort of end of March, sometime in April. So we're working our way up. We start at the bottom. That's how it's technically done. And then you work your way up. So we're really looking forward to these results, and it will tell us a lot about the Tartaruga structure. Which and then will then tell us how we should develop this field. Because if you recall, Tartaruga is our organic and growth area. We have over 32 million barrels of 3P reserves booked on Tartaruga net to us. So we really want to try and move those reserves into the probable and proven categories. Speaking of which, we see here our reserve volume additions. So you can see that on our proven reserves, year-over-year, we've increased our reserves by 30%, and that is very significant. Proven reserves are considered to be almost like cash in the bank, so we're very happy with that. And that was brought on by the results of the frac -- sorry, the stimulation we did on the P1 sand late last year. So very positive results on that. Opens up a whole new play fairway and technology for us in that area. 2P reserves increased by about 8%. That's sort of a volumetric issue more than anything else. And that's also -- despite having produced significant volumes out of the Penedo sandstone over the year. Last but not least, we can say that the test on the 107D horizontal finally happened. If you follow the company, you will have known that 107D was the original well that we sidetracked back in late 2018. We had all kinds of troubles drilling that horizontal, but we finally succeeded in getting 500 meters of horizontal in the top Penedo sandstone. And we brought in a specific test rig for this and a test package in conjunction with testing the Maha-1 well that we are currently testing. And we started out testing beginning of January, and it self-flowed, which was very -- we were very happy to see. From memory, it was about 600 barrels a day of oil flowing by itself under natural pressure, and you got to keep in mind that the last time this well self-flowed was back in 1994. So that tells you a lot about the reservoir continuity and the reservoir pressure in the Penedo. So we were very happy to see that. It took us some time to clean the well up. The oil that we produced had a whole bunch of emulsion issues with water and drilling mud and things like that. And we didn't want to mix that with our existing infrastructure, so we had to spend some time on that. That's why the test took so long. After about 20 days of testing this oil and bringing it up to surface, we managed to then put the pump on and see what the well would do on pump. And the results speak for themselves. We produced 939 barrels of oil per day, almost 1,000 BOEs per day, if you include the gas. And the problem was, quite frankly, we didn't have enough tanks on the location to put this oil together with the production that we were taking from 7TTG. So we had to keep stopping these tests in order to truck the oil away, which is a good, good problem to have. So that oil rate was restricted at surface. So we expected good things out of this once we can really open it up -- once the facilities have been completed. The facilities are undergoing a modification. It's quite a simple modification. We have the big components, the separators and the heated treaters. They are already on location. And currently, the engineering has been finalized for the manufacturing of tank, and then the installation of these separators and heated treater and the plumbing that goes with it. So in our business, this is not a big operation. And we expect that to be completed by the end of Q2 this year. At that point, we should be able to handle up to 2,500 barrels on a gross basis. Remember, we are partners with Petrobras. They have 25%. We have a 75% working interest. So generally speaking, on Tartaruga, things are happening, and good news on our reserves. Turning our attention to the Tie Field. We delivered over 225,000 barrels during the quarter. A lot of gas was produced. That's primarily because our gas/oil ratio in the top reservoir is high. We have managed to get the gas/oil ratio down in the lower reservoir, and now we have turned our attention to the top reservoir. So we will see the results of that over the next 3 months, I hope. 2P reserves, that's the big story of the Tie Field. That was released already back in September. And that's the result of the Attic Well that we drilled in March, April last year. But really, a 68% increase of 2P reserves, on a gross basis there. From 11 million barrels to 19, almost 20 million BOEs is really extraordinary if you consider that this is a developed field, and just through delineation and 3D seismic work, we were able to prove up much more reserves. And when we look at our production, it makes sense, because if we take GT4, which is one of our producing wells, it should have stopped itself flowing a long time ago if the volumes weren't as big as they are. So we are just now starting to do work on GT4 to turn that into a pump producer, and we should see a good bump in our production after we install that pump. Again, we can see the reserve volumes have increased year-on-year. The big talking topic there, of course, is the 68% increase in 2P reserves. But look at the 3P, 75%. So Tie Field has a lot more to give. And we really are looking forward to getting that field stable now that we have offtake agreements for 4,850. 4,850 barrels of oil. And once we get our gas under control, then we should be able to just sit back and watch that cash cow give off the cash it's designed to do. Last but not least, on LAK Ranch. We are still continuing monitoring the production there. Production is slowly creeping up in accordance with the water injection. And we will take a decision on how to proceed on LAK Ranch here during 2020. Next thing is Q1 report. That's our next major event, and that's in May. By that time, I think the cold will be gone, and spring should be in full bloom. So with that, I turn it over to you, [ Carlo ]. I'm sure you have some very tough questions for me.
Yes. Well, thank you about that. We'll start with the main talking points, which is not concentrated on the company, but rather on other issues. And obviously, I'm referring to the coronavirus. Apart from the steep fall in the oil price and the stock market, have you seen any tangible evidence or effects of a change in your customer behavior or even in consumer behavior?
No, not yet. I mean, I expect we will, eventually. This will eventually work its way down the chain. I mean, I was just reading today, I think it was Ericsson and Volvo are imposing travel restrictions on their people. And this is quite a significant event. It's certainly a black swan, as we call it. And we will have to monitor this very closely.
And the follow-up question on that is, obviously, there will be -- all indications are there, at least, that there will be a slowdown, and the duration of the time is -- we are not aware of. But so when you deliver your oil, is that on a fixed volume to a fixed price? Or could you give us some flavor on when we should expect, presumably, hit to deliverance?
A lot of questions in that one question. So let me start with -- you talked about our price. So we are not on a fixed price. We are on Brent. So obviously, as the Brent has taken a severe downturn here in the last 2, 3 weeks, that will impact us, for sure, in terms -- in the pocket book. So with one of our customers, we get paid upfront in advance, and is linked to Brent. The other customer, we get paid 30 days in arrears, and that's also linked to Brent on a daily basis. With respect to delivery volumes, these contracts are yearly -- sorry, for Petrobras, it's yearly; and for the refinery, it's a 5-year contract, if I recall correctly. And they are fixed volumes. However, both customers have flexibility with respect to receiving. And we will see, of course, what will happen with respect to demand. Having said that, Brazil is short of oil products they need for their refineries. They need oil. So I do not expect to see that. But of course, we can't tell at this point. It really depends how the world will react to this issue.
Well, yes. So we will have to wait and see. And obviously, you are on top of the situation as much as you can be.
We monitor it, obviously. And we -- the first thing we look at is, obviously, the safety for our people to make sure that we have sufficient policies and procedures in place to deal with any sort of situation with respect to the coronavirus. I mean, that's our top priority, of course.
Well, continue on the financials. As far as acquisitions are concerned, a healthy cash balance and a net result to match. Can we expect corporate activity during 2020?
I've said before that we focused in 2018 and the first half of 2019 on delivering our production to -- in Brazil. And of course, we want to grow, and so we are looking at acquisitions. And the flip side of this coronavirus effect and the downturn is that there will be lots of opportunities. A lot of fields that were perhaps in financial distress before this will become available. So therefore, having access to capital is absolutely key here. And that could obviously be tough in this situation as well. But we are actively looking, correct, yes.
And I've got a follow-up question here from the Internet, and that's, any plans for further investments in Canada?
Any plans for investment? We are looking at North America. So Canada is included in that. Canada has got its own set of political problems that affects the industry. So Canada has recently not been a huge -- of great interest for international investors. But there are solid assets in Canada. There's no question about it. Canada is, I think, the third world largest in terms of oil reserves. So lots of oil there.
And when it comes to the target acquisitions, will that be a string of pearls? Or will be a blockbuster deal?
I can't say.
No, obviously. What is the tax situation in Brazil? There's been a couple of questions from the Internet on that.
Okay. So Andrés will be better placed to answer that, but I'll keep it simple. We pay an overriding royalty to the government of 11%. So 11% of the oil, right off the top, goes to the government. And then our income tax. We have been recently granted relief in terms of an incentive program that the government runs. So we pay just over 15% income tax in both our fields.
And moving on from financials to operations. And if we start with Tie. Tie is obviously a cash machine, mainly due to the oil production. What can we expect in the future from the gas?
Well, gas, obviously, in Tie Field, has been a problem for us. And you can't produce oil without the gas. But it does -- the flip side of that, actually, is we do receive revenue from the gas. It's not a lot. I think last year, it was like $600,000 or something like that, SEK 6 million, which is -- that's a nice little bonus. And as time goes on, we do not flare any gas. So all the gas is being taken care of and is being used in local industries. And as of recently, we are also an electricity provider now in Brazil, so -- which is really nice.
Yes. And obviously, you did mention that in your statement that you need to find a home for the gas. And so you are on the way. Would you be able to give a time frame here when?
Yes. At Tie Field, we are. We're there already. We have 17 gas generators generating electricity, and we've got compression in place to carry away the gas to the ceramics factories. In Tartaruga, we've just started up 4 gas generators there, and that will be expanded. Don't quote me on these numbers, but there will be many more going to Tartaruga as we grow our operations in Tartaruga. And I just want to get this plugged in. It's a nice thing because we are at the end of a village. Beautiful, right on the beach. And -- but they are at the end of the electricity line. So they would always suffer brownouts and no power. It's not very stable there. And now, the electricity will be going the other way. So they will have steady, nice electricity to run their air conditioners. So I'm sure that the village guys will be very happy.
Well, so am I. And another question here from the Internet is, which months do you expect production to match your allowed offtake at Tie?
Yes. I can't say that. We have a plan in place, and we are right on track. I realize it's still early in the year. It's the 28th of February. We've done 1/6 of the year, but we are right on our plan.
Okay. Well, moving on then to Tartaruga here. And you mentioned in your presentation that you had the proven reserves -- increased the proven reserves by 30%, which is great. And I understand that the existing reserve replacement is up 147%. Would you be able to put that in a context and elaborate around that?
Yes. So the reserve replacement is a measurement that we use in our industry to measure. As you go through the year, you produce, let's say, 1 million barrels. And if you don't replace those million barrels, the value of your company will go down, obviously, because it's a depleting resource. So therefore, it's important not only to replace those million barrels, but you want to grow as well. And typically, in order to grow, you -- for most material companies, the only way to grow really is through acquisitions or by through the drill bit, you find new reservoirs, which is you got a 1 in 10 chance of finding new oil from an exploration standpoint. So the fact that we've increased our reserve replacement ratio by 147% from existing fields is really remarkable. It's organic. It's -- we didn't have to spend any money to buy these barrels. We basically -- we had them there in the ground all the time, which really speaks to the quality of the Tie Field that we purchased from Gran Tierra. It really is a fantastic asset.
And also it doesn't only speak to the quality of the asset, but in my opinion, I would say, it also speaks to, more or less, the predictions and the way that you have when you have made your decisions, which is always positive. Just on a general questions here and conscious of time here, one of the major questions would be the listing. Where are we? And what can we...
Sure. Yes. So we announced last year that we would move up to the main market in Stockholm. And we are on track on that. We have completed our, what they call, a pre-audit, for -- before we submit the application to NASDAQ. And I expect the goal is to have this done by the end of 2020.
End of 2020. Yes. And also, as I noticed, and I would assume that it's because you're growing and you're going into the main market, there is a number of brokers that now are covering you. How many are there? And would you like to mention a couple of names here for the audience?
Yes. So right now, we're covered on the equity side by 4 firms. Sberbank1 in Norway. They are truly independent. They took up coverage for us. They were one of the first ones that actually took up coverage over us back in 2017.Then the Penser, the Penser Access. They have an excellent product on the website. And then we have Arctic who did our bond. They started doing our equity as well. They've always done the credit side before. But now, they're also doing on the share side. And last but not least, ABG Sundal Collier will start here in the next month to follow us as well.
All right. Okay. So with that, I think we shall conclude the operations. And if you have any further questions, please don't hesitate to send them in to ourselves or to Victoria, and thank you very much.
Thank you, [ Carlo ].