Africa Oil Corp

TSX:AOI

Earnings Call Analysis

Earnings Call Transcript 2024-Q1

[Operator]

Hello, everyone. My name is Sharon, and I will be your conference operator today. At this time, I would like to welcome everyone to the Africa Oil Corp. First Quarter '24 Results Management Presentation. [Operator Instructions] Please note that this event is being recorded. The recording will be available for playback on the company's website.I would now like to pass the meeting to Mr. Shahin Amini, Africa Oil's Investor Relations Manager.

[Shahin Amini, executive]

Thank you, operator. On behalf of management, I thank you for joining us today for our first quarter 2024 results presentation. On the call today, we have President and CEO, Roger Tucker; our CFO, Pascal Nicodeme; and our Chief Commercial Officer, Oliver Quinn. There will be a presentation of around 25 minutes before we go into the Q&A session.First, I would like to remind everyone that remarks made during this session are subject to forward-looking statements, which involve significant risk factors and assumptions that have been fully described in the company's continuous disclosure reports. The information discussed is made as of today's date and time, and Africa Oil assumes no obligation to update or revise this information to reflect new events or circumstances, except as required by law. The company's complete financial statements and related MD&A are available on the company's website and on SEDAR.Roger, we are ready for you. Please go ahead.

[Roger Tucker, executive]

Thank you very much, Shahin. And if we can get a [Technical Difficulty] up. So what this shows is that we have had an extremely active first quarter of 2024. And if you can see on this [Technical Difficulty] since I started is where it starts. But if you actually focus in on the first quarter, you will see that we've had a significant number of transactions, which has effectively changed the shape of [Technical Difficulty] was the farm-out to Total of our interest or part of our interest in Impact in Namibia in return for a full carry right the way through to first. I mean, this was, as you can imagine, an incredible transaction. And so we have completely derisked that part of our portfolio.In addition to that, we then continued in March with the farm-outs against Block 3B/4B in return for a 2-well carry through the initial exploration phase of that block. And we anticipate that we will see drilling in that block in 2025. [Technical Difficulty] we have effectively removed all CapEx from the company on a point-forward basis, therefore, significantly derisking the future of the company. Then in March, you will also note that we have made an offer to the minorities within Impact to increase our interest, our equity interest holding in the Namibian block, and that process is ongoing.So the next slide, let's go and look at what underpins what we're trying to do with the company. [Technical Difficulty] And so what we're saying is these are our strategic principles. It's not a strategy, but it's our principles. And if we go around the circle in the center, we are going to grow our business through [Technical Difficulty] of the existing portfolio. And the existing portfolio, which we'll go on to look at is based around Nigeria for our production, Equatorial Guinea, the developments that we're now into with exploration in Namibia and our exploration, carried exploration [Technical Difficulty] and then 3B/4B.We are partnered with Tier 1 operators, notably Total, as I've just mentioned and Chevron. And we're going to try to maintain our interest and focus our attention on our existing asset [Technical Difficulty]. And so in other words, you're not going to see us leap into a new country entry or anything like that because we believe that we've got significant running room within the assets that we hold. You can see that a key fundamental element of this is that we're going to try to consolidate our own more assets and we're in the process of doing that at the moment in Impact in Namibia. And our current growth strategy is to grow around those existing assets.Next slide, please. And so let's focus then on what you're only going to hear us talk about. There is still some noise in our portfolio, which we're trying to clean up, and I'm sure there's going to be questions about that at the end. But you're going to see us talk about Nigeria, which is where we are actually in 3 fields, which are 3 of the top 5 fields in the whole of Namibia operated by Chevron and Total. You'll see us talk about Equatorial Guinea, where we've just entered as an operator, are in the process of trying to farm down that area. You'll see us talk about Namibia where we're in with Total, another world-class operator there. And you'll see us talk about Block 3B/4B in the western side of South Africa. And we believe that what we're doing at the moment is creating from the position that I inherited effectively a world-class independent E&P company exposed to some fairly significant growth opportunities and very stable production base.So next slide, please. So let's go and look in some detail at what we hold, and anyone who has been with us for a long time, you will actually know this. And one of the things which is different from the way that I'm described in the company since I came in is that we often used to just say that we produced circa 20,000 barrels [Technical Difficulty] in Nigeria. In actual fact, what we do is we have an equity interest in the 3 fields, which are actually doing over 300,000 barrels a day. They are mature, well-known, stable assets. And what's going on at the present time is shown on this diagram. First of all, our OML 130 was extended further the 20 years, which gives you an indication of how long those assets are going to produce for. We have an ongoing drilling program and that actually is ongoing at the present time and we've just extended the rig to continue drilling in Egina.And so the next slide, please. And in this area, you are going to see organic growth because the Preowei field in PML 4 has gone through the process. And we are preparing to develop that field, which will add fairly significant production to us, about 6,000-odd barrels a day. But again, a very material develop [Technical Difficulty] on the bottom bullet here that is actually going to produce at a growth level of 65,000 barrels a day over the existing infrastructure. So a big, big development that we have a reasonably material position in.Next [Technical Difficulty] And then if we leap down and have a look at what's going on in Namibia, we're in 2 licenses there, but they're both encompassed by the red line around the 2 of them. And this is an area receiving significant activity at the present time. And what we have in this area is a very significant major oil discovery where Total are beginning to feed out into the market the sheer scale of [Technical Difficulty] The first deal, Venus, has been now drilled and appraised by 4 wells which have been tested.The most recent of which is Mangetti up in the north of the block, which is a fantastically interesting well because that is the [Technical Difficulty] extension of the Venus field. [Technical Difficulty] also tested a younger fan on the top of [Technical Difficulty] on the top of the Venus reservoir, which is also hydrocarbon bearing. So we now effectively have 2 fields identified [Technical Difficulty] actively reviewing development options. And you will have seen that Total is beginning to present data both on the sub-surface geology and in their Capital Markets Day have given an indication [Technical Difficulty] to feed on the development, which will be Venus, some time this year.Next slide. And what I'm going to do now is pass this over to Pascal and I hope [Technical Difficulty]

[Pascal Nicodeme, executive]

I can see the slide. Thank you, Roger. So yes, let me go through the financial highlights for the quarter. We are posting for the quarter our $3.5 million net income, which is relatively lower than the usual run rate profit that we are posting. And this is due to a loss that has been posted by Africa Energy. They posted -- they impaired their working interest in 11B/12B block in South Africa by $114 million. So we have picked up our net share of that impairment via Africa Energy directly, but also indirectly via our ownership in Impact. So as a consequence, we have also reversed part of the impairment that we had ourselves booked in the last quarter. So we've reversed more or less half of that net loss, which means that the net impact this quarter of that Africa Energy loss is about $14 million net to Africa Oil, which explains the relatively low net income in this quarter.If you look on the right-hand side of this slide, you can see that the Prime performance has been stable. We are having continued strong EBITDAX and cash flow from operation, $95 million of EBITDAX for the quarter and $77 million of cash flow from operations, which is explained by a sustained strong production. As Roger mentioned, we have 2 new wells in production on Akpo. The actual net entitlement production for the quarter has been in the upper end of our guidance. And as Roger also mentioned, the current REIT contract has been extended until October. So we expect to see continued improvement in production in the second half of the year.Next slide, please. So this shows our discipline we've continued to be in terms of managing our liquidity. We started the quarter with $232 million of cash. The main use of that cash during the quarter has been the shareholder return program via the payment of the dividend end of March, about $12 million, and the continued share -- purchase of share since January 2024 when we restarted the share buyback program after the announcement of the farm down to Total. So in total, we've written in the quarter more than $25 million to the shareholders and our cash balance is now down to $195 million. Prime has continued to have stronger cash balances. The Prime net debt was at the end of the quarter $240 million. And combined with our own cash balance, it's a net debt position of $45 million.Next slide, please. In terms of [ oil sales ] again, very stable behavior. Again, this quarter, we managed to get a sale price which is higher than the average dated Brent for the quarter, which is due to the efficiency of our new marketing strategy, as I explained in the previous quarters. And we achieved $85 -- more than $85 per barrel average sale price versus an $83 average Brent over the same period. And post period, we also sold the Prime vessel 2 cargoes, again, with average sales of $93 million -- $93 per barrel, sorry, compared to an average dated Brent of $90 per barrel.Next slide, please. So focusing on our capital framework and the main priorities that the company has. I think we've explained that in the previous quarters, but we want to keep a strong balance sheet. Prime continued to deleverage and repay the RBL facility. And the objective in the medium term is to get their RBL facility extended in order to make the amortization of that debt profile smoother. On our side, we are working with our lenders at the moment to extend our corporate facility. And we should -- we've obtained credit approval from 4 banks to extend the existing facility for another 3 years at a lower amount, because we believe that at this stage, we don't need so much available liquidity. So it will be renewed at a level of $65 million initially against the existing $175 million.So -- and in terms of order of priority, organic growth, of course, we are focusing on developing our existing assets. The farm down to Total in Namibia has been very good news and has freed our balance sheet basically from a potential capital expenditures to come in the future. And therefore, the new focus on shareholder returns and the resumption of our share buyback program. We've completed about 38% of that NCIB since January. And since 2022, we've returned already $30 million to our shareholders.Next slide, please, and I will hand over to Oliver now.

[Roger Tucker, executive]

Oliver, can you hear us? You may be on mute.

[Oliver Quinn, executive]

Yes, thanks. Actually, a minor technical difficulty. Thanks, Pascal. So I think Roger mentioned earlier, we of course, announced in March an offer to Impact minority shareholders to acquire up to an 8% incremental stake in Impact at a valuation of 100% Impact to $805 million, which would have been -- or is maximum spend of $64 million. Again, the rationale is, of course, as we've talked about on this call, consolidation of the current portfolio with the CapEx taken out of Impact in Namibia through the Total deal earlier in the year. It represents an important long-term growth opportunity for us. So more [Technical Difficulty] of Impact we think provides extra strength in that long-term portfolio. So the process has gone well. I think as you'll see on the slide, we're nearing the end of that process. And we'd expect to close and give an update on the final conclusion before the end of the second quarter, so kind of next 6 weeks really.Next slide, please. So I think just as a brief comment here. We've talked about consolidating the current portfolio. And I think we've made kind of good progress on that. The transactions, obviously, Namibia, South Africa. Again, as just discussed, buying a little bit more of Impact. So that helps. And I think there's a couple more things to go there. As Roger mentioned earlier, there's a wider kind of legacy portfolio that we're working on to simplify as well. So I think, again, that's the next step is to try and just continue, if you like, the simplification of the business. And again, to the capital framework, it's disciplined on capital and simplification, and that will be the focus as we move into the third and fourth quarters here.So I'll hand back to Roger.

[Roger Tucker, executive]

Thank you very much, Oliver. So the next slide, which is now up. The strategic priorities that we focus on, and this has evolved since I've been here, is that the easiest place to consolidate your business is in assets that you know. And so we will continue to attempt to consolidate and beef up our portfolio in existing world-class assets. We are going to maintain our financial flexibility in order to accelerate growth. And you will hear as we go through these presentations that we're now focused entirely on capital allocation. And you've seen the benefits of that, I'm removing all CapEx from the future portfolio. And that we're also at the corporate level completely debt-free.We're focused on shareholder returns. And as you'll see in a moment that we managed to farm out and removed the risk -- the capital risk, if you like, of investing in the development in Namibia. We recommenced a very significant share buyback program, which is continuing today. [Technical Difficulty] and always to maintain our balance sheet strength when we then use that balance sheet to try to identify additional growth opportunities.And with that, I'm going to pass this over to Shahin to administer the Q&A session, which we will [Technical Difficulty] 3 executives that you've got on the table -- around the table. Thank you very much.

[Shahin Amini, executive]

Thanks, Roger. Sharon, if you could remind people on how to submit their questions on the conference call, please?

[Operator]

[Operator Instructions] And your first question comes from the line of Teodor Sveen-Nilsen from SB1M.

[Teodor Nilsen, analyst]

A couple of questions from me. Actually 3 questions. First one on guidance. You have provided production guidance working interest from -- in the range of 16,500 to 19,500 for the year. I noticed the first quarter production of 17,000 approximately. Is there any downside risk to that or should we expect production to stay flattish at the current level throughout the next few quarters?And second question is on the Venus CapEx. Of course, a great deal you did there on the farm down. But could you just remind me of the estimated value of the CapEx carry?And then final question is on the clean-up of the entire structure with the Impact, Eco, Atlantic and Africa Energy. And of course, you briefly discussed that, but could you just give us an update on how we should expect this to look like going forward?

[Roger Tucker, executive]

Okay. Shahin, there were 3 questions there. But here in Montreal, actually, that didn't come across terribly clearly. So can you actually just summarize the first question?

[Shahin Amini, executive]

Yes. So the first question is on production guidance. And do we see downside risk over the next few quarters to that?

[Roger Tucker, executive]

Pascal, do you want to do that or do you want me to do that?

[Pascal Nicodeme, executive]

I can do it if you wish. I think the -- I mean, it's clear that production in Nigeria has been declining when looking at the Q1 last year production was higher, obviously, than this quarter. But as Roger mentioned, the current drilling campaign has been extended. So we expect this decline to continue to be compensated by these new wells coming on stream. So we had recently 2 new accrual wells that came on stream, which is extremely good news for us. So we expect these new wells to at least compensate for the decline. So the answer to your question is, yes, we expect the production to be at least stable for the rest of the year and probably increase slightly.

[Roger Tucker, executive]

Yes. I'll just add in there. What you're seeing in the Q1 numbers is a general work program as well. I mean, the shutdown was extended slightly. So we lost production there due to the shutdown. And we are actively drilling. But these fantastic fields are over their peak of production and they will decline over the next sort of 30 years, if you like, on a steady basis. There is no indication that there is either a sub-surface problem that we don't understand or a problem with the infrastructure on the surface [Technical Difficulty] and you'll see is a delay -- an effectively delayed work program. And there is no fundamental problem with the underlying asset. It's a delay in the work program. But at some point, these assets, they are going to decline. And that's one of the great -- actually, one of the great things about them. They are so well-known in the sub-surface. When we give you guidance on the production, barring some major issue in the operability of the infrastructure, they will perform as we predicted. They're extremely well-known in the sub-surface.Pascal, do you want to add anything more to that?

[Pascal Nicodeme, executive]

No, I don't.

[Roger Tucker, executive]

Next question, Shahin, if you want to just cover that off because we couldn't hear it exactly.

[Shahin Amini, executive]

Yes, it's on Venus CapEx. Could you just remind listeners and participants of the expected value of the CapEx carry?

[Roger Tucker, executive]

Yes. And so we can't give you the exact number, but you can start to work it out yourself because Total have indicated that we are all ready into a 2 FPSO case on Venus, and you'll have seen that from their Capital Markets Day. Although strangely, the headline in offshore and all of the industry pundits talk about 180,000 barrels a day. That is actually per FPSO and there are 2 on the way. Now you can work out the numbers now and certainly start to get a slightly clearer idea of the numbers. But I can't give you the internal numbers from Total, but it is multi, multi-billions of dollars that is going to be spent in this. And as I say, we are completely carried through it. And that's all I can give you at the moment, but you can go on to the -- and talk in the industry about how much 2 FPSOs will cost you. And you can work out that what we've got here is a very, very significant carried situation that we've managed to negotiate.

[Shahin Amini, executive]

And I think 2 of those lines still open. So before going to his first question, I want to revert back to him to see whether he has any follow-on on the responses to first 2 questions.

[Teodor Nilsen, analyst]

Well, no, actually. I think I'm final on that one and maybe also importantly on the production, there's no downside risk from your current guidance as far as I interpret this. Is that correct?

[Roger Tucker, executive]

Yes. What we're trying to point to here is -- I mean, this is the oil and gas industry. But as we model it at the moment, we are happy with our guidance on Nigerian production.

[Shahin Amini, executive]

And I believe Teodor's third question was to do with our non-core assets and how the company could be looking in the future. Teodor, do you want to elaborate on that, perhaps repeat your question, if necessary?

[Teodor Nilsen, analyst]

Yes, sure, absolutely. You already discussed it briefly, but I just wanted the structure you have with the Impact, Eco and Africa Energy and then maybe particularly Eco and Africa Energy. How should we expect this structure to look like in the future? Are you looking to divest the Eco, Atlantic and/or Africa Energy shares or will that be merged into Africa Oil or what to expect here to get a simpler structure in the future?

[Roger Tucker, executive]

Obviously, [Technical Difficulty] kind of sort of forward statements in here because we're actually talking about the Q1 results. But then I pointed to in the presentation that we are actively looking at rationalizing our portfolio. And I would prefer us to get them in a historic way that we've held equity interest in companies. And so we are looking at options for those which we are evolving as we speak. But I won't give you a forward statement on what we're going to do, but it is [Technical Difficulty] that is going on at the moment.

[Operator]

[Operator Instructions] I will now hand back to Shahin for web questions.

[Shahin Amini, executive]

Thank you, operator. Just a quick note from me. There was one question on the webcast on why there is no video broadcast for this event today. The management team because of business travel are actually joining you from 3 different locations. So that's the reason why for this particular event we haven't followed our usual approach of broadcasting video.And so let's go to questions submitted over the webcast system. And there's a couple of questions to do with special dividends. So the kind of the latest, so let's get them addressed in the same go. So there's a comment that's on Slide 13. There was a reference to special dividends upon monetization events.And the related question is what needs to happen for shareholders to see a special dividends. So Pascal, you may want to address this, please?

[Pascal Nicodeme, executive]

Yes, sure. I mean, the question is about special dividend in case of monetization. Well, we don't plan to monetize any of our assets at the moment. We -- I mean, we had potentially the intention before signing the farm down to Total to monetize our participation in Venus, which has not happened since we prefer to stay for longer term in the development. So there is no envisaged special dividend that would be related to a monetization event, sure.I'm sure the investors and the shareholders have noticed that we have significantly stepped up our current returns to the shareholders, especially via the share buyback. And we are buying our shares at the moment at the -- almost the maximum rate we can buy the shares at both in Toronto and Stockholm. We want to preserve some liquidity. As you know, we have an outstanding offer for the Impact minorities at the moment. So until we know the final result of that process, we want to remain cautious in terms of managing our liquidity.So therefore, we are, I would say, to answer the question that we are fully committed to the existing NCIB. And depending on the outcome of the offers we've made to the Impact minorities, we might reconsider this or increase the pace of the returns.

[Shahin Amini, executive]

And I suppose the very important underlying message here is that we remain fully committed to shareholder capital returns. So at some time in the future, there is a liquidity event. At that time in the future, it is possible that the company is subject to Board approval could pay a special dividend, but that is part of our commitment and see what happens in the future. Thank you, Pascal.Right. There's a question on Prime's cash and debt balance. So they have $268 million in cash and $750 million outstanding in debt. Why don't they pay down debt? And the follow-on question from the same participant is, have the Akpo wells met expectations? So Pascal, perhaps you could tackle the first part of that question, which is Prime's debt management.

[Pascal Nicodeme, executive]

Yes, sure. So the shareholder agreement we have with Prime provisions that Prime needs to keep at least $150 million of cash balance at all time. So the fact that they have slightly more than $150 million of cash at the moment is exactly because they are planning to repay part of the RBL facility in the next quarters from their existing cash balance. So that's certainly done. And the way the RBL facility works is that there are 6 monthly redeterminations where the banks at the end of March and the end of September are basically determining the new maximum outstanding amount under the facility. So Prime will typically wait for April-May to repay the borrowing base out to the maximum level and then again in September. So that process is ongoing. And the fact that they have more cash at the moment than the $150 million is just to prepare for future amortization and also the fact that they are paying cash flows at the moment for the drilling campaign. So the 2 elements explains why Prime has this slightly larger cash balance than expected.

[Shahin Amini, executive]

And I will have a -- I'll go first and try to address the second part, which was on the Akpo wells performance. Yes, there were 2 Akpo West wells that were completed in Q1, as we have described in our first quarter 2024 MD&A shareholder reports. Those wells did exceed expectations. However, please recall that the Akpo field then went into a planned maintenance shutdown. That program is over and the field is ramping up. So we will be able to provide further updates on that in due course when the field is out of this ramp-up phase.I don't know if, Roger as well as Pascal, you want to add anything else to that on the Akpo wells?

[Roger Tucker, executive]

No, I don't. I think that's absolutely accurate. The wells have come in as predicted with pursuing an active [Technical Difficulty] program. And so they gave no surprises at all.

[Shahin Amini, executive]

Very good. And there's a number of questions on Namibia specifically on Block 2913B. So this is Venus and Mangetti. One question. When do you expect that there could be a possible appraisal on the Mangetti fan?

[Roger Tucker, executive]

Well, the Mangetti well came in [Technical Difficulty] in a very favorable situation, if you like. And at that time, what we were doing, what the other operation that was going on is we were acquiring the 3D seismic to the south to make sure to -- we've got a complete coverage of 3D over the whole block. And as I mentioned to you in previous calls, one of the reasons that we wanted to stay in this license is there wasn't complete 3D in the south and we like the look of the Damara prospect. Now what then happened is Mangetti -- that 3D seismic that was going on in the south of the block was temporarily terminated, if you like, and the acquisition of 3D seismic moved to the north and east of Mangetti, which gives you an [Technical Difficulty] We like the look of this Mangetti discovery.Now on the map that you can see that we have up there, what it looks like is that the Mangetti fan heads off the block. It's very significant on our block, but it heads on to the Chevron block up towards the Galp discovery. And it will undoubtedly be appraised, but who is going to do the appraisal. Is it going to be us or is it going to be Chevron or is it -- how is this going to work? So I cannot guarantee to you that in 2024 Mangetti is going to be drilled on our block, which is [Technical Difficulty] is highly likely that the extension of that feature at some point in the near future will be drilled because it does look extremely attractive. Does that answer -- that's basically all I can say at the moment. So that necessarily for it to be us and Total would do it, but that feature is going to get drilled at some point.

[Shahin Amini, executive]

I think it's important to highlight that, obviously, during this most recent appraisal exploration program on Block 2913B, operator TotalEnergies has acquired a lot of data and also have shot 3D seismic. So there is a treasure of Total data that needs to be processed and analyzed. And we -- as we've always said, we will update the market in coordination with our invested company, Impact and operator TotalEnergies when there is a material work plan confirmed.

[Roger Tucker, executive]

What I will do is, whilst we're supposed to be talking about the Q1 results, there is another well immediately adjacent to us that is very important too, which is Shell's Enigma-1X, which is also a success, and you can plot it on a map and see where that is. And that is potentially like a significant discovery is right adjacent from our Damara feature. And so what -- as I've tried to explain when I talk about Namibia, we're in the midst of the development, if you like, of a major new global petroleum province. The drilling isn't all going to be ours, and you need to keep your eye on what the other people are doing.And I think I've seen some of the questions here that people are asking about what Galp has discovered and whatever. And you're going to see that we are in a very privileged position as a very small -- a relatively small independent exposed to drilling that's going to go on around us, which will delineate the shape of this entire province, and that's going on as we speak. And it's very, very sort of like in the development of this province because the first discovery in the area, which is the Shell discovery, only occurred in 2022. And it's just been one after another in the area. There will be a limit to it, I mean, at some point. But the industry is going through a learning curve on how these reservoirs work, the distribution of the hydrocarbons. And it's important that any investor and us keeps their eye on what's going on around our block as well as what we're doing on our own block.

[Shahin Amini, executive]

Yes. And there's a question that does specifically mention Galp because Galp did put out a press release saying there's 10 billion barrels of oil equivalent in place on the Mopane discovery. I suppose that some of our shareholders, investors are continuing to wonder when can we expect to have similar statements, say, on Venus or Mangetti or other opportunities that we have in our portfolio.

[Roger Tucker, executive]

Well, I think it's interesting to -- I mean, it was a fantastic press release. I mean, there's no question about that. And the motivation behind it, Galp are going through a farm-out process [Technical Difficulty] time. But then if you go to the Total Capital Markets Day, what Patrick said when he was asked a very similar question, and I would tend to agree, it is very, very early having just drilled 2 wells to say exactly what the in-place reserves are. It is a very bold statement.We haven't actively seen all of the data and Galp is a very well-respected company. But it is going to take a while to work out exactly what the [Technical Difficulty] And what I will say is that you've seen that Total have announced it's a 2 FPSO development. What you're going to start to see because these are such big developments is it's going to be reserves producible by each FPSO and the positioning of the FPSO resource base is a really critical thing to work out so that you maximize the overall recovery. And that is the work that is ongoing at the present time.In terms of when we can make an announcement is what we have [Technical Difficulty] because of the way that we hold our interest in this is follow Total. And Total will hopefully, when they go into sea, make a more fulsome announcement of what the reserves base is. But we will follow Total as a good partner.

[Shahin Amini, executive]

Very good. I think it's only fair to give you and Pascal a break. And maybe I could put a question. So Oliver, if that's okay with you, Oliver? But we have a question on basically capital allocation and the long-term strategy for the company. The question is, how do you measure and calculate return on investments? And what hurdle rates will you have? As an example, would you have a threshold internal rates of return in around 20% for investments? And I know you've been very busy, Oliver, with some of those strategic points. Are you able to shed some color on our thinking?

[Oliver Quinn, executive]

Yes. I think it's a good question. I think there's probably a couple of ways to address it. I think the first one, of course, is what's our cost of capital. And particularly, what's the cost of capital in the -- for the company, but in the jurisdictions that we're in. And I think -- if you think about IRR in Nigeria where of course we've got production through Prime, we're not going to do things there that are low rate of return. I mean, there is typically a discount around the NAV and the asset value that you get for assets in those jurisdictions. So again, that drives -- as we talk about in capital allocation slide here, drives a discipline around that.I think the second point is, I don't think it's probably not helpful to put a specific number out there [Technical Difficulty] opportunity-specific. Of course, some of the infill wells that Roger and Pascal talked about, they have very high IRR because they pay back extremely quickly. There are other things with lower but robust IRRs, but there it's a different shape of profile and longer term cash profiles. And it's I think again in a fairly active mode, you see that sort of transactions that we've done. So just simply, commercially, I think it's not advantageous to throw numbers out there that might distract us from executing there. But I think, again, I'd point to the capital allocation framework, the discipline and the execution around that discipline, both in taking CapEx out of the business, and as Pascal talked about, the share buybacks, which tells you how we ultimately see the value of the money, if you like, in returns.

[Shahin Amini, executive]

There's a couple of follow-on questions on FPSOs for Venus. I think it's fair to say that at this stage, the operator still is analyzing data and developing a potential possible development concepts. And the questions are, are there going to be 2 FPSOs producing from the beginning? And we haven't said that, but Roger, perhaps you just want to clarify that point that it's likely -- well, not likely, but it's possible that there could be 2 FPSOs on Venus, but they don't -- they're not necessarily going to they're producing in parallel from day 1, correct?

[Roger Tucker, executive]

Listen, often people say that this is the first time they've ever seen anything like this and it's unique in the world. I actually was lucky enough to see a very similar situation playing out [Technical Difficulty] with the development of the Santos basin and I believe that this is going to follow the same route. There will obviously be a phasing of when the FPSOs arrive. It would be extremely rare if both FPSO [Technical Difficulty] same time, maybe not even in the same year, but there is a commitment to start the development with 2 FPSOs.What the delay in between the first and the second is dependent on the way that these FPSOs come through the process. I can't [Technical Difficulty] logical thing to do to try to commission 2 at exactly at the same time. And it would be more cost effective if you did one and then another arrived and then the same team carried on and commissioned the next one. But this is me talking and it's not what Total has in public. And all I'm doing is give you my experience after living through a very similar thing with BG in the Santos Basin.Does that answer the question?

[Oliver Quinn, executive]

It might be worth just refreshing people on carry, as we talked about earlier on the development funding and how that works in that context. Because, of course, it's all spend on the blocks pre-first oil. So even if you go down the road, as Roger described, where you just -- let's say, there's a phased development of 2 FPSOs. Of course, the spend on the second FPSO up to the point of first oil on the [Technical Difficulty] block FPSO is also covered. So I think that's a really important component that we're actually insured against that development timeline, if you like. So if it comes very aggressive and very early, that's okay because we're carried. And if it comes later, that's okay because we're receiving cash flow from the asset to fund our future obligations.

[Shahin Amini, executive]

I think that does answer the question well. We have 3 questions from one of our long-standing shareholders. First one, will Preowei development cost recoverable against the production from Egina and Akpo or only from Preowei? Pascal, do you want to have a go at that or I'd be happy to start and then you can correct me if I get it wrong?

[Pascal Nicodeme, executive]

Yes, go ahead.

[Shahin Amini, executive]

So first of all, on Preowei, one thing is that -- well, certainly, my understanding is it will benefit from a 5-year royalty holiday. So that's a positive. So that needs to be accounted for. And that basically, Prime is not paying corporate tax. But obviously, in terms of the cost recovery that will come under the PSA arrangements. So yes, it will have the benefits of that under the PSA for those assets.Pascal, do you want to confirm that or tell people...

[Pascal Nicodeme, executive]

Yes, confirmed.

[Shahin Amini, executive]

Excellent. So second question from our investor. How much maintenance-related that downtime was there in Q1 for Egina, Akpo and Agbami? And how much downtime do we expect in the second quarter?Well, certainly, we don't have any downtimes on Egina and Agbami, it was only on Akpo. And I believe that starts on 19th of March. So in Q1, we would have had around 10 to 11 days of downtime. Roger, do you have any expectation for number of days those fields could be done in second quarter or Pascal?

[Roger Tucker, executive]

As I said, what we know from that planned shutdown, it took slightly longer than expected. And that at the moment, they are ramping up production again. We are not back to the previous production level. So it's now mid-May. So there will be definitely an impact on production for the second quarter.

[Shahin Amini, executive]

Okay. But we don't expect any impact on Egina or Agbami for this quarter?

[Roger Tucker, executive]

No.

[Shahin Amini, executive]

Very good. There's a couple of questions on Equatorial Guinea. Basically, people want an update. And do we have a timing expectation for the farm down on EG-31 and EG-18.

[Oliver Quinn, executive]

Yes. So we lost you for a second, Shahin, but I can take that. So I think the process is ongoing. There has been several companies through that data room. I think the guidance that's probably most useful is that you go back to capital allocation framework and what we're saying there is we're going to be very, very disciplined about spend, particularly in the kind of early stage pre-production work. So I think what we're doing there is saying, look, we should take a little bit longer, but take a little bit longer to [Technical Difficulty] that fulfills those strategy, if you like, that gives us a place where there's minimal 0 CapEx in that. So that is probably slightly longer than people are expecting, but I think that's the reason is to, again, capital discipline and ensuring that we get things fully funded through those transactions and that [Technical Difficulty]

[Shahin Amini, executive]

Operator, can I just check with you? Are there any further questions on the telephone line?

[Operator]

There are currently no further questions on the phone line.

[Shahin Amini, executive]

Right. There's a question on our effectively ownership of assets in Nigeria. Are there plans underway for us to consolidate those? Is that -- well, we have indicated as one of our aspirations, but Oliver, perhaps you'd like to show your thoughts on that. I think we may have lost Oliver and Roger again.

[Oliver Quinn, executive]

Well, I'm just going to cross that. I mean, it's a good question, but what we need to do is focus on the Q1 results that we've just published today. We have an aspiration to consolidate in the assets that we like, but we're not going to today give you any indication of [Technical Difficulty] the durability of any of that. But you've seen from the transactions that we have done in this first quarter that is pointing you to a direction of travel that we are actively pursuing. And I think I'd prefer just to [Technical Difficulty] Shahin, if you're happy with that.

[Shahin Amini, executive]

No, absolutely. I think that's very prominent. Very good. Sorry, I'm just looking at the remaining list of questions. There's one question on what is the company's relationships in the Lundin Group. I will take this one. The Lundin family exits the position. And we were very fortunate that we had a blue chip international funds that took that position and are now a second largest shareholder in Africa Oil, which is [ Stability ].And I think on that note, yes, I think we've answered all these other questions that I still see on the queue, and we've only got a minute left. So on that note, Roger, do you have any final comments that you want to share with the audience?

[Roger Tucker, executive]

I don't think I do, Shahin, unless you think that we missed something. And I'd just like to thank everyone for dialing in and listening to this. And just watch this space because we are in a very active mode. And that's all that I will take from call.

[Shahin Amini, executive]

Thank you, Roger. A final comment from me. We will be hosting our AGM next week on 23rd of May. I will be preparing a press release with details for shareholders that want to join a Q&A session. And we expect to send the details of that later today. So yes, just a reminder, our next event is our AGM next week. And please, operator, I'll hand it back to you to end this call.

[Operator]

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.