Africa Oil Corp

TSX:AOI

Earnings Call Transcript 2022-Q4

[Shahin Amini, Investor Relations & Commercial Manager]

On behalf of management, I thank you for joining us today for our 2022 results call. I'm joined today with our President and Chief Executive Officer, Keith Hill; and our Chief Financial Officer, Pascal Nicodeme. Keith and Pascal will present the year's highlights and the business outlook before we go into the Q&A session.

I would like to remind everyone that the remarks made during this session are subject to forward-looking statements, which involve significant risk factors and assumptions and 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 SEDAR.

Keith, we’re ready. Please, go ahead.

[Keith Hill, President & Chief Executive Officer]

All right. Thanks, everybody, for joining. Obviously, kind of an interesting quarter, some good news and some maybe quite so good news, but I think in general, we're moving ahead quite well with the company. We are going to start with exploration, because I think that's probably our biggest catalyst and the most exciting thing coming out this year and really focused around Venus.

So Venus is getting a lot of attention on the world press. You've seen several articles by the operator Total where they claim it to be the largest discovery in 2022. It has the potential to become one of the top 10 offshore oil discoveries in the world, according to several sources, that it could be quite large.

And the reason we're excited is because, the first well that we drilled on it was well above our expectations. This very nice light sweet crude, very high mobility ratio, 84 meters of net oil play. And I think one of our advantages is we're the only publicly listed independent E&P with an interest. So if you want a play, the Venus play, that really we are the only publicly listed stock that will have a significant impact on that.

So I think the upcoming program, turning to the next slide, there's going to be quite exciting. I think the impact the operator -- the partner and Total the operator have talked about spudding the well very early in March. So, hopefully, within the next week or so, we'll see the spud of the first appraisal well, Venus-1 is being drilled 15 kilometers to the north of the Venus discovery well and will be a big appraisal on, what we call, the Venus Main Structure.

But as you see on this chart, there's a very large -- a very extensive program being laid out, probably not only the drilling of the Venus appraisal well, but also there's a large plot to the West, they called the Nara exploration, but we used to call it West Venus and we'll be drilling that and we'll be running DSTs on all three of the wells, including the existing well.

And then, if successful in Nara, there's the idea that we will drill an appraisal well on Nara as well. So I think the -- what the operator Total has been saying in the press is that they believe that a fast track development could be underpinned by this program. You'll see that in comments from Total that they bring $300 million, which is roughly 50% of their exploration budget on this year. And, of course, this is turning into one of the most exciting place in the world.

So next slide, I think, kind of gives you a little geographic perspective on this. We've always said the Orange River delta is kind of the last and big unexplored delta in the work in West Africa, where the Niger Delta, obviously, the cargo delta, the larger deltas to the north, have produced most of the big oil in West Africa.

This one always was kind of held back because of Kudu discovery. So, 30 years ago, Kudu was discovered and it was gas. It was a fairly poor reservoir, and I think you gave the Orange Basin bad name.

Now since then, we came in with our partners and with the shell data east of us that we believe it could be light oil, and we could believe it could be quite big. And I think we've been -- we've been proven that that's the case. So 1 billion barrel discoveries in both the Venus prospects, but also in the shale prospects as reported at in the media that they also are finding 1 billion barrel prospects. So I think that's quite interesting for us, the first two real prospects drilled in the basin, both confirmed light oil, both confirmed good reservoir, both confirmed the huge size. And we're just scratching the surface of this vessel.

So the basin itself is very large. I'd like to put the little inset map of the other real hot spot in the world at the same scale. And you can see the area we've got here is roughly seven times the size of the basin. So, huge amount of running room and we do have some good additional acreage in this basin as well via Block 3D 4B, which has a number of drill-ready prospects that are supported by 3D. We're in the process of looking for a partner with our partner [indiscernible] and Eco Atlantic.

Also the Orange basin D block, which is another deepwater block, again, very lightly explored that have -- through impact also have an interest in that as well. So, this has the possibility of turning into [indiscernible] in the world for exploration. I think it's going to be a very interesting summer as we go through and drill these appraisal wells and get the results of the tests as well.

So moving on to the next slide. Yes, this is kind of a repeat of the last slide. I just wanted to mostly show on this one that we are -- most of the big major oil companies are now all around this. So this has turned into kind of a super major playground. So Total Energy shell of the Dama [ph] acreage holders, but you've seen Chevron come in there recently as well. So I think we're in a good neighborhood. And I think, you'll see the industry is quite focused on this basin.

Next slide. We've also designed to do blocks in Equatorial Guinea that we're quite excited about. I think exploration still has a very strong place in our industry and in the transition. I think the world is coming to grips now that's going to probably take decades, not years, to fulfill the transition, and we are going to need more reserves to bridge the gap when we have the energy transition.

So the two lots pots we just signed up in Equatorial Guinea look quite interesting to us. We have a very large prospect in EG 31 that's already have 3D seismic and is ready to drill, and it's right next to the infrastructure that put to Europe and only 80 meters of water depth. So it's -- it's one that we think we can quickly get a well done and bring it on stream. They need gas in the LNG terrain in Punta Europe as I think it will be a ready market for that. And we've already been approached by several big oil companies about partnering with us on that block, which I think is quite interesting.

The Southern Back EG-18 is a little bit more like the Venus and Southern Trans where is the submarine fan, a basin floor fan that has very good amplitude and could be quite large as well. So again, we are already in discussions with potential partners on that one. I think this is kind of getting back to our old exploration philosophy, where we go sign up blocks, get bigger oil companies to come in and pay our way but keep a significant interest in.

So again, we quite like these blocks and happy to have those signed up. But we won't forget where our bread and butter, which is Nigeria. Nigeria has been really the core of the company since we signed the deal in 2020. I think it's been an outstanding deal for the company. We've already paid it off and more in the time that we've had it, and these fields keep giving.

You will see that, we had a little write-down of our reserves on Egina part of the reason is because we just haven't been able to drill as we plan to on those – on those – on that field. We were expecting to have a rig on location last March, we finally have rig now drilling ahead. Hopefully, we've got now three years of production on that field. It does look like it's a little more complicated than what we thought originally, perhaps a little more compartmentalized than channelized reservoirs than we thought. But I think we have now 4D seismic what we saw last year, we're drilling – we're going to be shooting another 4D seismic, and we've got a rig that's going to be there for foreseeable future. So I think there's a good chance to move Egina forward. I think our Operator Total is very focused on making sure that we optimize this field.

The other two fields, ACPO and Egina, have been behaving nicely. We did take part of our reserves right now was barmy, where we've written down the reserves associated with the gas project, which just is not economic at this time due to the low gas price being achieved in gas development there.

But anyway, the fields, I think if you go to the next slide, when you look at the cash that's been generating and continues to generate. It's been a great acquisition for us. We've received $650 million and we only paid $519 million. We've paid down $500 million of debt. We've increased the cash balance from the company by $96 million. I think, obviously, these are the three largest fields in Nigeria that fields continue to keep giving.

One of the keys here is license extension and Pascal will talk a little bit more about the ramifications for that. And I think, we're very close on that. If you ask me our two biggest catalysts this year are probably going to be Venus drilling, but also License Extension in Nigeria.

So next slide, we do have a number of projects that we also want to bring in. One of the best things we can do here is we've got two FPSOs that have significant capacity in them now. We've already – we're very close to pulling the trigger on the Pray Away development, which would be in that infill of the Egina FPSO. But there's a number of other prospects. Some of the wells we are planning to drill this will be exploration/appraisal wells in and around our existing fields in the block, particularly in OML130. So I do think that's one of the best near-field exploration or near-field development we actually see this as a big catalyst going forward.

And we are very conscious of our commitment to the ESG front. I think we've had quite a – quite a remarkable decrease in flaring over the years, in particularly since we bought it in the last quarter, we're actually seeing a significant downgrade in the amount of flaring down.

So it reached a peak of over 100 and now we're down to about 14 million cubic feet a day and still working with the operator on getting that this year even further. So I think that's especially in today's ESG-focused environment and transition environment, I think this is a very important accomplishment.

So with that, I'll turn over to Pascal, and let him kind of talk about some of the financial results for the quarter.

[Shahin Amini, Investor Relations & Commercial Manager]

Thank you, Keith. So I think most investors and shareholders might have focused on the loss we posted this morning, but actually the fundamentals of the company, and especially the performance on Prime, has still been outstanding last year. Prime has continued to deleverage all over the year. They prepaid about $380 million cost of their RBL and PXF.

We are, at the AOC level, debt free is about $200 million of cash on a consolidated basis, so AOC plus 50% of Prime we only have net debt of $25 million and Prime has a very low debt to EBITDA level of 0.4. So I mean, Prime has continued to generate significant dividend, $250 million last year only, which is the best year since we made the acquisition. So as reminder, we had $200 million in 2020 to another $200 million in 2021 and $250 million last year. So, it's $650 million since we closed the acquisition, and we basically paid back in less than two and a half year.

So last year was also the first year when we started our shareholder returns program. In total, over the year between the dividend and the share buyback, we have distributed more than $63 million to our shareholders. And of course, one of the main highlights of last year is the Venus Discovery and all the potential upside that is going to build in our share price.

Next slide, please. In terms of production, I think the main highlight is that we have met our midpoint guidance, both in terms of working interest production and entitlement production. Despite the delay at drilling contract OML-130 which is now starting, and also the shutdown for maintenance in Agbami. So despite these negative elements, we were still able to meet our production guidance. Thank you, Shahin.

So in terms of oil sale, I think we wanted to tell you where we stand, especially there have been many questions about our hedging program at Prime level. So we used to have a program whereby we were selling forward, between 50% to 70% of our production. So that was true until the mid last year -- until the mid-2022, when we decided to change that policy.

The fact that we saw for the oil in 2020 and 2021 helps us to weather through the COVID crisis. And the impact of this sale policy can be seen on the average price, we've managed to secure in 2020 in the middle of the economic crisis. So, I think we realized that as the market was picking up and the oil price is going up again, we have to change this philosophy and which we did mid last year.

And instead of selling forward oil production, basically, we are now having a system of threshold whereby, if the oil price doesn't go below this threshold or cargoes are still sold spot, and you will see the impact of this change between Q1 and Q2 2022 and Q3 and Q4 where the average sale price started to be above the debt Prime. So it shows, it's only the success of this new marketing philosophy, whereby we are now able to sell oil at market price or slightly above market price.

[Pascal Nicodeme, Chief Financial Officer]

Okay, Shahin. In terms of financial highlights, so at a pit level, so the results you can see here in 2022 is the adjusted net income of $151 million, which is before the two impairments made, so on in Kenya of $170 million, due to the delays in the farm out and more, I would say, cautious view on the NPV of the asset going forward. So, we impaired the Kenya assets and it's now booked on our balance sheet at $58 million. And also, there is the impact of the impairment of Egina from Prime and our net share of this impairment is $41 million. So net of these two impairments, we are actually posting a net loss for 2022 of minus $60 million. But before these two impairments, which are non-cash in the net income would have been positive at $151 million. So, very consistent with the two previous years despite the lower production.

In terms of EBITDAX and cash flow, Prime has continued to deliver consistently, so around $600 million of EBITDAX net to Africa Oil, which is consistent with the two previous years. The cash flow from operation has been hit by a one-off payment of royalties in Q4, which are actually the deep offshore royalties that has been accruing since the deep offshore law was passed. And one-off payment was made in Q4 of $59 million, which has impacted this cash flow from operation. So, do you want to take this slide or I would…

[Keith Hill, President & Chief Executive Officer]

Yes. I mean, I think looking forward to the company, I think what you've seen kind of in this quarter was a bit of a cleanup, I think, we cleaned up Kenya, took care of some tax issues that have been outstanding. And I think roll it down to what I would call a more reasonable value. We're still hopeful that the farm out does happen. It's just taken about a year longer than we expected. The project still looks good. But I think we're being a little more realistic on the timing of the farm out and some of the other parameters around that.

I think for us, the big things that are going to happen this year means pretty good drilling, both Venus and the OML 130 renewal. OML 130 renewal brings with a few big benefits. So if we get the OML 130 renewals -- renewal, you'll see the other bullet point there. We refinanced the Prime RBL and PXF facilities as well as the Africa Oil Corporate facility. So if you put it in round numbers, the difference would be instead of paying $400 million of debt back this year, as would be required under the existing RBL, we would refinance that RBL and have roughly that amount of money to be able to dividend out to shareholders.

So it's a big deal for us. And I think it really -- if it doesn't happen, it's not the end of the world, there's nothing wrong with paying down debt in this market, we still think there's a lot of opportunities and that kind of goes to the other bullet point there of potential acquisition of strategic producing assets. I think we're quite laser-focused on what we want to buy now. I think it's going to be production that's cash flow and we are very targeted to basically majors that are looking to rationalize their portfolios and sell off noncore assets, particularly offshore West Africa. So I think we will continue that strategy.

But I think, obviously, every time we look at a deal with our share price still what we think is underperforming, we'll have to compare that against buying back our own shares. So I think the potential farm out for that Block 3B/4B, is also a good one. And I think we are -- I think we've told the market this before, but I think we are looking at ways of trying to clean up this exploration portfolio structure.

I think looking forward, we'd like to see it a lot more clean in nature of really refocusing the company on Nigeria and Venus and then having option on Kenya but also potentially having some structure that can give shareholders some value in some of the exploration portfolio that we have. But keeping our core principle for the company going forward is focused on production, cash flow, dividends, shareholder returns and hopefully, a big windfall on Venus as well. So I think I'll give you time to flip through the forward-looking statements then read them at your leisure.

And I think we're happy to take some questions.

[Operator]

Ladies and gentlemen, we now begin the question-and-answer session. [Operator Instructions] We are now taking the first question. The first question from Teodor Sveen Nilsen from SB1 Markets. Please go ahead. Your line is open.

[Teodor Sveen Nilsen, SB1 Markets]

Good afternoon, guys. Thanks for your update and thanks for taking my question. I had three questions. First all, on Venus, of course, very exciting and you head us there. Just wonder how the news flow will look like going forward? Should we expect net debted volume estimate to be announced this spring? And will they flow test the well. Second question is on the Egina impairment. What's the book value of Egina after the impairment? And then third question, I think maybe we did discuss this before that is regarding the structure of Africa Energy, ECO Atlantic and the impact keep abrasive so that you're looking for a kind of clean that you just provide an update on that, that will be good. Thanks.

[Keith Hill, President & Chief Executive Officer]

Okay. Well, Venus, obviously, we're not the operator of Venus the Total operator. And I think any public disclosure will be – handled by them. If you look at the schedule that Total announced, the first well should be done in the next 60 to 90 days. So I would expect to see an announcement that the conclusion of that and an announcement when that rate would move over and spot put the narrow well. So I think the disclosure will be controlled by the operator, and we are -- we are only shareholders of one of the working interest partners impact and Total will be the main client to do it for announcements, I will say that there seems to be a lot of announcements being made in upstream magazine and other sources. So I think it's always very hard for the wells that are this high profile, keeping big secret. But I can assure you that we will not be the source of any of those disclosures. I think Aegina for impairment, I don't have the number right now what we've written it down to what the value is, I don't know if you have that data?

[Pascal Nicodeme, Chief Financial Officer]

No, we're currently not going to stand that level of detail.

[Keith Hill, President & Chief Executive Officer]

So I think, Teodor, I mean the main reason that it got written down was really because we haven't drilled in three years. When we started developing next year, we actually believe that we would be drilling March of next year. So I think we've learned a lot about this deal. There were some good, some bad. And I think in the later part we’ll look for this item that will be coming up. The operator is very focused as is Prime, Prime is doing the dependent valuation of this. This is our biggest field, and this is one that we will be focused on going forward.

And I think now that we're basically in drilling load. I think there's a lot of opportunities to bring back some of those reserves or to increase production. But at the end of the day, the operator is in charge of that process and they will be ones who want to be making statements about that.

But the field is good. It's maybe a little more complicated. The oil in place probably doesn't change that much. It's just a question of maybe how many wells we need to get that recovered. And the current development plan is still the original development plan that was in place for the original reserves.

As far as Africa is cleaning up our portfolio, I think we've talked many times about that we need to stop being a portfolio company. We are an oil company. We're not a portfolio holders. So I think each of these has its own individual positives and negatives impact, I think, is very focused on Venus, and I think they've made public statements that they are considering selling their interest at some point. We have to realize this is a 3,000-meter water depth, deepwater field, no matter how big it is, it's probably something for the majors to develop for good guys like us.

So I think they've discussed the sale process. And I think before the end of the year, I think they would hope to conclude the sales process, hopefully, on the back of positive results with the exploration drilling. And each of those three wells that are being drilled, including the original well that has been drilled last year, there will be three wells that are tested this year as well. So two new wells and three tested wells. I think we'll have a much better idea of what we've got at that point.

But I think some of the ideas we've talked about spinning out some of the assets into a separate portfolio, selling off assets. I think everything is still on the table, but I think we do want to clean this structure up in the first half of this year. And I think you'll see a much cleaner structure with the resulting company really being focused mostly on Nigeria and Venus and buying cash flow and producing assets and shareholder returns.

[Teodor Sveen Nilsen, SB1 Markets]

Yes. Excellent.

[Keith Hill, President & Chief Executive Officer]

Sorry, Teodor go ahead.

[Teodor Sveen Nilsen, SB1 Markets]

Yeah, just back on Aegina, as far as I understand, there's actually some potential reversal of that impairment that mainly lack of activity and new roles and no big reservoir issues right now. Is that correct interpreted?

[Keith Hill, President & Chief Executive Officer]

Yes. I think, I wouldn't want to make any promises on that front. I mean, we're obviously looking at the field again. And -- the operator will be the one that controls that process, but I think there's opportunities from the original development plan was put in place, there were 44 development wells. We cut that back to 38%. And I think maybe what we're learning is that we might need to drill a few more wells to recover some of those volumes. But again, I can't presuppose the answer until the operator has done the work until Prime has done the work, and they've gotten together. We don't really know what the answer will be, but I can tell you we're focused on I think this -- if there is a way to restore some of those reserves when we store that production, I think, it will be a primary goal for the operator and for Prime.

[Teodor Sveen Nilsen, SB1 Markets]

Understood. Thank you.

[Operator]

Thank you for your question. [Operator Instructions] The next question is from James Hosie from Barclays. Please go ahead. Your line is open.

[James Hosie, Barclays]

Hi, there and good afternoon. Couple of questions for me. Just first off on Kenya and the impairment of the assets, it sounds like it's driven by a reduction in your confidence that the farm-out transaction can be completed. So just wondering, if you could elaborate on what's changed within that process over the last few months to prompt the write-down now? And then just on the dividends from Prime tactic oil. Are you saying that 2022 dividends from Prime are on hold until you're able to complete the license extension and then the debt refinancing?

[Keith Hill, President & Chief Executive Officer]

I would say, I'll take the first one, let Pascal take the second one. But -- nothing's really changed on the Kenya Pharma other than the passage of time. I think for our Board and for our auditors, that we've been making a promise for a year that we are imminent on a farm out. And I think, I think at some point, our auditors and our Board started becoming more skeptical that the timing of that.

It can still happen. I think there's still very active negotiations going on led by the operator to. So -- but I think we've got it proved at this time to kind of put that down. We have a that this -- we have looked at some of the other assumptions going in as to the Pascal mentioned. And there are also time lines that are being challenged on some of those as well that did figure into that write-down.

I think if you look at what's happening in Uganda, I think there is some concerns about having a pipeline approvals and things like that, that also went into that discussion. But I will say, I still think Kenya is a great project. And I think it deserves to go ahead. And I think with the right strategic partner. I think it will go ahead.

But I think we just felt at this time, it was approved. And then there are a few other things you'll notice if you go into the details on the financials, we have done a tax settlement KRA we put in to that. And we have a few other settlements being done with partner accounting issues, things like that. So there were a few other items that went into that discussion, but maybe I'll let Pascal answer the question about the dividend.

[Pascal Nicodeme, Chief Financial Officer]

No. So in terms of license renewal, I mean, the answer is the existing dividend policy of Prime remains in place. And as you probably know, we will distribute any excess cash above $1 million to $50 million of cash balance at that Prime level. So the answer is no, the dividend is not suspended. And I mean, the Prime dividends are not expanded.

Obviously, you know that the existing RBL facility expires in next year. So we basically have 18 months to repay whatever is left of the RBL facility, which is around $500 million. So our attitude to pay with the remaining amortization is not massive, while of course, if we extend the license now and we refinance, we will have, again, the opportunity to reschedule the amortization of the RBL.

So getting the extension now is key for us not to amortize the debt too quickly. So I think this is why we are thinking on getting the license renewed. But otherwise, the dividends that potentially are going to be different beyond the license renewal are still there, and they will still be distributed them at a later stage.

So I think you're getting the license rate now and getting the refinancing completed is key to accelerate the distribution of dividends, as you know. So -- but in terms of license renewal itself, I know we've been telling the market for quite some time that it was imminent, but it's still imminent. I think we have very good signs coming from the country, obviously, presidential elections have differ a little bit the process. But we are still very confident to get a license extension in Energy.

[Keith Hill, President & Chief Executive Officer]

Yes. And I think the other thing in there, James, you know me, on an oil – oil price will have a big determinant on that as well. I'd like to read the Goldman Sachs report that says, $100 oil is coming out. I believe it's coming again, whether it's third quarter, fourth quarter, next year, I think the supply/demand form that's still on our side.

So obviously, anything that goes on oil price helps our ability to pay dividend this year. And I will say that, we currently have no -- none of our cargoes are actually hedged in any way. So we did get two triggers in February. Those cargoes have been sold. They were less than 10% discount for the Brent price of the day. but every existing cargo now agree the most be triggers is still open to this spot market, which I think is a real key for me in the new hedging strategy

[James Hosie, Barclays]

Okay. Fine, thank you. I'll just ask one more while I have you, just on Namibia drilling. Just how should we think about NARO-1? Is the assumption is that it's an extension of Venus you are targeting and NARO is really a bold step out appraisal well, or are you assuming their separate structures?

[Keith Hill, President & Chief Executive Officer]

I think the answer is we don't know, and we will find out when we drill. I think if you – impact disclosure, they talk about it being an extension of the Venus structure. I think one can make that argument looking at the seismic data, but I think it's a pretty big step up well. And I think that's the real key. That is an extension of the Venus or even if it's a separate expansion, it makes us into a really a world-class size discovery.

[James Hosie, Barclays]

Okay. Thanks a lot.

[Operator]

Thank you for your question. There are no further questions at the moment.

[Keith Hill, President & Chief Executive Officer]

Thank you. Well, we've received – got a few questions through the webcast and there's a number of separate questions I’ll put them together on 3B/4B. And a couple of specific questions, but one maybe more general one and that is, is Africa Oil in an ability with its partners to drill this on the right or is a farmout important to that. And then following from that, and I think it's perhaps picked up from one of our partners announcements or did our own announcement about an environmental consultant being selected. Is that unusual? Is there an issue? And the third question is when will that CTR be published on 3B/4B?

Three good questions. I think our strong preference is to have a partner, a super major come in and the operating partner in the 3B/4B and pay for at least one well if not two and possibly some cash upfront. So that's what we're working towards that goal. We are -- we've had discussions with several companies, and we continue to be in discussions with those companies. If we can't do that, then we will probably test the market and see if there's a way that we can finance it ourselves because we really like the prospects we've got -- the nice thing that came with 3B/4B is a full 3D survey that's never drilled upon. So we've reprocessed it, and it's very good quality data and we have several high-quality drillable prospects.

So I'm fairly confident we and the partnership, we'll be able to find a partner to come in and do that. But if we can't, then I think we will have a good go at trying to drill it ourselves. But I think again, that's probably not our first choice. As far as the environmental permit, the signing up an environmental company, that's very standard. We've done it on every block that we've got, and we're starting the ESIA now.

So I think in the current climate, especially in South Africa, you have to make sure you do things right completely on all fronts, not only the environment, but community engagement and all of the things that you need to be able to take the boxes because there is a fairly strong environmental movement trying to stop a lot of the hydrocarbon activities. I think we proved when we drilled Gazania, even though it was an unsuccessful well we proved that we did our homework right there that we got all the necessary permits, and we did not have any significant opposition to our drilling.

So that's what we want in 3B/4B. I think for bringing in a partner, I think it's a useful thing to have an ESIA done. We've got a CPR competent person's report being done, should be done in March, for sure, and we will publish the results of that. So I think again, we really like this block. I think we picked it up at an opportune time before the basin got half. And I think -- our goal will be to firm it up. But if we can't, we may look to try to fund it ourselves.

[Pascal Nicodeme, Chief Financial Officer]

And the one on CPR?

[Keith Hill, President & Chief Executive Officer]

Yes, maybe happy with that offline.

Maybe we can change track and maybe put this to you, Pascal. This is shareholder capital returns, what is the scope? And there's also a question on buyback specifically. I mean, the question I'm saying was it become irregular and basically can you provide your thoughts on the way for the outlook?

[Pascal Nicodeme, Chief Financial Officer]

Yeah. Well, as Keith mentioned, I think we are seeing a lot opportunities here. And I think one-on-one top priority remains to purchase producing assets -- so we -- any asset we would see as an opportunity would basically put that in perspective against the share buyback. So unless we have confidence to be able to close an acquisition, which makes sense for the company in terms of metrics, returns and so on otherwise, we would always balance it against the share buyback and we believe that our share price is still significantly undervalued at the moment. So, it would always make sense to buy back our shares unless we have a compelling acquisition opportunity. So, I think that would be probably the number one criteria on when we decided on the share buyback opportunity going forward.

[Keith Hill, President & Chief Executive Officer]

And of the 10% that we announced about last call, we've used about half of that money. So, we've still got half of that, that we can do under the normal course issuer bid. That doesn't necessarily constrain us if we do -- particularly if we get license extension and have a higher dividend, we can always looking at a special -- I don't remember the acronym special issuer bid -- substantial issuer bid.

I think buybacks still are -- we are continuing the dividend that you saw in our release, we've announced the Board has approved the dividend for March. And I think we see the dividend continuing. But I think we certainly have heard from our shareholders that they like to buy back, so we will continue to opportunistically pursue

[Shahin Amini, Investor Relations & Commercial Manager]

Pascal, you earlier touched on 130 renewal. We have a question as well, you talked a lot about 130, can you shed some color on 127?

[Pascal Nicodeme, Chief Financial Officer]

Yes, of course, So, actually, Prime has started the conversion process of OML 127, which means that they want to convert into the new PIA terms, which are more favorable in the current state as the PSA that -- and the fiscal terms we're having today as under the hydrocarbon law. So, it makes sense from a general perspective to convert to PIA. Of course, on 130 -- because it's such a large value percentage for us, we want to negotiate the conversion to the PIA at the same time as we get the license renewed.

On the 127, it makes sense to convert the PIA now and Prime started the considered to do so and the target 1st of April as a completion of this conversion to the PIA. So, in terms of license extension, of course, this is another priority for Prime, maybe less at the top of the list compared to OML 130 because of the of the size -- relative size of 127 compared to 130.

[Shahin Amini, Investor Relations & Commercial Manager]

Thank you, Pascal. Three questions on the EEG and let's start the strategic one first. Our newness will come up. Base on the question is that we've obviously been very much talking about our focus on producing assets. And the question is saying, well, if you talk about producing assets, and now you've gone picked up to an exploration cases, what gives? I don't know if you want to tackle that could go

[Pascal Nicodeme, Chief Financial Officer]

At the end of the day, we spent $7 million to pick up these licenses, a fairly small amount of money. If we're right about being able to perm it up and have partners do it. to pay the money for us, we'll not only get that $7 million back, but will be fully carried for the exploration work program.

So, I would say we're not putting a lot of our attention and our money into the exploration side of things. But when we see great opportunities, like we did in Venus, we will still jump on those.

I think the one thing we won't do is sign up exploration opportunities that are going to take a decade or more to come to fruition. So, again, as much as I like Kenya, I don't think I'm going to sign another Kenya that's going to take 10 to 15 years to bring on production because I think there will come a point when the transition has moved on and maybe we won't be able to monetize those and that could become stranded.

But I do think exploration still has a place. I think we want to make sure that we don't focus a lot of time and money on pure exploration unless it's like this, very advantaged and very specially unique.

And we've been quite clear in our messaging for the last quarter -- the last couple of periods in report about its infrastructure-led exploration, as you said, short-cycle, essentially a high IRR projects, very good.

Secondly on EEG, could you just shed some color on or share your views on potential timelines to a possible farmouts and infill drilling and low lifting [ph]?

[Shahin Amini, Investor Relations & Commercial Manager]

Yeah, I would say either the drilling will not happen until we have a farmout in either of those products. So I think within the next year, we have a pretty good chance of getting both of those Blocks farmed out possibly with different partners, because there will be different drivers on both of those plants.

But I think we're not looking to write big checks out of our account. We need obviously -- my Board has told me, the proof is in the pudding. If you can go find a pharma partner, it means its good enough that it should be moved forward.

If you can't, we could be out $7 million. But I have to say the response we've got since we've announced these, I will be a bit shocked if we're not able to bring in a good partner on both of these Blocks. And the third question on EEG is, would you consider by producing assets in that jurisdiction?

So we have looked at several of those. And I do think it's a jurisdiction that we like. I think the obviously, there's been some very successful companies over the years there, Marathon, Exxon, Chevron, I think there's a number of companies that have done quite well, Cosmo more recently. So I think it's a place that we would very much consider doing business there.

[Keith Hill, President & Chief Executive Officer]

Pascal, in the past, we spoke about the Equinor Security Deposit receipt for Agbami. There's, still a couple of questions. Is this still an issue? Is there still a kind of like a restricted cash consideration -- how is that accounted for that?

[Pascal Nicodeme, Chief Financial Officer]

So no, it's not question [Indiscernible] so in the prime management segment that they can finance a reduced the way we found to use that consideration is basically to pay the cash flows on OML 130 from that deposit.

So -- and it's been a colder deposit bricking effect. Its loans to prime cash finance and indirectly, they have been distributing dividends content. And if we do the license extension, the payment that would be for OML 130, that payment would essentially draw that amount down to zero.

[Keith Hill, President & Chief Executive Officer]

Yes.

[Shahin Amini, Investor Relations & Commercial Manager]

Very good, excellent.

[Keith Hill, President & Chief Executive Officer]

There's a question here about saying, how dependent is our guidance -- our production guidance for 2023 on the successful performance of the infill drilling and on OML 130. Where we spent a lot of time as a team, the technical guys have done a fantastic job we've gone into a lot of detail. And we have obviously to a number of scenarios for potential outcomes of that. So we have accounted for it. And we are very confident in all of that.

[Pascal Nicodeme, Chief Financial Officer]

Again, it is just we understand the fields are lot better now. All of our reservoir models are performing quite well, but we've got history matches for three years. So I think we've gained a lot of knowledge on that field, not all of it has been positive knowledge that has pointed to be a bit more complicated.

But I think the guidance we put forward is, I would say, if anything, slightly conservative on the results of the infill drilling and the number of wells because the only -- there hasn't been a commitment to do -- all of the commitment relatively we would like to see them. I think, the guidance you see this year, we feel pretty confident that even with, let's say, modest results of that infill project, we're going to be able to lead our guidance.

[Shahin Amini, Investor Relations & Commercial Manager]

A couple of, sort of, off the main prior questions here. Would you say that changing the name Africa Oil, considering a lot of our peers have come from other -- something oil to something energy, I think the question is, is that how you relate, I think.

[Keith Hill, President & Chief Executive Officer]

That's true. And that, we do take a bit of abuse about that. We do point out that the name Africa Energy is already taken by one of our sister companies, so the easiest one to change to the Africa Energy. But I do think, we take the transition, we take our ESG responsibilities very strong.

And we didn't go through it on this call, but I think we did on the last. We've been one of the largest rating agencies in the world, EcoVadis has basically given us a platinum rating. We're in the top 2% of all companies that they rated out of 80-something-thousand companies, and we are the number one company -- oil company in their rating system.

So I think, we think the E, S and G, all three of those components quite strongly. I think we've always been very good on the S. We've had a number of awards from our second largest shareholder, IFC where we've had a year ago setting, I would say, the gold standard of how to operate socially in countries. Governance, obviously, conforming to ESG principles.

But on the E side, I think we're making great progress. And you saw our biggest E problem is clearing from that problem [ph]. And if you can see, we've made great progress on that in the three years that we've been here. And I think we'll continue to do that. So I do take your point. I think there's not that many companies that have the word oil included in their name and I think at some point, we probably have to remedy that.

[Shahin Amini, Investor Relations & Commercial Manager]

Thank you, Keith. Why is it so difficult to get or find a good and close a good acquisition of producing assets?

[Keith Hill, President & Chief Executive Officer]

Yes. I ask myself that many times. We've been doing that -- we’ve been to the altar about three, four times now, but haven't been able to get anybody to say, I do. And I think each one of them had a different reason. Number one, we're not going to be overpaying for assets. So in some of the competitive bid rounds that we've been in, people have paid prices we think are over the top, more like $70, $80 a barrel type oil price. We like to buy things on the kind of $60 price threshold. And then, if we're right, that oil prices are going to $100, we're very happy. But if we're wrong and oil prices go to $50 it's not going to break the company.

So I think that's one reason we've lost at least two of the ones. I think, world of economic conditions, obviously, the huge price spike of 2022, I believe, in the first half. And the gas strike, we are looking at a gas project, those have made it very difficult to close transactions.

I think when oil prices have returned and gas prices have returned to a little bit more normality, it may make it a little easier. We're in three processes right now, looking at assets and amount. I think there still are some good assets on the market, and I still think there's a good chance that we could close one.

But I go back once again to the premise that it has to be better than buying back our own shares. We still believe our shares are trading at a significant discount for Nigeria alone. And when you add in all the other things, it could be positive for our company, particularly Venus, we still might be better buying back our own shares and going up and buying a producing asset.

But we're on this. I mean, we're focused on this, and I do think there are still more sellers than buyers out there. So I think there still are opportunities to pick up some good projects.

[Shahin Amini, Investor Relations & Commercial Manager]

Pascal, would you monitoring some of you is from a CFO perspective in terms of doing an acquisition from the funding side – the banking side as well?

[Pascal Nicodeme, Chief Financial Officer]

Yes, of course, I think we and Africa are lucky because, firstly, we have the clean balance sheet, and we have debt available from existing banks. We have five banks in noting today, which are seeing most of them to support a synergy and acquisition going forward. Obviously, the landscape – the banking landscape has changed significantly in the last few years. And while some banks have existed in the market, some new banks came in. We talk more frequently to African-focused institutions, multilaterals to local banks like South African banks, Nigerian banks.

So it's we even though the landscape has changed, we still have good access to that capacity. I think we just need to natural this relation in order to make sure that going forward we would still be able to fund acquisitions on a net basis. We still believe that bank debt is more affordable than bonds, at the moment. The bond market has been closed in the recent months. So I think it shows that we were right in that sense. But I mean, last year, when we were talking about a very large acquisition, we were able to raise in two months about $500 million of debt underwritten by two institutions. So there is a still liquidity just that we need to not underwrite off.

[Shahin Amini, Investor Relations & Commercial Manager]

Very good. Thank you so much. I think you've already keep sort of – well, maybe we used to have small, but question is specifically on 11B/12B let those. Obviously, again, you're limited in what you can say and considering we're a shareholder at Africa, Energy. But just looking at the portfolio, do you want to show any further views on sort of what you could see happening with the portfolio of companies that we have?

[Keith Hill, President & Chief Executive Officer]

Well, I think that if it's specific on 11B/12B, I mean, I think the Operator Total has been diligently looking at solutions to try to monetize that gas with the various opportunities in South Africa. So I think that's the key to unlocking that value. I won't presuppose to speak to the Operator there. I think, I think we are quite happy to have a company like Total, representing our interest there. I think they will do so. I think how it fits into the portfolio of the greater Africa Oil. I think it's one of those things that we need to think about how we want to deal with it going forward. I think we've talked about in the past, spinning out some of the pure exploration things. We still think there's a lot of potential in D12. We've only looked at one small part of it. We've drilled two prospects in that little string of prospects for the whole eastern side of the basin. We think that's quite interesting.

So I think, again, one of the ideas that we've toyed around with is spinning out some of these into a separate exploration-focused vehicles that might be a candidate 3D, 4D, might be a candidate, even top line candidate. But I think we're looking at a number of options right now, but I think the message was clear from our shareholders and our Board that we need to clean up the structure. And I think before the middle of the year, I think we will come to the market with a solution to make this a cleaner or streamlined process, where I would call it the mother ship, Africa Oil is really focused on Nigeria and Venus and potentially, there's another focus on pure exploration perhaps in another vehicle.

[Shahin Amin]

Thank you, Keith. We only got about 60 seconds left. I don't know, if you have any final comments

[Keith Hill, President & Chief Executive Officer]

I think once again, I feel the company is in great shape. We spent three years now, both cleaning up our balance sheet. We were quite extended when we bought the Egina oil field. I think time has proved that it was a great acquisition. Now we got Venus on the horizon, but we've got some other good stuff too. And I think don't discount exploration, because there's not a real field in the world that didn't start with exploration. Like I said, the transition is going to take 30 years and oil and gas is going to have a significant role in that transition. So, I think the world is going to need energy. And I think, it's our job to give opportunities to move that forward. And Pascal, [indiscernible] at all that as we were trying to give the results I'm speaking to more normal times you're speaking well as the CFO, a CFO who doesn't like that on manage. Thank you.

[Shahin Amin]

Very good. Well, thank you, everyone. I'm going to hand over to the operator for the final remarks and the closing remarks. Thank you.