Panoro Energy ASA

Good morning, everyone, and welcome to today's Panora Energy Q1 2020 results presentation, our webinar. This is John Hamilton, Chief Executive Officer of Panora Energy ASA. Now, we're all getting quite used to webinars and all that. We're trying something new today, so I hope that it works. Our previous provider, there was a 30-second delay, so we're trying this GoToWebinar product, and hopefully it works for everybody. If anybody thinks otherwise, please drop us an email. If I could have the next slide, please. Before we get started, I'd like to quickly go over a few items so you know how to participate in today's call. Your screen should look a little bit like this when you're looking at your computer desktop. In the upper right-hand corner, you can see circled in red the interface that you can use. So you're listening in using your computer speaker system by default. If you prefer to join over the phone, just select the phone call in the audio pane. The dial-in information will be displayed. If you are joining in by telephone, you'll be only in listen-only mode. Next slide, please. You'll have the opportunity to submit questions to myself and to the presenters by typing in questions into the question pane there on the left in this slide illustrated. And you can send in questions at any time. We'll collect them at the end and address them at the end of the Q&A session. So you can also, if you can see on the right-hand side, you can raise your hand for a verbal question by pressing that button, and we can unmute you and put you into the call. I'll remind you of all this towards the end of the presentation. So if I could have the next slide, please. As a reminder, today's conference call contains certain statements that are or may be deemed to be forward-looking statements, which include all statements other than statements of historical fact. Forward-looking statements involve making certain assumptions based on the company's experience and perception of historical trends, current conditions, expected future developments, and other factors that we believe are appropriate under the circumstances. Although we believe the expectations reflected in these forward-looking statements are reasonable, actual events or results may differ materially from those projected or implied in such forward-looking statements due to known or unknown risks, uncertainties, and other factors. For your reference, our results announcement was released this morning, a copy of the press release, and our first quarter 2020 report are available on our website as well. Next slide, please. As usual today, I'm joined by these gentlemen, Kazi Kadir, our CFO, Richard Morton, our Technical Director, and Nigel McKim, Projects Director. They will all participate in the webinar and be available for questions as well. Next slide, please. So it's been quite an interesting quarter, I think, for everybody, and it's true for Panora as well. Maybe I can just touch on a few highlights, if we can call them that. On the operations side, the important bit is that our staff are healthy and have adapted to the new environment, both office staff, who have largely been working from home in all our locations, and the operational staff, who have really risen to the challenge and done well. To our knowledge, we do not have any nasty stories in terms of impact of the virus within our community. And for that, we're very grateful. The HSE culture that we have and the systems that we have have proven to be resilient so far, which we're very proud of as well. I think that is absolutely critical and the most important point that we can broadcast today that we have run safe operations and our staff so far are healthy. And despite all that, production has been largely unaffected. In fact, we're producing over 2,000 barrels a day in the core, which is up from Q4. So production has continued during the period. We have had challenges. There have been some sleepless nights, crew changes, some drama around lifting, things like that have occupied us. But so far, everything has worked out fine, but not without a little bit of stress and strain along the way. As previously indicated, we have deferred some development activity in Gabon. If I look at oil sales, all our liftings have occurred largely as scheduled, which is something to be said. Not everybody can say that in this market, unfortunately. But we have lifted when we wanted to lift. Our oil sales in quarter one were quite light. I think that was well flagged. We just had one Gabonese cargo and some domestic sales in Tunisia. That will step up as we get through the next quarters. So it was a light quarter. We also had an international lifting early in April in Tunisia. Our crude is priced off a dated Brent, which I'll come back to. And one thing that I think we also like to stress here is that we get a lot of questions about this from analysts and shareholders about our offtake and our marketing contracts and who are they with and are we worried about them and Do people have to come buy our crude? And we're very, very fortunate. In the bond, we worked together with BP International. That's gone without a hitch. And in Tunisia, we work with Mercurio. They're the first-class counterparty as well. So we have not had any issues around people not wanting to lift crude, people not paying for crude, things like that. But it's not been an issue for us. On the finance side, we've maintained a strong balance sheet, net cash position. Our hedging strategy has proven effective, we believe, in this downturn. We'll come back to that one. And as previously flagged, we have reduced capex and we are up in cost-cutting as well. So on the outlook side, we really have been focused on financial discipline, maintaining our existing production, which is very, very important to us. Our production guidance for the year, 2,300 to 2,600 barrels a day. That's a slight trimming from the previous one. That's based on the recent announcements together with BW Energy in respect of the production range decreasing slightly into bond as a result of not being able to tie in well six and seven. But the upside to our asset base is still there. We're just experiencing some timing delays, so we think the future is bright for us. Next slide, please. We've all lived the coronavirus and the drop in the oil price, but I thought I'd just touch on a couple of these things. How has this impacted the oil sector generally? Some of this applies to Panora, some of it doesn't. Again, we've been rather fortunate. We've been able to lift, we've been able to sell, we've been able to produce. But here are the things that kind of kept us awake at night and to some extent still do. I think things have used a little bit now, but... You know, logistics have just been the thing to worry about. We have a global business. The world business relies on international people, international suppliers, ships coming and going, selling crude internationally on the high seas. And the logistics of that have just been severely compromised with the travel restrictions, the borders closing, the need for quarantines. isolation, this has all really impacted the business and has resulted in HSE protocols really having to be stepped up and adapted where possible. So, you know, we've been extremely busy trying to make it all work. And again, in Benora's case and the operations we have, it has worked. But again, there's been enormous hard work that's gone into that, many sacrifices, personal sacrifices that have been made by people involved in the business. But we have done it successfully, and I think perhaps we're a little bit more fortunate than others. We've also seen what it's done to the oil price. Together with the oil price war, we've had the global demand dropping, storage capacity becoming a huge theme. We've seen extreme volatility in oil prices. I mean, leaving aside what happened to WTI, David Brent, So seaborne crude, you're not going to see negative prices, I don't believe, in Brent, but nonetheless, it's been under huge pressure. And we've seen, in many cases, stranded oil cargo, so cargo selling for single-digit dollars per barrel in other parts of the world. So it has been a very, very challenging time for the industry, and I'm not sure we're out of it yet, but things look a little bit brighter now. Next slide, please. And again, I just want to illustrate what happens here. We get a lot of questions around, you know, how do you sell your crude? What does crude get? How is crude priced? Brent gets priced on what we call dated Brent, which is a physical market. It's what happens actually at the coalface, so to speak, when we sell the crude. And that is often a different price than what you see on your screen when you're looking at Bloomberg or whatever. which is usually a futures price, a near-term futures price. And here, all we've done is we've plotted the delta, the difference between the dated physical, the physical on the day versus the futures price you see on the screen. And over the past five years, and if you look back even further, you'll see similar trends. You know, it's more or less, it's usually a slight discount to the futures price. Sometimes you see it as a premium depending on what's happening with supply, demand, storage, etc., But what you saw during the crisis was unprecedented, really unprecedented drop in physical price of rent. That's again the price you sell your crude at, not the price that you see on the screen, the futures price. This is the price you sell your crude at, went down $10, $12 discount to what the price on the screen was. And of course, depending on where you were, you saw people looking for discounts above and beyond that. So that's when you got into people selling cargos for single digit numbers, Now, luckily, that is now rectified and we're back at a more traditional discount to the futures price at the moment, thankfully. But this is really what everybody was living through and where the panic set in. Next slide, please. So how's Benora set up for all this? What's been our response? I think we like to think that we I had taken a lot of steps before the crisis. We couldn't foresee the crisis, of course, but I think that we have always maintained a reasonably prudent way of managing our business. We took out oil hedges for 2020 and 2021 with floors of $55 a barrel. We did our equity placing in October of last year with the very strong support of some of our largest shareholders and others. And that was really depressing in a balanced and decent decision going into the next phases of our Japanese expansion. We had the option at the time perhaps to put a debt facility in place. We decided that's probably the wrong thing to do at that moment in time. In hindsight, that was obviously a very good thing. We streamlined our organization. We inherited an organization from D&O, as you guys know. In Tunisia, we cut the cost of that by 40% over the past year. And we've kind of always kept a kind of low footprint corporately. During the crisis, as well flagged, we cut capex in the bond by 40%. We delayed bouche phase one. That's more an oil price thing than the virus. In Indonesia, we deferred higher capex activities like Ruby 10, Sidetrack, and Saloon West until the macro is a little bit more clear. and we've taken major steps to reduce overheads. We've even been a little bit cute with some hedging around the currencies, the dollar, to hedge out some of the sterling and kroner cost base that we have. So I think we've responded well to it before and after. Next slide, please. And here's a slide talking a little bit about, we had this discussion with the board actually yesterday. We had a board meeting yesterday. It's like taking a step back and looking at the corporate strategy over the past few years. We wanted to put ourselves in a position where we can withstand the cycle. We're in a cyclical business. There's no question. I'm not even sure it's a cycle we've just been through, but the shock that we've just been through is not something that any of us really prepared for. But we were prepared for the cyclicality of the industry. And if you kind of just look at the bigger picture, we put ourselves in a position where we're producing a lot more oil now, so we have a real cash flow coming through the business. We strengthen our balance sheet and our cash position significantly. over the years. We've increased the number of wells we have from just a couple a few years ago to 18, 20 if you include Aje, where we have a diversification in wells. We have different countries as well. So Gabon, we've had to defer some activity there as it's been well-flagged, but in Tunisia we're able to step it up. So that diversification in terms of country and well count I think is proving to work. And we've made new discoveries as well. I mean, a couple of new discoveries in 2018, and BISCUS in 2019. We still have a huge exploration portfolio, so we're able to replace reserves that we produce through the exploration drill bit. So I think, you know, we talk about it as a board. I think we're happy with the current circumstances, but nonetheless, I think we're happy that we put ourselves in a better position than we would have been a few years ago if we'd gone through the shock that we just had. Next slide, please. I'd like to turn over to Cassie Kadir now, our CFO, to take you briefly through our financial highlights and talking a little bit about our debt and our hedging as well. Cassie?

Thank you, John, and good morning, everyone. On slide 11, we have a summary of our headline results for the first quarter. It is customary to note here that the results presented and discussed here are unaudited. We report our results in continuing and discontinued business activities. The discontinued part includes Agile operations, whereas the continuing activities include our businesses in Tunisia and Gabon. I'll make a start with the revenue for the first quarter, which stood at $3.4 million, with a notable decline compared to the fourth quarter, 2019. This was principally a result of lower number of listings and partially a decline in oil prices. Save volume for the current quarter was 71,000 barrels as compared to 210,000 barrels in 4Q19. Realized prices of $39 per barrel in Q1 and $65 a barrel in Q419. Including the commodity hedges, the realized price was $55 a barrel for the first quarter 2020. Moving to EBITDA from continuing activities for Q1, was $310,000 compared to $5.5 million for the previous quarter. Again, the lower EBITDA is a function of low volumes and lower oil prices in the current quarter. Despite the adverse macro environment, we have achieved a positive EBITDA for the current quarter. Below the EBITDA line, we have after-tax profit of $8 million for the first quarter, which included a $10 million gain from market of commodity hedges. I will touch upon these hedges in a bit more detail in the upcoming slides. Finally, we exit the quarter with cash of $24 million and debt of $23 million. Next slide, please. Here we are discussing the loan instruments we have in place for Conoro. We have two external instruments, a senior secured loan facility with Mercuria, of US$16 million and a $7 million non-recourse loan payable to BW Energy. Both of these items are as of end of March 2020. The material loan has 40 loan repayments of about $0.7 million for 2020. Due to a drop in LIBOR rates recently, we are expecting a decline in effective interest cost of at least 1% for 2020. Mercuria has been a very supportive lender during this downturn and the impact of COVID-19. In Gabon, we have a non-recourse loan with no fixed repayment, following every lifting the excess cash flows from cost oil after deducting operating costs. are used for making repayments. Profit on portion of the revenue is always retained by Panoro. We had a $1.4 million repayment to BW Energy in January this year. In a low oil price environment, we expect repayments to be very, very low. Next slide, please. As John discussed earlier, the dynamics of dated Brent and pricing of physical crude, our hedge positions are also priced off dated Brent and hence have a linear relationship with our cargo pricing, which is also based on dated Brent. We execute our hedge positions with Mercuria, which is, again, a first class and robust counterparty. Almost 20,000 barrels are hedged and settled each month, which is equal to about 25% of our production, mostly with floors of about $55 a barrel and have been providing the necessary cash flow support in recent months of low oil price environment. As of 31st of March, we have a $9 million market valuation of our commodity hedged contracts. maturing during 2020 and 2021. This concludes my review of results, and I'll now hand over to John to take us through the guidance on slide 14. Thanks, Ghazi.

We've talked about this a little bit. This is our current guidance, production 2,300 to 2,600 barrels a day. This is obviously a significant increase from 2019. It is a little bit lower than our most recent guidance due to the recent announcement also with BW in terms of the the permit of some of the production in Kusafu due to COVID-19. And this excludes Ajay, obviously. International liftings, our current guidance is around eight liftings this year. We had one in the first quarters announced. We have probably four more remaining in the remaining three quarters in Gabon and three in Tunisia. Always subject to a little bit of change, but that's our current view of the world. On the CapEx side, all been previously announced. We had a full year capex of $31 million that was announced earlier this year. That has now been cut back to around $22 million, of which at the end of the first quarter, we have about $15 million remaining. That's about five in Gabon. And then the balance is the saloon commitment well in Tunisia. And then we do the sidetrack. Those are both currently delayed. We're holding these in our capex guidance now. Timing them is a little uncertain, probably towards the end of the year. And needless to say, given the circumstances, we're seeking capex reductions across the board and across all of our operations. So these are historical capex numbers and assumptions. Hopefully, we'll be able to do a little bit better than that. Next slide, please. I'd like to now turn over to Richard Morton, who can take you through a little bit what's happened in Gabon. A lot of this has already been flagged, but I'd like Richard to take you through it, please.