Panoro Energy ASA

Good morning and welcome to Panora Energy's first half 2021 update. This is John Hamilton, Chief Executive Officer. I'm joined today by Richard Morton, our Technical Director, Nigel McKim, our Projects Director, and Kazi Kadir, our CFO. We're going to walk you through some slides now to tell you a little bit about the business and the transformed business we had over the course of this first half. and we will then take some questions towards the end. In terms of webinar housekeeping, for those of you who have joined before, you will know, for those of you who are new, you need to raise your hand if you would like to ask a question, or you can type in a question into the question panel. We will try and endeavor to answer most if not all of the questions that are raised. And you can do so, you can type those questions in at any time. If you want to speak, you need to raise your hand and we will unmute you. But please do that at the end. But you can type in a question at any time. Next slide, please. Standard disclaimer, which we can move to the next slide, please. So before I get into the financials, as a reminder, today's conference call contains certain statements that are or may be deemed to be forward-looking statements, which involve 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 that 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. So here are our highlights. We have three buckets here. The operational side, we've produced on average on a pro forma basis 7,700 barrels of oil per day. When we say pro forma, we mean as if including the result of the acquisitions from the 1st of January. Those transactions, one closed in March and the other closed in June. So we're trying to show, when we show pro forma numbers, what the business would have looked like had we had those from the 1st of January. It's illustrative. On the reserve side, we have about 36 million barrels of reserves as a company now, and we have almost the equivalent in 2C resources as well. And that basically shows you that there is Beyond the 2P reserve, there's lots of value sitting in contingent resource as well. On the financial side, we're showing a mix here. We have a pro forma revenue of $105 million. Last year in the first half was $26 million. So again, that's partially oil price, but it's mostly the result of the acquisitions that we've made. Net cash flow operations, that's not a pro forma number. That's the real deal. That's cash flow from operations of over $60 million with a loss last year of $6.4 million. Average realized price in the first half was around $67 a barrel. Cash at the bank, $93 million as compared to $15 million as at the end of the year, last year. Gross debt, $104 million, leaving a net debt position of $11 million. And on the right, we remind people of the strategic accomplishments we've had. We completed the Telo acquisition, oversubscribed equity placement. We've completed the farm end in South Africa during the first half. We're actively drilling. We're growing production. And all of this is underpinned by a very robust capital structure, as we'll detail later. shortly. Next slide, please. So here's a slide trying to show where we are and where we're going and where we've been. As you can see in the top left, we are showing what the transformation of the reserves and contingent resources is. Pre-acquisition, we were about 16.6 million barrels of 2p plus contingent resource. We're now about 70 million barrels. So the company It really changed as a result of these acquisitions. In the lower left, you can see the impact on production that the acquisitions have helped transform the company into about 7,700 in the first half of the year on a pro forma basis. Where we're going is on the right. We are hoping to get to a sort of peak rate during the course of this year of about 9,500. And that's when the new wells are coming on stream. We have five new production wells coming online during the fourth quarter, principally. So we hope to be able to move that up to that 9,500. And on the far right, again, reiterating, we expect to be in excess of 12,000 barrels a day during 2023 when the Hibiscus Rouge development comes online. So again, we have a very, very nice growth trajectory on our production. the production is purely based on 2P reserves. So the contingent resource is sitting there on the bench, so to speak, ready to be activated in due course. Next slide, please. Right. So our financials are all over the place a little bit as a result of the transaction. So there are some confusing elements in here. What we've tried to do is also show this on a pro forma basis. Again, this is an alternative measure that we as a company like to show because it shows what the company looked like as if we had owned these assets from the first of January. We had the economic interest as of the first of January, but not from an accounting perspective. And IFRS is very strict in terms of the way that we look at these things. So you can see the difference between the IFRS reporting and on the pro forma basis. On the revenue side, on the lifting side, we had nine liftings during the year. If you include it on a performer basis, we also have an additional lifting in Equatorial Guinea. The EBITDA is very strong on a performer basis, $66 million. IFRS is 28. There are some things going on with the reversal of the over-lift position and we can get into that if people want to with Kazi in the Q&A, but there are some elements there moving around. On the EBIT side, IFRS reporting is $66 million and $100 million on a pro forma basis. This is partially as a result of some negative goodwill. Again, IFRS requires us to to recognize the fair value of the DUSIFU acquisition, and that that has actually come through the P&L, so it's a negative goodwill. In other words, we bought it extremely cheaply. RFS has been very strict in terms of recognition of that. And again, the cash on the balance sheet we've already talked about. Next slide, please. Again, because of many moving parts, we thought we'd try and reconcile the cash position From the start of the year, again, I think the most important thing for me looking at this is net cash from operations, $61 million. It's showing, leaving aside all the accounting and the IFRS, it's showing what the real net cash from operations is. That's real cash, and that's coming into the business, and this will continue to come into the business as we go through this year and next and for the years to come. But this is really just to try and reconcile how we get to the $93 million of cash at the end of the period. There have been a lot of moving parts here. And again, this slide is meant to kind of deconstruct all that so people can see that we've had the big inflows of cash from borrowings and the equity placement. We've had the outgoing from the payment of the acquisition and the capex in the interim period as well. Next slide, please. We have a very strong balance sheet, we believe. We have loan facilities, as everybody is aware, and here's the breakdown on the top left of those loan facilities. Important to note, we have an undrawn $20 million advance payment facility. It's meant to deal with any changes in working capital because we're lifting our own oil. Sometimes those are only done on a sporadic basis, so there could be times when we have some cash flow. There's undrawn and I don't have any plans to draw it, but it's a very, very nice safety blanket. And on the bottom right, you can see the debt maturity profile. So these are not loan facilities that are repayable next year. These are stretched out well over time and all the way into 2025, 2026. So we're in a very comfortable position there. We have a hedging program. We've tried to hedge in and around our liftings. So you can see that in November, we're expecting probably a big lifting in Equatorial Guinea. We started trying to get a little hedging in around that, trying to take advantage of $70 oil, which we've successfully done. And we will continue to try on a short-term basis, try and target hedging in and around liftings. We have some smaller 600 barrels a day hedged in 2022 with costless collars. That's obviously a very small part of our production, but nonetheless, we have that in place as well. Next slide, please. CapEx and liftings. Again, this is just to provide full guidance and transparency. We have $45 million of CapEx this year. It's a little bit higher than previously guided, it was 43 before. The difference is principally Hibiscus North, which we'll touch on in a moment, the exploration well, which we just filled, which was contingent at the time of the last results. But what you can also see is that the CapEx is very second half weighted. So we didn't spend as much money as quickly in the first half as envisioned. So the bulk of this will come in the second quarter. And we also have some guidance on our second half liftings, which look more or less like our liftings in the first half is one Gabonese lifting less and our Equatorial Guinea lifting we'll probably hopefully have in November that we're estimating at the moment to be a 650,000 barrel lifting. So again, trying to provide as much transparency as we can based on everything that we know in terms of when we expect liftings to happen. And again, as a reminder, liftings are our revenue recognition point. So We don't recognize revenue on a production basis. We recognize it on a lifting basis. So these lifting moments are our revenue moments, and those are important for everybody to understand. You will get some lumpiness in our quarterly results, hopefully in the half years, in the full years, you know, everything's smoothed out. But, for instance, in the third quarter, this quarter that we're in, as we speak, we don't have any liftings. You are going to get some lumpiness. We just want to make sure we provide as much transparency as we can on that. Next slide, please. Right. Equatorial Guinea, our most important production asset at the moment, is very steady, produced almost exactly the same as in the first quarter. But what's happening there is really exciting. We are drilling three infill production wells there. The first of which was a success. It encountered good quality oil saturated reservoir sands. The rig is now drilling the second of those wells. And all three of these wells are expected to be online and in production in the fourth quarter. At the same time, there are various upgrade projects, infrastructure integrity projects going on. The operator is extremely busy working on de-bottlenecking things on this facility. They've been busy at that for a number of years, and they really have been a great success. And it's one of the reasons we really like this project is we're at the inflection point now where production should grow from this 30,000 barrels a day on an upward trajectory through the addition of these new wells, but also through improvements on the facilities. We have not yet decided in terms of new drilling, production drilling for next year. But Panoro is very excited about what we see on the contingent resource side there. There's a huge amount of contingent resource, and we would expect, all things being equal, that the operator and the joint venture will want to drill some more wells next year, but we are not able to provide guidance on that as yet. Next slide, please. The big news, of course, overnight was that we drilled hibiscus north. We have made an oil discovery in the gamba. There are two reservoir layers targeted in this well. One is the gamba, the upper one, upper reservoir, and then the dentile is a lower target. We've made an oil discovery, which is great, oil saturated sands. We don't have enough information out. We have to put a press release out due to our obligations towards the stock exchange. But it is too early to say what size it is at the moment. But obviously, we're extremely pleased to have again found oil. This track record of finding oil in the Deuce-Sufu license has been exceptional, with the exception of one blip earlier this year on the Hibiscus extension well. This is This is, again, confirming we're in a prolific area here where all your drilling dollars go straight into the cost pool. So even in the case of the dry well earlier this year, that money goes straight into the cost pool. So we're drilling not for free necessarily, but we can recover all of our capital expenditure through oil production. So on the Panora side, and I know BW feels the same, we're extremely thrilled to make this oil discovery, and we will From here, keep drilling down to the dentile, and we'll sidetrack this well as well and try and delineate. We'll run wireline logs to get a better estimate on potential volumes here. So it's a little too early to say volumes. The range we gave was 10 to 40, and we're still sticking by those numbers. And we will update the market, but nonetheless, extremely exciting. On the production side, we have the successful completion of the DTM7 production well, which encountered very long good section of high-quality oil bearing sands. The installation vessel is on its way. We hope to be producing it early in the fourth quarter, bringing these two wells on stream, which will then boost production in Gabon. Next slide, please. Tunisia, very, very steady. We produced about the same as the first quarter, around 4,600 barrels a day for the quarter. on a gross basis, about 1,350 barrels net to Noro. We're having some success, though. We're producing well over 5,000 barrels a day as we speak. We did have a small shutdown of one of the fields in August, which may be seen slightly in the averages for the third quarter. But the message here very much is that we are on an upward trajectory in terms of production in Tunisia. It's going exceptionally well. We're continuing to do lots of small things. you know, add up to production growth. So hopefully we'll be able to show a very strong second half in Tunisia. Next slide, please. South Africa. We are planning to spud this well by the end of 2021. Rig negotiations are underway. This is a very interesting prospect well. It's drilling up dip from a discovery from 1988. during the apartheid era found good quality oil. We're coming up to that to see if we can't find rather significantly more amounts of oil that have been discovered there. We have a few different reservoirs that we're targeting in this well. So as we get closer to spotting that well, we'll be talking more and more about it. But there is considerable information in some of our previous press releases about this prospect, but it indeed could be quite big. Next slide, please. So our standard news flow ahead, we have the new production wells in the bond coming online. So we'll have fourth quarter be able to announce them coming online and the rates. Hopefully those will come in nicely. The hibiscus well, we've made a preliminary announcement last night, but there are more announcements to come as we gather more information. So that's quite exciting. The infill wells in EG, one down, two to go. First well was excellent. I'm expecting the second and third to be good as well, and we'll bring those online. So there'll be some news flow around those events. Indonesia, we're continuing to work on our workovers, as I stated before. We have the Petronor dividend, which we haven't touched on here, but we hope to be completing the transaction of the sale of our Nigerian business to Petronor, which will result in a payment to Panoro of $10 million worth of Petronor shares, which we intend to dividend to our shareholders as soon as practically possible after completion. The file is moving along well. It's subject to ministerial consent in Nigeria, which can take some time. But hopefully that will be an event as we get to the end of the third quarter, beginning of the fourth quarter, end of third quarter, really. and then the exploration well in South Africa that I touched on. So there's plenty to go here this year, and we'll recharge next year and hopefully do similar next year in terms of exploration wells and production wells. Next slide, please. So in summary, the key messages we have are we have five new production wells coming on stream towards the end of this year. That will hopefully get us to that 9,500 barrels a day. which is what we're targeting, and we continue to target the in excess of 12,000 barrels a day during the course of 2023, which is when the Hibiscus Rouge development comes online. We still have near-term triggers, so excitement in the shares. We had the exploration well in Gabon, and again, we made a preliminary announcement last night on that, but there is more news to come there. We have the South African well, and we have the Petronor dividend. Cash flow-wise, we are generating very good, strong cash flow, We're fully financed. There should be no concerns around our balance sheet, so much to the extent that we very much stand by our position to pay dividends within the next two years. So you can see it all in front of you that we are going to be a dividend-paying company, and that is still very much the intention. The board has reiterated that. We will give more detail on the dividend policy and how we're going to do it in the quarters to come. So with that, I'm finished. And if we could just go to the next slide and remind people how to ask questions, you can either type them in or you can raise your hand. So we'll turn it over to questions. I think, Kazi, I think you're going to supervise.

Yes, John, thank you very much. We have a question that has come to the web, which is that in the financial statements, there is a line called other non-operating items. What is included in this line? It is basically in relation to the 2.10% working interest we acquired. And as John mentioned earlier in the call, there was $48.5 million, which means that the fair value of the assets that we acquired on completion date was in excess of the price we had paid for those assets. And henceforth, there is a gain, which is recognized as fair, but it's on day one of the transaction. And that basically is predominantly reflected in that line. There is detail available in note five to the accounts. I have a question from Stefan, for short. I'm going to open the line for Stefan. Stefan, you may speak down please.

Yes. Hi, guys. Thanks for taking my questions. I had a question on first starting on hibiscus. No, I know where you early stage, but certain questions was the dental reservoir or resources including the guidance of 10 to 14 million, I think that you that you gave was running with a we might have some more material news coming as you keep shooting. And then does the, and once you're seeing in the results you have in the Gamba, are there any implication on the other prospects around Hibiscus North? That's my question on Hibiscus North. And then I've got an accounting question. The funding in the Angola CapEx you did for full year 2021, Is that pro forma or is that RFIs? Because I think the six you spent so far was RFIs. Thank you.

Right. Well, on the second question, I think, you know, Kasi, correct me if I'm wrong, but, you know, that's real cash for Panoro. So anything that happens... while we owned the assets economically before we completed them, before IFRS could recognize them, any movements in CapEx were dealt with through the closing adjustments. So the actual cash that we handed over to Tullow at the time was adjusted for any capital expenditure or any income in that intervening period. So it's real penuro cash, if I can put it that way. In respect to the Hibiscus North, so Richard, the questions were, was it 10 to 40 range, including the possibility of some finds in the Lower Dental Reservoir? And does the oil discovery in the Gamba tell us anything else about the exploration on the wider block? If I understood the questions correctly, Stefan. If, Carl.

Thank you. Okay, John, I'll take that. Thank you. Thanks for the question, Stefan. So the answer is yes on the first one. The high case included dentile, the 40 case. And then in terms of the prospectivity around Hibiscus North, obviously it's very early days. We haven't fully logged the well, but there are implications here. Gamber is present here, which is good for the prospects nearby. And also the trapping mechanism here is slightly different to other prospects we've drilled in the past. So it gives us further information on that aspect of the traps. And this was a slightly more risky trap than the Tortue and Ruche, for instance.

Great. Thank you. And back on the CapEx question. So therefore, that means that for H2, the cash CapEx will probably more be like 39, which is 45,000, 600, That was reported in H1. Is that correct, John? Yes.

Okay. Thank you. I mean, you know, it's always the thing with trying to look at things on an annual basis. It all depends on when, you know, cash calls get made. So it could be that some of it leaks into January. It could be that, you know, things are accelerated. Some January cash call creeps into December. But directionally, yes, this is entirely correct. And based on what we can see right now, we think this is the right number. Wonderful. Thank you, guys.

Thank you, Stephan. We don't see any raised hands at the moment, but there are a few questions from the chat window, which I'll repeat here. There's one question from Stephan Abjan. On the discovery in Hibiscus North, If commercial, how do you foresee the development solution? And what's the most likely timing for these barrels to enter the market? OK.

Richard, do you want to take that one?

Yeah, I will. Thanks. So this is, as its name suggests, this is reasonably close to Hibiscus, this separate structure. So it would be, if it were commercial, a tie-back to the Hibiscus-Rouge project, which is underway. We have spare capacity in the design of that platform and pipeline back to the FPSO, and the Hibiscus North would tie into that. In terms of the timing, we think it would be a quite quick project to tie back. It would just involve... possibly a subsea tree and a flow line back to the platform, and that could be done in the space of less than a year.

So Stefan, just as a reminder, the Hibiscus Rouge development phase one, which is ongoing now, where we hope to have first production in the fourth quarter of next year, 2022, That involves six new wells, principally in the Hibiscus area, the bigger Hibiscus structure there, and the Ruche area. And then there's a second phase, which is planned to maintain a nice plateau of production. And so this discovery here could very well tie into that second phase of development, probably not the first. The first we're really going to concentrate in on the main Hibiscus area. So we'd probably come into that second phase. So when would the barrels enter the market, so to speak? That's going to be 2024, probably. But the point here is that it's just basically just extending out the reserve position in the block. It's extending out, therefore, the production profile in the block. So it's not so much about rushing those barrels to the market, as it were, but just they can kind of backfill as we produce the reserves that we've already found. So hopefully that answers that question.

Thank you, John. We have another question from an investor which is asking about if we could say something about what we have learned from the geography of the new discovery. And we read across to other prospects in the rest of the piece of the block.

Yeah, I think Richard kind of answered a similar question, which is, you know, this well had a little bit more risk on it than some of our other ones in terms of the trapping mechanism. So it's very encouraging that it has worked well. I think it's a little early to make big conclusions about the read-across, but You know, again, since Bonoro has been involved in this block, we've made a straight string of successful wells. I can't remember the number now off the top of my head, but something like 16 straight successful wells in a row. We had the one blip earlier this year on the hibiscus extension well. So I think it's just adding to our understanding of what's very clearly, you know, prolific block with plenty more running room on it over the years. And again, The intention really, and we're aligned with BW on this one, is that every time we have a drilling rig out there drilling production wells and bringing cash flow in, we will allocate well slots to drill additional exploration wells. So you likely see us drilling every time that rig comes out. So next year it's coming back. We'll be drilling one or two or maybe more exploration wells as part of those campaigns. So hopefully we'll have some more news already next year.

Thank you, John. There's another question, which is about if we could elaborate a bit on the high OPEX cost of $31 a barrel at Dusafu. Is it due to the shutdown for maintenance only, or is there something else to it as well?

Yeah, no, it's a good question, and I think BWE have had their results already, and they've been asked about it as well. It really is a function of oil production. The main operating cost for that business in Gabon is the FPSO lease and the O&M contract, so the cost of running it day to day. That is by far and away the largest element of operating cost, and that is largely a fixed cost. There are some variable elements there, but it's largely a fixed cost. If you've got a lot of production going across the vessel, then your OPEX is going straight down. If it's less, and that was the case in the second quarter because of the shutdown, production was lower as everybody saw during the second quarter, that immediately just changes the OPEX per barrel instantaneously. So what we would expect to see is... You know, in the third quarter, you know, OPEX will probably remain a little bit stubbornly high, but as we get the new production coming through in the fourth quarter and into next year, you're going to see that OPEX line drop. And when we get hibiscus roots online a little over a year from now, you're going to really see it go down, well down into the teens, maybe even lower teens, you know, if we get the right production coming across the vessel. So hopefully that answers the question. It's just purely a function of, production across the vessel, but $31 is way too high, but I see that almost as a temporary anomaly.

Thank you, John. Another question we have is that, is it reasonable to assume closing of other transactions in the third quarter?

Yes, it is reasonable to assume that. It's outside of our control would be the only point I have. We have the minister, effectively the president of the country, needs to sign it off and he's a busy guy. The regulator makes a recommendation to the minister. That recommendation is positive, we know that. We just need to wait for the minister to actually put a signature on it. We have every hope that it'll happen in the third quarter. Could it slip into the fourth? Yes. Again, it's out of our control, unfortunately. But there have been, it seems like there hasn't been any movement on it, but there has been. There's been quite a bit of development on it. It's just we don't have the signature yet.

Thank you, John. And we have another question on what is the current production at EG's?

Current production is stable and around the levels that we've been witnessing. Again, there are a lot of operational things going on, and the new wells, which will all be online by the fourth quarter. So we do expect production to increase, and we are seeing signs of that already. But we'll have to just wait and see when these new lines, these new wells come online and see that increase come.

Thank you. And there's another question which has just come in. It's about Equatorial Guinea again, if there's any exploration potential in the EEG assets.

The simple answer is yes. We're not concentrating on it because there's so much to go for. We have an existing 2P number there, but the 2C that you saw there, the group 2C, I think there's 33 million barrels. Not all of that, but a lot of that is equatorial guinea. So for us, the real upside is actually much lower risk than exploration. It's about monetizing those contingent resources over time. So drilling infill wells, targeting those contingent resources, making the decision to drill those wells, but then obviously bring those into the reserve category. But yes, I mean, there is some exploration potential, but the focus of the block really is on producing cash and going after the lower risk stuff.

Thank you, John. This is, I think... I don't see any raised hands, but there's another question that has come in on the chat. Why is saloon well not being approved? It has been in planning for years.

That's a good question. Saloon, you know, we were ready to drill saloon. We had the drilling contract. We had been waiting for, again, ministers, a similar theme, to approve the drilling of the well. that that approval was not forthcoming. It was taking time. We then had COVID hit. We probably, even if we had the approval in hand, would probably not want to have drilled that well with the COVID situation because of the logistics involved. I mean, as everybody's heard, the oil industry has been really impacted by COVID. It's getting to be a boring subject now, but operationally, it really has been tough getting people in and out of countries, getting contractors in, getting equipment is a real challenge, and it continues to be a challenge, is the honest truth of it. It's a boring topic these days, COVID, but it is real. So we're not in a position to drill that well. We are in discussions with the Tunisian government in respect of how to kind of unlock this situation. These things just take some time. We continue to have Saloom on our charts there, but I wouldn't expect that we're going to drill that anytime real soon. But it's still very much there. We still very much have the license, and it forms part of our upside case. But at the moment, it's not front and center.

Thank you. And then we have... question on what kind of production do we expect from EG after tying up the three influence?

It's a good question. You're seeing that we're targeting an increase on the group basis to 9,500 barrels a day by the end of the year. That relies on two things. That relies on the tying in of the two wells in Gabon, and it relies on the production growth in EG. I wouldn't want to quote sort of an instantaneous one-off number because I think that would be incorrect. There are a lot of moving parts on those wells. Those wells could produce really well or they could be at a lower end of expectation. We just don't know until we bring them online. And there are other activities, as we mentioned on the block, in terms of other things going on, de-bottlemaking and things, which could also lead to an increase in production and will result in increased production. But I'd rather not be drawn, but draw your eye to the increase in production that we see towards the end of the year as a group that includes a good contribution or a modest contribution, I should say, from EG, which could surprise on the upside. But we just don't know until we bring them online.

Thank you, John.

I believe this is the last of the questions we have. Well, I thank everybody then for your attendance, and we're always available, obviously, for any questions offline through our website or other email addresses. Thank you very much for attending. Look forward to updating you at the next quarter. Thank you.