Panoro Energy ASA

Good morning, everybody, and thank you very much for attending our 2022 half year results. This is John Hamilton. I'm joined today by a number of Noro staff as well who are on hand to help me with any additional questions that I may be unable to deal with. And we're here today to talk today about our first half results, but more importantly, really about the trajectory of the company. As a reminder, today's conference call contains certain statements that are or may be deemed to be statements, forward-looking statements, which include all statements other than statements of historical fact. Forward-looking statements involve making certain assumptions based on a 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. And for your reference, our results announcement and this presentation were released this morning along with a separate press release around our South African technical cooperation permit, which I'll touch on, and those are available on our website. If we could go back one slide, I want to just remind people how this system works. You're going to be able to ask questions either by raising your hand with the little hand icon after I finish presenting, or you can type in a question, which we will then pick up and try and answer as well. So you can either do it and we can unmute you, or you can type in a question. We'll endeavor to get to most questions that we can. First main slide, please. Right. So I'd like to point just to the right side to start with. We are on a trajectory right now over the next, say, 12 to 15 months of increasing our production by approximately 60%. We are on track to deliver hopefully in excess of 12,500 barrels a day during the course of next year. Now, that's predominantly the six new development wells in Dusafu and Gabon, but it also represents other activities across the portfolio. That target does not include new volumes from the Block G wells that we will be talking a little bit more about. So there is upside to our production guidance next year as we bring also three additional production wells online in Block G. So if I go country by country quickly, in Block G during the first half of the year, the accumulated upgrade project is complete, and we're now in a process of converting gas lift wells to ESPs. So we're hoping to see some further production growth there. Very importantly, we had the license extended during the quarter to the end of 2040, which adds reserves and is across the board an excellent piece of news and what we had always hoped for when we bought this license. And we've now selected a rig, hopefully a rig contract to be signed shortly, to drill three production wells commencing the second half of next year. And we previously flagged that. What has changed now is we've actually identified the rig, and we believe we're quite close to confirming that activity. And we'll be telling you more about that as we go. Incubon, additional gas lift capacity is expected to be available towards the end of the year, which has already been announced and expected. The viscous phase one development is progressing with first oil expected in the late first quarter of 2023. That's also already been previously announced. And the rig has been contracted and will arrive later this year to drill six plant wells. And critically, we have two optional well slots on that rig as well. So although our rig was delayed by another operator taking on their option slots on the rig, we also have a similar option on the backside. And obviously, we'll be working closely with BW Energy. And in Tunisia, we have an ongoing campaign right now to capture production enhancement opportunities. Workovers are ongoing. We have quite an exciting one coming up as well. So plenty of activity in Tunisia as well. Next slide, please. So a couple of corporate highlights from the recent month. We've got the big exploration drilling catalyst in Block TV in South Africa coming up, which we'll talk more about. We've got the award of the TCP license in South Africa. Again, I have a few slides on that. And we have this absolutely critical license extension in Block G to the end of 2040, which really opens up a lot of value for us. On the shareholder side, we paid out now approximately $10 million dividend in specie to our shareholders following the completion of the sale of OML113, AJE. That was a big milestone for the company, so that's our very first dividend ever. During that, we've repaid $9 million of debt repayments, and we've started our crude lifting cycle in July and continuing as we speak. So we're delevering and now starting to generate crude sales as well. And we remain committed to paying a sustainable, meaningful cash dividend at the earliest opportunity. Further details will be made available at our third quarter results once we have a little bit more visibility on just the status of what 2023 looks like through the joint venture budgeting cycle. On the board side, we've appointed three country managers. This is actually critical for our local engagement, our local content, our ability to operate effectively in these countries. We're really proud of that. We have a new sustainability committee that's being chaired by Grace Scalgan, who was appointed to the board recently as a non-executive director. So we continue to, on the governance side, to take things very seriously. Next slide, please. So a lot of numbers here. I won't go through them all. There are on the report. I think what's important to note is obviously our second quarter was already flagged as being a quarter without any liftings. What we've done on the right side of the slide is kind of show you what we look like year to date on some important metrics, including some of the liftings that we've had now in the third quarter. Year-to-date crude sales, we have about $110 million. We've averaged around $107 a barrel for a realized price on those barrels, so we've taken advantage of the upturn of the oil price. We've lifted approximately a million barrels, more to come, and our balance sheet remains in good shape. Next slide, please. Production performance, so we've had about 7,900 barrels a day for the first half. We are guiding around 8,000 barrels a day for the balance of the year. That had been slightly higher, mostly from the contribution of Dusafu. Dusafu, as previously announced, has slipped by a few months, so that just brings it into the first quarter of next year in terms of some of that production growth, so it's a slight deferral. on a calendar basis, but everything remains intact for us to get to our 2023 target of in excess of 12,500 barrels a day without the contribution from the new wells in Block G. So we're still on the path that we've set out. Next slide, please. Lifting schedule. So 2022 year to date, you know, we've had, you know, over a million barrels lifted, including a contribution from the third quarter. We expect approximately 700,000 barrels to be lifted during the month of October. And then as we get into December and possibly into January there, depending exactly when the liftings fall, we have another very big lifting in Equatorial Guinea of 750,000 barrels there. Again, we've realized good prices for the barrels we've lifted so far with average price across the year so far of about $107 a barrel. And we remain largely on hedge. We still have those 600 barrels a day hedged from those historical hedges in Tunisia. Those roll off, obviously, at the end of the year. We do continue to look at strategic hedges around liftings just to make sure we don't get caught out on funny days in the market. But we are largely on hedged. market. One thing to note on oil prices is that the dated rent that we receive, the physical price that we receive for our crude is significantly higher than it is from what you see on your Bloomberg screens, which tend to be the futures market, the ice market. So there continues to be a big tightness in the physical market versus the financial market. we've benefited from that. Obviously, you can see from the prices that we've sold these cargoes, they are in excess of what you might otherwise have thought if you were just looking at the screen. Next question, please. Next slide, please. Just a standard slide. We plan to update this every time just to show in our loan facilities, we have very supportive banks, MCB Bank, Traffic Euro Group, Mercuria have been very, very supportive to us. Our CapEx on the right is in line. We got it $65 million this year. We're at about $25 million in the first half. So everything's on target there. We have repaid $9.2 million in the first half of our loans, so we continue to deliver, and I expect a similar amount to be repaid in the second half of this year. So we continue on our delevering, and our solid balance sheet remains that way. Next slide, please. Again, we intend to show this every time. I don't intend on dwelling on it here. It's kind of just a reconciliation of cash flows so people can have full transparency on exactly what's happening quarter by quarter, first half by first half, and I will continue to update as we go along. Next slide, please. So Equestrial Guinea, we talked about it a little bit already. Our operator, Triton Energy, is doing a great job undertaking a big workover program, including ESP conversions, submersible pumps, important for the performance of wells. We've completed one and we've got a few more to go for this year. So we hope that that's going to help us boost some production during the course of this year. There have been a number of upgrade projects completed, which improve process reliability and fluid handling capabilities. There's lots of optimization going on. We have a very, very competent midlife operator here in Trident, and there's lots of work that goes on that the stock market won't see, but we do, and they are extremely impressive, and we're very, very happy to be partnered with them at Cosmos on this asset. And with the extension of the license, that has unlocked a drilling campaign for next year where we have three well-developed programs expected to commence sometime in the second half. where the rig has been selected, and hopefully the rig contract will be signed shortly. These new wells, we're still doing a number of works on it, but just directionally to say that these should add in excess of 10,000 barrels a day gross. We've got a 14.25% stake. in the assets, these should add additional volumes to Panoro's production targets and ongoing production efforts. So this is a very, very positive event for us, and we're glad to see it taking some shape now with the rig close to signature. Next slide, please. Blocking license extension got lost a little bit in the news when we announced it back in the second quarter. But this is, you know, an agreement that we have with the government and our operating partners to extend the field life out from 2029 and 2034, respectively, all the way to 2040. So we've harmonized the licenses. This creates incredible value. And immediately, We would recognize somewhere between 2 and 3 million barrels that are not being recognized in our current annual statement of reserves. So put another way, we should be at 100% reserve replacement this year just by virtue of this extension. So very, very pleased with this. And, again, this is going to unlock lots of other opportunity, contingent resource being available. being identified and drilled out, and we've got all the time in the world now to get after it. And this is going to, you know, create a nice long plateau, hopefully, of oil price, sort of oil production. As people remember, when we bought this asset, we just assumed a do-nothing activity, and our valuation was based on a do-nothing activity based on $50 oil. What we're seeing now is do-nothing is certainly not what's happening. We're very, very pleased with that. Next slide, please. As people know, we've got four out of six wells working right now. We have been testing nitrogen lift to supplement gas lift until we get the new gas lift compressor towards the end of the year. And that has been working intermittently. It is positive. And hopefully by the year end, we'll have the permanent gas lift capacity there, which is going to allow all six wells, FTOR2, to operate at their full capacity. We are leaving behind at the moment and deferring production of several thousand barrels a day because of this. And hopefully those solutions are in sight. More excitingly, the Hibiscus Rouge development is well underway. You will have seen BW's announcement perhaps yesterday that the Hibiscus Alpha, now renamed the BW Mabomo, has left the yard. It's on its way to Gabon. It should be there in late September. It's a beautiful thing. We managed to do this extremely cheaply. I think in today's current environment, to develop a Mopu like this would probably be three or four times as expensive as we paid for it. So, Very, very pleased with the work that Lamprell did on this. And we now have first oil expected probably in late quarter one, 2023. That was already announced back in July when the existing operator decided to extend out their possession of the drilling rig. So everything is going extremely well here. Slightly deferred is the only thing, but everything seems to be going to plan here. Next slide, please. And in Tunisia, we've been extremely busy. These are smaller workover operations, so they may not get the headlines, as it were, but we've had very successful workover activities, and we'll be the three and two workovers recently. We have had quite a bit of COVID in Tunisia, which has presented some challenges, but we've managed to work through that just fine. Tunisia went through a bit of a spike recently. Very excitingly, we have a new production opportunity in the 10 sidetrack. We're going to perforate a new reservoir level there during the beginning of the fourth quarter. That one the team is quite excited about. We'll have to see how it works. But we're also looking at a number of other things, including increasing water injection capacity, which should sustain production. So very solid performance here at Tunisia. Next slide, please. So we've had this asset in South Africa for a couple of years. It's usually a slide or a pack. We don't tend to spend much time on it. But now this should be coming to the front of the queue in terms of things that people are looking for in terms of looking at the Panora investment case. We are drilling a well, and the well, the rig is on its way. It's coming around the top of Northwest Africa now. It's on its way down to South Africa to drill the Gazania One exploration well, where we're drilling up-dip from a proven oil discovery. We're going to be seeking to drill through two separate targets, the Namakwa land and the Gazania prospects. Gross unrisked prospective resources in excess of 300 million barrels. So, Various analysts will do various sums, but even for Panora with its substantial production base and 2P reserves, you know, this could be a meaningful well for us. The cost to us is a modest, somewhere around $6 million, which has, of course, already been included in our CapEx guidance. So it's got a lot of bang for the buck, so to speak, and we're really excited to be finally getting after this well, which is not seen – This block has not seen activity for something like 40 years. So very exciting for everybody concerned, including South Africa. Next slide, please. I'll touch a little bit on this other announcement we made today, which is the award of a technical cooperation permit in South Africa. We have an excellent technical team in Panora, as everybody knows. Everybody knows we're already in South Africa. And what we've done is leveraged those two things together. and working together with the regulator there to secure a technical cooperation permit. This is basically a license to study. This is not CapEx. This is small tens of thousands of dollars in terms of cost. So this is not a commitment in any material way. But it's quite an exciting and opportunistic opportunity to look at both natural gas and helium in this region. This area covers an enormous area in the northern Karoo. And if you can see this thing called the Virginia gas field there, this is an ongoing operation where they're producing helium and gas. This is a $300 million company. The market cap is solely around this project. So what we're seeing is that we have a – an opportunity here to be an incubator and try and establish whether these same place systems work well in our TCP as they do a little bit further to the south where these have been substantially commercialized. We see the opportunities on both gas to power and helium. Next slide, please. So I won't go through this too much. It's just to show where this sits and maybe a comment on the strategy. This is really a desktop study. And after 12 months, we have the right, I mean, the exclusive right to apply for an exploration right. And that exploration right might come with some slightly bigger work commitments like, you know, I'm talking, again, hundreds of thousands of dollars here, not millions, where We would have three years to kind of prove it up. Maybe we look at some boreholes. Maybe we take some gravity measurements. It's all very small-scale stuff. And our intention as Bonoro is if we do decide to go into the exploration, right, that, again, we are the incubator here. This is not a change of strategy for Bonoro. We can continue to be an offshore and offshore oil producer. But nonetheless, this sits very, very well with our ESG intentions here to use the team that we have to try to do some interesting things around the ESG theme. And if I could go to the next slide, please. Again, we might get lots of questions on it. I don't want to dwell too much on this, but the natural gas in the northern Karoo Basin has exhibited helium concentrations at commercial levels. We know that from this company, Renogen. We've got between 2% and 4% of helium concentration, with some instances in excess of 20% per quarter. These are very extremely high levels. So as natural gas forms from biogenic and continual processes, Groundwater circulating through these large faults contacts bacteria and then makes this a renewable resource. And then helium from mineral decay can collect in this pore water and become mobile as it comes into contact with natural gas and then trapped in mechanisms here. So this really represents an extremely material commercial opportunity. And global demand for helium is extremely strong. People are obviously focusing on natural gas prices in Europe. Helium prices are at similar stratospheric levels in terms of dollars per NCF. And this is completely delinked from hydrocarbons. Next slide, please. Again, I'm not going to go through all of this. This is to read at your leisure. But the important points are that helium is an extremely strategic commodity to a number of industries and manufacturing processes, and stable supply is critical. We have the U.S. Strategic Reserve being depleted. We have Qatar and Russia stepping up. And so South Africa is now turning into an interesting alternative reliable supply, less geopolitically dramatic than those other twos. And South Africa is extremely well positioned to emerge as a supply source of global importance. Global demand for helium is around 6 billion cubic feet a year, and that's growing. And recent prices have been something like $300 an MCF, going as high as $1,000 an MCF. I mean, this is absolutely stratospheric pricing. Next slide, please. But in addition to the helium opportunity, we have a natural gas opportunity. And South Africa has a huge reliance on coal for power generation, something like 70% or 80% of its energy is meant from coal. And, again, as part of our entry into South Africa with the drilling of Block 2B, this is a way for us to try to improve that balance by discovering a domestic gas resource, which can be taken straight into power generation. Demand for power is growing there, and this is a very, very logical fuel for South Africa with this extensive resource. Our TCP is extremely well positioned in that in terms of its proximity to infrastructure to do that. Next slide, please. In conclusion, again, I want to point back to the trajectory we're on. I think this is the most important point for the company. It's mostly focused on is we are going to be growing this company from a production level in the next 12 to 15 months to an excess of 12,500 barrels a day. It's a 60% increase from where we are now. We have additional upside from that from Block G. We had a big exploration catalyst coming in Block TV very shortly. We should have results in that in October. A spot is in September. TCP, we're quite excited by it, and we hope to be talking a little bit more about that as we go. Again, it's an ESG strategy on the side, and incubation is not a change of strategy. It's an addendum to what we're doing and showing our commitment to ESG and supporting the countries in which we operate. Our crude lifting schedule has now stepped up. This is absolutely critical for us for understanding everything to do with dividends, deleveraging, cash flow, revenue recognition. We had a reasonably barren first half of the year, and that is now stepping up. So we're going to start seeing a lot more activity on that side of things. So we believe the company is extremely well positioned in a $100 oil environment with minimal hedging to take advantage of all of that into a growing production base. So that's it for me. I can go to the next slide to remind people should they want to ask a question. We don't actually have the slide that shows how to do it, but we can go back to it, which is if you can hold your hand up if you want to ask a verbal question or you can type in a question and we will endeavor to answer as many as we can.

Right.

The first question is from Stefan Foucault, Optus Advisors. Stefan.

Thanks for taking my questions. I've got two. The first one is around production in Tunisia. It looked a bit soft in Q2 compared to Q1, and I was wondering if If you could put some color on that, whether it's COVID as you talked about or something else. And how would you see production in Tunisia in Q3 and Q4 versus Q1 rather than versus Q2? And then in EG, the $10,000 per day gross production you talk about, I think in H2, is that net of decline or do we need to take out decline from that? Thank you.

Thank you, Stefan. Yeah, good question. You know, when we set out our production guidance, obviously, we take some assumptions on Tunisia. And, you know, Q2 internally, at least, was always going to be a little bit of a soft quarter from a production perspective. We had some ESPs we needed replacing in Tunisia, which have now been completed as we speak now. These wells are back on production, the ones that had lost ESPs. And we also had a sort of scheduled shutdown in Equatorial Guinea during the quarter as well. So, Although we didn't provide granular quarter-by-quarter sort of assumptions, this is largely within our expectation. The quarter was a little bit weak in Tunisia on that front, but production has now recovered to where it was in first quarter, and we have the potential to do better than that. Pending our next workover, we could find ourselves in a stronger position even than that, but That's not baked in yet, but we would expect third and fourth quarters in Tunisia to reflect stronger production than what you saw in the second quarter. And on EG, no, it's really looking at the contribution from the new wells. Obviously, in our business and in the entire oil business, we're always fighting decline. But the way that that's being addressed in Tunisia, is obviously through, you know, the various work over years, ESP, other enhancements. So we would hope that, you know, we're able to keep a modest decline or perhaps even improve production through those activities and that these new wells are are an additional in excess of 10,000. Again, I think the number is going to be higher, but that's probably a good way of just getting a little line of sight on what we would expect from these new wells at a minimum. Great.

Thank you.

Thank you, John. A question submitted online by Tom Eric Christensen. Could you please provide some further perspectives on the organic upside potential and where the existing asset base could take Panora to if oil prices remain elevated?

Wow. Okay, Tom Eric. Yes. So, I mean, you know, If we go quickly asset by asset, I mean, I think what we've got in front of us now in Equatorial Guinea, we just talked about and Stefan had a question on that. So, you know, I think what we're seeing there is the commitment together with the government of extending the field life out to 2024, 2040, has really opened up a lot of possibilities. And the first manifestation of that is obviously the drilling of three new wells. Now, there are multiple, multiple other things to be drilled together. and sidetracked out at those assets. And if oil prices remain elevated, I would expect that we would continue to go after more activity and, you know, secure optional slots on drilling rigs or perhaps, you know, bring one back. So I think we have a long, long organic runway in Equatorial Guinea. And, again, the first sign of that is, again, these wells really are – We had a couple wells last year as well in Equatorial Guinea, but those were really the first to be drilled on this asset for many, many years. So what we're seeing now is the operator finally having fixed up the infrastructure, is now wanting to get after the contingent resource, and there's plenty of it to go for. So I think we have a lot of organic upside in Equatorial Guinea. In Gabon, I think it's quite well understood by the market because we have BW in the market as well. But there we have a well in excess of 100 million barrels. We've only produced less than 20 so far in Gabon. We're really in the early stages there. And as people know, we have six wells coming up there, but we have two additional well slots on that rig. Do we exercise and do we not? That'll be a question for a little bit later, depending on the oil price and other things. But clearly, we can continue to get after that. But what we do know is hibiscus rouge phase two is around the corner from that one, which we... We have full inventory of organic production already identified, plus all the exploration opportunities, low-risk exploration opportunity in Gabon. So we've got that license for another 17 years. So there's plenty organically to do there as well. Tunisia is perhaps a little less – Dramatic just by virtue of the fact that these are smaller, smaller fields on shore. But nonetheless, we do see material upside potential, particularly in some of these new reservoirs that we're starting to access in the Glubiba field that could provide a nice uplift from where we are now. So, you know, I think we look at our organic portfolio and believe we've got lots of running room on it to get well in excess of our current production targets. Obviously, we're always fighting decline, so you have to balance those things out. But we're very pleased with the portfolio we have. And the benefits of diversification really shone through, I think, you know, as we've had some delays in DUSIFU, which are only that, they're delays, not disappointments, they're just delays. You know, we've managed to balance that through having production in Equatorial Guinea, which is by far and away our largest production asset at the moment, and steady state in Tunisia. So quite pleased with the way the portfolio is kind of rounded out now and the upside that resides there. So I hope that answers the question.

Thank you, John. A further question submitted online. When you talked about incubating the TCP opportunity in South Africa for helium and natural gas, is it likely that if Panora proceeds to an expiration right, the company would look to identify potential partners or continue with the cell risk approach?

It's a very good question, and I think we're just going to see how it goes. This is very, very little money. It's almost not even worth mentioning. It won't even feature in our CapEx guidance for this year or next. It's extremely small. Even if we moved into an exploration blog, I don't even think it would move the needle. But the idea is certainly not to be the developer of an onshore gas plant or helium plant. We don't see that as our strategic goal. What we do see as our strategic goal here is to use the technical skills we have, our presence in country, to try to develop this. It's like an early stage exploration opportunity, basically, which we seek to form out or sell down and do course once it became something that was material. If and when it becomes something that's material, it's not something that's going to change our strategy completely. But, yes, we would probably seek to see partners as the project matured. We've obviously always got opportunities to unsell it or to partially sell it or spin it out. It all depends on what we see after this 12-month period in terms of the prospectivity for both helium and natural gas here.

Right, Andy, do we have any more questions?

There are no further questions pending at this stage. Okay.

Well, thank you, everybody, for joining, and look forward to updating you, obviously, in the next quarterly call in November, which will have a lot more information in terms of what 2023 looks like for us as well. So thank you very much for your participation today. Bye-bye.