Petronor E&P Asa

My name is Jens Paets, I'm the CEO of Petronor E&P and it's good to be back to discuss the company's quarterly report which was put out this morning. I'm going to be using a few slides to review the first half of the year and to give some guidance as to what we expect to happen in the second half. Those of you who are familiar with the We'll see that this is a fairly standardized format that we've been using, but my main objective here is to allow you to ask questions and I'll do my best to answer those at the end. So please do send them through in the normal way and we'll get to them. So my first slide here is a disclaimer. which I will leave you to read at your leisure. This is an outline of what I plan to go through today. There'll be a brief operational update to look at the first half of the year. And then we'll dig into financial performance and our focus on shareholder value in the next section. There'll be a brief portfolio overview to remind you of the geography and the activity sets we have across the portfolio. I'll give a brief update on the investigation that has been effective for the companies for a number of years now, and then summarize the . Please do send in your questions and we'll get to them as soon as we can. First up is the production over the first half of the year. And as you can see, it's been stable and at about 4,300 barrels for the last two quarters. And this is accommodating a slight normal reservoir decline that we see with a greater efficiency of the infrastructure and well uptime that is kind of worked against that. So we've seen flat production for the first half of the year. I think the main thing I want to emphasize here that is in June, the Axima rig arrived in country from Gabon and has started a drilling program of five wells on the Chubuela East field. And we expect production from those wells to start to have an impact from September through to the fourth quarter. So if we look at the full year for 2025, we expect it'll be, you know, somewhere between 4,400, 4,700 barrels a day on average. And an exit rate of over 5,000 barrels a day, which gets us back to the kind of production that we were seeing over a year ago. And so we're looking forward to seeing the benefit of that program. During the first half of the year, we've distributed 4.2 not per share to shareholders as a capital repayment. And this creates a total shareholder return over the last 12 months of over 50%. So we're quite pleased with that and we're committed to to keeping focused on that metric as we go forward. Looking at the financial metrics, cash in the bank as of the 30th of June is just over $60 million. We've got revenue of 27.6, which is which is really only the grossed up tax and royalties that we pay in oil to the Congolese state. So we haven't had any sales of oil and any cash input for the first half of the year. And to explain that a little bit more, the bottom graph shows the state of our oil inventory in green and our liftings and sales in blue. And you can see that oil inventories can be negative as well as positive. And we had record liftings and sales of oil in 2024. And as a result, we had an over-lift situation in December and we started the year with about 500,000 barrels of over-lift to pay back through the first half of this year, which we've done. And we're now starting to build inventory again at a rate of about 90 to 100,000 barrels a month. So by the end of the year, we'll be at over 600,000 barrels and we expect this will support a lifting in the fourth quarter as it did last year. We're focused on getting that cash injection late in the year, pretty much like we did in last December. If I look at the cash waterfall, you can see we started the year with just under $80 million of cash in the bank. Looking at the various flying bricks here, I've discussed the assignment of tax oil and royalties as a revenue, but we back that out in some of the other columns here. It's not really a real revenue to the company, but it is for accounting purposes, it's treated as revenue. Our OPEX costs are 20.8 million. And this is the field operating costs, which is about half that. This is a high margin field. Our operating costs are about $11 a barrel. And so the other parts of OPEX is the royalty payment. So it might look a little high, but this is a high margin field. Admin costs of $5.4 million. Working capital movements as a result of the cash input in January that was related to production from and sale of oil from previous year. That means we've had a working capital balance that we've had to work through over the last couple of quarters. And so that this is the residual of that. CapEx investments in the infill drilling program of 5.4 million. And then the big flying brick there is the $55.8 million that was repaid to shareholders in two tranches early in the year and then in May through the annual cycle. We also have paid a dividend to our minority shareholders in the Congo. This leaves us with a cash in the bank of just over $60 million at the end of June. We look at shareholder value. We have this discussion every time, whether I should be showing a chart of the share price. And there'll be a day that perhaps I won't want to, but perhaps that hasn't arrived yet. So if you look over the last 12 months, we've had a growth in the share price of about 10%. And you can also see the effects of the two capital distributions that we made to shareholders in the beginning of the year and then again in May, as reflected in those big spikes in the share price. So, you know, it's a continued operational delivery that has allowed us to do this, but we have a very focused strategy of running the company very lean so that we can produce produce excess cash that will support these shareholder distributions. The total shareholder return over the last 12 months has been over 50% if you take into account the growth in the share price and the distributions. Quick overview of the portfolio. Production comes from Congo Brazzaville in the PNGF Sud license, which is operated by Perenco. Current field production on a gross basis is just over 25,000 barrels of oil per day. Our working interests of 16.83% means that we have a net production of 4,000 300 barrels a day at the moment. We have a redevelopment project in Nigeria, offshore Lagos in the Aje field. Our focus there has been in consolidating the license partnership. I'll give you a little bit of an update on that. The redevelopment plan would be mainly focused on gas as well as liquids. And there's a big market for gas in the region. So gas is considered a transitional fuel for Africa. And then we have an exploration portfolio with a license in the Gambia, the A4 license, which is in a proven basin with some attractive prospects that are analogous to nearby production. At our current production level, we have two P reserves of 17 million barrels. 10 years or over 10 years of production at the current levels. But we also have 2C resources that would allow us to double that in the Congo, as well as the 2C associated with the Aje field. Dive into the Congo a little bit. A number of fields with 2.3 billion barrels of oil originally in place. And only 500,000 barrels, sorry, 500 million barrels recovered to date. So an opportunity to improve that recovery factor to something closer to 50% from the 25 that is currently being produced. And we're doing this by keeping the existing stock up and running with a work program. but also drilling in fill wells on targeted fields that we see an opportunity to add production and in reserves with additional wells. So the current focus is on the Chubuela East field, and we have a five well program that started in June there. The approach that's being taken is to do what we call batch drilling, which means that we drill each section of the well in sequence rather than a complete well in once. So we've done all the top holes of these five wells, and we're currently working through sequentially into the next casing point. This means that the production will kind of come on quite quickly once we start completing these wells. and the first of these will be expected online in September. As well as the workover program, we have acquired new 3D seismic over this area, which is giving us some insights as to the remaining exploration potential in the area and particularly the potential for follow-on in PNGF BIS, which is a license that that we have had a pool awarded to us, but we have yet to sign the production sharing agreement. Going to Nigeria now and the Aje field. It has been produced as an oil field in the past, but we see the potential for it to be a gas condensate field with about half a TCF of gas and 17 million barrel condensate. you know, an underlying oil leg, which, um, which has been focused on in the past, which would also contribute to future production. It's a license that has, uh, um, exploration upside in the license area and also nearby, um, discoveries that, uh, that are waiting infrastructure. Uh, and, and so our plan for development is to, uh, is to renew the FPSO with, uh, with, with one that has gas. processing capacity, drill four or five wells and bring gas to shore via a 30 kilometer pipeline where of new age is interest, which would give us a a working interest of over 51% in the license partnership. And so we're following through with the formalities to complete that acquisition and hope to do that in the next month or so. Our focus in the partnership is to continue our pre-development studies on the subsurface with completed reprocessing of the seismic into depth And we're currently revising the reservoir model so that we can best position development wells. We've also acquired land on the landing point for the pipeline, which would be also the host for an LPG plant. And this sits right next to the compressor station for the West Africa gas pipeline. So things are moving forward on Aje. And then the final part of the portfolio is in the Gambia. We are chasing reservoirs that are analogous to the Sangamar field, immediately to the north of us in Senegal. We've had a technical work program over the last 18 months, which has highlighted seismic attribute support for hydrocarbons in the prospects that we have mapped. Um, so we're, we're continue to be excited about the prospectivity, but we, we are also continuing to look for a partner for, um, going into the drilling phase of this license, which on the current license timing, um, will, um, will need to, uh, to, to start in November this year. Um, I'm not sure that we would go into a drilling phase at a hundred percent. Um, but, uh, we, we, um, we are hopeful that, um, that there will be continued interest in, uh, in coming into, uh, into that phase with us from others that we're in discussion with. Um, and you may recall that we had a position in Guinea-Bissau, which we farmed down a hundred percent. Um, the, the well that was drilled was not commercially successful, but encouraging enough that, uh, we understand the, um, um, the operator. is planning to follow on with a well in 2027. And this is important because there are deferred payments on success case milestones of a field development plan being approved and an establishment of production, which could yield up to $60 million of consideration to Petronor in the future. So moving on to the investigation up, I guess is in the, in the first half of the justice in the U S they've closed their investigation into the company, which obviously was, was great news. Um, we, we, we are still under investigation in Norway by Epicrim. Um, this has been ongoing since, uh, 2021 and. We're cooperating fully with them on this process. Don't really have any updates on the timeline for this. It's uncertain and obviously beyond our control. But based on the conversations that we've had with UrcaCrim earlier in the year, we are expecting some more clarity on the way forward sometime this year. And obviously we will update the market if there's any change in that. This is my wrap here before addressing your questions. Stable production from the Congo assets and the offset of improved efficiency and production decline has given us flat production through the first half of the year, but we are expecting this to rise significantly with the infill drilling program that is underway. with new production that's anticipated to come online in September. The over lift position coming into from 2004 coming into the beginning of the year has been paid back and we are building inventory now to support a fourth quarter sale of oil and working hard to make sure that happens. So with our cash position and the the confidence that we have in a lifting before the end of the year. I think we're in a strong position now for the board to be considering additional repayment of capital. And our focus is maximizing the value of the portfolio and returning cash, excess cash to shareholders, as we've demonstrated in the first half of the year. I expect that the next cycle will be the normal cycle, which would be announced at the May AGM next year. for an additional distribution, but we will see how the cash position works out as we go into the end of this year. So that's really all I have to say in a prepared sense, but I'm happy to answer your questions now. So please send them in.

Thank you, Jens. First question on the Q&A is why are the admin costs so high?

Well, that's a tough question to start with. The admin costs in the first half of the year were 5.4 million. They've actually come down quite a lot. And there's a couple of reasons for that. I think the equivalent Admin costs for last year, a similar time period, was about $7.9 million. And the reason that they've come down is that we've reduced the size of the company in terms of people. So the people bill has come down from about... It's been halved from about $2.4 million to $1.2 million. And... And that will come down further once we get out of some of the restructuring costs associated with that. In addition, our legal bill, which is a substantial part of the admin costs, has come down as a result of the U.S. closing their investigation. The U.S. legal bill was substantial, and we still have um, we, we, we did have some, some, uh, invoices early in the year associated with meetings we were having in Washington, but, uh, that, that activity has now stopped. And so, uh, I expect that, um, that to, to drop further from, uh, um, from the, um, the current numbers. So, um, 5.4 is, is, is, uh, an improvement over previous years, significant improvement over previous years. And, and we expect it to, to come down further. It's, uh, It's our current strategy to run the company as lean as we possibly can.