Maha Energy AB (publ)

Hello and welcome to Press Meet Direct. Press Meet Direct is a collaboration between Investor Target, Direct Studios, Stockpicker and in this case, Maha Energy. In today's broadcast, CEO Kjetil Solbrekke and financial manager Roberto Marchiori will present the report and current events. As usual, when we have the management here at the presentation, you who are watching live can interact with us, especially with the management, and you do that by asking your question in the chat field. We will handle the questions after the presentation. If you don't get an answer to the question, you are always welcome to email the company. They usually answer quite quickly. Presentationen kommer nu att fortsätta på engelska. Well, hello and welcome. And it's a great pleasure to welcome Kjetil and Roberto here live into the stadium. Gentlemen, it's very nice to have you here.

Thank you.

How are things?

Oh, things are excellent. It's fantastic weather in Stockholm these days. So you come to summer holidays in beautiful Stockholm. That's a pleasure.

Exactly. Cherish it while it lasts. Well, as always, when you have a quarterly, it's a lot of things going on. So, Kjartil, please take it away.

Absolutely. Thank you. And let me start with the disclaimer, of course, as always appropriate. And let me also introduce very quickly Roberto as the new CFO. I think it's again a very undramatic change. Basically, Roberto has been with us from the very start when Starboard DBO came into Maha, been in charge of M&A and business operations. new business development and worked very closely together with Guilherme and we basically decided two things fit very well together. There was a need for Guilherme in Starboard and we thought that Roberto could basically cover both positions with his excellent capacity. So warm welcome to Roberto as also then covering CFO role. Yes, there is a lot of things going on. So it's just a year ago that we concluded the transaction with DBO and we have then already kind of almost closed out that business and I will come into the details of how that has influenced the company. So during this last year, we have also then received the final payments on the Petro-Reconcavore. We still have some earnouts to collect in Petro-Reconcavore, but that was a very important deal for us. Then of course we started the adventure with the PDVSA and Venezuela, which I will spend quite some time in going into more details about today. And I'm very enthusiastic about what we have in Venezuela. I think it's going to be something super exciting for ourselves working there and for our shareholders. We had to exit Ungern. We talked a bit about that last time. I'm not going to dwell on that. I think we wish our partner, at the time we were there, all the best luck going forward. We have an earn-out, so I really hope that that project will materialise. I think they will spend quite a lot of time. It was not for us. And of course we wish the partner all the best of luck in his endeavours. Then at the beginning of the year, we took a brave decision, actually going back into 3R and buying 5% equity stake. So we'll talk a bit about how that has developed. We think that was a super interesting move. We continued then also in PDVSA or in Venezuela. with signing the definitive agreements, so that is basically now waiting for approvals and licenses and so on. And then back to the 3R and AUTA, launching the merger that will basically create the largest privately owned independent company in Latin America. And I'm very proud to be part of a team that basically has created those kind of structures. And lastly, we are again, and we'll talk a bit about that, we are again developing Illinois, drilling more wells. We're starting already next week in drilling additional wells in Illinois. So things are going quite well forward. And as you can see, it's not like a lack of news related to Maha. So a bit back to what we talked about on 3R. So we have done two things here. We bought the 5% shares in the markets and going there a little bit first was basically a fantastic opportunity for us. We thought that we knew, we know these assets in 3R better than anyone, as we founded the company 3R. As I'm sure you all remember, DBO and Starboard together was the first investors into 3R, creating 3R and made it into what it is today. And we thought that, you know, the company was extremely undervalued. saw the opportunity bought into the company and managed to, in the dialogue with the shareholders, get the strong position in the company and then forcing this merger between 3R and Enalta, which I think is going to form a fantastic, exciting company in Latin America. But the other part of this was, of course, our own our own shares in 3R Offshore, which we then decided to roll into the new company, 3R Enalta. And of course, what you then can see is that we have already within the last year kind of doubled the value of this DBO investment that was done where we merged DBO into Maha Energy. So today, at that time, it had a value of about $30 million. Now it's north of $60 million. So it's basically a very nice return on that investment for Maa Shelders. I personally do believe, and we do believe, that the share price has a huge upside in the combined company, which I'm coming back to on the next page. But I think this has already proven that together this is the bit of the business idea we have we are we're doing deals we try to enhance the shareholder value as quickly as possible and creates you know better structure for for the assets that we we get into so with on this page basically just talking about what's the rationale what's the background you know why i'm so enthusiastic about an outland 3r and I think that we have, first of all, combining two companies that have very different debt situation. So basically, Nalta has, practically speaking, very little debt. VR was much more leveraged. Combining these two companies and putting in a very healthy balance sheet together, I think they can significantly reduce the debt costs. I think we will see very robust cash flow generation. Basically, there is an even now more diversified portfolio with multiple wells yielding high quality oil and gas production. I think there will be significant synergies, also as we are putting this into now a very experienced management team, the joint management team that was selected from Enauta and 3R. And just a reminder also, this is a very investor-friendly jurisdiction. I mean, I think we said this before, here you have royalties below 10%, very nice tax reliefs in the northeastern part of Brazil. So this is really among oil and gas companies in the world. This is something with the best conditions that you will find. I think the exciting here on the numbers that you can see, which are basically from the analysts covering the companies in Brazil, you can see that what we are creating is a company that potentially or has the potential basically to produce more than 100,000 barrels next year. So this is a... With that, we will basically be the largest independent in Latin America. And I think it's a company that has a lot of upside. I think a lot of the upside has not really been appreciated. We believe that a lot of this will come very, should be realized by the market fairly quickly. And we look forward to see how this is going to trade going forward. So that's basically the rationale. I'm very proud of what Maha has done here with the 5% stake and combining with the position we had in 3R Offshore, we basically created a fantastic Latin American company. So a bit to the operations. Let me start with what we are doing in Illinois. First of all, I would thank our people in Illinois. They are basically two guys that are running all our operations in Illinois. So, Alan, I hope you see this. Thanks a lot for fantastic work. And the same to you, Kirby. I think what two guys are able to do is following up 60 producing wells on a daily basis and drilled three new production wells last year and also put into operation a new production battery tank farm that basically stores the oil from the production. So we have significantly then increased the production, as you can see, ramped up more than 100% compared to fourth quarter last year. And we are now starting on the new drilling campaign. We think the payback time here is more or less a year. So it's a very interesting and fantastic work that these two guys are doing, creating positive cash flow to Maha. Very proud of those guys working up in Illinois. Then maybe the most exciting thing we are doing right now is in Venezuela. And I know there will be tons of questions about how can we operate in such a place? Is it predictable? So I'm sure we'll come back to that in the Q&A. So, first of all, a bit of the formalities here. We are now getting more acquainted with the field and the people there. I'm going to show a little bit of that. We have applied for the license from the Americans. And I would say on both these areas, we start to get good data from the field, from the PDVSA. And the feedback I get a bit informally from the process in the US is that we have all reasons to be very optimistic that we will get a special license for operating in Venezuela. so we can talk more about it later maybe just very quickly the general license 44 was it was as it says a general license for for to operate uh in in venezuela that was later removed and and went back to a situation that we actually had in the first place so for us the Our plan of going into Venezuela was not assuming General License 44. We always expected that we needed a special license. So we are back to where we were. We have very good feedback and I think we will get the license. This just highlights, you know, I think nobody has any doubts about the potential of finding oil in Venezuela. It's the country in the world with the most reserves. The potential here is enormous, almost 9 billion barrels of oil in place. And I think there is even upside into that number. And of course, every percentage that we can increase the recovery factor represents almost 100 million barrels of oil. So there is an enormous potential. They've only produced 16% of the, according to the numbers that we get from PDVSA, only produced 16% of the oil in place volumes. So the potential is enormous. I actually had the pleasure of being now quite a lot in Venezuela in the last six months and I think we have already established a very good relationship with the Pedro Udaneta team, gotten to know the professionals there and they are really professionals, good people. We have identified what works and what doesn't work in the in the field of course it's well known that it's been a lack of maintenance been a lack of investments been because of the sanctions less access to to equipment and so on and so on so we have now identified pretty much what actually works which is a good basis for starting up the activity again We will consider changing the lifting mechanism. That's a bit technical, but basically, in the picture here, I'm standing in front of a gas-lifted well. We do believe that installing ESPs deep down in the well, in some of these wells, will have a much better effect on the production. So we'll come back to that. This is part of what we are planning as we speak. As I already mentioned, I think we are in good process to receive both the OFAC license and getting the necessary regulatory approvals in Venezuela. And we are targeting having the same framework agreements and the same contracts as Chevron and Morilprom has in Venezuela. I think altogether, I'm very confident that we will be able to increase the production significantly. And currently, at least, I see it as very, very... likely that we will be able to increase the production to north of 20,000 barrels per day, which is a fantastic result, starting with 600 barrels as it is today. So there will be more news on Venezuela as we move forward, and I look forward to coming back to you when we get the approval from OFAC, when we get the approvals from the authorities, when we start up the activity. I hope that we can start up already at the end of this year. So with this, I think we have We can come back a bit to this, which we have talked about before. Everybody talks about, of course, the share price. There are no CEOs that are happy with the share price, so there's no surprise that I'm not. But anyway, this is now basically looking at we have the market cap, and you can get to the market cap with less than what we have of net cash and equivalents and the 5% shares in 3R. And our... and our 15% stake that is now part of the shares in 3R and Nauta. We do believe there is value in the US, as I've already covered, and there are earnouts and receivables to be done with the existing portfolio. And then, of course, we do think that the combined company should be repriced. This is priced at more or less 30% of the company called Petrodio, which is of similar size. I think even next year we might even pass Pedro Rio in production numbers. So we should be somehow more compared to that company. And we have even, I think, better terms on the taxation and so on, on the average. So we should really expect that somehow this will be appreciated in the market. And that represents a huge upside in these shares. which we do believe that will be realized in the next six to 12 months. And then finally, of course, I'm a very, very enthusiastic CEO for what we see in Venezuela. Pedru Netta has huge potential. There are several independent projects, and I'm really looking forward to be able to talk more about that in future presentations. So with that, I think there should be a documented significant upside to our share price. We are anyway doing what we think is the right thing for the company. We are believing that these decisions that we have taken over the last year has created significant value for the shareholders, and that's exactly how we're going to keep on moving forward as well. So with that, I think I'll hand it over to Mr. Roberto, and the floor is yours.

Thank you, Jechu. It's really a pleasure to be here for my first time to present here our financial highlights for Q1. So moving here for the first page, we have our financial highlights from the income statement. But it's important to note that 3R Offshore is equity accounted, and of course consequently is not fully reflected in our Q1 report. So starting on the production, as Jethro was mentioning, we got a pro forma considering also 3R Offshore production of around 2,000 barrels per day. And if you just consider Illinois, which is reflecting our financials, we have this 334, which is increasing quarter over quarter. And then, of course, our revenues has this increase considering this plan and these new drilling wells that we made last year. They are currently being reflected in our revenues. And of course, we have this interesting growth of more than 80% since last quarter, end of the year. And this is very important when you see the operating net back that is around $1.2 million in additional cash. So this is why we are very excited on the Illinois basing results. And for the first quarter, since a long time, we have this positive EBITDA of around $440,000, mainly impacted, of course, by the earnouts we received and collected from Petroi Concavaux. And about the net result, we have this huge net income mainly related to the financial results of the 3R shares unrealized gains, which was very important for this quarter, but of course this is market to market price and we of course cannot count for this quarter over quarter. And this, so going here for the next page, we are going to explain a little bit more of our financial income, which was very important for the quarter. So it grew like 7%, more than 7,000% since last quarter, mainly impacted, if you read this right side of the slide, of 3R shares appreciation, which are always inherent and volatile. And we, of course, have our financial expenses related to our debt, which has been decreasing quarter over quarter and year over year, because as we are amortizing, this will be reduced in the next 12 months when we got the bank almost or 100% fully paid. And about our share of income from investment associated with is the 15% of the net income from TRIAR offshore. We have an impact from Papaterra ongoing interventions in their wells. So this is why we have a reduction from last quarter. But we really expect that this will be way better from the next half of the year. Going here for the financial highlights from balance sheet, G&A and CapEx, starting with the balance sheet, we have as end of quarter a bank debt of $29 million, which, as I mentioned before, is decreasing quarter over quarter as we are paying these debts with our restricted cash. Also, our shareholder equity of around $159 million was pretty stable since last quarter, but it was this positive income of $6 million impacting positively. And we also have around $200 million of assets also pretty in line with last quarter. And when we see our GNA for the quarter has been reduced since last quarter by the end of last year. But if you take out the non-recurring expenses, it's pretty much in line with last year, first quarter of 2023. These non-recurring expenses are mainly related to M&A costs. This consultant one-time works that we've been working with all these changes that has been happening at Maha. and also on important economic expenses related to closing of Calgary's office with some extraordinary expenses as well. So bottom line, we have around $1.3 million of recurring expenses and around $2.3 million of total G&E expense. When we look at the CAPEX part, we reduced the CAPEX in the first quarter. It's also related to Illinois-based development. We have been decreased, but as Jetty was mentioning, we expect this to increase for the next quarter as we are having good results on the Illinois Basin. Here we have the financial highlights of our cash flow from last quarter going through the end of this quarter in 2024. Basically, we used to have $131 million in cash plus restricted cash and our financial investment, which is basically fixed income investment. And we have during the first quarter a dispositive EBITDA of around $400,000. which help us in this cash flow from operation generation. But we have this negative working capital mainly related to the Illinois payments of our drilling program last year. And also we have this negative non-cash adjustment, which is basically related to the 3R offshore income, which is non-cash. It's just accountable. And then we have this $127 or $28 million of cash after operations. Then we have this CAPEX from the quarter, which is basically related to Illinois as well. Then, as Giaccio was mentioning, we paid the first installment of the exclusivity premium to Novanor as we signed the definitive agreements of around $5 million. We also paid around $5.2 million amortization of our debt, but also we received the first installment of our debenture with 3R Offshore of around $1.2 million, amounting this $4.2 million negative impact from this debt amortization. And also, we have this financial income mainly related to 3R share gains. After we bought this position, the share has increased, and we got, in the end of the quarter, this $9.5 million positive income. And then, of course, we have the latest column here, which is the interest we paid for the debt. So by the end of the quarter we finished with around 127 million dollars being 47 million dollars are available cash plus this restricted cash this made the majority part of it is used to pay our debt and we also have 79 million dollars in the short-term investment in 3R Offshore. uh and of course all these numbers is not including our 12.7 million dollars of long-term investment which is basically our investment in this debenture of three are offshore also our investment in the bolivian gas pipeline gtb and also our investment related to venezuela and petrodanita And it's important to note also, if you take a look by the end of last year and this current quarter, we have this $97 million of net cash plus short-term investments, which were pretty stable during the quarter. So here are now some final closing remarks. Looking forward, MAH is experiencing, or continuing to experience, a series of transformation events, mainly now related to this 3R and then AutoMerge. setting up the stage for the next years to come. Also, our financial books does not reflect yet the full potential of all of these movements. We still remain with a very solid capital structure, with a solid cash investment position of around $127 million. And if you exclude our debt out of it, we continue with a net cash plus short-term investments position of around $97 million. And this is, of course, not considering our $30 million approximately of long-term investments, neither our roll-up of our 15% stake at 3R Offshore. And additionally, we still remain with this around $40 million of earnouts to collect from the next years. So we have this very enhanced capital structure by the end of this quarter. And talking a little bit about our organic growth strategy, we have this potential acquisition of Petrodenet, as Jethro was mentioning, we are pretty confident on this project. And Marra being the first mover and seizing opportunities like that one before other one is very important. Also, our 5% stake in 3R and on AutoMerge outlines our leading role in this consolidation process in Brazil, which is a very important move here. And we are also engaged, of course, for further opportunities throughout Latin America that could leverage and boost financial value for our shareholders. So, I would like to thank you all, and I will pass through Jethro. to make the final remarks.

No, thank you, Roberto. Excellent. And you can all see for yourself that we have an excellent replacement in Roberto from Guilherme, which, as I said, you know, he's been there all the time anyway in the first place. Not much more to say. I think we are really very excited about the year that we have put behind us from May or the beginning last year into where we are right now. I think we all look forward to really closing in a way and a fantastic chapter for us as shareholders in Maha with our engagement in 3R. which, as I said, we know a lot and we look forward to really close that out and really focusing now on the value creation potential in Venezuela. So it's an exciting moment. I'm excited. I think the team in Maha is super excited and we look forward to make all of you shareholders equally excited.

Excellent. Thank you so much, Kjetil. And as always, we have received a couple of questions here ahead, and I can see the questions coming in here. So I will try to structure it and starting by focusing on, let's say, NUCO, as it would be in my uneducated eyes here. And I will address the new CFO here, because obviously, as Kjetil said, you've been around in Maha for a while and responsible for MA, as I understand it. But what is Maha now? Is it an investment company buying cheap assets and selling them at higher price? Or is it an oil company exploring good opportunities like one could see in Venezuela?

I would say, we always like to say that we are now looking like a private equity firm focused on iron gas, looking for opportunities of having these low entry multiples and try to enhance and create value for our shareholders.

And that would then address one of the questions that came in here is like, so if I have a Maha share, why wouldn't I swap that into the 3R directly? And basically, as I can see that if you are with Maha, you will have 3R and you will have the opportunities elsewhere and you would focus on Venezuela.

Yeah, no, I think that's fair. Be my guest, so to speak, but you miss out on the fantastic journey in Venezuela. And also, I would say that I think that what we have proven over the last year, again exemplified with the DBO transaction, which was good for us and excellent for Maha, doubling the value of that transaction just in one year, which wasn't an important transaction, just demonstrate I think a bit of what I believe that shareholders should expect going forward.

And I also have some questions here regarding 3i, which obviously will be difficult for you to reply to because it has to do with how they operate. But let me rephrase it then and say, do you have any impact on their decision making as impacting on the board or coming with the advice or is it just purely financial?

No, I would say that in the situation we have been and still are, we have been instrumental in the change of 3R and the merger between Enalta and 3R. I think going forward, we want to step out. We want to have flexibility. We believe that Marsh Elders are better off with having this flexibility so that we do expect to see a significant increase in the value of the company and we want to be kind of free to transfer that into cash and to deploy this cash into new opportunities or enhancing the value for the shelter in other ways.

Okay, and that's a good segue, actually, to one of the questions I received ahead here. How will you monetize the investment as you are a minority? And I think you replied in a way here, because basically you will be able to, let's say, sell them on the market, and that's a way to get cash flow.

Yeah, so maybe just online, what we do now is that we are basically exchanging our participation in 3R offshore into shares. And then the first thing and the 5% was basically shares bought in the market. So now we have like all the combined company 4.76 percent of of those shares so those are liquid shares and and when when the transaction closes we believe end of july we are completely you know free to to sell that at our own discretion we of course are not going to sell that on day one because one we don't need the cash right now so there is no immediate cash need secondly we believe that that the share price has a significant upside On the other hand, I would also say we don't expect to sit as shareholders in five years.

That's fine. Let's swap into Venezuela. I have a couple of questions here on Venezuela. One is, is it much heavy oil in Venezuela or is it an easy handling?

Excellent. Thanks. A great question. There is a lot of oil in Venezuela. It's a lot of light oil. There's a lot of condensate. There's extreme amounts of heavy oil. So what we are very happy with is that we see that actually where we go in, because we go into a field that has more than 100 years of history, experience, so to speak, already. So there is a lot of light oil in the field we are going into. And so far, we're also looking into opportunities in the more heavy oil, or your local belt, and similar structure. I would say in Venezuela there's a lot of oil. And I've never been to a place, sorry for being a bit detailed here, but I've never been to any other opportunities where you have 1500 meters of oil column to work with. I've worked in very many good places, but that's unbeatable.

And will you get consolidated cash flow from the joint venture in Venezuela? It seems like a fairly premature question, but what's the plan there?

Well, I think that, yeah, talking about the cash flow, of course, what we're doing right now is that we are working on a plan on how to put as little CapEx, to be very blunt, as possible into proving an enormous potential. So, of course, the most important triggers, I would say to shareholders, is to get the OFAC license, to get the approvals to go in there. And then we will start with, like I mentioned, changing some of the lifting mechanisms into ESPs. I think that will give us immediate answers to how potential or how good that technology could work in these wells. I'm very optimistic on that based on what we have seen of the historic data. And we also have part of the field that has never been produced. Sounds incredible, but it's the reality. So I expect also good results from that area. And so, of course, there will be a period of investments. But as we are thinking right now, I think that we plan to do the investments so that we will immediately start to get cash flow back. Of course, then I do think, as we see this actually is working, that we will continue to deploy that cash back into Venezuela to increase further the value of the investment there.

And then one could expect perhaps, because I believe Roberto mentioned that the capex were coming down and that was mainly due to Illinois. So basically, one should see that if you increase your capex, it's because you're successful in Venezuela.

Yes.

And the timeline for Venezuela, the permits and production, it's a lot of question of when can we expect things. And how important are you for the next step for, let's say, authorities approval?

No, I think that it's of course extremely difficult to give precise answers to those questions. Answers to those questions don't exist. But I do believe that we are in the process of getting an OFAC license. So at least I would have expectations that we will for sure get it within this year. I'm actually expecting to get it within the coming quarter. I think when it comes to approvals in PDVSA, of course it's bureaucratic, it's Latin American in that sense, that things are not moving very fast. But now I felt I was there last week. had very good meetings with the authorities. I think that in these places you have to spend time in really explaining what are you guys and who are you and what are you here for and so on. I think we have now passed that moment. I think they really appreciate what MAL stands for. I think they appreciate our resilience in demonstrating what we want to do. and I think they appreciate the preliminary plan that we have presented to them. So I expect a swift approval process as you can expect in Venezuela.

And then I can round it off here with one more question, which I like the framing of it connecting to your explanation here. Will Maha be an operator leader then in Venezuela? Because you seem to, you know your stuff, you've been there in comparison to other oil majors. You're from the continent. What can we expect?

No, I should say thank you for that question to whoever wrote it. I really take that as a huge appreciation of what we are doing. I do think that I would still like to stand out as modest compared to Chevron, for instance, which are there already. So, I mean, that's a fairly known company, so I think they have capabilities that that still is a little bit north of what we have in Maha. But I would say that we have been very warmly welcomed also by Chevron. So I'm meeting with Chevron every time I go there, meeting with Memorial Prom, meeting with Shell, meeting with Repsol, all the guys that have the current licenses already. We are having a very good collaboration, sharing ideas about how to move forward, learning from the guys that have been there about how to be most efficient in getting licenses, getting approvals, moving operations forward and so on. So I'm very grateful for actually finding such a collaborative environment also in between the national companies in Venezuela. It's actually very nice and I think it's probably a result of, you know, it is a challenging place and it has been a very challenging place and it makes total sense to have a very good collaboration and MA is part of the team.

And fortune famous the brave, as they would say. Thank you for that. And my last question here, because before we round up is, so it's been, I mean, the last 12 months has been very, very hectic. And now you seem to perhaps consolidate. And obviously, it's easier to ask a question than for you to reply to it. But do you think that the rest of the year will be more of a consolidation? Or what can we expect, let's say, for the coming quarters?

No, I would answer this way. I don't think anybody expected to be a quiet six months coming. I think that there is a lot of work to be done. I think we are still working hard on other business opportunities. Of course, we're making sure that we are closing out properly what we have already started to close with, with the 3R. But no, this is a company where I think the shareholders should expect news. They should expect new things to be looked at. As Roberto excellently proved and went through, we have a very solid cash position, but we're not going for a holiday. It's going to be very busy in the next six months, in the next 12 months, in the next 24 months. So look forward to see some news coming forward as well.

Excellent. Well, Kjetil, Roberto, and all of you who put forward questions ahead and during, thank you very much. And thank you all. Thanks, gentlemen, and goodbye.