Capricorn Energy PLC

Thank you. Good morning, everyone and welcome to Cairn’s results presentation.

I am Simon Thomson, Chief Executive. With me are James Smith, CFO; Paul Mayland, COO; and Eric Hathon, Exploration Director.

So as in usual way, we have got a presentation to run through with you this morning and we would be happy to take questions at the end. Cairn’s consistent strategy has been to actively manage the portfolio to ensure we have maximum financial flexibility.

That allows us to continue our differentiated business model of creating, adding and realizing value for shareholders against the backdrop of sustainable cash flow generation and growth. So, the expected near-term resolution of the Indian tax issue, alongside significant recent portfolio changes ensured that we remain well-positioned to continue the successful delivery of that strategy.

And looking at India, first of all, following their enacted legislation, we are in the process of agreeing documentation with the Government of India to effect a return to us of just over $1 billion. So assuming agreement of all the documentation, we anticipate resolution and return of proceeds shortly.

On receipt of the funds, it’s our intention to return $500 million to shareholders by way of a special dividend, seek shareholder approval to buyback up to $200 million of shares, and utilize the remainder for planned acquisitions of cash flow generating growth assets. And standing back and looking at overall returns, assuming receipt of funds and disbursement, as I have just stated, it’s worth highlighting that over the last 14 years, we will have returned in excess of $5 billion from monetization of exploration successes through a combination of multiple special dividends and buyback programs, with $750 million being returned in the last 12 months alone.

We intend to continue with this differentiated strategy of creating, adding and ultimately, realizing value for shareholders through a combination of share buybacks and further potential returns with contingent payments from recent asset sales providing the potential for near-term capital allocation decisions. And in terms of the underlying business, as you know, we have been very active portfolio managers over the last year transforming the asset portfolio to ensure that we have line of sight on long-term cash flow generation and growth potential.

The first step in that transformation is the acquisition of Shell’s Western Desert portfolio in Egypt, which we anticipate completing on schedule at the start of October. The Egyptian assets provide a material production base from a gas-weighted portfolio that also benefits from attractive liquids production.

The assets offer near-term, low-cost upside, significant medium and longer term exploration potential, owned transportation infrastructure and a stable fiscal environment, and that’s all within a region of strong demand growth. So as Paul and Eric will outline in more detail, we believe this acquisition provides us with an ideal platform for long-term sustainable cash flow generation and growth and we look forward to commencing operating activity shortly.

As I have stated, the Egypt transaction is the first step and we plan to add to the production portfolio in the near-term as we build additional scale. Our financial flexibility leaves us well-positioned to take advantage of further asset disposals that have the ability to deliver a combination of existing cash flow generation and growth potential.

As Eric will highlight, we have also been busy refining and high-grading our exploration portfolio. Our exploration focus will primarily be on Egypt, which alongside the UK offers potential for rapid tieback of infrastructure-led opportunities.

In addition though, we look forward to further appraisal of our exploration success in Mexico. And whilst we retain exposure to transformational potential, principally in Suriname and Mauritania, we do not have material capital or well commitments in either asset.

We continue to offer top quartile performance from both an HSE and ESG perspective and remain focused on delivering value responsibly across all of our operations. So, with final resolution of the Indian tax issue in sight, we are excited to move forward with a renewed portfolio, balance sheet strength, near-term value growth opportunities and the potential for acquisitions of scale, all against a backdrop of ongoing returns.

James?

Thank you, Simon and good morning everyone. So over the next few slides, I will take you through our current financial position, a brief review of the cash flows from the first half and our guidance for the full year.

And then I will touch on the three main moving parts in the balance sheet for the second half, the Egypt acquisition, the proposed UK sale and the resolution of our India tax dispute. Looking at the current funding position, cash at 30th June was $341 million and our full year CapEx is expected to be $105 million, excluding the UK assets held-for-sale.

So if we take that position and adjust for the expected considerations payable on Egypt completion and receivable on completion of the UK sale, both of which I will come on to in more detail in a moment, then we project finishing the year in a strongly net cash position and that’s before we take into account India. As Simon made clear, we continue to see a commitment to shareholder returns as being a strong differentiator in our investor offering.

We made a special dividend of $257 million in the first half of this year following completion of the sale of our Senegal assets. And there are further catalysts to enable continued returns to shareholders, most notably as we resolve the Indian tax dispute.

Execution of our strategy has clearly been focused on portfolio reshaping over the last 18 months to 2 years. We sold out a development heavy portfolio in Norway and in Senegal, we have agreed the sale of UK assets as they start to fall into production decline and we have taken a significant step in rebuilding a longer life, full cycle, low breakeven portfolio with the acquisition of Onshore Egypt.

We have capacity to do more and the focus will remain on expanding the production asset – sorry, the producing asset base, but with portfolio moves that offer existing production from large resource bases, ideally with material exploration upside and also weathers the opportunity to drive down production costs as well as the carbon intensity of that production. The next slide just shows an overview of the cash flows in the first half.

As you can see, capital expenditure in the period was relatively modest with activity focused more at the back end of this year and into next year as we complete the Egypt acquisition and also prepare for exploration drilling activity in the UK and Mexico. The major cash flows in the first half therefore relate to operating cash flow in from Catcher and Kraken as well as the payment of the special dividend in January following Senegal completion.

Looking again at our full year CapEx guidance this remains broadly in line with the previous guidance, but with the addition of Egypt, which we have included here for the fourth quarter. On the exploration front, we have drilling commencing in the UK on the Jaws well and in Mexico on the appraisal of the Saasken discovery, both scheduled for the back end of this calendar year.

In Egypt, we have been working closely with Shell with the government of Egypt and with a joint operating company, Bapetco, to ensure that we are well-positioned to ramp up drilling activity as soon as possible following completion and therefore to be able to deliver production growth into 2022. And looking forward to 2022, we will provide detailed CapEx guidance for the year in the usual way in due course, but the focus of capital activity will be principally on drilling the Egypt producing assets to enhance production levels as well as infrastructure-led exploration opportunities in Egypt and in the UK North Sea.

Paul will come on to talk more specifically about our objectives in Egypt, but just to comment on the transaction status at this point. The conditions precedent to completion of the acquisition have now all been met, including all regulatory approvals other than the final signature of the deeds of assignment for which the licenses will effectively transfer to us at that point.

We are therefore in the process of posting consideration into escrow and readiness of the completion. And as you can see on the slide that consideration of completion is $302 million, of which $121 million is being funded from cash on the balance sheet and the remainder from the debt facilities that we have arranged jointly with our partner, Cheiron.

As I have mentioned, the portfolio has a large inventory of investment opportunities to enhance production with attractive low breakeven economics. IRR10 full cycle breakeven is at around $30 Brent and we are targeting production OpEx of around $5 a BOE and annual CapEx in the range of $3 to $7 a BOE.

There is a significant contingent resource base for near-term conversion into producing barrels and a very significant prospective resource base in the new acreage positions that can support longer term, low cost reserves replacement. Turning now to the proposed sale of our UK producing assets, just to remind you the transaction terms, the firm consideration is $460 million at the effective date of 1st of January 2020 and the interim period adjustment for the 18 months to 30th of June this year stood at $273 million.

Then there is the contingent consideration payable when Brent is above $52 a barrel over the 5 years, 2021 to 2025. This contingent consideration is uncapped.

But to illustrate, it would payout around an additional $175 million of $70 Brent and that payment profile is frontloaded. So if current oil prices continue for the remainder of this calendar year, the payment for 2021 would be around about $75 million.

UK regulatory consent for the sale has already been granted, but the buyer is still working through the process of obtaining certain other third-party consents. And once those consents have been obtained then the transaction will be conditional on shareholder vote in the usual way for a Class 1 disposal under the UK listing rules.

And finally, turning to developments in India, as we previously announced, the Government of India had introduced an active parliament to amend the 2012 retrospective taxation measures under which Cairn have been taxed. This amendment has now been brought into law and it sees the previously retrospective taxation measures made prospective only.

Therefore, if successfully applied to Cairn, this would result in a refund payable to us of approximately $1.06 billion being the amount collected in tax from us through asset seizures. The key condition for Cairn benefiting from the terms of this bill would be the withdrawal of all related legal claims by us against India, including the enforcement actions taken in respect to the international arbitration award of $1.2 billion plus interest.

We have had excellent and constructive engagement with the Ministry of Finance in Delhi regarding the precise details and documentation involved and we are now very optimistic that this can be successfully concluded in the coming weeks. The Government of India has confirmed to us at multiple levels that now the legislation has been put in place, it is aligned with us in wanting to see this long running matter resolved and a tax fund to be paid swiftly.

And we are of course therefore working closely with them towards that aim. Assuming such resolution, as Simon mentioned in his opening, we intend to make a one-off cash return to shareholders of $500 million as well as to seek shareholder authority for a buyback program of up to $200 million.

That will result in us having returned or committed to return nearly $1 billion during this year, which adds to the over $4 billion that we have returned to shareholders since 2007. And it still leaves us with a strong balance sheet to continue to deliver further portfolio growth and indeed the right platform to enable future shareholder returns.

And on that note, I will hand over to Paul.

Thanks, James. Good morning, everyone.

There are three main themes that I want to focus on today, so delivering production within guidance, integrating and ramping up our investment in the Western Desert in Egypt, and accelerating our net zero plans. So, firstly, production guidance, North Sea production for the first half of 2021 averaged just over 19,200 barrels of oil per day net to Cairn from our interest in the two fields, Kraken and Catcher.

And as we stated in March, the fields are in natural decline, but performance has been slightly better than expected in the period, particularly on the Kraken asset, where overall uptime has reached almost 90%. The production chemistry challenges associated with calcium naphthenate at the Catcher field are now being managed more effectively and the increase in field water cut development has been suppressed, aided by the gas injection trials and well management.

And consequently, we are able to revise our North Sea full year guidance to 17,000 to 19,000 barrels of oil per day net to Cairn. In Egypt, as both Simon and James have mentioned, we expect to complete the transaction shortly and we have already had good engagement with Cheiron and Bapetco, the joint operating company.

First half working interest production for our 2B acquired 50% interest in Shell’s equity is approximately 35,500 barrels of oil equivalent per day and full year 2021 guidance remains 33,000 to 38,000 barrels of oil equivalent per day. The two – the current two-rig drilling program ongoing under Shell’s ownership is drilling fewer deeper wells, including an exploration commitment well, which will be spudded in the fourth quarter that Eric will cover.

As part of the excellent and ongoing engagement with Bapetco and Cheiron, we are assessing the overall opportunity set for 2022 and beyond. There are a number of factors that will influence our production in 2022, not least the speed of ramp up, our current focus on the liquid-rich opportunities and other joint ventures partners’ calls on capital and we will give guidance post completion in our usual manner.

The opportunity set is likely to include reactivation and work-over of existing wells to gain quick wins, new well drilling with the likelihood of a doubling of the current rig capacity, and a short-term focus on production through work-overs. There are also a couple of developments we are reviewing and some further optimization possibilities of the facilities.

Additionally, beyond the capital program, there are OpEx reduction opportunities, which we will be pursuing, including electrification of the facilities. And the recruitment and transfer of secondees into Bapetco to steward this new investment is also progressing well.

This leads me on to our net zero plans as part of our overall corporate social responsibility program. We are accelerating our net zero ambitions from 2050 to 2040 after reviewing the progress and advancement of opportunities available to us with a clear focus on reducing emissions to achieve that net zero goal.

We anticipate there will be progress across the upstream and wider industrial sectors this decade, followed by a rapid acceleration in the 2030s. Consequently, we brought our target forward a decade.

We were of course the first UK independent to commit to the World Bank’s Zero Routine Flaring target and we are encouraged that both the UK and Egypt governments are cosignatories to this global initiative. It is an area that we will devote significant effort in Egypt over the next 3 to 5 years to bring to fruition alongside electrification of the facilities as mentioned earlier.

And in the UK, energy efficiency benchmarking is now very much integrated as part of our contractor evaluation and selection for survey vessels, drilling rigs and support vessels, again, with the goal of reducing our emissions associated with these activities under our control. And as part of our longer decarbonization plans, we have appointed an Energy Transition Director to progress our overall net zero plans in line with this framework, including to continue to evaluate engineered and natural forms of offsetting.

Finally, we have all suffered during the last 18 months from this pandemic in so many different and terrible ways, but we hope that our donations in various jurisdictions will help to make a positive difference to the communities and the people where we operate. We would also like to take this opportunity to thank all of our staff and contractors who have worked immeasurably throughout this period, including helping to establish our presence in Egypt, where we are very excited about the forward investment plans.

And at this point, I will hand over to Eric to discuss our focused and flexible exploration.

Thank you, Paul. Good morning, everyone.

As Simon said, we have high graded our portfolio in line with current conditions and are focused on high-quality investments and infrastructure-led exploration both in the UK and Egypt where we focus on near-term value creation by moving quickly to production with success and on select emerging and frontier opportunities, which can create significant value, all done against the backdrop of our advantage barrels exploration criteria and moving quickly from discovery to production, flexible commitments which can react to the market, and a clear focus on aligning to our stringent ESG priorities, as Paul outlined. Today, I wish to focus on three elements of our exploration activity, providing more color on our Egypt exploration program, our recent find offshore Mexico and our UK program, including farming into an exciting emerging play in the mid-North Sea High.

So, now first to the Western Desert of Egypt as seen on Slide 18, the joint venture has a near-term exploration program of 10 wells and 3 3D seismic surveys over the next 3 years. This 10-well program is targeting a portfolio of opportunities of over 100 million barrels of oil equivalent gross un-risked.

And the focus of the seismic acquisition will be using the latest technology to improve imaging, particularly in the deeper, less explored intervals. And as Paul said in the North Um Baraka concession to the north, the NUMB West-1 well is due to spud in November.

Now this well is targeting a mean 16 million barrels in Jurassic sands in a faulted closure and has an upside greater than 30 million barrels of oil equivalent. And it is offsetting a well which also tested over 2,700 barrels of oil per day in the past in the same interval.

Also, preparatory work for new 3D seismic acquisition in North Um Baraka is progressing, and we anticipate this to start before year-end. In our three Cairn operating concessions, work is also continuing at pace.

Work has already begun on the various permitting requirements for 3D seismic in both Southeast Horus and West El Fayum with the plan to begin acquisition in Q2, Q3 2022. Our first two wells are expected in the South Abu Sennan concession in Q4 2022, followed by our first well in West El Fayum around year-end.

Our focus is creating value in an advantaged way by moving as expeditiously as possible to reserve replacement and rapid time to first production. Now, let’s move to Mexico where we have had our second find in Block 10 with ENI as operator.

The Sayulita 1 well found 55 meters of net oil pay of good quality and excellent reservoir sands of Upper Miocene age, now a cased hole of mini well test showed flow rate potential of 3,000 barrels of oil per day. And as you can see on the slide, it is only 15 kilometers from our Saasken discovery, which demonstrated similar reservoir and fluid properties and had a flow test in excess of 10,000 barrels of oil per day.

Now these two discoveries have a combined in-place volume of between 350 million and 500 million barrels of oil per the operator’s estimate. And as the map shows, there are other similar targets remaining in both Block 10 and Block 9, which Cairn operates.

The potential for a hub production development has increased and options are being discussed. And as James noted, we anticipate an appraisal well on the Saasken discovery to spud by year-end.

Now it’s also worth noting that the operator of Block 29, just to the north, is also discussing near-term hub developments for their discoveries. Now finally, let’s move on to the UK, where our ILX program continues to build momentum.

Shell plan to spud the jaws well in the Jurassic Fulmar sand play in Q4 this year. And this will be followed up by our operated Diadem well in the same play in Q2 next year.

Together, they are targeting up to 60 million barrels of oil equivalent. And as we have discussed before, with this being in such close proximity to the Shell-operated Nelson platform, they represent very rapid path to commercialization in line with our Advantage barrel criteria.

We’re discussing development plan options already given success at one or both. And last month, we announced our entry into an exciting emerging play on the northern margin in the Southern Gas Basin, an area called the Mid North Sea High.

We have farmed into five concessions with Deltic Energy and Cairn will operate all five licenses. The key opportunity is the emerging Zechstein carbonate buildup play with recent discoveries in the facility, including the Crosgan and Resolution gas discoveries in the West Newton and Asian oil discoveries.

Shell plan to drill the Pensacola Zechstein prospect just to the West in the coming months. A result there will reduce uncertainty on our licenses.

And in addition to the Zechstein play, there is also a potential on our blocks in the established [indiscernible] and carboniferous sandstone plays. The initial work program includes acquiring 3D seismic over the area.

And in fact, the seismic vessel is due to begin acquisition this month, which allows us to significantly accelerate our activity. That is Advantage barrels exploration in action.

In summary then, in exploration, we’re focused on our ILX activity, modest volumes, but with success short cycle time to first production and our discoveries in the emerging Sureste Basin offshore Mexico, all whilst maturing our frontier plays in Mauritania, Suriname and Israel, ahead of drilling decisions, as Simon noted. This portfolio has the potential for material reserve addition and value creation all whilst remaining advantaged.

Now back to you, Simon

Thank you, Eric. So in conclusion, near-term resolution of the Indian tax issue, alongside ongoing active portfolio management, ensures that we have the balance sheet flexibility to deliver and grow a sustainable cash flow base and a refined and high-graded exploration program focused on fast track value creation.

As Paul has highlighted, all of this will continue to be delivered responsibly in line with our high HSE and ESG standards. And whilst we have the capacity and the desire to add sustainable production to our cash flow generating base, that will be assessed against stringent internal hurdles and set against our desire to continue a successful track record of differentiated shareholder returns from value creation events.

Thank you. That concludes the presentation, and I’ll now hand back to the operator for questions.

Thank you. Good morning everyone.

I got three questions, please. First of all, on the Indian tax refund, can you give a bit more detail on the mechanism and the processing, indeed, the timing of actually receiving the tax refund from India?

And will you announce when the agreement has been reached? And what’s the timing of the payment of any special dividend?

That’s the first question. Second one, you’ve signaled pretty strongly that there is more deals to be done by Cairn to build out the scale of your portfolio.

And could you give a bit of an assessment of the M&A market at the moment? I mean yes, there is lots of divestments going on, but do you see still lots of competition for the best quality assets?

And then lastly, on Egypt, is there an opportunity like some other tuned to renegotiate the terms of your licensees? I guess I am thinking around the tax regime, but also the gas price?

Thank you.

Thanks, Nathan. Look, let me maybe touch on the first two, and then I’ll hand over on Egypt to James.

On India, the Indian government have indicated very strongly that they want to have this resolved within the next few weeks. And by that, they mean for everything to be documented and for the funds to be paid to us.

So we’re anticipating on that time scale, we should have receipt of funds within a matter of weeks. And then obviously, there are specific time scales attached to shareholder approvals for consolidations and buyback approvals and so on.

But that should ensure that we have, let’s say, 4 to 6 weeks after that the funds being returned to shareholders, so certainly, during the course of this year. In terms of the M&A market, yes, I mean, we’re still seeing, as you say, there is a large number of asset packages around the world of varying quality, obviously.

In terms of competition, I think it still remains the case that for those who have some financial flexibility as we do, there is the ability to be differentiated from a seller’s perspective in terms of certainty to completion, which is – tends to be one of the main drivers in relation to quality asset packages as we’ve seen. So I think we remain pretty well placed.

Competition obviously varies from asset to asset. But in a number of areas, majors obviously are selling rather than buying.

And there is perhaps a more limited pool of buyers as other people look to balance sheets and so on. So I think we’re pretty well positioned to take advantage.

It’s about finding the right quality and the right value. But we’re very – as you say, we’re very actively looking in that respect and James, Egypt?

Yes. On Egypt, Nathan, I mean our near-term focus is going to be on ramping up investment activity, which has obviously declined during the interim period where Shell has been holding these assets for sale.

So it’s – and as you know and as was detailed in the circular to shareholders, this is a supportive fiscal environment for that kind of investment under the PSC terms. So we’ve planned and we’re comfortable with the basis of supporting that development plan to ramp up production back to levels gross, over 100,000 barrels of oil equivalent a day as they have been historically.

As you note, Egypt has been open to some reform, some consolidation of licenses and so on in the cases of others. And obviously, that’s something we can review over time, but we’re happy where we are for the time being.

Gas prices, particularly for those of us in the UK, are obviously an area of focus at the moment. The gas prices in – for the existing production in Egypt are under – effectively fixed price, some Brent linkage, off-take agreements, gas sales agreements currently.

Clearly, it’s a strongly growth market. Gas is an incredibly important part of economic development in Egypt.

Ours remains very competitive in the overall Egypt price/mix. Certainly, imported offshore gas coming in from Egypt or imported gas from Israel and elsewhere is much more expensive than us.

And so we have seen an upward trend as incremental gas sales agreements are implemented onshore Egypt. And obviously, that’s a trend that we would hope to benefit from, but in terms of the existing production, those are under fixed contracts.

Thank you. That’s clear.

Thank you very much.

Good morning. Thanks very much for the presentation.

I just wanted to talk a little bit, obviously, it’s great to see that India is finally nearing a conclusion. I guess many of us have been invested in that now for several years.

But can you just talk us a little bit through the process in terms of the $700 million cash return, really, around the buyback? I mean if you look at the current share price post dividend, the $200 million implies you’re buying back over 20% of stock when they were 25% – that’s an awful year.

I mean what’s really the driver behind that? Why not just return $700 million as a dividend and consolidate the shares if you’re thinking about the share price?

So, just if you could maybe talk around your thought process there and why that split and buying back so many shares is attractive way?

Sure. Yes.

I mean I guess there is two points to make. I might hand over to James on the detail of the buyback.

For us, it’s about providing certainty of return, number one, in relation to that $500 million element just as we did with Senegal. So it was always our intention.

I think we’ve signaled that loud and clear to make a significant return once the Indian issue was resolved. But over and above that, importantly, I think, for us, it’s about flexibility in terms of value.

And that’s why we’ve booked the $200 million towards the buyback. But maybe talk about, James, about detail?

Yes. I mean I think the other thing to say is that different shareholders have different preferences.

And quite a number of shareholders like buyback programs, and obviously, dependent on where the share price is relative to asset value, but as a means of enhancing asset value per share and also for some in terms of the tax efficiency and so on, so quite a few shareholders like to see buyback programs. But equally, this obviously is a return, the scale at which we couldn’t deliver quickly and certainly in its totality by buyback program, so hence, the split between a certain one-off return and a buyback program.

And that buyback program, I mean, obviously, it’s pretty significant in terms of the as a percentage of the market cap in terms of the daily liquidity. So it will take some time to deliver that, obviously, slightly dependent on where the share price is, but it will be a rolling program.

We will need shareholder consent for a buyback program of that scale given the percentage of market cap, which as we alluded to in the previous question, we will seek very quickly after India being resolved.

I mean, shares have been trading at a very sticky discount to [indiscernible], so I guess as a consideration trying to close that discount?

Well, I mean, it’s partly about trying to close that discount. But it’s also, as you say, trading at a discount to asset value, then clearly, buying back shares and canceling them is accretive to asset value per share.

Thanks, James. And finally, just in terms of the proceeds from India.

Are there any sort of frictional costs to get the cash out of country? I mean you talk about $1.86 billion do we expect to get that in full in dollars as you take the convert a rupee and bring it back to UK?

Well, I mean, the only – the frictional risk, obviously, is around the FX conversion. So this – the payment will be – it’s a tax refund to be processed by the Indian tax department in the usual way.

So it will be a rupee payment in India. The repatriation process is – we’ve been planning carefully, obviously, but ought to be straightforward with no significant costs.

But obviously, there is the FX there.

Okay. So, no material legal costs or anything like that?

Just in your slide, you talked about $300 million of additional net cash on Slide 11 on top of the $700 million versus only a $1 billion. So I wondered whether there is increased costs but so that’s going to be $360 million effectively subject to FX?

Yes, that’s right. No, we are not losing $60 million.

You are quite right, it’s – we – I guess we’re just talking about numbers. But no, it’s – and of course, we don’t want to be too specific because it’s subject to FX.

I mean the number we are certain of is around about INR79 billion. The FX – the dollar amount will depend on the FX at the time, but no, there is no material frictional cost of repatriating that or tax impact or anything like that?

Okay, thanks. Final one for me, the third-party consent, are they taking longer than you expected and could there be a risk of further delay there or still very confident in 4Q?

I would say they have taken a bit longer than we envisaged, but they – I think we are in a good place now. There were a couple of additional conditions that were imposed by third-parties that required some amendments to the financing that the purchase was put in place and obviously making those kind of amendments over the summer is sometimes a bit slow, but I think we’re in a good place now.

Thanks, James.

Hi, good morning everyone. And could I just ask – pick up one question around sort of future plans then to grow the business and the production base with that residual net cash that, of course, you will have.

But would you be able to characterize the sort of assets that you are after? I know clearly, production is the key.

But I am thinking more around – I think in the past, you have sort of suggested that you are relatively agnostic to hydrocarbon types and geographies to some extent and value is ultimately what you are looking for. But I am just wondering whether there has been some sort of shift in that with the sort of interest in gas assets or whether your sort of strategy around future M&A is unchanged.

So, just be interested to hear your thoughts there, please?

Yes. Thanks.

Our strategy hasn’t changed from the point of view, you are right. The number one focus is on value.

And the hydrocarbon type, as you know, there are some aged gas assets, which are perhaps less attractive than some more modern oil assets and vice versa. So, I think we look at each individual portfolio that we are assessing on its own merits.

We are not geographically constrained as such. I mean obviously, there is some logic and synergies in relation to having a more regional focus, especially for a company of our scale.

So, that does come into play in our decision-making process. But at the end of the day, it’s about assessing the above and below ground risks.

The longevity of the asset base certainly needs to be existing cash flow generation, what upside that we can see, what value do we add to the package. And what do we think that we can do, what kind of opportunities does it throw up, whether from a production uplift or exploration upside potential.

So I think, number one, it just comes back to that value equation with all of those risk factors considered alongside it. But number two, as I said to Nathan, I think we are in a pretty good position given the flexibility that we have to be able to transact.

What we have got to do is find the right thing. We are working very hard on it.

And if we don’t, then, of course, we will look at some capital discipline in relation to the use of the cash on the balance sheet. But yes, I think we are in a good position to access some interesting opportunities.

Great. Thanks.

Very good. And perhaps – sorry, just one follow-up, sort of picking up on one of the earlier questions as well.

And I guess that’s just how you see the current market at the moment? And I guess more specifically, the question being, do you feel as though asset sales are being held back at the moment whilst the commodity environment is so good and people are perhaps holding onto assets a bit longer than they initially planned, or do you still see a lot of sale given that a lot of the strategy disposals that are out there at the moment?

Yes, very much the latter. I think, obviously, when you think about major decisions are taken over a fairly lengthy period of time as strategic decisions.

And when that decision is made, it’s made. And it’s not really much oil price dependent upon what that major is doing with its portfolio.

So, we do see a large number of patches either on the market or coming to market. As I said earlier, there is varying degrees of quality, obviously, and there is varying degrees of attractiveness in terms of their fit or relative fit for our portfolio.

So, it’s about assessing all of that. And we don’t have to do anything, but our desire is to add scale, and we think we will be able to do that in the near-term.

Thank you.

Very good morning. Thank you very much indeed.

Can I ask about – two questions if I may starting into action between the return of capital and your net zero targets, particularly interested in bringing that forward to 2040. I am slightly surprised, Simon, you talked – you reiterated several times about wanting to buy producing cash flowing assets today where I would have thought a lot of potential assets that might help you achieve that net zero target by 2040 aren’t going to be cash flowing today.

They are going to need investment to mature them. I am just interested in your decision around capital allocation there between assets that do flow cash today and then those that might not, but are going to help you hit that 2040 target.

My second question is for James. With oil prices, could you help us understand what you expect the cash balance if they need to be in the Shell Western assets at the time of deal close at beginning of October, please?

Thank you.

Let me hand over to Paul, Chris, to answer your first question.

Yes. So Chris, the net zero, obviously, we are a member of net cash – we have obviously been doing quite a lot of work in terms of just understanding the opportunities to strive to lower emissions.

And obviously, within our existing Egypt opportunity, we have got plans in place that we want to pursue over the coming years to drive those emissions down. And what’s also encouraging is obviously both in the UK and also in Egypt they are cosignatories to the – to this new flaring World Bank initiative, which I think is excellent.

And I think interestingly, the WoodMac de-carbonization paper that was issued recently, what they suggest is that countries with government-supported initiatives that are achieving far more on the net zero journey than those led purely by corporate strategies. And that’s where we will be working with governments wherever we operate and whatever asset we either hold in the portfolio or acquire in terms of just working with them in terms of helping them to meet their national determined contributions towards the Paris Treaty.

So, in terms of the acquisitions, I think, yes, there is obviously going to be a carbon factor to consider in any opportunity. But I think it would be wrong to suggest that, that would be the sole factor.

We will obviously look for improvements. But as Simon and James have already alluded to, growth sustainable cash flow and resilient in terms of low breakevens are obviously going to be other important factors.

And we will consider them, whether it’s a new development project, as you say, a Greenfield or whether it’s more sort of Brownfield existing production that we can obviously grow and hopefully improve going forward. So hopefully, that gives you some color on our thinking.

Thank you.

And sorry, just what exactly is the question on Egypt completion? What were the cash balances in the business when acquired?

That’s – yes, that’s right, James. Basically, given where oil prices are, given the working capital flows whether there is any other adjustments like, for example, any repayment of the recapitalization shall put into the business back in 2020 all that added out what the closing date is likely to be that cash balance?

Well, the – I mean, the – it’s an asset acquisition effectively. So, there isn’t – I mean there are operating cash balances, small sort of $5 million in the – in and around the assets that’s acquired.

It’s not a corporate acquisition. So, there is not a – so it’s effectively an interim period adjustment to the completion consideration for an asset acquisition.

So, the cash balances will be minimal at the point of acquisition.

Thank you very much indeed.

Good morning. Thanks for taking my question.

I have just got one left, and it’s on the Obaiyed license. And my understanding that under Egyptian law, you can’t extend the license for longer than 35 years, which would mean that a new concession agreement would be – would need to be put in place in, I think, 2029.

So, is there anything that would – and that assumes an existing license – the existing license would be extended from 2024 for another 5 years. Is there anything that would prevent an extension to 2029 in 2024 and then also anything that would prevent a new concession agreement in 2029?

Thanks.

Paul?

Yes. I think probably the best thing on – as a very specific question about one particular concession, and maybe rather than answer it over here, maybe we just follow-up with you if that’s okay, Rachel?

Sure. No problem.

Thank you.

Hi, good morning gentlemen. I just would like to ask if in the M&A assets that you are looking at or possibly corporates out there that a return to UK production assets could be in the – in a possibility given that you have added exploration licenses and you retain some UK tax losses.

So, that’s the first question. And then second one I would like to ask Eric actually.

I would be interested in any progress towards a farm-out or should we be thinking of such a thing in selling out given that, that country has had a sequence of discoveries now? And also, could you just give us an update on the plans for the Israel exploration?

Thank you.

Yes. On the first one, the short answer is yes, we would look at it.

Again, Mark, its back down to our assessment of that – any particular opportunity, the risks around it, longevity, upside and so on. As you say, there are some advantages in terms of our tax laws position.

It’s just worth reiterating the exit from Kraken and Catcher is driven by the fact that they are entering to decline. And we are about renewal and longevity.

So, that doesn’t rule out the North Sea per se. It does make it mean that you need to be pretty selective in the kind of stuff that you are looking at, which is why geographically, we are not constrained, but it wouldn’t rule out the North Sea.

Eric?

Yes. Mark, relative to Suriname, yes, in fact, we have discussions ongoing with companies right now on our block there as well as with the government and plans for their activities with seismic acquisition, etcetera.

So yes, that’s very much a live process as we speak. And then as far as – what was your other one, was Israel.

Yes, we have gotten in all the seismic reprocessing over our eight blocks. And the team is working through that with our partners right now.

And so we have a series of technical review meetings upcoming to look at that, and we will make a decision in due course.

Alright. Thank you very much.

Thank you.

Yes. Good morning folks.

You probably used the word grow and growth much more often than many people in the last hour or so. And for many stakeholders grow is a four letter word.

So, anything to do with growth also has to be in the current era has to be offset with some emissions reduction. So, going back to the whole net zero slide, can we just use Egypt as an example and just say what plans you already have in place?

So, simple things like are you going to go from an operated reporting basis for your carbon intensity to a net equity basis that shows the full scope of your portfolio, not just your operated basis? Where are you today with respect to a baseline?

You have given a net zero target, but where is the baseline on Egypt at the moment? Have you worked it up?

Can you give us an idea of what the carbon intensity is for Egypt? And then you talked about offsetting and electrification.

I mean what is there behind that commentary? Have you looked at any options of doing some organic electrifications, would you be diversifying into any renewable, or are you depending on the Egyptian grid for your de-carbonization?

Thank you.

Okay. Thanks, Al.

Good question. So, the first part of it is, yes, we are going to move to equity reporting.

That’s planned for next year. So, our annual report for capturing this year will be on an equity basis.

In terms of the emissions reductions, yes, we have worked quite closely with Cheiron, who are obviously going to be the operator. And we have had some preliminary discussions with Bapetco just about what is the opportunity set and the changes that we could make in terms of the sort of carbon removal hierarchy of avoid substitute sequester offset.

And we have got a number of initiatives that we can consider. One of them is obviously reducing the number of diesel generators in the field that may be by changing to gas engines.

But it may also be an expansion and utilization of renewables. Obviously, the assets are Brownfield.

So, there is flaring in the field, which we will be looking at. In terms of the next couple of years, what process modifications could we introduce to reduce that flaring to a much lower level.

So, I think we have got a pretty clear sort of 5-year plan. One of the things in terms of, obviously, the starting point is I think we have previously said total gross emissions from the Bapetco assets is somewhere between 1.2 million to 1.4 million tons.

We obviously want to ensure that in terms of boundaries, which is an important consideration in terms of reporting and transparency and obviously measurement systems, that whatever is adopted by the joint venture and ourselves is something that we then continue. So, that’s how we will approach it going forward from 2022.

So hopefully, that gives you the clarity you need, Al.

It’s helpful. Thank you.

Good morning guys. Just on production and I know you won’t be drawn on guidance until after completion.

But given that’s due to occur in the coming weeks, can we expect more detail on the 2022 production also in the coming weeks? That’s the first question.

And the initial growth, as you talked about earlier, will come from reactivation work-overs of existing wells and a few new wells being drilled. Can you confirm that the bulk of that production growth will come from the BED area and AESW?

And then how long will it take you once you start reinvesting to return to 50,000 barrels a day? Thank you.

Okay. Thanks.

I think there was three questions there. So, the first one is a simple one is, we won’t be giving guidance in the next few weeks.

Our normal process is to give guidance in the early part or the end of the year, really because we will have then gone through the cycle of normal work program and budget meetings with joint venture partners and finalize the overall investment that’s scheduled for the following year. So, that’s where we will be probably on timing.

So, somewhat related to that is the investment will probably be directed across most of the assets, so the four big concession areas. And our current priority is obviously assessing and ranking the economic attractiveness of those opportunities with our potential preference at this stage for liquid-rich opportunities, and those that can be brought on relatively quickly.

So, that’s probably the second question. And then the timing of returning, I think we have probably given some previous guidance back in March, and at this point in time, which I think showed really it will take for the majority of next year to get up to well into the 40,000s and above.

And I think we would probably just stand by that until we have completed the transaction and gone through the sort of investment opportunity set in more detail. And again, we are likely to give, I would imagine, guidance either later in the year or right at the start of next year.

Okay, great. Thank you.

That’s helpful.

Okay. Well, look, thanks, everybody, for making the time to listen to us today, obviously, happy to take any follow-up questions.

And in the meantime, as I hope we have got across, we are in a good place. We are looking forward to returning capital consistent with our long-term strategy.

We are looking forward to growing the business. And we are looking forward to accessing some near-term value growth opportunities.

So, thanks for your time and hopefully we will catch up soon. Goodbye.