Panoro Energy ASA

John Hamilton - CEO Qazi Qadeer - CFO Richard Morton - Technical Director

Henrik Madsen - Arctic Securities Colin Smith - Panmure Gordon

Thank you, Eric for the introduction. Good morning everyone.

Thanks for participating in our first quarter 2016 conference call. My name is John Hamilton, Chief Executive Officer of Panoro Energy.

And on the call with me this morning are Richard Morton, our Technical Director and also Qazi Qadeer, our Chief Financial Officer. Richard will take you through an update on the progress of our assets today.

We’ll then turn over to Qazi who will review our financial results for the first quarter. After which, I’ll make some closing comments and of course we’ll then open up for some Q&A if anybody has any additional questions.

As a reminder, today’s conference call contains certain statements that are or may be deemed to be forward-looking statements, which include all statements other than statements of historical fact. Forward-looking statements involve making certain assumption based on Company’s experience and perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances.

Although we believe that the expectations reflected in these forward-looking statements are reasonable, actual events or results may differ materially from those projected or implied in such forward-looking statements due to known or unknown risks, uncertainties and other factors. For your reference our earnings announcement was released this morning.

A copy of the press release and our first quarter 2016 report are available on our Web site at www.panoroenergy.com. We’ll now move on to our assets, beginning with updating you on the recent developments that Aje field offshore Nigeria and I’ll turn over to Richard Morton, our Technical Director to take you through that.

Richard?

Thanks, John and good morning to everyone. As you’ll recall we successfully drilled and completed two production wells, Aje-4 and Aje-5 last year.

We have initially forecast production from these two wells were to be around 1,100 barrels of oil per day net to Panoro which is 9,000 barrels of oil per day gross. Subsea installation operations were completed by March whilst the remaining works on the FPSO, the Front Puffin, were completed and puffins sailed to Nigeria arriving in country in mid-March.

The puffin was hooked up and preparations made for the introduction of hydrocarbons which was achieved on the May 03, 2016. As we speak the FPSO commissioning activities are being finalized, focused on preparation and 72 hour production test for the FPSO to go on hire, which is expected to be conducted in the near future.

In the meantime, both wells Aje-4 and Aje-5 have been brought on stream to testing at varying choke rates. Each of Aje-4 and Aje-5 has produced in excess of 5,000 barrels of oil per day on a half inch choke with good well head pressure.

Gas lift has not yet been used. Stabilized combined flow rates will be determined in the coming weeks, in conjunction with final mechanical optimization, commissioning, and the importantly the Nigerian regulatory approval process, which will define the technical allowable production for the field.

The flow rates achieved to-date indicate a highly productive reservoir and while the wells can clearly outperform for the moment we maintain our earlier guidance of initial stabilized production of 9,000 barrels of oil per day gross. We have been producing oil into the FPSO every day since the May 3rd.

We’re pleased to report that all of these operations to-date have been completed with no safety related incidents. Meanwhile geological models for the Aje field have been revised incorporating the new 3D seismic and the Aje-4 well data.

These models allow us to plan for future Phase 2 drilling. Potential well locations for two new wells Aje-6 and Aje-7 have been identified.

Our modeling shows that the production for Phase 2 is expected to reach 15,000 barrels of oil per day gross for the four wells together. The exploration prospect inventory over OML 113 is also being revised over the whole of the license and we expect to publish details on this during the summer.

Finally, I’d remind you that Aje also contains a large Turonian gas condensate reservoir and the joint venture is busy progressing a gas concept study to create a development solution for this significant resource. You’ll hear more about this during the coming months.

Moving on to Gabon now, activities included sub-surface studies to enhance the prospect inventory and further refinement of drilling plans for a potential exploration well. Prospect B remains the preferred target with P50 gross un-risked prospective resources of 237 million barrels.

This prospect is located inside the EEA Along with the operator, Panoro has also been in discussions with potential partners to farm-in into this possible exploration well. The third exploration period in the wider Dussafu license is due to expire shortly and the JV partners are reviewing options which at a minimum would obtain the Ruche area EEA in which the existing discoveries and material exploration prospects exists.

Once we have today impaired the carrying value of Dussafu, our technical view remains unchanged.

Thanks Richard. That concludes the asset update and will now turn over to Qazi, our CFO to take you through the quarterly financials.

Qazi?

Thanks John and good morning everyone. I am now going to discuss the first quarter 2016 results in comparison to the fourth quarter 2015.

It is customary to note here that the results published this morning and discussed on this call today are unaudited. The group has reported a net loss of $18.2 million from continuing operations for the first quarter compared to a loss of $1.6 million in the previous quarter.

The loss is impacted by a non-cash impairment charge of $17.1 million in relation to our Dussafu asset which aligns the carrying value to our current view of the asset in the current oil price environment. I will stress here that the underlying technical view on the asset remains unchanged.

Excluding the exceptional item of impairments the net loss for the current quarter was $1.2 million, which is $400,000 lower than the previous quarter. This shows our continuing efforts in successful reduction of general and administrative cost.

Exploration related and operator G&A cost reduce by 191,000 compared to the previous quarter due to the phasing of activities. General and administrative cost for the first quarter 2016 have reduce to $944,000 in comparison to $1,42,000 in the fourth quarter.

This mark the reduction of approximately 9.4% quarter-on-quarter. Net loss for the period from discontinued operations was $6,000 for the current quarter compared to a loss of $162,000 for the previous quarter.

The decline is due to tax related write downs recorded in the previous quarter. The current level of cost in Brazil is subject to cyclical fluctuations and may involve payments of minor nature in relation to relinquishment cost for surrendered licenses.

Moving now to the balance sheet as of 31 March, I'm going to discuss the movements in comparison to the balance sheet as of 31, December. On an overall basis non-current assets amounted to $94.3 million at March 31, representing a net decrease of $8.1 million from the fourth quarter.

The decrease is due to a net investment of $9.1 million since December 2015 in Nigeria and Gabon licenses offset by $17.1 million impairment of Dussafu interest. The net capitalized investment of $8.1 million was predominantly in Aje field in Nigeria.

Current assets in total amounted to 10.5 million as of March 31, compared to $12.6 million as of December 31, 2015. The current assets comprise of cash and cash equivalents of $7.6 million and $2.9 million of receivables on prepayments.

The decline from previous quarter is due to number one, an increase of $1.2 million in receivables and prepayments from December 31. The main item being an increase in unapplied cash in JVs kept for project payments on Aje field developments and operations.

Number two, a decrease in cash and cash equivalents by $3.3 million representing investments in assets and general corporate expenditures. Cash balance was increased during the quarter by $7.6 million after issuing shares in connection with the private placement offset by payments of $9.8 million for asset related expenditure.

Moving to the total equity the amount was $97.6 million as of March 31, compared to $108.2 million as of the previous quarter. The change is underpinned by loss for the period and share capital increased from issuance of new shares.

The equity private placement generated $8.1 million in gross proceeds. Total non-current liabilities amounted to $6.2 million and remained unchanged from December 31, 2015.

The last item in the balance sheet is current liabilities in total amounting to $1 million at March 31. Having increased by $0.3 million in comparison to December 31, 2015 the increase is mainly due to our cyclical working capital levels consistent for this period end.

This concludes my review of our financials and I will now turn back the call to our CEO, John Hamilton for closing remarks and open up for questions.

Thank you. So before we open up for questions, I'd like to say a few words on our strategy.

We’re obviously very proud in order to have brought Aje on stream despite the difficult environment faced in the industry and projects specific challenges that you all know that we encountered alone the way. But Panoro is now full cycle E&P company with production at Aje, development opportunities for Phase 2 at Aje and of course the Turonian gas project, what we call Phase 3 and of course also to wider exploration opportunities that we have on OML 113 in Nigeria.

At Dussafu in Gabon we also have our contingent resources discovered and the exploration potential on the block. These assets in themselves constitute an impressive portfolio for a company of our size and our view.

However, having achieved production at Aje and crossed that bridge, we’ve now established a platform we feel from which to grow up on our own and trying to add value for our shareholders. Looking forward, our strategy is now to expand our portfolio by acquiring further high quality production and development assets in West Africa and we’re currently evaluating several opportunities.

With the ambition to capture opportunities resulting from the current low commodity price environment which is driving a change in landscape in Africa, dedicated to provide shareholder returns by building an attractive portfolio of assets and by capitalizing on an expected recovery in commodity prices in due course. So operator we’ll now open up for questions, if there are any, I’ll be happy to take as many as you’ve got.

Thank you and good morning guys, good numbers out today. I have some questions though, if we kick off with your updated strategy if you will.

Could you comment a bit further on what type of assets you’re looking for? Is it stuff in production, in development phase or are you willing to go all the way down to the discoveries or even exploration level stuff?

And is there any specific countries in West Africa that you will focus on, be it Nigeria and Gabon, or will it go outside your current core areas? And I guess finally, could you give some comments on how you would envision financing of such an acquisition to be done?

Thanks Henry it's a good question, I am sure other people have the same one. I think we’ve spent quite a bit of time getting Aje on stream and having come through that and I think it's only right at the moment that we articulate where we want to try and take Panoro looking forward and indeed many of our shareholders have already been asking that question of us now that we’ve got to first oil.

So we have today articulated what we believe that vision to be and to answer your question more specifically, we are looking at predominantly production or nearer term development opportunities in West Africa, specifically countries, obviously we’re in Nigeria, we’re in Gabon, these are countries in which we have some DNA, if I can put it that way, but there are other countries from the sub-surface strategy perspective along the coast there in West Africa that are also of interest to us. So we’re looking at a variety of deals, there are a number of opportunities in the market given what’s happened to the commodity price and then generally to other companies.

We’re being very-very selective and to your point on financing, we just need to be clever. We recognize the size of the current company we have.

We also recognize we don’t have any debt and that we have a cash flow from Nigeria. So we need to be clever about how we finance these deals and what kind of deals we look at.

Obviously, we always have an eye on shareholder return, on dilution, the other things that scare people. So we are looking to be very prudent, careful and clever in the way which we go about these acquisitions.

I think it's fair to say we’re not about to announcing an acquisition, if -- I’d like to take that off the table for the moment, but I would like to set out our stall that this is where we would like to take the Company. So hopefully that answers your question.

Just a follow up, I guess two questions. Could you then also comment on how this strategy fits into the potential for monetizing Dussafu for instance or even potentially Aje long-term?

Is that off the table for the moment, or are you still entertaining potential bids there? And finally, I guess given the pretty strong, it seems production test.

Is it fair to assume or potentially see that there is some upside to that 9,000 barrels per day gross production guidance that you’re still sticking to? Thank you.

I’ll take the second one first. I think everybody can tell, the posture that we have in today’s announcement is a strong posture in respect of the performance of the wells.

We like what we’ve seen so far, we just think it's too early to try and guide people to a different number. Clearly the wells can outperform the guidance that we’ve provided, but again the decision at what level to bring that on and to stabilize rate is a combination of a number of factors, most importantly sort of operationally and in keeping with the reservoir management.

And secondarily, also in conjunction with -- as Richard outlined, the Nigerian DPR, their regulatory approvals. The DPR do keep a close eye on at what levels you bring in the fields that they have an interest in -- any direct interest in on the stream.

So our posture is strong, but we’re trying to remain prudent and stick to our existing guidance for the moment, but we are quite pleased with what we've seen so far. In respect to your second question about monetizing the assets.

I mean for those of you who’ve followed Panoro for long time you will know that the company was under strategic review for a long time and had put its assets up for sale. Ultimately that did not transpire, so the current strategy of the group is obviously to work with the assets it’s got, the current team, the current board like the assets that we have and believe there is a lot of running room left in them.

On the other hands we have a board that needs to look after shareholder value and if there is interest in our assets and is at an attractive level, vis-à-vis our share price or vis-à-vis our internal views of what those assets are worth, we of course as a management team and the board of course will have to look at those quite seriously. At Aje for instance, we feel that with Phase 2 and the gas, I mean the gas has always been the prize at Aje and the sediment [ph] in oil is what's kicked off the projects, is an enormous gas resource, a lot of people are starting to pay some attention to the gas potential in this part of Nigeria which is quite far away from the Delta.

It's geologically and geographically quite remote from those areas and gas is a growing business in Nigeria and indeed in West Africa. So we think that there is a lot of value there and ultimately we would like to try and build that story out a little bit, as Richard suggested we are going to try and start telling the market a little bit more about that in due course.

At Dussafu, a straight sale is probably not what we’re trying to achieve, we’re trying to achieve staying in the asset, we’d like to bring in some industry partnership to help achieve that, but the current intention is not to sell Dussafu out right.

Okay, great. Thank you for good answers.

I've got two questions. First of all could you just tell us when you think you will have Aje as it were on steam properly and also give us some visibility on when cash receipts may actually start at the company?

And my second question was on Dussafu, you mentioned that you had some discussion ongoing and I just wondered if you could put a little bit more color on how optimistic you are that you would be able to achieve a farm-out that leads drilling taking place this year? Thank you.

Thank you, Colin. To your first question about production at Aje, and just to reiterate what Richard said, we are producing every single day into the FPSO.

So we are producing at the moment, I think we've said in the press release that in the coming weeks, we’d hope to indicate that, again we are little bit dependent on the final commissioning of FPSO, which is partially within our control, but partially without -- outside of our control, but again we don’t expect that to take too much longer and secondarily the DPR approvals. So I would say -- we said in the coming weeks, we’re just trying to denote in the near-term, but you don’t hold it to us at next week, if I can put it that way.

But again to reiterate, we are producing every single day into the FPSO, this is -- we are not just done a couple of tests and sitting around waiting for the commission and we are producing oil every single day. In terms of cash receipts, so we anticipate that sometime in perhaps July we might have a lifting, little bit it depends, we could have one earlier rather than later depending on whether a buyer wants to take a top up cargo off the FPSO or wants to wait for the FPSO to fill entirely.

So we don’t have an answer to that yet, but when that does happen we will then receive our cash proceeds from that sale, depending on if the buyer is either immediately or with 30-day terms on top of that. So we are probably into the third quarter before we actually see the cash in the bank, if I can put it that way.

On Dussafu, I think we just need to be careful. I think the attention that we receive at Dussafu is as follows.

We have the production from the fields in North, [Indiscernible] just to the north of us, so it's a proven trend. We've got multiple discoveries within our EEA area and we have large exploration prospects sitting on trend, Valco have proven that the Gatal [ph] reservoir flows at commercial rates, we’re sitting in recently shallow water where a jack-up can in for a reasonable low cost and drill a pretty big exploration prospect right next to existing discoveries.

So, on the positive side we think that we’ve got an attractive exploration, lower risk exploration prospect that we drilled for a modest amount of money. So for bigger companies with significant cash resources, this is kind of a good bang for the buck as it were.

So that means we are attracting attention, both ourselves and Harvest, the operator. Counterbalancing that of course is that the farm-out market is not functioning as it once did.

People are slower to take decisions. People are more conservative in terms of their CapEx budgets.

So, we’re working on it. That’s probably as much as I can say at the moment.

Thank you Eric. I’d like to thank everybody for joining this call today.

We’ve got a large number of people that dialed in to listen to this call. So I thank each and every one of you for dialing in, for following the Panoro story, and for following our recent news which we’re quite pleased with.

And we hope you continue to follow the story. So thank you very much for attending.

And thank you Eric.