Panoro Energy ASA

John Hamilton – Chief Executive Officer Richard Morton – Technical Director Qazi Qadeer – Chief Financial Officer

Teodor Nilsen – SB1 Markets Colin Smith – Panmure Gordon Edwin Swinson – Private Investor

Thank you, Marko and thank you everybody for joining this morning for our third quarter conference call. This is John Hamilton, Chief Executive Officer of Panoro.

I’m joined today by Richard Morton, our Technical Director; and Qazi Qadeer, our CFO. I will say a couple of words and then turn over to Richard and then to Qazi and then we can open up for some questions at the end.

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

Although, we believe that the expectations reflected in these forward-looking statements are reasonable, actual events or results may differ materially from those projected or implied in such forward-looking statements due to known or unknown risks, uncertainties and other factors. And for your reference, our results announcement was released this morning and a copy of the press release and our third quarter of 2017 report they are all available on our website www.panoroenergy.com.

I’d like to start off by just saying a few words about the situation at Aje to start off with. You’ve read about the agreements that we signed on November 2 between all of the JV partners at Aje.

Although a formal legal settlement agreement still needs to be signed, we together agreed a positive path forward for the asset. The agreements that we signed addresses a number of issues for the joint venture.

But in summary effective one, ensuring the current oil project is sustainable and able to live within its own means. Two, allows all parties in the joint venture to be included in information and decision making going forward.

And three, creating dialogue and momentum towards the material Turonian gas project. And for Panoro specifically, we’ve been able to re-enter the joint venture, ensure that no more money goes until we say so and the postpone payments of any passed unpaid cash calls for approximately one year.

And we’ve always felt that our legal position in the dispute and our technical view of the asset has been always been very strong. And the current agreements that we’ve signed are a direct result of the efforts that we’ve made in protecting our interests.

We’re now working on a formal settlement of the dispute, which you have signed will draw an end legal battles of the past year. We recognize the dispute has created uncertainty for shareholders but we do feel, we’ve indicated that we’ve made the right choices as difficult as those have been.

As previously announced in our earnings committed to explore all options to maximize value at Aje including but not limited to partial or full divestment of its participation in OML 113. I’ll now turn over to Richard who will describe activity on our assets and update you at both Aje and Dussafu.

Thank you, John and good morning everybody. Progress in Gabon has been on the schedule with the development of the Dussafu oil fields continuing during the course of contracts for provision of drilling and engineering equipment and services are being completed currently.

The Borr Norve jack-up drilling rig will be used to drill the first two development wells in the Gamba and Dentale D6 reservoirs at the Tortue field. The wells will be completed as horizontal oil production wells with open-hole gravel packs and gas lift.

In addition, an appraisal side-track will be drilled to the northwest of the Tortue field to confirm the extent of the field and to prepare for possible additional wells, which may be part of a second phase of the development. The drilling campaign is expected to commence in early 2018, after which subsea equipment will be installed to prepare for hook up of the FPSO, which is expected in the second half of the year.

The FPSO Azurite fits well with the approved field development plan and specifications of the Dussafu field in Gabon. The FPSO has been moved to the Keppel yard in Singapore where necessary upgrades can be undertaken.

And the field is expected to start production at rates up to 15,000 barrels of oil per day from the two wells combined. Coordinated by BW Energy, work on an independent reserves report by Netherland Sewell & Associates for the Tortue development continues and we expect to provide details of that work and certified reserves at Tortue in the near future.

To clarify that this report will only update Tortue and not the other fields in the Dussafu license area or any of the perspective resources which will remain unchanged. Onto Nigeria now and following the agreement announced at the beginning of November 2, and now included in the Aje joint venture information flow going forward.

And we can report that the Aje field produced an average of 403 barrels of oil per day net to Panoro during the quarter, which represents a 12.19% revenue interest share. This compares to a 289 barrels of oil per day net in Q2 2017.

The increased production from Aje is currently around 3,400 barrels of oil per day. And production from the field has continued throughout the quarter from the two production wells Aje-4 and Aje-5.

Liftings from the field were completed in July, September and November and revenue from those lifting was credited against Panoro’s accounts. Continuous efforts to reduce costs at Aje have already resulted in a material decrease in the overall operational expenditures.

In addition to this other commercial arrangements and adjustments are being implemented and are expected to improve operating margins for the Aje JV Partners. Finally in Brazil, the termination agreements for the surrender of the Coral and Cavalho Marinho licenses have been signed between the JV partners and Brazilian Regulator ANP.

The next steps involve various regulatory clearances before dissolution of JV operations. So the company’s formal exit from its historical Brazilian business is still ongoing.

However, we are working actively with the operator Petrobras to bring matters to a close and to ensure that the ongoing costs are kept to a minimum. However, the timing and eventual costs of such conclusion will be subject to the necessary approval by the regulators.

That concludes this quarter’s operational update. And I will now hand over to Qazi our CFO to take you through our quarterly financials.

Qazi?

Thanks Richard and good morning everyone. And our results announced this morning we have as usual included a detail narrative on line by line analysis comparing the previous quarter.

Therefore on this call today, I’m only going to cover the key highlights of the third quarter 2017 results. It is also customary to note here that the results published this morning and discussed on this call are unaudited.

EBITDA for the current quarter was negative $59,000 compared to negative $1.2 million in the second quarter. The difference between the two periods is comprised of key items, including revenue other income and operating cost.

Oil and gas revenue in the third quarter of 2017 was $3.1 million and was generated from the sale of company’s net entitlement of 61,178 barrels. In comparison revenue was nil in the second quarter and there was no lifting during the period.

Other income was nil in the third quarter compared to $0.5 million in the second quarter, which represented the net gain on disposal of the 25% interest in Dussafu. Costs attributed to operations were $1.9 million at Aje for the third quarter compared to $0.2 million in the previous quarter.

The higher cost in the current quarter is primarily due to the timing difference of crude liftings. Since there was no lifting in the second quarter field operating costs was classified as the cost of inventory on the balance sheet.

Such inventory cost together with the 3Q attributed operating expenditures has been expensed in the current quarter to align with the crude liftings. General and administrative cost from continuing activities remain unchanged for both quarters at $0.9 million.

In both periods the costs relating to Aje dispute have been separately reported as non-recurring dispute cost of $0.3 million in the third quarter and $0.4 million in the previous quarter. These numbers are net of an award of $0.4 million reimbursement of cost pursuant to court orders.

Net loss from continuing operations for the quarter was $0.5 million which was lower compared to previous quarter loss of $28 million. This is predominantly due to the inclusion of two oil liftings at Aje in the current quarter and associated revenue on operating cost.

Also the effect of an impairment exercise undertaken at the end of second quarter 2017 for Aje. On the balance sheet side, cash and cash equivalents grew at $6.8 million at September 30, 2017, not including the $1.5 million cash which is held as collaterals against dispute cost did by UK courts fund houses.

Assuming that settlement is reached on the dispute the $1.5 million securities shall split on to the company. In addition, the company is due to receive $1 million by the end of the year as per the terms of the Dussafu sale and purchase agreement.

Lower negative equity reflects the loss in the third quarter and the affect of the buyback of $1 million Panoro share in August 2017. There is also the increase to the non-recourse loan from BW Energy in relation to the funding of the Dussafu development.

As of September 30, 2017, Panoro’s drawdown on the non-recourse loan was $1.3 million. The non-recourse loan is repayable through Panoro’s allocation of the cost oil computed in accordance with the Dussafu PSC, after paying for the proportionate field operating expenses.

The repayment will start at First Oil on Dussafu. During the repayment phase, Panoro will still be entitled to its share of profit oil, as defined in the PSC, from the Dussafu operations.

As per the terms agreed recently between OML 113 joint venture partners, certain transitional arrangements have been introduced whereby undisputed cash calls will not be immediately payable. Such unpaid cash calls are included in the accounts payable balance as of the end of the quarter.

During the transition period, any excess funds from Panoro’s entitlement of crude liftings after paying for its share of operating expenditure shall be used to repay unpaid cash calls. In addition to this, commercial arrangements agreed as part of the interim settlement measures are expected to have the effect of increasing Panoro’s existing revenue interest for approximately one year.

This concludes my review for financials. And I will now turn the call back to our CEO John Hamilton for closing remarks.

Thank you, Qazi. So the next few weeks we expect a few things to happen.

We expect the publication of the new reserves report for Tortue, which we’ve mentioned which we’re working on in conjunction with BW Energy. We’ll hopefully be – have the signing of the settlement agreement at Aje.

And I think we’re going to start to see – starting in the beginning of the New Year actual in-field work in Dussafu with the commitment of drilling operations early in the New Year. At Aje we’re moving towards stabilization and preparing for the future there and the gas projects.

We continue to look at ways of growing the asset base of the company and we do so with extreme care to ensure that any acquisition is for the benefit of existing shareholders. I think I’ll leave it there and open up for any questions?

Marko, if there any questions we’ll be happy to take them.

Good morning guys. Thanks for taking my questions, couple of questions.

First one on, John you mentioned here on a report, could you provide some color on what do you expect from that thus far as I remember you have currently booked resources of 7 million barrels. And secondly on the operating costs on i.e., this quarter you booked more than $50 per barrel in the operational expenses.

So how should we expect them to develop going forward I guess $50 per barrel is so sustainable.

Yes. Thanks Teodor.

I’ll attempt both questions but I’ll ask Qazi to help me on the OpEx one as well. The Dussafu reserves we’re doing in conjunction with BW Energy, so obviously if we’re doing this on our own I think it might have been completed by now.

We need to do some coordination with the operator, which is taking slightly more time than we anticipated. It shouldn’t take much longer to be honest.

We’ve written a couple of months there could be quite a bit shorter than that before it comes out. You’re correct, the public information out there at the moment on Dussafu our contingent resources and that was from the 2014 Gaffney, Cline report, which is done together with an oral in conjunction with the previous operator Harvest.

And that looked at the four discoveries in Dussafu so there are four field discoveries of which – as you’re aware, we’re now developing one of them to start with the Tortue discovery. And of course, the BW Energy have taken is let’s get Netherland Sewell to start off and look at just the reserves at Tortue, so just one of the four fields.

And all the work is being concentrated on that at the moment. So we’re leaving the other three fields to the side for the moment.

We’ve obviously also got a lot of perspective resource, a lot of exploration potential in block which has not been covered by this report now. So what we expect, well, I can’t say anything about the number, I don’t know it yet.

But I think that the important part for us and perhaps for the market as well is obviously the contingent resources that Tortue will now move to reserves, which is a transformation obviously following the investment decision the two groups took. The people in BW Energy, I think many of you are aware, many of them are ex-Valco, Valco operate the field just to the north analog of Etame field.

Netherland Sewell the auditors are doing this current report or have been historically the auditors at the Etame field. So we’re bringing a lot of new experience to this review process.

So we are feeling very happy with the team that’s working on it. I don’t know what it will say at the end of the day.

But it will certainly be reserve rather than contingent resources. In respect to the OpEx, I’ll let Qazi comment as well, but I think we are seeing a lot of variations at the moment.

We have quarterly reporting here and that would throw up some anomalies at times. I think the best way to look at this going forward is that the arrangements that we put in place now are ensuring that the operating cost at Aje at current production levels, which Richard just touched on are indeed profitable at far less than $50 a barrel.

Qazi, do you want to add anything to that?

Yes, Teodor. As we mentioned in our quarterly report and you must appreciate that we have doing a dispute with a partner for about a year.

Being in such a position that the judgments and estimates that we made in the financial statements, which we did in the form of our bench judgment of approval. It will obviously take a little while to actualize all this in the coming quarter then we can – how it’s settled down within the past year, then we will not party to the information in the joint venture.

So I think Teodor in conclusion. I think don’t judge it on the number that comes out of your model at the moment.

I think judge it on the next quarter’s results, we’ll try to give a little bit more granularity to it at that time. Like I said, we have made a number of changes operationally and contractually that are going to ensure that it oil is well north of $50 is still equate a profit generating or cash flow positive generating asset.

That $50 doesn’t represent this.

Okay, I understood, just two follow-ups there. The current production is up 3,300 or 3,600 just that number.

It’s approximately 3,400.

3,400, okay. And when you also say that production will be profitable on $50 oil price, how stable is that?

That’s sort of cash flow I mean, just leave some of the accounting out of strict cash flow positive.

That’s good, okay. Thank you.

Good morning, gentlemen. I think you partially answered one of my questions which essentially was directly what is the cash breakeven oil price for Aje.

But if you – with the recent number you got a range to put around that that would be helpful. And then secondly just to understand, are we basically in a position – are you basically in a position in which all positive cash flow from Aje is being used to paydown the debts which is historic cash calls that are undisputed as disclosed in the current balance sheet.

And just finally I knew Aje is in the main story but could you just – it’s just the sort of key points I wanted to look at.

Sure, it’s a good question. On the first one I think I’ll guide you a little bit by saying, we literally just on November 2, signed a suite of agreements coming off the suite of agreements there are number of contractual changes have been made which impact the operating cost line.

Again, I think the moment, I think all we’d like to say is that at $50 will this will be a cash generative asset at current production levels. What that actual cash breakeven number is, I don’t have a – I don’t feel confident enough to give you that firm number on that at the moment.

And the second question is relation, so one of the successes if I can put it that way. In our negotiations in terms of these agreements and we’re working towards a full settlement now.

We’ve obviously been able to given our stronger position I would say, we’ve been able to negotiate certain things and we previously said, we really didn’t want to put more cash into this company at the moment. And so we felt more confident around it.

And so for us it was very important that monies that were being charged to us that we hadn’t paid historically those would not be payable immediately and they were not really payable until there was far more visibility on the gas project in the steps at Aje. So through those negotiations I think we’ve done a good deal for Panoro.

We’ve effectively pushed those payments out by approximately a year from now it could be a little bit longer frankly. And what happens in the meantime is that the partners have all agreed that there will be cash calls at Aje, our operating expenses money actually spent at Aje will be constrained by the sale of crudes and the proceeds from sale of crude oil.

So it has to do within its own means. And what that means in relation to that back payable, to answer your question directly is that cash flow above and beyond the operating costs from the field will be applied against that balance, if you want to call that payable balance.

So over the coming year let’s call it that would be chipped away and that depends on obviously oil price, it depends where that OpEx ends up getting and obviously whether the production is sustained. But the idea is that it gets chipped away during that year.

We felt that that was the best thing for us, we’re not in a position where we want to put additional capital into that company at the moment.

I understood. And just a follow-up, obviously there has been some issues around well performance at Aje.

Are you expecting a 3,400 to be reasonably stable number or is that something that we should be expecting to be moving then from here.

It’s been very – again we’ve been out of the JV for awhile. So we’re just getting back into all the technical data.

What I can say, it’s been extremely stable for quite some time around those levels. Maybe I’ll ask Richard to comment on what he thinks in terms of going forward.

Obviously we feel to decline overtime. But Richard do you want to make a comment on those production levels?

Yes. Thanks John.

Yes, within 3,400 a day right now, and that’s been pretty stable for the last couple months. We don’t see it declining – there was obviously an initial decline when the field kicked off, looks like Aje-4 has stabilized now and Aje-5 the remedy work them as our backbone and that seems to be going pretty well right now.

So we don’t really – over the next year, I will say, we don’t really see that number decreasing too much.

Okay. Thanks very much.

Thank you for taking my question. I have several questions, some regarding Dussafu and some regarding Aje.

Let’s take Dussafu first. When will we see some estimates on the economics for Dussafu Phase 1 regarding OpEx, there has been estimates of 15,000 barrels of oil in the Phase 1.

Yes. I mean, thanks for the question Ed, and it’s a very good one.

We’re working together with BW Energy, BWO – I think we’re Norwegian listed companies and what we’re trying to do and it’s working so far is really trying to coordinate the messages to the market. And we have initiative under way with BWO whereby we will start together and collaboratively trying to get that information into the market.

We’ve been through internally a number of exercises around looking at operating costs and the economics of the field. And it is our intention to make that information available to the market together.

Sometime I want to say in the next – I need to be a little conservative on these things. But I’d say, in the two to three months, we hope to be able to be a little bit more transparent around the economics at Dussafu.

Obviously, we’ve both made the investment decision and works under way. So you can imagine that people are feeling positive about it but the actual specifics, we will be able to relate to the market, I would say in the next two to three months.

Thanks. I’m very happy with BWO apart from the license.

I’m not here to talk about BWO necessarily but they are doing a fantastic job.

And then we a long-term depth to the Dussafu it’s the part of the agreement with BWO.

Yes.

But the payment from – on the long-term depth it will come from the revenue on Phase 1 Dussafu?

Yes. So there is a little bit of information in the Q3 report on that, one who like Qazi can add to it.

And forgive us if we’re talking about things that are unclear, in fact you already know them. But under this production sharing contracts in many countries you have a concept of something called cost oil and you have a concept of something called profit oil.

And the arrangement we have with BW is that starting from first production we will start to pay back that loan. But what happens first is the operating cost gets taken care of first.

So for whatever reason revenue equals operating costs we don’t pay anything back. It’s all self-contained kind of like the Aje situation I described at the moment.

We don’t have to be putting any capital from the ASA. So after operating expenses are dealt with there is then allocation of cost oil, which is something that is dictated through the production sharing contract.

And we effectively pay back the loan from our cost oil. And what happens then coming out of this recently complicated calculation is money left which is called profit oil, which then gets between ourselves, BWO and the government.

And we have to keep that. So the punch-line I guess is that we are repaying from production – some of the production, we are repaying the loan from some of the production and we are keeping for Panoro and cash flow.

A portion of that cash flow as well. So it’s not like it’s a big cash swipe everything that happens at Dussafu goes to repaying the loan, it’s a combination.

Does that answer your question.

Yes. Thanks.

It was clarified. Let’s move onto Aje.

Regarding Phase 2 and there is – I understand the conjunction within the HE joint venture to not develop Phase 2 and to move ahead with Phase 3 I guess. Is that correct?

I know that one of our partners is kind of being saying that in the market I think, I think what’s the past years taught all of us is that the oil project requires a little bit more thought maybe some additional technical work, maybe some work around the seismic. So I would not say that the oil project which you remember is the lower reservoirs Cenomanian but that is not something that will be developed in the future.

But I think that it will be looked at a little bit more holistically around the next steps on the gas project as well perhaps you might see any future activity Aje might be in a combination of looking for the oil and the gas, because of course, we have the FPSO there. So I think it’s a little early to call it clicks on the oil projects that speaks our new Phase 2 oil wells but it might be done more in an integrated basis.

Several years ago there was something new 3D seismic over the license and also in the OPL 310 Ogo found. And I think that on some pictures there Ogo discovered seems to turn into Aje field or the OML 113?

Yes.

When can we see some new CPR on the OML 113 and there is also the 3D seismic.

Yes. There is an old image that as often used to show and we actually, I think at the time also presented some of our presentations, which had a little corner of the Ogo discovery, which [indiscernible] don’t follow it and then block next door.

Kind of creeping into OML 113, we don’t show that image anymore, it’s possible that it does. But I think the important thing to note about that Ogo discovery is that obviously it’s the second sort of discoveries in that new basin.

So at the same basin, it’s largely the same place you have in Aje with the gas and lower oil legs and there are some deeper reservoirs as well. So I think what you’re seeing is the very beginning of the discovery of this basin.

But I don’t know that we’ll be reproducing that map that shows sticking in OML 113. Again maybe it does, maybe it doesn’t but it really requires probably a well to be drilled right on the edge of the block to delineate that.

In terms of CPR, there has been some work done, we did comments as you may recall some work on looking at the exploration potential in the OML 113. For better or for worse, we have the legal disputes with partners a lot of that work put on hold to be honest.

It’s probably something we do need to revisit, but it’s not something we’re about to kick-off or announcing time very, very soon. I think people will be concentrating mostly on plan to define a gas project at the moment.

I think that’s what seems to excite people most within the joint venture.

There are some more interesting prospects on the OML 113 license. Do you have any comment on that?

Yes. I mean there are prospects on the block.

And I think that – again, I think that people are going to be concentrating on what they can see and define now, which is big, big wet gas column in the selenium that’s can be monetized with the right joint venture group, with the right gas sales contract. And that is what people are focusing on.

I think, in this day and age in the oil sector I think people are usually going for the things that are more certain than drilling exploration wells. But there is certainly is additional potential on the block there are structures there but would need to be drilled potentially.

And I don’t expect that to be the priority for the moment. I expect every well except the one and Aje has found a large gas column and it’s there.

And I think that’s what people are focused on rather than blue sky potential.

Thank you for your answer and just one final. Can we expect another listing from Aje in 2017?

As you can see from the pattern we have, we’re listing about every couple months. We just had a listing, so maybe right at the end of the year within the first couple of weeks, New Year probably.

Yes. Thank you.

Hi, there. As far as the – about the Aje-5 well, what was the issue with the production well with the well impairment.

Padlo [ph], we’re just – repeating myself a little bit here. But we’ve only kind of just come back into the joint venture, we have some ideas but we really need to know actually probably go to Vegas and go sit with the engineering team down there and look at the well logs that will run which we have not seen yet.

And the results of the side track to find out. But I think our conclusion is that, it was probably drilled a little too close to the oil water contact and it was drawing too much water.

That is probably a result of the time to get the conversion on the seismic in a new basin where you don’t have very many wells. Just a small miscalculations can get you little too close to the oil contact and then you start drawing water too quickly.

That’s our guess, but it’s a little too early to say until we really get our fleets rolled up and get in there.

Okay. And the gas that you are producing from your two wells, what are you doing with it?

I mean, are you exporting that right now?

No it’s dealt with according to the Nigerian regulations in terms of being used on a vessel reinjected and to some extent flare.

Okay. So, it’s getting paid mainly on flare.

Yes.

Okay. And are you positioning sand from the wells.

No.

I guess you got these two in the Cenomanian reservoir do you have any plans to drill water injection wells.

We have no operational plan at the moment. I think we’re pushing the reset button a little bit in terms of the work program we’re just back in the JV, we have a series of biddings over the coming weeks and probably into the New Year to try and define the next steps.

But there’s no current capital expenditure plans at Aje.

But I’m getting that Aje forward is not producing any water, I mean agreement which you signed right now.

We are still getting through the data to be honest. We’ve got about – I don’t know, six, nine months of catching up on data.

There is always water production in these wells. That’s the current situation.

I guess one final question, regarding Phase 2, Phase 3 or I guess what you call the Turonian gas condensate development plan. What’s the current assumption of – who the gas West Africa gas will be is it domestic market or West African test pipeline.

It could be a combination of all those things or could be a single buyer that the market is very active there. There is demand for gas along the West African gas pipeline.

There is a lot of demand for gas in Nigeria itself. And the trick for the joint venture to get is the right balance between the term, the price.

So the length of time the price and the credit worthiness of those buyers and looking potentially as a portfolio of those two to make sure that the project is robust enough as an asset.

Thank you.

Thank you all very much for attending. And thank you for all the very insightful questions, there were a lot of good ones today.

And I think you’ve asked most of the good ones. So I hope our answers have been helpful.

And thank you very much for joining.