Panoro Energy ASA

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

Teodor Nilsen - SpareBank1 Markets AS

Thank you, Elisha. Good morning everyone and thank you for participating in our second quarter 2018 conference call.

This is John Hamilton, CEO of Panoro Energy, and as usual today with me are Qazi Qadeer, our Chief Financial Officer; and Richard Morton, our Technical Director. I'll make a few comments, and then Richard will take us through an update of our assets, we’ll then turn over to Qazi who will talk you through some of the financial results for the quarter and then I’ll make some final comments.

We’ll also open the line to any questions, if we have any. As a reminder, today's conference call contains certain statements that are or may be deemed to be statements -- forward-looking statements, which include all 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.

For your reference, our results announcement was released this morning and a copy of the press release and our report are available on our website at www.panoroenergy.com. So let me start by saying a few words first on what has happened since our last quarterly results and I’ll start briefly with our historical asset-base, during the time the past quarter, we now successfully drilled the two production wells at Tortue.

We made a material discovery we believe in the appraisal well, which is also in Tortue, and we’re now drilling a prospect we call Ruche North East which was previously prospect six on our maps. Aje during the quarter hasn’t provided much news flow, but the operator has now received confirmation of the license renewal for additional 20 years, which should provide the catalyst to start moving future plans forward.

Post-period also, we announced a strategic transaction and significantly oversubscribed share placing and as you can tell, we’re all absolutely thrilled with that. Through the signature of the sale and purchase agreement with DNO, ASA, the Norwegian company we have agreed to mutually beneficial transaction to acquire DNO Tunisia AS, which is DNO’s holding company with assets in Tunisia, which have become non-core for DNO due to the strategic focus in other countries.

The transaction that we did with DNO, ensures that DNO obtains exposure to the great potential of the assets in particular the Sfax permit, SOEP as we sometimes call it. Which could be exploited over a period of time, rather than come to an otherwise abrupt and unnecessary end, and/or nothing cash consideration for business and DNO contributed to the business with a significant amount of capital towards work programs and obligations, allowing Panora the time and the capital to unlock the potential of those assets.

DNO will benefit in the future from deferred consideration paid both at overtime through eventual production Sfax. Our post period end, at the same time we also announced a private placement, and its successful book building being materially oversubscribed.

DNO subscribed in the private placement as you all have seen for approximately $4 million and used the opportunity to place the remaining shares authorized by our shareholders at the General Meeting in May. The orders other than DNO were from longstanding shareholders and some new institutional and family office funds.

We welcome always new shareholders and express gratitude also to those shareholders who stood by us over the years. I will now turn over to Richard who will take you through our assets including our newly acquired Tunisian position.

Richard?

Thank you, John, and good morning to everyone. In Gabon, during the quarter, the development activities continued at the Tortue oil field with a completion of the DTM-3H production well in the Gamba reservoir.

DTM-3H well was suspended at the end of the quarter after installation of the subsea tree and is now ready for production. So this activity concludes the drilling phase -- the drilling component of Phase 1 of the development wells at the Tortue field.

Post the quarter end, the Borr Norve jack-up rig has moved to the Ruche North East location and successfully spudded the exploration well, DRNEM-1. The Ruche North East target is an undrilled 4-way structure at the Gamba reservoir with Dentale potential.

The well is located about 3.5 km north east of the Ruche field in water depths of 117 meters. And the objective of the well is to delineate further resources in preparation for a possible second development hub in the Ruche area.

As I mentioned, we’ll have results of that well in September. We expect first oil from Phase 1 at Tortue to be achieved in the second half of 2018 and the Operator estimates that initial gross production rates will be in the range of 10,000 to 15,000 barrels of oil per day.

The FPSO, the BW Adolo, has now arrived in Gabonese waters and is in preparations for installation and production start-up at the field in the coming months. Planning for Phase 2 at Tortue is well underway, and the work will likely consist of further production wells in the Gamba and the Dentale D6 reservoirs.

Meanwhile in Nigeria, the Aje field produced an average of 295 barrels of oil per day net to Panoro during the quarter, and this compares to 384 barrels of oil per day net in Q1 2018. The field was subject to a three week operational shutdown during May and June in 2018 which affected the quarterly average production figure.

Production from the Aje field continued to be from the Aje-4 and Aje-5 wells, with the Aje-4 producing from the Cenomanian oil reservoir and the Aje-5 producing from the oil rim of the Turonian reservoir. A lifting from the field was completed in August post the reporting period.

The Joint Venture partners are continuing to discuss the next phase of activity at the field based around the submitted Turonian gas field development plan and possible exploitation of the Turonian oil rim. And the process for the renewal of the lease progressed during the quarter and the Operator has received Ministerial consent for the license to renew for an additional 20 years subject to satisfactory financial conditions and a commitment to exploit the Turonian gas potential.

Panoro completed the acquisition of DNO Tunisia AS on the 30th of July, 2018. Following the acquisition, Panoro now has interests in three assets, the Sfax Offshore Exploration Permit, the Ras El Besh Concession, which is within the Sfax Permit, and the Hammamet Offshore Exploration Permit.

Of these three assets, two of which were operated Sfax and Ras El Besh contained existing discoveries and also promising exploration prospects, in a prolific hydrocarbon province of Pelagian basin. The acquisition has brought with it a full operating organization of 25 talented professionals that will be transferred to Panora along with officers, warehouses and valuable drilling inventory.

We also inherit a significant tax cost pool which can be used to predict post Sfax margins well into the future. I’ll describe briefly the main assets brought into the portfolio which is the Sfax Permit, the area has been explored for a number of years resulting in discovery of three oilfields Salloum, Ras El Besh and Jawahra, and the license is covered with 2D and 3D seismic data of various vintages and about 20 wells in total.

The former operators have estimated around 20 million barrels of oil between the three existing discoveries in the Sfax Permit. Of these fields, our focus is Salloum field which is close to existing infrastructure.

As I mentioned the licenses in the Pelagian basin and is surrounded by producing oil fields and gas fields. The prolific cretaceous Verano and [indiscernible] reservoirs produce onshore Sfax and the [indiscernible] reservoir produced from fields in [indiscernible] Island to the north of the license.

These same reservoirs have been found in the existing discoveries at Sfax Offshore and a number of other prospects have been identified and the prospect inventory amounts to approximately 200 million barrels of un-risk perspective resources. At Sfax, we have been concentrating on planning for renewal of the permit and commencement of a possible third exploration period.

And the permit renewal is due in December of this year. At Hammamet Offshore Exploration Permit which is operated by Medco, we hold a 46% interest.

We made an application for relinquishment of the permit and the permit is due to expire in September of 2018. So that concludes this quarter’s operational update, and I’ll now hand over to Qazi, our CFO to take you through our quarterly financials.

Qazi?

Thank you, Richard, and good morning everyone. In our results announced this morning, we have as usual included a detailed narrative on line by line analysis comparing the previous quarter.

Therefore on this call today, I am only going to cover the key highlights of the second quarter 2018 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 positive $0.5 million compared to negative $1.2 thousand in the previous quarter. This comprised following key items.

Oil and gas revenue in the second quarter was $4.6 million and was generated from the sale of companies' net entitlement of about 68,000 barrels. In comparison, revenue for the first quarter was zero and this was due to non-lifting from Aje in that particular.

Costs attributed to operations were 3.1 million for Aje for the second quarter. Since there was no lift in the first quarter, there was no recognition of operating costs in the income statement.

And it is worth noting that the second quarter costs were affected by a three week operational shutdown in May and June 2018. The absence of lifting in the first quarter resulted in all OpEx costs being capitalized in the cost of inventory.

These costs have since been expensed in the second quarter when the revenue from the 7th Aje lifting has been recognized. General and Administration costs from continuing activities were consistent over the first and second quarters at 1 million.

In the previous period, the costs relating to Aje dispute were separately reported as non-recurring dispute costs of $95,000. There were no such costs in the second quarter, following the conclusion of the Aje dispute.

Net loss of 0.3 million from continuing operations for the second quarter of 2018, was a decrease of loss from 1.9 million compared to a loss of 2.2 million as of the first quarter 2018. The previous quarter loss is higher due to absence of lift in 1-Aje.

On the balance sheet side, cash and cash equivalents stood at $5.5 million at June 30, 2018 and including the previously kept $1.5 million collateral in relation to the Aje dispute, which was released in this quarter. On an overall net basis, the cash balanced increased by $0.4 million from $5.1 million at March 31, 2018.

No Aje cash was paid during the quarter and reducible expenditures have been paid through drawn down of non-recourse loan from BW Energy. Lower net equity replaced the loss for the first quarter.

There’s also the increase in non-recourse loan from BW Energy in the relation to funding of Dussafu Development. As of June 30th, Panora’s drawdown on the non-recourse loan was 7.1 million compared to 3.1 million as of March 31st.

The non-recourse loan is repairable through Panora’s allocation of the clause provided in accordance with the Dussafu production sharing contract, offsetting from the proportionate field operating expenses. The repayment will start at 1st oil on Dussafu, and during the repayment phase, Panora will still be entitled to its share of profit oil and as defined in the BSE from the Dussafu operations.

As mentioned previously since the settlement of the Aje dispute, the Company has performed a review of historical costs incurred and recognized the liabilities associated with such expenditures in the balance sheet. The proportionate joint venture liabilities resulting from the work over and side-tracks at Aje-5 had been higher than anticipated and in combination with the operation accruals have resulted in proportional liabilities of about $5.7 million as of June 30, 2018.

This compared to 8.2 Million as of December 31, 2018 on a like for like basis. Such liabilities continue to be current in nature and are expected to be repaid within the next 12 months.

In addition to these, $6.8 million is classified as long-term liabilities which as per the terms agreed between OML 113 JV partners, certain transitional arrangements were introduced whereby unpaid cash calls will not be payable immediately. 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 share of revenue up to end of 2018. We do not anticipate any use of Panoro’s cash resources and expect it to be funded from the sale of our share of crude oil.

An Aje lifting was completed in early August 2018, which will provide net proceeds to Panoro in the region of $3 million and Panoro’s share of these proceeds will again reduce Aje related payables which includes operating costs in the third quarter 2018. This concludes my review of our financials and I will now turn back the call to John for closing remarks and open up for questions.

Thank you. So, momentum on our portfolio has continued bolstered by our strategic entry into Tunisia.

Tunisia provides us with a pipeline of new projects and a proven hydrocarbon fairway while enhancing our operating capabilities in the country. Dussafu continues to deliver the results and we look forward to first oil during the second half of this year.

Aje is now secured for an additional 20 years and the JV will now agree how best to exploit its potential. Finally, Panora’s financial position has been materially strengthened as we consider Phase 2 at Dussafu and our Tunisian growth plans.

The acquisition of DNO Tunisia is a major step in our execution of growth strategy and we intend to continue to evaluate and pursue accretive and other selected deals with a particular focus on the Gabon and Tunisia, which are two core countries at the moment. So, Elisha, could you please open the line for any questions we might have?

And just a question on the Ruche and North East prospect, can you indicate any predrilled resource estimate?

Yes, we -- what we tried to guide is -- we obviously share the asset with the, another Norwegian listed company and so we've been careful in our messages there. What we've tended to say is that we believe that the size of the prospect is roughly equivalent to the Ruche discovery, which was made back in 2011 as an indication.

So it’d be at a similar size to that one, and that field -- I have to go back and look at the something like 5 million to 10 million barrels something like that is, kind of the mid range of the size of that. So, all of these structures are plus or minus the same size, sort of four-way closures that tend to be of similar size.

And then just on the lifting in August, did you say $3 million in the net proceed to Panoro?

That’s correct, yes.

Yes.

Do you expect another lifting in third quarter?

On Aje, we have no contract signed at the moment now.

Possibly Teodor, we tend to make one of approximately every three months or so, the dealer top up cargo so you kind of -- you timing it along with other liftings in the area, [Glencore] have been lifting more barrels so it little bit depends on when they’re lifting elsewhere, but generally every three months or so.

The next one will be the late third quarter early

Yes, or early fourth, yes.

Thank you, Elisha, and thank you everybody for joining. If there’re any individual questions anybody has, if they don’t want to pose on the call, please do reach out to us at our [email protected], which you can find on our website or drop us an email, give us a call if you have any questions.

Thank you very much for joining.