Panoro Energy ASA

Thank you, Rosie and welcome everybody to our third quarter 2019 results. For your reference our announcement was released this morning.

A copy of the press release and this webcast are on our website www.panoroenergy.com. As a reminder, today's conference call contains certain statements that are may be deemed to be forward-looking statements which include all statements other than statements of historical fact.

Forward-looking statements involve making certain assumptions based on the company 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 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.

I would now like to take you through our webcast slides. And if we could move from the cover page quickly through slide number two, the disclaimer and then move please to the presenting team on the webcast slide number three.

I'm John Hamilton. I'm the Chief Executive Officer of Panoro Energy.

I'm joined today by Qazi Qadeer, our Chief Financial Officer, and also Richard Morton, Technical Director. There is some fake news here.

Nigel McKim, our Projects Director is unfortunately traveling today is unable to join the call, but he's very much with us in spirit. If we could please turn to slide number four, which is Q3 2019 highlights.

I won't go through these in a great level of detail because some of this will come up in the financial slides we have a little bit later and through the asset slides that we're going to discuss. If I could point out a few of the highlights that I think are worth noting here.

Tortue Phase 2 and Dussafu and Gabon, the development drilling has started. This is well underway and we've been very pleased with the results so far on that that is going to be a big event for us in the first and the second quarter of next year as we bring those wells into production in Gabon.

So we have a good visibility on production growth in Gabon coming through Tortue Phase 2. During the quarter, we also made the transformational Hibiscus Updip discovery, which has now been granted at 45.4 million barrels of gross 2P reserves by Netherland, Sewell.

Richard will take you a little bit more through this, but this is a truly excellent piece of news for Panoro and its shareholders. And it has a big impact on the next phase of the Dussafu which will probably take production capacity on the field beyond the current nameplate capacity on the FPSO.

So this is absolutely stunning news for everybody concerned. In Tunisia we're extremely busy with a number of workovers going and we're targeting gross production of 5,000 barrels a day.

And the new news this morning is that we have rig contract signed with CTF which is the state owned drilling company for the drilling of the Salloum West Prospect in early 2020 with lots of other things going on towards the spudding of that well. So this is making solid progress.

Again, I will not go through all of the financial highlights here. I think Qazi will pick those up and obviously, if there are any questions, we can come back to them.

If I can ask you to turn the slide to slide number five, which is titled looking forward to 2022. We all get caught up in the quarterly results, and the news releases and all that.

But this slide is meant to really kind of take a step back and say what is the journey that Panoro was on at the moment, and we're quite excited by it. And this slide tries to capture some of the things that we and our shareholders can look forward to over the coming two years.

If I look at 2019, we’re approximately 2,400 to 2,500 barrels a day producer. Our revenue for the full year should be $55 million to $60 million, our EBITDA should be around $30 million.

So this is an incredible transformation for where we’ve come from, but the good news is yet to come. What's going to happen over the next two years is that we're going have Phase 2 in Dussafu come on stream, we're going to have Phase 3 on Dussafu come on stream towards the end of 2021, we're targeting the increase in production in Tunisia that we've talked about and we're going to hopefully have a per barrel unit basis OpEx coming down.

Now counter balancing that we have a couple of things that will lower the production revenue numbers, those are the Tullow back-in at Dussafu where Tullow have the back-in right reduce us to 7.5% as most people who follow us know. And also, upon completion of our Nigerian sale that will reduce some of the headline numbers, particularly the revenue side from our business units.

So that will negatively impact the revenue line. But taking all those things together, if you look to 2022, late 2021 on an annualized basis using $60 Brent using current assumptions, we could be -- should be about 5,000 barrels a producer.

We should have well over $100 million of revenue, $75 million of EBITDA. And if I could guide you right down to the red boxes there at the bottom there's some comments that go with that, we hope to pay our very first dividend, which will be in the form of PetroNor shares subject to completion of that transaction that was hopefully a 2020 event and we're quite excited to be able to return those shares to shareholders in a very interesting transaction which I'll touch on.

During this period, we'll be repaying debt, so we don't have very large debt as a company but nonetheless we will be repaying those during 2020 and 2021. In terms of operating cash flow, so taking after-tax, so EBIDA, E-B-I-D-A, we should be $40 million to $50 million operating cash flow company when all is said and done, which is an enormous cash generating machine.

And of course there is of course upside to this, we're trying to be a little bit modest in terms of these numbers, but there is upside in the assets beyond this. So, again, hopefully that gives a picture of where we see the company going.

If I can turn to the next slide now which is slide six, 2020 news flow. You don't have to wait two years for all this to transpire; we have plenty going on in this company in the coming 12 months.

On the exploration side, we're drilling Salloum West in Tunisia, which is an exciting well which is close to our existing infrastructure. We're going to be drilling another exploration well in Dussafu.

We have -- those who follow us know that we have two optional slots for additional wells in Dussafu, which we were hoping that we exercise those options. On the production side we're going to have two new wells coming in, in the first quarter in Dussafu, two more coming in, in the second quarter.

So that will take our production to at the initial production rate probably circa 25,000 barrels a day gross. In Tunisia, we're obviously also trying to ramp up to the 5,000 barrels a day and we have lots of other production activities going on in Tunisia, as well.

On the corporate side we're continuing to look at exploration in M&A transactions that will happen during the whole year, we hope to be able to announce some things, we've hinted that we're looking at some exploration assets and we hope to be able to update the market on that in due course. Hopefully we'll have the sale of Aje OML-113 completed subject to governmental approvals during the course of the year.

And that's very first dividend that I referred to, as well. So again 2020 is going to be quite a busy year for the company and plenty of news flow to get stuck into.

If I can now turn the slide to slide number seven, which is the proposed sale of our Nigerian interest, we made a press release about a month ago on this. There's no particular new news on this one we -- as people know we have conditionally agreed to sell our holding companies that hold our interest in Nigeria, which the OML-113 the Aje field to PetroNor which is listed on the Oslo Axess board.

And the structure of this transaction has been very much to be a win-win, to handover Aje to a company that has a grand ambitions for the asset. Panoro shareholders are able to then benefit in the future of Aje and indeed in the future of PetroNor itself which is a company which has existing production assets in the form of the shares that we will receive as consideration, it is our intention to distribute those shares to our shareholders in the form of a dividend.

There's also some contingent consideration in due course of up to $25 million. The conditions that apply to this transaction are ministerial consent in Nigeria, for this transaction and a bigger transaction that they are working on together with the operator YFP, completion of transactions in Nigeria can often take time.

We expect this to be a 2020 event perhaps the middle of the year. If I could now pass on to Qazi and have the slide -- pass to slide number nine, which are the financial highlights, Q3 2019 highlights.

Qazi, can you take us through the numbers here please?

Thank you, John, and good morning, everyone. We announced our third quarter report this morning, which is available on our website at panoroenergy.com and contains detailed analysis of our quarter-on-quarter and year-to-date movements.

Therefore I'm only going to discuss key financial highlights this morning, which are summarized in this slide. To begin with revenue and other income for the quarter was $10.2 million.

In the second quarter it was $10.7 million decreasing slightly. Please note that other income also includes the tax gross up of Dussafu in the revenue line, which we basically include for consistency in reporting purposes.

A breakdown of revenue and other income is available in our 2Q report. The decline in oil sales revenues due to lower realized prices despite the higher number of sold barrels in comparison to the second quarter.

EBITDA for the third quarter was $5.3 million compared to $5.1 million for the second quarter. This is higher despite lower sales and driven by lower operating costs for the barrels sold in this quarter from Tunisia and Gabon.

Net profit is lower at $0.5 million in 3Q versus $8.1 million in the second quarter. The higher second quarter profit is due to $8.2 million worth of reversal for impairment of Dussafu.

We also report our results on an underlying basis using non-GAAP measures after excluding items of non-recurring and non-performing nature like impairment and effects of commodity hedges, we end up with pre-tax income of $2.3 million in 3Q compared to $1 million in the second quarter. Last item I would like to point out is the cash balance, which has moved from $25.5 million in second quarter to $20 million in the third quarter.

This is due to net cash payments mainly Dussafu and our strength in the working capital cycles. Following the quarter-end we have raised $16 million through equity private placement, which has further strengthened our cash position.

On the commercial side we are very pleased to report that we have signed off-take agreement for lifting of Dussafu crude with BP who are going to lift the barrels for the next financial year.

Thank you, Qazi. I’d just add one more thing to that which is in line with the guidance we provided in the second quarter, we saw second half of this year being six liftings, we've had two in the third quarter.

We will have four liftings based on current estimates in the fourth quarter. So again getting back to some of the points around revenue recognition and some of the volatility in quarterly results fourth quarter should be a particularly strong one from a liftings and a revenue recognition perspective.

If we could now turn to Gabon slide, that’s slide number 10. I'd like to turn it over to Richard Morton our Technical Director to take you through Gabon and he will also taking through Tunisia after which I will follow up.

Thank you, John and good morning to everybody. As a reminder in Gabon we have 8.33% interest in the Dussafu permit and operators BW Energy and the partner is Gabon Oil Company.

If we move onto the next slide, slide number 11. This is titled the Tortue field.

We have Tortue Phase 1 on production currently from two wells of fast track project that continues on production in the quarter and total production estimate for 2019 is between 4.1 million or 4.4 million barrels. And that continues to produce from those two wells at about 11,000 barrels per day.

Phase 2 is sanctioned and underway with the first of the four production wells currently completing. We expect the first production to come on-stream in Q1 2020.

And we're targeting an average of 20,000 barrels a day for 2020 for the Tortue field with a peak of around 25,000 barrels per day mid-year. If we move onto the next slide, slide number 12, which is tied towards transformational Hibiscus Updip discovery.

So on the exploration side we drilled an appraisal Hibiscus update discoveries earlier this year. We had a very good discovery in the Gamba reservoir with excellent reservoir properties.

The main wellbore found a 33 meter column 21 meters of net pay. We sidetracked about a kilometer to the Northwest to appraiser field and found common contacts and similar oil column with 26 meters of net pay.

So an excellent result in terms of that exploration drilling activity. The gross 2P reserves now assigned by NSAI are 45.4 million barrels of oil.

And that compares with our pre-drill estimate of 12. So a very good result in terms of the reserves in the ground.

We've now progressed a plan to bring that oil into production as soon as possible. And I'll talk about that in a moment.

And that's the Phase 3 part of the Dussafu development. We've also identified certain other prospects and we'll talk about exploration drilling later on in 2020 in following slides.

Let's move on to the next slide, slide 13, the NSAI 2P reserves position. This graphic shows the development of our reserves position at Dussafu in the last two years or so.

And you can see that things have progressed very strongly from 23.5 million barrels up to the current 113 million barrels, which is a four times increase. So Tortue has moved from 23.5 million to 42 million barrels.

We've seen much better production than we had initially experienced and then we've added Ruche and Ruche Northeast into the 2P position and of course, Hibiscus Updip discovery gets us up to the 113 million barrel 2P reserves. We move on to the next slide, slide 14 and this describes Phase 3, which is also called Ruche Phase 1.

So, here we've done a fast track development plan to bring the Hibiscus reserves into the FPSO as shown on the graphic on the right hand side. We've relocated the platform which was originally between Ruche and Ruche Northeast to the position shown there between Hibiscus and Ruche.

This will bring oil from development wells drilled on Ruche and Hibiscus in the Gamba via subsea pipeline to the Adolo FPSO located at Tortue. So we expect an FID for this project later this year.

We've already approved this project internally, and we're expecting first oil in the end of 2021. There will be six Gamba wells initially drilled in Hibiscus and Ruche, and we have a gross CapEx of $445 million for the project.

The additional production will of course, reduce our OpEx per barrel down to about $10 excluding royalties, and we see further expansion of this project in 3B, which will allow additional drilling in Ruche Northeast where we have capacity for up to seven additional wells. Move on to the next slide, slide 15 and talk about the exploration activities on the license.

On the right hand side, you can see that we have a map of our Ruche exploitation area showing in green, the discovered fields and in the other colors, the various prospects and leads that we've identified. So in total, we have nine current drillable exploration prospects adding up the perspective resources of those gets us to about 160 million barrels.

Some of these are Gamba and some in Dentale. We've been busy looking at the seismic data, which covers a block and re-processing that to enable us to use that data set to validate and identify new prospects.

We've been focusing given our success in Hibiscus on analog for that discovery, broad, flat structures with Gamba potential, and we're hoping to make some decisions in the coming months about which of these prospects to drill in 2020 drilling campaign. Moving on the next slide, titled Tunisia, here we have two assets.

First of all, the Sfax Offshore Exploration Permit, where we have 52% and the TPS asset, which is a production asset where we have 29.4% but partnered with ETAP. Move on to the next slide, slide number 17.

As John mentioned, we're very busy in TPS the production asset the picture shows the satellite view of the of the fields onshore and the well activities that are under underway and have been completed and are planned for the near future. So at ELAIN, we've been progression a workover on ELAIN-03 we have an additional workover ELAIN-01 which is coming at the end of the year.

On Guebiba which is one of the main producing fields in the asset we've been busy with three workovers and additional workovers will come on early next year with a contingent well called Guebiba-10 in the Southwest of the field. So we see potential here, there's lots of activity ongoing and we're looking to bring production up to that 5,000 barrel per day target.

Move onto the next slide, slide 18 entitled enhancing TPS production levels. So this shows historical production in the assets overtime and the variation of that production according to different activities in the field.

So we see that there are two main elements on the production profile going forward. First of all is maintaining the existing production with replacement of ESPs and workovers, integrity management.

And then we're busy working on plans for the enhancing the production levels where we think we can get up to and above the 5,000 barrel per day target. This includes new wells sidetracks and recompletions on new reservoir intervals in existing wells.

Move onto the next slide, slide 19. This is entitled Tunisia Salloum West well.

And here I'm describing activities on exploration permit. So we have made significant progress towards the well spud.

The picture on the left-hand side shows the rig we have contracted. That's currently being mobilized to Sfax and site is being prepared.

So we have contractors on the site currently doing piling operations and civil works. And we anticipate spudding the well in Q1 2020.

So as a reminder, this is going to be drilled as a deviated well from an onshore location and it's targeting the Bireno formation, which was tested in the structure by British Gas, with the SAM-1 well in 1991. And that well tested at 1,800 barrels a day.

So we see good potential to confirm that oil resource and bring that into production quite quickly. The nice thing about this well is it can be tied in very easily and quickly into our existing production facility at Rhemoura which is part of the TPS assets.

We have a mid-case of 5 million barrels for this and the remaining $8 million net to Panoro for CapEx for the well. With that, I will hand over to John to talk about our exploration strategy and outlook going forward.

Thanks, Richard, Slide 20 please, exploration strategy in some of our recent press releases we've discussed our desire as -- now as having a production company that we would like to ensure the longer and the medium term future of the company by also having exposure beyond our exploration potential that resides within our Tunisian and Gabonese assets, which itself is very interesting, of course, but to supplement that by taking some smaller exposure to material oilfield so a smaller percentages, things that won't break the bank, things that won't expose the company to undue risk. But nonetheless that help expand the portfolio.

So we are very busy looking at a number of opportunities using our regional knowledge Richard’s and the team's regional knowledge, particularly in the pre-salt areas Southern Gabon looking principally at West Africa and North Africa, and again, where we can come in using our experience, our data, our knowledge and team up with reputable oil companies. So we're not doing this on our own we're doing it with companies that are also equally as reputable and sometimes quite a bit bigger than we are team up with them to pursue some opportunities.

So we hope again, during the course of 2020, we will have some news to tell you on our exploration strategy. But we are focusing a little bit more time on broadening the portfolio on the exploration front.

So I'd like to finish up with slide number 21 outlook. This is largely a repeat of what we've already said.

But it serves to again underline what's going on in this busy company. In the next 12 months, we're going to be having high levels of operational activity.

We're going to have between two and four exploration wells in Dussafu and Tunisia. So lots of news flow there.

We're going to have four new development wells at Tortue, which we hope to continue to update the market on as those come online. We're working as, Richard, has stated very hard on production enhancements in Tunisia to bring that very solid operation even higher.

We're doing so in what we believe to be a -- an ethical and a safety conscious way. It's important that we have the license to operate in the markets that we do.

And we take this very seriously. And as a company, as a growth company, we continue to look at business development opportunities exploration or further inorganic growth.

We continue to evaluate transactions and only transactions really that makes sense for shareholders. So with that, Rosie, I’ve finished the slide pack and I'm happy to open up to any questions that there may be.

Good morning guys and thanks for taking my questions. I have three questions actually.

The first one is on -- by the way we're very exiting that too, will dividend out the PetroNor shares. So in terms of cash dividend should we expect you to pay any cash dividend when Tortue next phases have come on stream?

And second question is on CapEx 2020, could you just give us a reminder of how much you’ll spend on TPS assets so and approval next year? And third question is just on the [ph] third quarter announcement earlier lifting costs have also on an absolute basis more so relative to lifting in third quarter compared to second quarter.

Could you just briefly explain that? Thanks.

Sure. Sorry, Teodor, can you just repeat the third question so we understand that properly?

The third question is reason for very low lifting costs in third quarter compared to second quarter.

Okay, right. Okay.

So, on your first question on dividends, well we -- as the slide this looking forward to 2022 slide states, we're in a -- we're currently in an investment phase we are dedicating CapEx to Dussafu Phase 2, Dussafu Phase 3, we have activities in Indonesia Tunisia as well including the Salloum exploration well. So we're very much focused on the investments required to lift that production to a level, where again in that slide, you can see as if you kind of scroll forward, if you can imagine a couple of years from now, when we should be producing a very big wall of post-tax operating cash flow.

So we're trying to show the way towards what we see the company looking like as it currently is constituted today a couple of years from now and that would be the very, very strong cash flow position. We are in the interim of course intending to pay the PetroNor dividend, PetroNor share dividend that deal needs to complete, but assuming that it does we have every intention of distributing those shares in the form of a dividend.

In respect of CapEx, the CapEx in Tunisia we spend roughly about $8 million on the Salloum West well during the course of next year. There could be some smaller CapEx in the TPS assets.

The -- a lot of the workover activity that Richard has discusses, it's more of a CapEx line item than a CapEx one. These don't tend to be very expensive operations to restore production to increase production.

There is one contingent well in there, the Guebiba sidetrack that we've mentioned, which is a slightly higher CapEx line item could be $1 million or $2 million net to Panoro. During the course of 2020 that still contingent line item.

Dussafu, it's kind of hard to give exact guidance, because what happening is we approve CapEx together with BWO and some of that money gets spent straggling years and sometimes the cash goals don’t match exactly the perfect calendar year. But as we stated before Phase 2 is about $240 million gross project, which we’re well into the middle of that.

But there is still CapEx to come, but it's hard to give exact guidance on that at the moment, but we can maybe to refine that with you offline for your next note. And on the lifting costs, Qazi, you want to touch on that?

Yes. So we basically obviously have different licenses we’re lifting from the different per barrel operating costs.

In this quarter we had liftings both from one lifting each from Gabon and Tunisia, but no lifting from Aje. So obviously for Aje the lifting costs are a little bit higher on a per barrel basis than the rest of the portfolio we have.

And as such it's reflected in the OpEx costs for the quarter.

Teodor, I guess, it gets back to this whole issue around revenue recognition and the lumpiness of the quarters we referred really looking more like half-yearly trends to kind of give an accurate impression of the various P&L line items.

Okay, so thank you.

Hey, guys. Congratulations on the good quarter.

Just one for me on the Salloum West well, you say that the net CapEx to you guys remaining in 2020 is $8 million. But on the specific well cost which is I estimate to be lower than the Dussafu, would sort of $12 million to $13 million be a fair estimate on the well costs there.

Good morning Jorgen. How are you?

Yes, so I think that's a fair estimate. The situation is obviously different the Dussafu ones or offshore wells they are straight vertical wells, which are obviously designed to be P&A [ph] once we hopefully make the discoveries.

This is a deviated well being drilled from onshore. So it's a different animal.

But your estimates are roughly correct, yes.

Okay, thanks.

Great, well I appreciate everybody dialing in. And again, hopefully enjoying reading about our journey.

We are of course available offline as well through the info email address we have at Panoro or for those who would like to speak directly you can send us an email and we can set up a call. Again, thank you very, very much.

Thank you very much, Rosie to you as well and good bye.