Panoro Energy ASA

Good morning, everyone. This is John Hamilton, Chief Executive of Panoro Energy ASA and welcome to our third quarter year-to-date 2020 results presentation.

I'm joined today by Richard Morton, our Technical Director; and Nigel McKim, our Projects Director; and Qazi Qadeer, our CFO. We'll take you through this presentation; we'll open it up for some Q&A towards the end.

I understand that the link to news web this morning had a glitch in its -- when it was generated by news web, so I'm very glad that so many people have been able to find their way on to presentation. We're busy trying to fix that as well at the moment, but we do have a number of attendees here this morning.

So that's good. Next slide please.

So, 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'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. Next slide, please.

So, for those of you who have joined us before, the system is webinar system, you have the ability to raise your hand to ask a question. As long as I can see the hand, we can unmute you and allow you to ask a question, you can also type in a question down into the question pane and we'll try and pick those up as well.

Depending on how many there are, we try and address those as well towards the end. Next slide, please.

So what are the key takeaways here? We've all had a year to forget in some ways.

It's been a very challenging year for the oil sector for everybody. But there's also a year to remember.

Remember, that actually we have a good company. We have a lot of interesting things happening in it and we've managed to come through the crisis, I think, although, we're still arguably still in parts of it in good shape.

We have production growth. We have production growth in our core assets in Tunisia and Gabon, recently demonstrated by us hitting in our 5,000 barrel a day gross target in Tunisia, where there's also additional potential.

In Gabon, you're going to see production growth each year from 2021 through 2024. So we have it all in front of us in terms of that production growth.

We also have quite a bit of exploration upside in the company as well. We’ll talk a little bit more about Hibiscus.

Those of you who followed Hibiscus know that it could be 3 times as big as the currently booked reserves. We have the ambition, as a joint venture in Gabon, to drill two wells per year, every five -- for a total of five years of 10 wells at least.

We hope to kick that off already in 2021. We'll talk a little bit more about that.

And in Tunisia and South Africa, we also have further upside potential. In our company, we have a well-governed company.

We have a good board. We are financially conservative.

We have a deliberate strategy to grow a stable and sustainable business that’s focus on HSE, on ESG. And we also have the dividending of the PetroNor share to Rhemoura shareholders when that deal completes, hopefully in the near future.

So, again, we've come through a difficult year, but -- well, we think we're well poised to grow from here. Next slide, please.

A few operational highlights and financial highlights that are all embedded within our Q3 results and you can read those in greater detail. However, I will touch on a few of these.

We did hit 5,000 barrels a day gross production and we've maintained that production level Q4 to date. So as we speak, we're producing and have produced since October 1, approximately 5,000 barrels a day.

We drilled the first new well in Tunisia successfully, without any HSE incident, which is very, very proud of that. And we established two production zones, including the Douleb.

We have two production zones in that particular well. I'll talk a little bit more about the Douleb in couple of slides further.

And we have more workovers that we're currently working on over the next three, four months, we should be trying to bring a few new wells on stream as well, not new wells, not new drills, but workover wells. Hibiscus, we will talk more about that, but that could be 3 times as big as previously identified in Gabon.

And Gabon is also quite exciting in the sense that the crisis has allowed us to relook at the development concept for the next phases of Gabon and identified material cost savings. On the gross revenue side, you can see the numbers there.

What's interesting to note is, we've had five liftings year-to-date, but we have three more in Q4. So something like 35% to 40% of our revenue will be booked in the fourth quarter.

So, it's quite a heavy quarter coming up. OpEx per barrel still very, very attractive, low operating cost barrels that we have.

These are not ones that require high oil prices. We enjoy high oil prices, but we don't require them.

Our hedging, our conservative financial strategy has continued to pay us dividends so to speak and we're busy in advanced negotiations for a reserve-based loan, an RBL, a structured loan to help finance the next phases of our development in Gabon. Next slide please.

So, this is a slide we've shown recently and this is just updated we have made $3.9 million in cash realized gains off of our hedging program so far year-to-date. We have collars that have a floor of $55 on them.

So, if oil is $45 on those barrels that we've hedged, we make $10. And we have this hedging program all the way through to the end of 2021, representing approximately of 30% of our current production something like that.

So, on average for the barrels we've hedged, we probably made about $20 a barrel and across our entire production that represents something like $7 of extra revenue that we're -- $7 per barrel extra revenue we're making off the back of this hedging program which has really put us in good shape during 2020. Next slide please.

So Gabon update. Some of this has already been rehearsed by BW Energy in their third quarter results, but we had gross production in the quarter of 15,500 barrels a day during the quarter.

We have four wells in production there at the moment. The gross total production for 2020 is estimated at around 14,250 barrels of oil per day slightly down on previous operator guidance.

That's largely due to some COVID-related things of the shutdown of the FPSO briefly. And also a little bit of the OpEx situations trying not to max things out too badly.

The four wells are doing extremely well. This is not a reflection of the reservoir.

This is simply operational. The four wells are -- each of them performing extremely well at the moment.

OpEx per barrel is approximately $19 a barrel for 2020, slightly higher than had been originally guided by the operator and that is largely down to COVID costs which we hope will fall away during the course of next year. Next slide please.

So, there's a lot of information on this slide, but actually the message is quite simple. We have 112 million barrels discovered in Gabon and Dussafu.

We have to find more obviously but bet is we have our current 2P booked reserves at and we are busy in a middle phased development approach. So, we have Tortue Phase 1 which we did.

We have Tortue Phase 2, which we're most of the way through we have to bring two more wells on stream during next year. So, we've gone from 10,000 to roughly 20,000 barrels a day through that phase.

The next phase coming up we should see first oil probably in the fourth quarter of 2022 is Hibiscus/Ruche Phase I which should see us come up to the nameplate capacity of the FPSO about 40,000 barrels a day could be a little bit higher than that. We have also Hibiscus/Ruche Phase 2.

Now, in an upside case where we're able to identify additional reserves at a Hibiscus, we could see pushing the FPSO capacity beyond its current nameplate capacity. This FPSO does have the capacity to go to 60,000 or maybe 70,000 barrels a day of processing capacity.

So, we have the flexibility to upsize the FPSO capacity in a success case and we are on this journey now to get to at least 40,000 barrels a day. And on the right-hand side of the slide, you can see what the operating cost evolution here is, the operating cost at Dussafu is largely a fixed cost.

More barrels we produce, the lower the operating cost per barrel is as we get to 2023, 2022, we bring the new wells on stream at Hibiscus, you will see our operating costs dropping down to something like $11 or $12 a barrel. And what does that mean?

That means even when Brent's are something like $45 a barrel we were making more than $20 operational free cash flow per barrel. It's after tax after operating expense.

So, this is an extremely profitable operation even at today's oil prices. Obviously, if oil prices go up to $50 or $60 or dare I say it's $70, this is an enormous cash cap.

Next slide please. So, there's been a lot of talk about Hibiscus.

I've got a couple of new images here, but just taking a step back reminding people what happened. We had this as a prospect, it was 11 million barrels we thought we were drilling for.

We ended up having big success on that. As everybody can recall, we booked about 45 million barrels of 2P reserves off the back of the wellbore and the sidetrack.

Since then the joint venture is engaged in reprocessing the seismic that Panoro acquired back in 2013 and 2014. And what that has done is, if you can look at the two images, the first image is the map you can see the high areas there the red -- the brighter amplitude in the front there the red is what we thought the structure looked like.

When we drilled it and found the 45 million barrels. The structure on the right is what -- based on the seismic reprocessing and the new mapping we've done is what it could be.

And this is where the excitement has come again I don't -- you don't have to be able to read technical maps to see that the red areas, the yellow areas, this is a much bigger structure potentially. We'll have to drill a couple of wells to delineate this which we plan to get after already in 2021 by drilling an additional well.

But the -- I think the picture tells the story that this structure could be enormous. It could be up to 155 million barrels potentially.

And we hope to be able to drill the first of those wells this summer when we have the rig back out there drilling the production wells. Next slide please.

So that's not all. The Hibiscus isn't in the end of the story.

We have 13 more prospects and leads. We have the ambition as a joint venture to drill two exploration wells per year for the next five years.

What will those be? We'll need to see.

I think the first well we’re going to drill are going to be in the Hibiscus area. But after that, we could be looking at Prospect B.

We could be looking at Hibiscus North, Espadon, String of Pearls, Prospect 18. There are lots of things to go for here.

And with the recently reprocessed seismic, the teams are very, very busy. So BW is operator, but Panoro on its own as well.

Tullow their own as well and GOC, our state-owned gold company on their own are all looking at this reprocess seismic each coming up with our own interpretations and we'll be sharing those with each other in due course. It does take some time.

But we're very, very excited for instance. And we concentrated on really looking at the Hibiscus areas first which is what's generated those maps.

We are in a very, very good oil fairway and we have this block for 18 years. So we've got plenty of time to find this stuff.

So Gabon Dussafu block will be a long-term asset for Panoro and its partners. Next slide please.

So I'll talk a little bit about Tunisia. We hit the 5000 barrel day gross production target.

We previously announced that. We have further work-overs underway as we speak.

We drilled the first well for over six years on the block in the Guebiba field which is one of our onshore fields, where we found oil in two reservoirs; the Bireno, which is the more common and prolific reservoir in this area. And also in the Douleb, which is less common.

But when you find it, it's very, very good. I'll touch on that in a moment.

Gross production as previously guided was 3261 in the quarter, previously guided that this was going to be a weak quarter in terms of production due to needing to replace two pumps on two very important wells for us. So we kind of had two of our big wells need replacement at the same time, a bit unusual but it happens and we flagged that earlier.

Our quarter four production to date is 5000 barrels a day. We're currently producing around that level.

So hopefully it will be a strong quarter in Q4 for us and OpEx per barrel. Again these are very low operating cost assets.

You may see a little creep up of operating cost per barrel in the fourth quarter because a lot of this workover activity is classified as operating cost, not as capital expenditure. But nonetheless the assets are cheap operating cost assets.

Next slide please. And here's a graphic.

We've shown it before but we've extrapolated it now out to incorporate the last three months. As you can see when we took over the asset, it was producing around on the left there around 3500, 3700 somewhere in that zone.

We were able in the first part of this year to kind of get that up to 4000 barrels a day. COVID struck.

We had to down tools, so to speak. We just continue to want to produce oil and not produce it with too much difficulty with cruise things like that, so production did fall off a little bit.

And as previously guided we had a third quarter we needed to not only contend with COVID, but we had to replace a couple of pumps on two of our key wells. But then immediately into the fourth quarter, we managed to hit our 5,000 barrel a day target, which we have, as you can see maintained and even exceeded at times during the quarter.

So I think this tells the story of the ability at Panoro to get after these assets. These were unloved by OMV.

It's taken us some time but we have the right boots on the ground and we are now getting after these assets in a good way. Next slide, please.

So what are the next challenges? We hit 5,000, we want to do better than 5,000.

Historically, these fields have produced 6,000 to 8,000 barrels a day. There've been spikes where those have been higher than that.

But consistently back when the assets were invested in and loved, they were able to produce 6,000 to 8,000 barrels a day. And I think that that is not a target we're setting out here today but that is a reasonable expectation of the ambition we have on the asset.

That's the next step. Our workover production – our workover activity continues as we speak and we have further stimulation, optimization workover initiatives identified beyond the end of the first quarter 2021.

And what for us is important is that this is again, like Dussafu is a long-term asset for Panoro. And what we want to do is make sure that it continues to produce oil for a long period of time.

And so we've been spending a lot of time remapping and modeling fields to try and justify and try and convince our partners and ourselves that the assets can need continued investment in And one of the interesting things that's happened is the Guebiba. When we drilled Guebiba-10, we encountered the Douleb reservoir, which is a very exciting reservoir in Guebiba field dominantly, although we do find it in other fields in the area as well.

Now we knew it existed. We knew we would find it.

What we've ended up finding is on logs. It looks like a very, very good quality Douleb reservoir.

We do produce some Douleb at the moment in other wells. The Bireno, which is a lower reservoir is a more prolific producer of those wells produce 300, 400, 500 barrels a day type of thing, very good wells, very economic wells and they produce for a long period of time.

The Douleb is a different animal. It can produce 1,000, 1,500 maybe 2,000 barrels a day of these wells.

And so when you can find them in a good location and you can provide the right water support, water injection support for them. They can really produce exceptionally well.

So as you can see, if we're able to identify additional locations to produce the Douleb from. We have a chance of really changing the production profile of some of these fields.

We're currently in Guebiba-10, which is where we have the Douleb producing from the lower Bireno reservoir, that's producing oil as we speak. And we will produce that until such time as it becomes less interesting to produce than we've drained the reserves in which case will come up the well more we're recompleting the Douleb and we hope to achieve production rates at the time that I've indicated there.

We also have other potential in the Cercina field, the Rhemoura field the El Ain field. So there's a lots more potential in these assets.

And again, the key here is to make sure that we have a stable and growing production base for the longer-term here. We also have the Salloum West exploration well, which we have planned for 2021.

In the success case, we can tie that back to TPS as well. So we have plenty to go for in Tunisia still to come.

Next slide, please. Further corporate updates Block 2B in South Africa, this is the very exciting block that we farmed in together with Africa Energy.

We're expecting approvals from the ministry to enter into this Block before Christmas we hope. Completion of our deal subject to that consent from minister is also subject to Azinam, we're the proposed operator coming in and farming into the Block as well.

So fully funded well there. The pandemic again just like in Dussafu has created some opportunities to relook at things, to retender things and we're looking at some cost savings on that as well.

In the meantime, the technical teams have been able to continue to advance their thoughts in terms of the best downhole locations and things like that. Aje.

Aje continued to produce oil. We had a lifting even recently.

We continue to work closely with PetroNor in respect of the disposal of this ministerial consents can take a long time in Nigeria and this has not been an exception. That process is well underway.

The regulator is currently reviewing the proposed documentation. And we hope that that transaction will complete sometime soon.

Fourth quarter maybe early into the first quarter. And the intention is once we receive the PetroNor shares that are consideration for that transaction that we will dividend those to Panoro shareholders.

Next slide, please. ESG.

One of the things we're very proud of is all this work-over work that we've done in Tunisia. We had two rigs going.

We drilled the first well for six years in the block. We had multiple crews, we had COVID to contend with as well on top of all that and we performed all those operations without incident.

In Gabon, similarly, we were able -- the operator was able to maintain production operations through this very, very difficult period. So I think what we're finding is that our policies our procedures and we really withstood some serious tests over the past year.

And we're very, very proud of that. We're even able to initiate our solar program, solar initiative in Tunisia where we've set up solar panel lighting for our operational, our own use on power use in some of our fields down in Tunisia.

So we are proud of our ESG footprint. We can always do better.

We are setting up benchmarking, which to benchmark ourselves against the industry and against our own performance as we go forward. So the company is taking these things very seriously and continues to consider ourselves very, very well-governed company in this respect.

Next slide please. So on the final slide, I think we have a lot to look forward to production growth within the company to look forward to have exploration wells during 2021 to look forward to.

And all of this set within a company that has a good balance sheet. It's got low-cost production and can withstand times of low oil price.

We have the dividending in the PetroNor shares to look forward to. And we always have to remind ourselves particularly when oil was at $20 a barrel, but the reserves, the resources that we have are extremely valuable even in down cycle times.

We are in a cyclical industry. Hopefully we're about to hit an up cycle.

And these reserves and resources we have will continue to be valuable in our opinion. So that concludes my presentation.

I think the next slide is a reminder on how to ask questions. And as long as we can master the technology, we will try and identify if anybody has any questions.

So you can enter questions in the text box or you can raise your hand here. Well see I've got a raised hand here sorry let me get my technology correct here.

All right, I'm trying to unmute Stephen Foucaud. And for some reason he's – Stephen, I think you have to unmute yourself.

Hi. Can you hear me?

Yes. Hi.

Hi, John. Thanks for taking my question and thank you for the presentation this morning.

Really two questions. The first one is probably bit early, but I was wondering whether you had any idea or any -- of where the 2021 CapEx and production in Tunisia might be looking like?

And second you talked about at Hibiscus, the FPSO of being 70,000 barrels per day of processing capacity. Would that be including water, or is that just oil?

Any if it includes water, what would be your view around the production capacity for oil that would be available at the way things currently stand? Thank you.

Okay. I'll take the second one first and come back and clarify your question on the first.

No, that's oil processing capacity Stephen. So again, it's -- the water handling is on addition -- in addition to that.

So again, I don't think the full engineering work has been done, but this is a very interesting FPSO. It was the worlds first I believe FPDSO, so it had drilling rig on it.

And so there's a huge area on the surface of the FPSO that could handle more processing capacity. And so the idea would be that in a success case for instance, we find a lot more oil at Hibiscus and that the development plans change and are accelerated to the point that we could produce those kind of volumes of oil that the FPSO could be modified to handle say 60,000 to 70,000 barrels a day of oil on top of any other liquids.

Your question specifically on CapEx 2021 was that specifically Tunisia?

For the CapEx, it was for both Tunisia and Gabon assuming of course Gabon everything works and the restrictions are being lifted, but the production was just for Tunisia.

Yes. So production in Tunisia, I think, we'd like to come out and tell you that we have plans to grow it from here.

I think what we recognize, we have 14 wells on stream. We've just gone through a workover program, some things work, some things have not worked, some things have worked better than expected.

Some things have been a little disappointing. But on a portfolio basis, obviously, it's going very, very well.

And we have additional activity -- workover activity. So it's not CapEx.

It will come through OpEx lined up over the next three months. Let's hope that that does go well.

Those activities do have the possibility to increase production materially from where we are. But until we're done we won't say.

So I mean at the moment, we're kind of good and steady on the 5,000. I don't see at this stage until we get through the remainder of the work program to really guide beyond that.

CapEx for 2021 therefore is predominantly going to be capital expenditure in Gabon. And to the extent that we -- when we drill in South Africa or in Salloum West those will be CapEx related activities as well.

There's some uncertainty in terms of the exact funding of those two events. But the CapEx in Gabon is principally to come in and try the fifth well in and to drill the sixth well -- production well to get our production back over 20,000 barrels a day.

That is reasonably low CapEx. I think that plus the exploration well is -- we drill an exploration as well we hope in the summer is something like $50 million gross.

So 7.5% of that it's not terribly much money. And then, when we resanction the Hibiscus/Ruche project, we'll start incurring towards the second half of the year presumably some additional capital expenditure related to that.

Okay. Great.

Thank you.

Right. So now I just need to look and see -- we have some written questions.

Let me just see if there are any more raised hands here. Yes.

We have a question from Rouner Siachdon [ph]. Rouner, good morning.

Good morning. How are you?

Everything is great.

Very good. Yes.

Thank you.

On slide number 16 you -- under production, you said additional activities underway including well of El Ain and other initiatives. Could you elaborate a bit on other initiatives please?

Sure. Basically, I've got -- I've got my colleague Nigel McKim on the line as well who is responsible for a lot of these activities for Panoro, Nigel, do you want to -- like to take that one?

Sure, John. So yes, the El Ain work.

We've got two wells there that we're looking to bring back online in the coming months. One learning out of activities over this past year was the success of asset stimulations.

And we had an early success in the Rhemoura field at the beginning of the year where we managed to get a significant boost in production from an asset stimulation on Rhemoura 1. So that particular technology we've been looking at using elsewhere across our assets.

And we've identified a few wells in the Cercina field that could benefit from that. So one of the first operations out there is intended to target one of those wells at Cercina 3, where we look to asset simulation and change out in ESP pump.

So that's another of the activities that we have in our near to medium-term plans for workovers. And then alongside that as touch elsewhere in the presentation, we've got a series of subsurface reevaluations going on and that may yield additional opportunities.

Okay.

Thank you, gentlemen.

Great. We have some questions that have come in written questions.

There are a couple of questions on the timing of the Nigeria deal the sale of our Nigerian interest to PetroNor. The question is concerned the timing of it and if there's a risk that it won't happen given that there is a long stop date under the sale and purchase agreement of December 31.

Look the intention of the parties both PetroNor, they're not on the call and so I don't have to speak to themselves, but both PetroNor and Panoro and the operator at Aje are extremely focused on completing this transaction and that we see -- everybody is still fully intending on completing this transaction. We are a hostage a little bit to the fortunes of the Nigerian regulator basically had a two things which slowed down their process.

One was COVID and the offices were closed for a number of months. We also had -- there were some, sort of, civil unrest in Nigeria, which again closed the office.

And we -- they've also undertaken a big marginal field licensing round in Nigeria. So the regulators have their hands full, but we're all pushing towards it.

Is there a risk, it doesn't happen, of course. Of course, there is.

But my position is that this is a transaction that we expect will fully happen. Whether it will happen this side of Christmas or not?

I can't say, but I think it will happen reasonably soon. Let's see here.

We have a question I might ask Richard to help on this one which is around South Africa and around what is the resource potential of the license or what cost savings have been identified? As a reminder, we formed into this block again in South Africa about nine months ago.

And we farmed in together with Africa Energy who are selling down their stake. They were focused much more on their big project with Tortue.

And with Azinam, our transaction is subject to Minister of consent and to Azinam completing their share of the farm in. Those two things have not happened yet.

We expect the Ministry of consent to happen soon then we rely on Azinam completion as the final step on that one. Richard, do you want to talk a little bit about what the potential of that license is and what that story is about?

And just remind people quickly.

Sure. Thanks, John.

So as a reminder the block is very small. A small basin we drilled in 1988.

There's already 2C resources on it from the discovery well, which is the Aje well. That amounted to 37 million barrels.

The plan is to drill update from that discovery. We're targeting a stratigraphic structural play there and we estimate 163 million barrels over a couple of prospects there with couple of stack prospects.

Ultimately in the block itself, we've got prospects in lead inventory, which amounts to just under 1 billion barrels in total.

Great. Let's see here.

I think that -- question from Daniel. Let me just find that one real quick.

Okay. Well I think that we have answered the questions that I see here.

Let me check one more time to make sure that there are no more raised hands here.

Great. Well thank you all very much for participating in the call.

And we look forward to continuing to update you all on our various projects. Thank you very much for attending.