Panoro Energy ASA

John Hamilton - Chief Executive Officer Richard Morton - Technical Director Nigel McKim - Project Director Qazi Qadeer - Chief Financial Officer

Panoro Energy’s First Half 2021 update. This is John Hamilton, Chief Executive Officer.

I’m joined today by Richard Morton, our Technical Director; Nigel McKim, our Project Director and Qazi Qadeer, our CFO. We're going to walk you through some slides now to tell you a little bit about the business and the transformed business we have had over the course of this first half, and we will then take some questions towards the end.

In terms of webinar housekeeping, for those of you who joined before you will know. For those of you who are new, you need to raise your hand if you would like to ask a question or you can type in a question into the question panel.

We will try and endeavor to answer most if not all of the questions that are raised and you can do so, you can type those questions in at any time. If you want to speak, you need to raise your hand and we will un-mute you, but pleased to do that at the end, but you can type in your question at any time.

Next slide, please. Standard disclaimer, which we can move to the next slide please.

So before I get into the financials, as a reminder, today's conference call contains certain statements that are or may be deemed to be forward-looking statements, which include all statements other than statements of historical fact. Forward-looking statements involve making certain 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. So here are our highlights.

We have three buckets here. The operational side, we produced on average on a pro-forma a basis 7,700 barrels oil per day.

When we say pro-forma, we mean as if including the result of the acquisitions from the first of January. Those transactions, one closed in March and the other closed in June.

So we're trying to show, when we show pro-forma numbers, what the business would have looked like had we had those from the first of January, it's illustrative. On the reserve side we have up 36 million barrels of reserves as a company now, and we have almost the equivalent in 2C resources as well and that basically shows you that there is beyond the 2B reserve, there's is lots of value sitting in contingent resource as well.

On the financial side, we're showing the mix here, we have a pro-forma revenue of $105 million. Last year in the first half it was $26 million, so again that's partially oil price, but it's mostly the result of the acquisitions that we've made.

Net cash from operations, that's not a pro-forma a number, that's the real deal. That's cash flow from operations of $60 million with a loss last year of $6.4 million.

Average realized price in the first half was around $67 a barrel. Cash at the bank, $93 million as compared to $15 million as of the end of the year last year.

Gross debt, $104 million leaving a net debt position of $11 million. And on the right, we remind people of the strategic accomplishments we've had.

We completed the Tullow acquisition oversubscribed Equity Placement; the Farm-in in South Africa during the first half. We're actively drilling, and we're growing production and all of this is underpinned by a very robust capital structure as we’ll detail shortly.

Next slide, please. So, here's a slide trying to show where we are and where we're going and where we've been.

You can see in the top left we are showing what the transformation of the reserves and contingent resource is. Pre-acquisition, we’re about 16.6 million barrels of 2B plus contingent resource.

We're now about 70 million barrels. So the company has really changed as a result of these acquisitions.

In the lower left you can see the impact on production that the acquisitions have helped transform the company into about 7,700 in the first half of the year on a pro-forma basis. Where we're going is on the right.

We are hoping to get to sort of peak rates during the course of this year, about 9,500, and that's when the new wells are coming on-stream. We have five new wells, production wells coming online during the fourth quarter principally.

So we hope to be able to move that up to that 9,500. And on the far right, again reiterating, we expect to be in excess of 12,000 barrels a day during 2023 when the Hibiscus/Ruche development comes online.

So again, we have a very, very nice growth trajectory on our production. The production is purely based on 2B reserves.

So the contingent resource is sitting there on the bench so to speak, ready to be activated in due course. Next slide, please.

Right, so our financials are all over the place a little bit as a result of the transaction. So there are some confusing elements in here.

What we're trying to do is also show this on a pro-forma basis. Again, this is an alternative measure that we as a company like to show, because it shows what the company looked like, as if we had owned these assets from the 1 January.

We have the economic interest as of 1 January, but not from an accounting perspective, and IFRS is very strict in terms of the way that we look at these things. So you can see the difference between the IFRS reporting and on the pro-forma a basis.

On the revenue side, on the lifting side, we had nine liftings during the year. If you look at it on a pro-forma basis, we also have an additional lifting in Equatorial Guinea.

The EBITDA is a very strong pro-forma basis, $66 million; IFRS is $28 million. There are some things going on with the reversal of the over lift position and then we can get into that if people want to with Qazi in the Q&A, but there are some elements there moving around.

On the EBIT side, IFRS reporting is $66 million and $100 million on a pro-forma basis. This is partially as a result of some negative goodwill.

Again IFRS requires us to recognize the fair value of the Dussafu acquisition, and that has actually come through the P&L also, so negative goodwill. In other words, we bought it extremely cheap.

IFRS has been very strict in terms of recognition of that. And again, the cash on the balance sheet we've already talked about.

Next slide, please. Again, because of many moving parts, we thought we’d try and reconcile the cash position from the start of the year.

Again, I think the most important thing for me looking at this is net cash from operations, $61 million. It's showing – leaving aside all the accounting and the IFRS, it's showing what the real net cash from operations is, that's real cash, and that's coming into the business and that will continue to come into the business as we go through this year and the next and for the years to come.

But this is really just to try and reconcile how we get to the $93 million of cash EBIT at the end of the period. There have been a lot of moving parts here, and again, this slide has meant to kind of deconstruct all that, so people can see that we've had the big inflows of cash from borrowings in the equity place.

And we’ve got the outgoing from the – paying with the acquisition and the CapEx in the interim period as well. Next slide, please.

We have a very strong balance sheet we believe. We have loan facilities as everybody is aware, and here's the breakdown in the top left of those loan facilities.

Important to note, we have an undrawn $20 million advanced payment facilities meant to deal with any changes in working capital, because we are lifting our own oil, sometimes those are only done on a sporadic basis. So there could be times when we have some cash flow that’s undrawn and I don't haven't any – think of any plans to draw it, but it's a very, very nice safety blanket.

And on the bottom right, you can see the debt maturity profile. So these are not loan facilities that are repayable next year.

These are stretched out well over time and all the way into 2025, 2026. So you know we are in very comfortable position there.

We have a hedging program. We have tried to hedge in and around our lifting’s, so you can see that in November, we're expecting probably a big lifting in Equatorial Guinea.

We started to try and get a little hedging in and around that, trying to take advantage of $17 [ph] oil which we’ve successfully done, and we will continue to try on a short term basis, trying part of it, the hedging in and around lifting. We had some smaller 600 barrels a day hedged in 2022 with costless collars.

That's obviously a very small part of our production, but nonetheless we have that in place as well. Next slide, please.

CapEx and liftings: Again, this is just to provide full guidance and transparency. We have $45 million of CapEx this year.

It’s a little bit higher than previously guided. It was $43 million before.

The difference is principally Hibiscus North, which we'll touch on in a moment. The exploration well which you just build, which was contingent at the time of the last results.

What we can also see is the CapEx is very second half weighted. So we didn't spend as much money as quickly in the first half as envisioned, so the bulk of this will come in the second quarter.

And we also had some guidance on our second half liftings which look more or less like our liftings in the first half as Gabonese lifting less and our Equatorial Guinea lifting, we would probably hopefully have in November. That we're estimating at the moment to be a 650,000 barrel lifting.

So again, trying to provide as much transparency as we can based on everything that we know in terms of when we expect liftings to happen, and again as a reminder, lifting are revenue recognition point. So we can – on the daily, we don't recognize revenue on a production basis, we recognize it on a lifting basis.

So these lifting moments are our revenue moments, and those are important for everybody to understand. You will get some lumpiness in our quarterly results, hopefully in half years and the full years you know everything smoothed out.

For instance in the third quarter, this quarter that we are in, as we speak, we don't have any listings. So you are going to get some lumpiness.

We just want to make sure we provide as much transparency as we can on that. Next slide, please.

Right, Equatorial Guinea, our most important production asset at the moment is very steady. It produced almost exactly the same as in the first quarter, but what's happening there is really exciting.

We are drilling three infill production wells there, the first of which, was a success. In fact we can call it the oil saturated reservoir sands.

The rig is now drilling the second of those wells, and all three of these wells are expected to get online and in production in the fourth quarter. At the same time, there are various upgrade projects, infrastructure integrity projects going on.

The operator is extremely busy working on debottlenecking things on those facility. They've been busy for a number of years and they really have been a – had great success and it’s one of the reasons we really like this project, is we are at the inflection point now where production should grow from this 30,000 barrels a day on an upward trajectory through the addition of these new wells, but also through improvements on the facilities.

We have not yet decided in terms of new drilling, production drilling for next year, but Panoro is very excited what we see on contingent resource side. They have this huge amount of contingent resource and we would expect all things being equal that the operator and the joint venture will want to drill some more wells next year, but we are not able to provide guidance on that as yet.

Next slide, please. Gabon, the big news of course overnight was that we drilled Hibiscus North.

We have made an oil discovery in the Gamba. There are two reservoir layers targeted in this well.

One is the Gamba’s the upper on, upper reservoir and in the Dentale is a lower target. We've made an oil discovery, which is great oil saturated sands.

We don't have enough information out. We have to put a press release out due to our obligations towards the stock exchange, but it is too early to say what size it is at the moment, but obviously we are extremely pleased to have again found oil on this track record of finding oil and the Dussafu license has been exceptional with the exception of one blip earlier this year on the Hibiscus Extension well.

This is again confirming we are in a prolific area here, where all your drilling dollars go straight into the cost pool. So even in the case of the dry well earlier this year, that money goes straight into the cost pool.

So we're drilling not for free necessarily, but we can recover all of our capital expenditure through oil production. So on the Panoro side, I know BWE feels the same.

We're extremely thrilled to make this oil discovery and we will from here keep drilling down to the Dentale and we will side track this well as well and try and delineate and run Wireline [ph] logs to get a better estimate on potential volumes here. So it's a little early to say volumes with the range we gave was 10 to 40.

We are still sticking by those numbers, and we will update the market, but nonetheless extremely exciting. On the production side, we had the successful completion of the DTM-7 production well which encountered a very long good section of high quality oil-bearing sands.

The installation vessel is on its way. We hope to be producing it early at the fourth quarter bringing these two wells on stream, which will then boost production in Gabon.

Next slide, please. Tunisia, very, very steady.

We produced about the same as the first quarter, around 4,600 barrels a day for the quarter on a gross basis; it’s about 1,350 barrels net to Panoro. We are having some success there.

We are producing well over 5,000 barrels a day as we speak. We did have a small shutdown in one of the fields in August, which maybe seen slightly in the averages for the third quarter, but the message here very much is that we are on the upward trajectory.

Some of production in Tunisia is going exceptionally well. We're continuing to do lots of small things that you know add up to production growth.

So hopefully we'll be able to show a very strong second half in Tunisia. Next slide, please.

South Africa, we are planning to start this well by the end of 2021. Our rig negotiations are underway.

This is a very interesting prospect well. It's drilling up-dip from a discovery form 1988.

During in the piped quartile area found good quality oil. We're coming up at the tip of that to see if we can find rather significantly more amounts of oil that have been discovered there.

We have a few different reservoirs that we're targeting in this well. So as we get closer to starting that well, we'll be talking more and more about it, but there is considerable information in some of our previous press releases about this prospect, but it indeed can be quite big.

Next slide please. So, our standard news flow ahead.

We have the new production wells in Gabon coming lines. So we'll have fourth quarter – be able to announce them coming online and the rates, hopefully those will come in nicely.

For the Hibiscus well, we made a preliminary announcement last night, but there are more announcements to come as we gather more information, so that's quite exciting. The Infill Wells in EG, one down two to go.

First well was actually. Expecting the second and third to be good as well, and we’ll bring those online.

So there'll be some news flow around those events. In Tunisia we're continuing to work on our workovers as I stated before.

With the PetroNor dividend, which we haven't touched on here, but we hope to be completing the transaction of the sale of our Nigerian business to PetroNor, which will result in a payment to Panoro of $10 million worth of PetroNor shares between tentative [ph] dividend to our shareholders as soon as practically possible after completion. The file is moving along well.

It's subject to ministerial consent criteria Nigeria, which can take some time. But hopefully that will be an event as we get to the end of the third quarter, beginning of the fourth quarter, end of third quarter really and on the exploration on South Africa that I touched on, so there's plenty to go here this year and we'll recharge next year and hopefully replace and do similar next year in terms of exploration wells and production wells.

Next slide, please. So in summary, the key messages we have where we have five new production wells coming on stream towards the end of this year that will hopefully get us to that 9,500 barrels a day, which is what we're targeting, and we're targeting – continuing to target the in excess of 12,000 barrels a day during the course of 2023, which is when the Hibiscus/Ruche development comes online.

We still have near term triggers, so excitement in the shares with the exploration on Gabon and again, we made preliminary last night on that, but there is more news to come there with the South African well and the Petronor dividend. Capital wise, we are generally very good strong cash flow.

We're fully financed. There should be no concerns around our balance sheet, so much to the extent that we very much stand by our position to pay dividends within the next two years.

So you know we can see it all in front of you. That we are going to be a dividend paying company and that is still very much the intention and the board has reiterated that.

We will give more detail on the dividend policy and how we're going to do it in the quarters to come. So with that, I'm finished and if we could just go to the next slide to remind people how to ask questions, you can either type them in or you can raise your hand.

So we'll turn it over to questions. I think Qazi, I think you're going to supervisor.

Yes John, thank you very much. We have a question that has come through the web, which is that in the financial statement there is a line called other non-operating items.

What is included in this slide? That is basically in relation to the Dussafu 10% working interest worldwide, and as John mentioned earlier in the call, there was a recognition of negative goodwill which was about USD $14.5 million, which means that the fair value of the assets that we have provided on the completion date was in excess of the price we have paid for those assets and henceforth there is a gain which is recognized, but it's on day one of the transaction and that basically is predominantly reflected in that line.

The rest of the details are entered and notified to the [inaudible] for that Dussafu acquisition items which had extreme distance. I have a question from Stephen Foucaud.

I’m going to open the line for Stephen. Stephen, what’s your doubt please?

Yes, hi guys. Thanks for taking my questions.

I had a question on quite a few actually, first starting on Hibiscus North. I heard it’s at the early stage, that certain questions.

Why is the Tullow reservoir or resources included in the guidance of $10 million to $40 million considering that you gave. I was wondering whether you might have some more material news coming as you keep drilling.

And then third, the product you’re seeing in the Gamba, are there any implication on the other prospects around a discussion of that micro description of. And then I got an accounting question.

The $14 million CapEx you gave for full year 2021, is that proforma or is that IFRS, because I think the six you spent so far was IFRS? Thank you.

Right. Well, on the second question, I think you know Qazi, correct me if I’m wrong, but you know that’s real cash for Panoro.

So anything that happened you know while we owned the assets economically before we completed them, before our IFRS could recognize them, those any movements in CapEx were dealt with through the closing adjustments. So the actual cash that we handed over to Tullow at the time was adjusted for any capital expenditure, any income in that intervened period.

So it's real Panoro cash, if I can put it that way. In respect to the Hibiscus North, so Richard the questions were, was the 10 to 40 range including the possibility of some finds in the lower Dentale reservoir and does – we’re just discovering the Gamba, but tell us anything else about the exploration on the wider block, if I understood the questions correctly, Stephen.

Yes John, thank you.

Okay, John. I'll take that.

Thank you. Thanks for the question, Stefan.

So the answer is yes on the first one, the high increase included Dentale at the forty case, and then in terms of the prospectivity around Hibiscus North, obviously it's very early days. We haven't fully locked the well, but there are implications here.

And Gamba is present here, which is good for the prospects nearby, and also the trapping mechanism here is slightly different to other prospects we've drilled in the past. So it gives us further information on that aspect of the traps and this was a slightly more risky trap than the [inaudible] for instance.

Great, thank you. And back on the CapEx question.

So therefore that means that for acquistion, the cash CapEx will probably more be like 39, which is 45 and six that was reported in each one. Is that correct John?

Yes.

Thank you.

I mean, you know it’s always a thing with trying to look at things on an annual basis. It always depends on when you know cash calls get made.

So it could be that some of it leaks into January, it could be that you know things are accelerated and January cash call creeps into December, but directionally yes, this is entirely correct, and based on what we can see right now, we think this is the right number.

Wonderful! Thank you, guys.

Thank you, Stephen. We don’t see it in the stands at the moment, but there are a few questions from the stack [inaudible] of the internet.

There’s one question from Stephen again.

On the discovery in Hibiscus North, if commercial, how do you foresee the development solution and what's the most likely timing for these barrels to enter the market?

Okay. Richard, do you want to take that one?

Yeah, I will, thanks. So this is – as its name suggests, this is reasonably close to Hibiscus, this separate structure.

So it’s a – it would be if it were commercial, a tie back to the Hibiscus/Ruche project which is underway. We have spare capacity in the design of that platform and pipeline back to the FPSO and the Hibiscus North would tie into that.

In terms of the timing, we think it will be quite a quick project to tie back. It would just involve possibly a subsea tree and a flow line back to the platform and that could be done in the space of less than a year.

So Stefan, just as a reminder, the Hibiscus/Ruche development phase one, which is ongoing now where we hope to have first production in the fourth quarter of next year, 2022. That involves six new wells principally in the Hibiscus area, the main the bigger Hibiscus structure there and the Ruche area.

And then there's a second phase, which is planned to maintain a nice plateau production, and so you know this discovery here could very well tie into that second phase of development, probably not the first. The first we're really concentrated on the sort of the main Hibiscus area, so it would probably come into that second phase.

So when would the barrels into the market so to speak, you know that's going to be 2024 probably. But you know the point here is this keeps extending out.

The reserve position in the block, it's extending out, therefore the production profile in the block. So it's not so much about rushing those barrels to the market as it were, but just they can kind of backfill as we produce the reserves that we've already found.

So hopefully that answers that question.

Thank you, John. We have another question from an Investor which is asking about, if we could say something about what we have learned from the geology of the new discovery.

Any read across to other prospects in the rest Dussafu Block?

Yeah. I think Richard kind of answered a similar question, which is you know this well had a little bit more risk on it than some of our other ones in terms of the trapping mechanism.

So it's very encouraging that it has worked well. I think it's a little early to make big conclusions about the read across.

But again, since Panoro has been involved in this Block, we have made a straight string of successful wells. I can't remember the number now at the top of my head, but it’s something like 16 straight successful wells in a row.

We had the one blip earlier this year, I mean this extension well. So I think it's just adding to our understanding of what's very clearly a prolific block with plenty more running room on it over the years.

And again, intention really, and we're aligned with BW on this one, is that every time we have a drilling rig out there drilling production wells and bringing cash flow in, we will allocate well slots to drill additional exploration wells. So you will likely see us drilling every time that rig comes out, so next year it's coming back, we’ll be drilling one or two or maybe more exploration wells as part of those campaigns.

So hopefully we'll have some more news already next year.

Thank you, John. There's another question, which is about, if we could elaborate a bit on the high OpEx cost of $31 a barrel at Dussafu.

Is it due to the shutdown for maintenance only or is there something else to it as well.

Yeah, no, it’s good question. And I think you know BWE have had their results already and they've been asked about it as well.

It really is a function of oil production. The main operating cost for that business in Gabon is the FPSO lease and the O&M contract, so the cost of running it day-to-day.

That is by far away the largest element of operating cost, and that is largely a fixed cost. There are some variable elements there, but it is largely a fixed cost.

So if you've got a lot of production going across a vessel, then your OpEx is going straight down. If it's less and that was the case in the second quarter, because of the shutdown, production was lower as everybody saw during the second quarter, that immediately just changes the OpEx per barrel instantaneously.

So what we would expect to see is you know in the third quarter, OpEx will probably remain a little bit stubborn and high, but as we get the new production coming through in the fourth quarter and into next year, you're going see that OpEx line drop. And when we get Hibiscus/Ruche online, a little over a year from now, you are going to really see it go down, well down into the teens, maybe even lower teens if we get the right production coming across the vessel.

So hopefully that answers the question. It's just purely a function of production across the vessel, but $31 is way too long.

But I see that almost as a temporary anomaly.

Thank you, John. Another question we you have is that, is it reasonable to assume closing of EG transaction in the third quarter?

Yes, it is reasonable to assume that, but its outside of our control is that only point I have. So we have the Minister, effectively the President of the country needs to sign it off and he is a busy guy.

You know the regulator makes recommendation to the minister. That recommendation is positive, we know that.

We just need to wait for the minister to actually put his signature on it. We have every hope that it'll happen in the third quarter.

Could it slip into the fourth? Yes.

Again, it's out of our control unfortunately. But there have been, it seems like that there hasn't been any movement on it, but there has been.

There has been quite a bit of development on it. It’s just we don't have the signature yet.

Thank you, John. And, we have another question and on what is the current production at EG?

Current production is stable and around the levels that we've been witnessing. Again, there a lot of operational things going on and the new wells which will all be online by the fourth quarter, so we do expect production to increase and we are seeing signs of that already.

But you know we'll have to just wait and see when these new lines, these new wells come online to see that increase from.

Thank you. And there's another question which has just come in.

It’s about Equatorial Guinea again, if there is any acceleration about potential in the EG assets.

The simple answer is, yes. We're not concentrating on it, because there's so much to go for.

We have an existing 2B number there, but the 2C that you saw there, the group 2C is, I think there's 33 million barrels. Not all of that, but a lot of that is Equatorial Guinea.

So, for us the real upside is actually much lower risk than an exploration. It's about monetizing what is contingent resources over time to drilling infill wells, targeting those contingent resources, making the decision to drill those well, then obviously bring those up to the reserve category.

But yes, I mean, there is some exploration potential, but the focus of the Block really is on producing cash and going after the lower risk stuff.

Thank you, John. This is I think – I can’t see any names, but there is another question that is coming on the chat.

Why is Salloum not really approved? It has been in planning for years.

Thanks a good question. Salloum we were ready to drill Salloum, we have the drilling contract.

We had been waiting for again the ministers, a similar theme to approve the drilling of the well. That approval was not forthcoming, it was taking time.

We then had COVID hit. We probably, even if we had the approvals in hand, we probably not want to have drilled that well with the COVID situation, because of the logistics involved.

I mean as everybody's heard, the oil industry has been really impacted by COVID. It’s getting to be a boring subject now.

But operationally, it really has been tough getting people in and out of countries, getting contracting in, getting kits, equipment is a real – and it continues to be a challenge is the honest truth of it. And it’s a boring topic these days, COVID, but it is real.

So we were not in a position to drill in that well. We are in discussions with the Tunisian government, in respect to kind of unlock this situation.

These things just take some time. You know we do have, we continue to have Salloum on our charts there, but I wouldn't expect that we're going to drill that any time real soon.

But you know it's still very much there. We still very much have the license and it informs part, a part of our upside case.

But at the moment it's not front-and-center.

Thank you. And then we have question on what kind of production do we expect from EG after trying out the three Infill wells.

Good question. You're seeing that we're targeting an increase on a group basis to 9,500 barrels a day by the end of the year.

That relies on two things, that relies on the tying in of the two wells in Gabon, and it relies on the production growth in EG. I wouldn’t want to quote a sort of an instantaneous one-off number, because I think that would be incorrect.

There are a lot of moving parts on those wells, as wells could produce really well or they could be at the lower end of expectation. We just don't know until we bring them online, and then there are other activities as we mentioned in the Block in terms of other things going on, debottlenecking and things which could also lead to an increase in production.

It will result in increased production, but I'd rather not be drawn it, but draw your eye to the increase in production that we see towards them as a group that includes a good contribution or a modest contribution I should say from EG, which could surprise on the upside, but we just don’t know until we bring them online.

Thank you, John. I believe this is the last of the questions we’ve had.

Well, I thank everybody then for your attendance and we are always available obviously for any questions offline, through our website or other email addresses. Thank you very much for attending.

Look forward to updating you at the next quarter. Thank you.