Panoro Energy ASA

Good morning everyone, John Hamilton here, Chief Executive of Panoro. On this call this morning, I'm also joined by Nigel McKim, our Projects Director, and Richard Morton, our Technical Director, Qazi Qadeer, our CFO, here to talk to you today about our trading and financial update as of the end of the Third Quarter.

As a reminder, today's conference call contains certain statements that are maybe 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 as a reminder, you can ask questions, either by raising your hand, as you see is the hand icon there or you can type in a question.

We will take questions at the end. And you can either raise your hand in which case we will unmute you.

And you can ask your question live. Or you can type in a question which we'll try and address as well.

Next slide, please. Great.

So just as a reminder, I want to talk a little bit about our value creation model, our strategy as a company, because I think it's very, very relevant in this - in this time. We have an energy transition going on.

We have higher oil prices. We ourselves believe that we are into a long cycle of potentially volatile, but certainly higher oil prices, as oil demand continues to be present as we migrate towards the energy transition.

And we are entirely focused on our strategy on how to maximize the position over the coming number of years that we believe oil will continue to be an important commodity, and one that could be high demand. We've seen obviously a significant underinvestment in oil, oil and gas, capital expenditure globally, over the past few years, which we believe will continue to support high oil prices.

So you know, in positioning ourselves, we're looking from a capital allocation strategy towards a Brownfield incremental production. So we're looking to grow our production base, which those of you follow us know we were doing.

We have a huge contingent resource base 33 million barrels, which we hope to bring into the proven and probable reserve category in due course. So we have a very, very good inventory of proven barrels, but also contingent resources for which to produce over the number of years coming forward.

We're also looking up just opportunistic acquisitions. We've done a couple, OMV and Tullow.

And we position ourselves to be one of a very few credible buyers in the market for what we believe will continue to be opportunities as larger oil companies disposable [ph] oil assets. Exploration, we're not an exploration company.

However, exploration does have its part in terms of making sure that you continue to replace the barrels you produce by finding new ones. We are focused - where we do exploration, we're focused on things that are very, very short cycle back into production, preferably near where we're already producing.

So again, looking at infrastructure-led exploration, short cycle exploration, which can be brought into production, not frontier exploration type of opportunities. And what that all means is that we have a plan to develop a shareholder returns policy.

We have a - we've made a number of statements today that the Board has decided on, where we're looking at the feasibility of bringing forward our very first cash dividend. We'd indicated at the time of the Tullow acquisitions that we're looking at mid 2023, and why 2023?

That was when the Hibiscus/Ruche development would come online. We will have de-risk that and at that point we were prepared to start with a dividend payment, cash dividend.

We're seeing higher oil prices now. And so the Board has very much discussed what our dividend policy should be.

And that dividend policy is very much about returning a significant portion of free cash flow back to shareholders. We'll be reinvesting some of that money back into the business clearly, but a lot of it will be going back to shareholders.

The timing of that first dividend is dependent still on a few things, we're looking at, you know, capital expenditure, we're looking at oil prices that they've dropped off a little bit recently, but not too badly. Operational performance of the assets and critically, the timing of our liftings, that's the lifting is really what drives you know, when we get our cash in the door and when we can pay that back out to shareholders.

So hopefully the messages come through loud and clear day that we're looking to potentially materially bringing forward that first dividend date. And we will be communicating that in the next couple of months, where we see that - that evolving.

Next slide, please. So, if you take our thesis as true, which is that oil prices will continue to be strong, perhaps even get stronger.

We're exceptionally well positioned to take advantage of that. We have as at the end of the third quarter of 3.5 times more production than we had last year.

At the same time, at the moment, you know, we're producing, close to 8,500 barrels a day, which is four times higher, and we're on track through committed and an agreed work programs to get in excess of 12,000 barrels a day during the course of 2023 over the next 18 months. So we really - we are hoping to continue to ride the commodity cycle and delivering that organic production growth through our existing portfolio.

So I think we're exceptionally well positioned. Next slide, please.

So some numbers, I won't go through these in great detail, they are in the report. We are showing a few things here on a pro forma basis.

Again, we completed the transactions with Tullow in March and May respectively, although we have the economic benefit of those from the 1st of January. So when I say pro forma, it means assuming that we had owned - assuming that we legally own them from the 1st of January.

So you can see revenues of $107 million, net cash from operations $42 million, that's against the realized oil price of $67 a barrel. Now, we didn't have any liftings in the third quarter, that was well flagged.

We have four liftings. However, in the fourth quarter, we have over a million barrels being sold in the fourth quarter.

We've already lifted 130,000 barrels in Gabon. We have another Japanese [ph] lifting with very large Equatorial Guinea lifting in early December.

And we have a Tunisia lifting towards the end of this month. So what you're going to see is fourth quarter is going to be very, very different.

In some ways, maybe almost equivalence, and not quite perhaps to the nine months leading up to that point. That really emphasizes the point around lifting, sometimes we have lifting, sometimes we don't.

So you really need to judge us, I think on a longer period of time other than quarterly, quarterly. Next slide, please.

Again, this is a lot of detail, I'm not going to go through it. But its trying to reconcile the IFRS reporting versus the pro forma basis.

This is something we continue to do this year post the acquisitions, because a lot of things were moving around on the P&L and on the balance sheet, as a result of those transactions that we did that I think confuses - confuse the financial picture a little bit. So in this slide, we simply try to break out exactly what's happening on an IFRS versus pro forma basis and trying to explain some of the larger movements.

I don't propose to go into those because these have been well flagged. And there's nothing - there's nothing new here in this particular slide that I think anybody will find surprising.

But nonetheless, for full transparency, we will continue with this presentation all the way through the fourth quarter of this year for next year's financials. It'll just be IFRS.

Next slide please. And again, just to provide as much transparency to our business as possible, we will continue to show reconciliation of cash flow.

This is a cash flow from the start of the period, in the beginning of January, all the way through the year. So everybody can see how cash ends up where cash from operations is which is obviously for us the key aspect here.

Again, this is a chart that we'll continue to show to provide full transparency to our business. Next slide, please.

CapEx, again, CapEx guidance is about $23 million left to spend in the fourth quarter. You know, as everybody knows, we had active campaigns in EG and adding Gabon, some smaller things happening in Tunisia as well.

Hibiscus/Ruche Phase 1 is developing on schedule and within budget so far. And the Gazania-1 well in South Africa we'll touch on a little bit, that's been deferred to 2023.

So this is our CapEx guidance for the remainder of the year. Next slide, please.

So an operations update. In Equatorial Guinea, we drilled our first new infill well since 2015, at the Okume Complex.

We had excellent quality oil, saturated sands, that well is now on stream. It's performing way ahead of expectation.

So that's a very, very good news. The second infill way is underway, and we expect that to be on stream probably in Q4, probably in the next few weeks to a month.

We have a new gas lift distribution unit installed in Ceiba field. And the partners are now very actively focused on further production growth activities in 2022, and beyond then comprising additional workover activity and potential development drilling.

So, Equatorial Guinea is going extremely well, perhaps a little bit slower in terms of that production growth, and we expected, but [ph] that is now start starting to come online in November and December. And we're very, very pleased with what's happening there.

In Gabon, the final two production wells were drilled as part of the Tortue Phase 2, those are the final wells for Tortue, those are now on stream. Production at the moment is being optimized with the previously communicated shortage of gas lift capacity affecting the abilities for all the wells to simultaneously produce at their potential.

So, BW is very, very much focused on trying to get these wells to hit their full stride at the moment. They're working hard on that.

Hibiscus/Ruche Phase 1 development, as I previously mentioned, remains on schedule and within budget for first oil anticipated in Q4 2022. So within a year from now, we should have the first of the new wells, six new wells, the first of those coming online in the fourth quarter of next year.

Hibiscus North was a discovery in the quarter that will be incorporated into future development planning. In Tunisia, Tunisia has been rock solid.

We have a number of well, operating activities going on, upgrades at various facilities. We've had some really good success with some workovers.

They're showing that stimulation of the wells in conjunction with the use of ESP replacements can really boost production materially well, so we're looking at our entire well inventory now to see where else we might be able to - to apply this stimulation technology. And we're looking at a lot of different things together with our partner on subsurface re-modeling.

One of the things about this slide that I like is that whereas perhaps a year ago, or two years ago, we might have had one or two assets in which to talk about and then we're fully seeing the benefits here of a diversified portfolio diversified by country by operator. And that's really providing for us a really good stability, I think, and it's exactly where we want to be is having very, very diversified production portfolio.

And that's showing its strengths right now. Next slide, please.

We announced in the quarter as well, a provisional license award in Gabon. So getting back to our exploration strategy, we are not frontier explorers, that's not our strategy.

Our strategy is to continue to try and find oil that is near existing infrastructure, again, to try and tie back short cycle exploration where if you make a discovery, you can tie it back into infrastructure, not in 10 years from now, but in a couple of years from now. And with that in mind, we have been spending two years now working on these exploration blocks, which surround the Dussafu acreage and nearby to the Etame complex, which is operated by VAALCO.

We were able to bring in BW and able to bring in VAALCO to join our group. And we - between the three of us effectively know this area better than anybody else.

And we have a provisional award, that doesn't mean that it's awarded, we still have some negotiations with the government to do. But this is exactly the kind of thing you would like to see us do.

We would like to see us do on the exploration portfolio is doing smart things in and around places where we know that we make a discovery, we can produce the oil pretty quickly. Next slide, please.

So I'll just finalize before questions. So we have a very, very busy Q4.

We have about a million barrels, over a million barrels being lifted against the current strong oil price environment. We have new wells on stream in EG and Gabon.

We're moving towards lets say, 8,500, perhaps can get a little bit higher than that by the end of the year. But let's see.

But it's a good strong production, that's good 10%, 15% higher than the year-to-date average. So we're very, very pleased with that.

We've expanded our footprint in Gabon, hopefully provisionally, which is consistent with our strategy. Strong financial position $45 million cash in the bank at the end of the quarter and net debt of approximately $52 million.

It's our intention to pay a sustainable quarterly dividend payout and return a significant portion of free cash flow to shareholders with buybacks as a complementary mechanism. And we are assessing the feasibility of bringing forward that maiden cash dividend, to bring that forward as soon as possible.

Our growth prospects remain strong. So with that, I'll flip to the next slide, just remind you how to ask a question and we will open up question, you can either raise your hand with the hand icon, or you can type in a question.

My colleague Qazi is going to flag up any questions to me and I will allocate - I'll either answer them myself or allocate them to the team.

Thank you, John. Good morning, everyone.

The first question is from [indiscernible] I'm going to open your lines Sigurd. You may speak now please.

Once again Sigurd, if you are listening, please ask your question. I think there's some technology issue.

I will move on to the next one. Next question we have is from Stephen Foucaud from Auctus.

Stephen, you may please speak now.

Yes. Hi.

Morning, guys. Few questions for me.

The first one, I saw that the production guidance at the end of the year has been adjusted a bit and I was wondering which moving parts have changed? On the CapEx side, you talk about EG and I think likewise, the budget for 2021.

There is no allocated to EG. And again, quite I think material way, I think – wondering what again - what activity behind the change?

And lastly, if you could talk perhaps, you talk about the dividend quite a bit. Do you have some sort of framework in mind?

I think we talk about free cash flow. But would it be - are we talking in terms of formula for some sort of share of earnings, share of cash flow, share of free cash flow?

What so generally [indiscernible]? Thank you.

Sure. So Stephen, your first question.

Yes, we've trimmed our sort of year end number a bit. That is, you know, is principally down.

You know, EG is doing fine. The first well is coming online well, some of the other smaller activities are also now starting to harvest.

So I think there's just a bit of conservatism being communicated here in terms of that year end number. You know, it's principally down, really, I think, Dussafu, we just brought this two new wells online.

You know, on paper, you know, they add production immediately, I think the reality is, we're still trying to optimize how those clusters, six different wells, how they interface with each other, the use of the facilities on board and including the gas lift compressor. So, BW are busy trying to optimize at the moment.

So you're just finding a little bit of conservatism baked into our revised guidance, which I think is sensible. Nothing has really changed at the end of the day that we, you know, continued to be on a growth trajectory.

It's just that year end number. It's just been shaved a little bit, and that’s principally down to some conservatism on the - on the Dussafu peak number in the quarter.

EG CapEx is up slightly, I think we have an excellent first well, and really it's probably producing, I'd say almost double what we expected to and, you know, it's early days still, but it looks really good, really good well. There were some increased costs in the drilling of that well.

There was also a couple smaller unplanned activities with the rig and some a little bit of flat time on the drilling. So that's - that's resulted in small increase in CapEx in EG.

With respect to the dividend, I think the model is very much can be based around free cash flow. You know, I think the Board is - what they want to do is they want to start trying to articulate this more and more.

So rather than come out with a precise formula now, which you know, on paper that dividend is a year and a half away, so it's a little early for that. What we're obviously communicating as we think that under certain circumstances, we can bring that materially forward.

But it's likely to be something around free cash flow rather than earnings or something down the P&L. And I think that, that - I think that that, that it's really based on you know, some sometimes a P&L for any EMP company can be - that a lot of stuff happening below the line which – and in fact, what you're really concentrating on here is cash flow generation, post-CapEx, and the allocation of that free cash flow towards shareholder dividends, towards new CapEx which hopefully maintains or increases production.

And obviously towards just debt service which is normal. So it's likely to be something around free cash flow.

Very good. Thank you.

Thank you very much. My next question is from Teodor Nilsen [SpareBank1 Markets].

Teodor, your line is open. You can speak now, please.

Thank you very much. So thanks for taking my questions.

Three questions from me, if I may. Firstly, just on the Gazania well, that is obviously now postponed until 2022.

So just already good, provide some more color on when in 2022 you expect that well to be drilled? And second question is on hedging strategy for 2022.

Of course, you hedged some of the volumes this year, how do you think around 2022 and the current prices and your hedging? And my third and final question is on the lift [ph] thing, you have this far in Q4, could you indicate what kind of realized oil prices you had to let [ph] on?

Thank you.

Sure. So Gazania, Africa Energy, you know, in their third quarter results, you know, they reported that the operator asking them, they evaluating rig availability and really looking to maximize or should I say, minimize the mobilization and demobilization cost of the rig.

So, you know, ideally, for a rig in a location like that you want to try and get a rig that's in the area. And unfortunately, they couldn't get one that was going to drill by the end of this year.

So Africa Energy have reported that the license expires in the end of 2022. And that would hope to drill before that.

And so they haven't provided any additional guidance to that. What they have pointed out is that, you know, they are expecting us to honor the terms of their final agreement by the end of this year.

So we may well see some progress there by the end of the year, not the actual spudding of the well, but the sort of contractual arrangements around the identification of the rig. So it's a little early for us, certainly as non operator to provide any additional guidance on that.

And your third question was around hedging - second question was around the lifting, right? Teodor?

Yes, that's correct. Hedging, lifting were the two Teodor's questions.

Yeah. So lifting, we lifted about 130,000 barrels net us a couple of weeks ago.

That prices on a month average for November. So whatever the average daily brent [ph] is for the month, which I suspect will be around $80 a barrel.

It depends on what happens the last week of the month. But obviously we enjoyed oil prices that were higher than 80 for most of the month, they've dropped off a little bit as everybody's seen over the past week or two, past week, really.

So we probably expect around $80 a barrel for that one. We are lifting in Tunisia in about a week's time.

That will price on - in and around the oil price at the time of the lifting. So if oil is at $78, it'll be $78 you know, less – that trades at $1 to discount to brent, net crude.

We're then lifting early December in Equatorial Guinea, where that also prices in and around the lifting timing. So, you know, hopefully, oil will be nice and strong in about 10 days time, which is when we lift.

And then we have another gap and this lifting towards the back end of December. And that one will price on the month average for December.

So each of the contracts is slightly different, but you get some averaging effect in Gabon, the others are usually priced in and around the time of the lifting. In terms of hedging, we are largely unhedged in 2022.

We historically have some hedges in our link to our Tunisian crude, which is linked back to the loan facility we originally agreed at the time, where we've hedged approximately 700 barrels a day to Panoro. So we're probably you know - that's - those are the only hedges we have, 700 barrels a day in 2022.

For the rest, we're nicely exposed to the higher oil price. Our hedging strategy will probably be to try to manage hedging in and around our lifting.

So once we have some clarity on the lifting frequency, remember we lift our own barrels. So once we identify when we think we're lifting, we will seek to try and hedge a certain amount of production maybe 30%, 40% of production in and around timing of those liftings, just to make sure we take some of the any drama out of the actual pricing, which is exactly what we've done in the fourth quarter of this year as well did a little edging as previously disclosed in around this, EG lifting.

So we will continue to, I think operationally hedge, we don't have any longer term hedges in place.

Okay, I understood…

Did I answer the question?

Yes, absolutely. Thank you.

Thank you, Teodor. We have another question from Nicolas Stefano.

Nicolas, your line is open, .you can speak now, please.

Hi, guys. Can you hear me?

Yes.

Just a couple of household on EG and the corporate law. Just for 2022, because you know, the [indiscernible] like the logistics.

And in terms of like additional drilling, the time [ph] must be quite short. So what's the thinking about that?

Because you [indiscernible] we believe and then come back again, so you can just start from that And then on the Gazania, [indiscernible] in EG quite a bit. And I would expect to that to include a Gazania injection.

Any kind of like updates from that? And if you could give us some color?

And then on M&A, are you - are you kind of like, you know, down for say, you know, now well, maybe the you know, the next couple of years? Or do you still think oh, there's quite a bit of opportunity in West Africa, and you're still like on the lookout for further stuff?

Let me answer your second one first. And then and then I might ask my colleague Nigel, or colleagues Nigel and Richard to chip in on the gas and EG and.

You know, the way we look at acquisitions is very optimistic. And we think that the picture looks very good.

We have large oil companies needing to sell for strategic reasons. Energy transition, we're seeing, we believe, fewer and fewer competition for assets in the region, access to capital has been difficult for many.

So we do see a lot of opportunity. And we need to keep a very active eye open for those opportunities.

We think we're very, very credible buyer. We've demonstrated that a couple of times now that we've been able to do a creative transactions for our shareholders.

However, we're not in a rush. And we know that we have a good thing going with our organic production growth.

We are absolutely committed to being a dividend payer as soon as we possibly can. So we won't do anything that kind of disrupts that, that trajectory that we have.

So we look because that's our job, we have to continue to look at opportunities, and we think they're going to be a lot of them. But we're not going to be over eager, we're not in a rush to do anything.

But there's certainly going to be I believe, over the next one to three years, there's going to be a lot of opportunity to do more. In respect to BG, you have the rig, the rig was there for a period of time, it has another commitment.

After that, so it needs to go. There are a number of other activities that are being identified by the operator in EG for 2022, which I think are going to be quite positive, we'll be able to give an update in January when we come with our guidance for the year in terms of what we think that actually looks like for us.

But we're very, very pleased with the progress the operators making, in terms of identifying, not just drilling new wells, because those are always exciting, of course, but there's so many other things that can be done on those operations to maintain and boost production. I don't Nigel, do you want to come in at all on any of those initiatives?

Certainly, John. Good morning, everyone.

Good morning, Nicholas. I guess you specifically asked about the gas flaring at EG.

And that's very much a topic of conversation within the partnership at present and work that the operator is actively engaged with. Just now we're not able to provide you any details just yet.

It's pretty much work in progress. But there is a longer term, need and strategy to reduce flaring and to improve the management of gas across the assets.

So it's realized that we can better apply the gas that's being flared to lift gas usage on both the [indiscernible]. And that there are a series of activities that are being looked at to do just that to distribute the gas better, and to manage the gas that the acid is generating.

Okay, understood. Any quick follow up on EG [indiscernible] well program was going to be three wells at [indiscernible] right?

Is that still the plan?

So Nick, in our in our report, you may not have a chance to detail. So we have drilled and completed one well, which is going extremely well beyond expectations.

The second one is just completing as we speak. The third, the top hole section was drilled, but we ran out a little bit of time.

So that will be deferred. Until well, probably into 22 when we get the rig back, I'm assuming the rig will come back.

So we've kind of drilled two and a half if I can put it that way. But the third, the third will be brought online at a later time.

Now, what cosmos [ph] has also communicated all this as well as that the I think the you know, the sort of outperformance of the first well kind of made that decision a little bit easier, as it were. Okay, because we timed out a little bit on the rig.

Thank you.

We have one question on the website, which basically is set on [indiscernible]?

You know, we were making progress on that one, it's been it's been slow going. As you follow us know, we have a number of conversations with the government in Tunisia about sort of breaking this impasse that, we have we've we put a paragraph in our third quarter report and respective of that the solution is still evolving, but it looks like it's going to be a renewal of the of the exploration period on that block.

So that's a very, very positive development. So we secure the block for quite a bit more time.

They will return part of the bank guarantee to us and draw part of it reflecting what they think is DNR [ph] is non fulfillment. So if you remember, DNR left $8 million [ph] behind for us to deal with this issue.

So it's just a question around how much of that 8 million bucks we need to give to the government how much we keep the original DNR deposit. So I think it's moving in the right direction, we still have some work to do on it.

You know, I don't think there's any real near term activity on facts offshore. But I think I think it's moving in the right direction.

Thank you, John, we have another question. On the phone line from Sibyls [ph] Your line is open to speak.

Again, reminder, your line is open now. I think we have no more questions either on the web or on the phone call.

And so he would say just figure out if you can hear us is that you know drop us an email if you like we'll try and answer your question bilaterally as it were. I thank everybody for attending.

Thank you very much and keep paying attention to us. I think we've got a lot of good stuff coming.

Thank you.