Buccaneer Energy plc. (BUCE) Earnings Call Transcript & Summary

Joining us today is Paul Welch, the CEO of Buccaneer Energy. Paul, thank you very much for joining us today. We're having a bit of a catch-up on what the oil price is meaning for producing oil companies such as Buccaneer.

So I mean, first of all, how are you feeling about the current oil price and how that is affecting the fortunes at Buccaneer?

Well, clearly, the oil price is higher than it has been, surprisingly higher. No one expected it. We just did our last acquisition, bought a producing well based on a relatively flat WTI price of about $60 to $62. And by the time we closed it, WTI was over $100. So it was well timed. You'd like to see these things happen. But as far as the oil price goes, I mean, it's -- if you look at the forward curve, I mean, you have a very steep front end and then kind of the tail end is looking much higher than it was in the past. So it's a good price. Perhaps the reason to have a good price isn't the greatest. But at the moment, our margins went from about $40 a barrel up to $70. So we're making some reasonable cash flows these days. We sold -- yesterday, we sold some oil at $98 a barrel, which is fantastic and that's our price. So we get $4 off WTI there's crude differential -- the gravity difference. So that's a really good price. So yes, we're happy with the price. We're not necessarily happy with the reason for the price, but we're definitely happy with the price.

Sure. Absolutely. And at the moment, do you -- are you able to tell us how many barrels of oil per day the company is producing?

So we're -- at the moment, we're right around 120, I would say. We have one tank battery that's down in the separator repair, that separator repair is underway. Surprisingly, there's a mini cold season in the field. So like our field manager is out sick, the guys are working on repairing the separator, I mean, it's crazy. So we had a couple of people out last few days. So we think we'll get the separator back up and running this week. That will bring on another 20 barrels a day. So we should be right around 140-ish depending on what's happening. So it's a good -- we're in a good position. I think our focus at the moment is -- before we were looking to grow and do acquisitions, that sort of thing. At the moment, we're just really focused on making sure everything that can produce is producing -- again, keeping an eye on our operating costs. We're not going to spend money like crazy, but we're making sure that everything can produce, will produce. In that vein, a while back, just after we drilled the Allar #1 well, we picked up some acreage to the west of where we had the Fouke area. That had a well on it called Turner #1 well. And that well, we said was capable of producing, but it wasn't at the time. So we returned that well to production. That well is making 5 barrels a day. We can probably take it up to 10 barrels a day. So that is a well that will ultimately become an injector for the Fouke area waterflood. And -- but in the time when we're setting that up and getting all facilities in straight and working out the deal with all landowners, we're going to be producing that well. And so that will add again, we're only 1/3 of that well. So that will add another 3, 4 -- potentially 3, 4 barrels a day for us. But again, at these prices, that really adds up. So another 3, 4 barrels a day, which didn't cost us anything is a good way to make some additional money. So that well returned production 2 days ago. So it's -- yes, so things -- like I said, the folks at the moment in the field, anything that can't produce should be producing. So if something goes down when prices were super low, it might be down for a while before we returned it. But with these current high prices, if it goes down, it will come back on that day, the next day as soon as it can. So anyway, so that's kind of what we're focused on.

Good. That's good to know. So currently about 120 soon to get to 140 and then pretty soon after circa 150, which is I think from the presentation back a while ago, that was, of course, the target. And I think it was stated there about USD 78,000 per month in free cash flow from that at the oil prices at that time. So first question, what are the sort of margins you're making? I know it's different between each sort of field, but can you mean it? Can you average that?

Yes. I think from an average, we're probably making about $65 a barrel across -- some are higher and the Fouke area and the Carlisle wells are much higher. If we're getting $90, $95 a barrel, we're going to be clearing about $90 a barrel there before royalty. Royalty is going to take a quarter of that. But -- so yes, the margins are high. Operating costs haven't changed much. Again, particularly in the Fouke area, we make very little water. So margins are high. Our operating costs are still between less than $5 a barrel. So that hasn't changed. So margins are definitely higher. Our costs are basically fixed. And so all the increase in price goes straight to the bottom line, which is what I think people would expect. So yes, our margins are definitely up from where they used to be.

Excellent. Good. So I've just done some very quick calculations there. So that would be circa USD 270,000-ish per month based on 150 and about $65 of the margin. So that's a significant increase really. You must be quite pleased with that. And of course, you've still got further upside, haven't you, with other wells and of course, the OOR.

Yes. So we certainly -- I mean, don't forget, we got to take royalty out of that. So royalty is going to take about 20%, 25% of that out of that net. So just remember that. But yes, we're definitely pleased. With regards to the OOR, so the OOR program started off really strong. We doubled production. 206 well, which we talked about in the past, went to 0% water cut. It still has very low water cut. I mean, less than 10%. I mean it's very, very low. We lost one of the wells out there, and we had a bad pump that we have to replace when the 204 well went down. So we have to replace that was one of the treated wells. So overall, that production is off a little bit. But once that well returns to production, we'll see where we stand. We're not making 30 there anymore. We're making less than that. So we have seen a little bit of a decline. But this month, mid-April, mid- to late April, we'll do another treatment. These treatments are just of the injectors. So we don't have to shut the field in when we treat. We just inject the nutrient along with the waterflood fluids. And so we hope to get a secondary boost. What we don't know yet and what the service companies work on is how far this flood front has advanced. Have we hit the producers yet? Have the nutrients started to starve because it's that starvation period is when they look for new food sources and they change the dynamic of where they're grabbing the food source. So that is still an open question. And so we should get those results relatively quickly because as we produce the field, we're collecting samples on a weekly basis from each of the wells up in the Battery 3 area. So what -- I think what we'll do is we'll treat this at least one more time, understand the results, and then we'll look to implement it field-wide if we think it's beneficial. Now at current prices -- at previous prices, it was a very easy sell. I mean, at current prices, it's even easier sell to expand it. So we'll see. I mean it may be the fact that we talked about it a lot. I got a lot of inbound questions. We wrote a paper. I think that was put out in the press. And so that is circulating. So there's a lot of interest in OOR now. So we'll see how much capacity they have to take care of us, but it's definitely taken off. But that's our plan. So we think, hopefully, by midyear, we'll start to expand it across the field, and we may treat some additional producers. So that is going to be additional upside. As I also mentioned a few minutes seconds ago, we're still working on the Fouke waterflood and we need to get that up and running. That was kind of a midyear target. We're still working through that process with our partner. And so we'll see now that we have the Turner well up and running, we would like to get this moving forward. It's not as much impetus as I think there was in the past when we had that well shut in. Now that we're making money from that, I think our partner will probably move a little bit slower, but we're pushing on that. So that will happen, we expect midyear, and that should be another 30, 40 barrels once it is up and running. So there's a lot going on. We're definitely making a lot more money than we were before. We're super happy about that. But no one knows and perhaps you know or some of your listeners know is how long these high oil prices are going to last. If you look at the forward curve by the end of the year, they're definitely back down to the $75 range. Even that is much better than where we were before, which is the mid-50s. So I think from a cash flow perspective, we're looking for a really good year this year. And as we continue to grow kind of organically rather than inorganically, I think we're going to see some significant increase in cash flow towards the end of the year.

Good. Excellent. Good. And of course, so you said that midyear for the waterflood and for the OOR to be done again. I guess we don't know at the minute what the OOR is going to yield, but from previous from the pilot, it could be excellent in either way, it's going to be very good. In terms of drilling other wells, the sidetrack and the Fouke 4 potentially, what are you thinking here?

I think what we're going to do before we drill the sidetrack and the A well or the Fouke 4 is see what the waterflood does. We need to understand that. I think before we'll do that because we were very, very surprised at the results of the #1 well. So I think for the moment, we're going to keep that capital and deploy it and work that sort of thing. Once we have the waterflood up and running, then we'll see how it responds. If we see a response that indicates there's a lot more upside in that northern part of the field, then we'll drill the well or drill the sidetrack at that point. But it will be a while before we do that because we were unpleasantly surprised that we don't want to do that again. So yes, but I think at the moment, we're just -- we're kind of hitting on all cylinders. Our cash flow is way up. The only thing that's not up is our share price, which is unfortunate. We're doing -- we're pushing that out there, but I think we are so undervalued. Before -- if we just look at the -- I mean, if you look at the original reserve report and then the reserve report for the Carlisle well, we have $10.5 million of value and our share price is under $2. So there is a huge gap that needs to be filled. And that's what we're focused on. We've got to close that gap, right? So we're mindful of the gap and the gap is what we're focused on. So that's what we're doing. And again, our view of how to close that gap is...

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Show people that we're generating the cash and that gap will close. So we are mindful of the gap. We are minding the gap as they would say on the tube.

Yes, that's what they would say on the tube, exactly. And when can you release, do you think, official numbers to the market there, official numbers that we can see. I mean we're talking circa [ $200,000 ] a month, I would say. So you're looking at [ $2.5 million ] a year, but we need to see that in black and white.

Yes. Again, so we'll put out our financials in May. We'll have our AGM in June. So that's kind of the timing at the moment. We're working on as we speak. So that's the kind of the time it's unchanged or the time line that's unchanged from previous years. So that's what we're focused on.

Okay. Good. And just finally, Paul, do you have a target end of year barrels of oil per day?

Yes. Again, I think we would target to be just under 200 by the end of the year. I would like it to be a little bit more. Again, for it to be more, it's probably going to take inorganic, some inorganic growth. But given the change in the oil price and the uncertainty surrounding it, I think that will be a challenge to do anything before the end of the year. But -- so we're looking -- we're kind of focused on right around -- just under 200, just around 200 barrels a day by the end of the year, that's were focused.

Well, Paul Welch, thank you very much for giving us an update today, and let's keep in touch on, yes, the waterflood and of course, the OOR, we'll keep an eye on the oil price, but thank you for your time.

Okay. Thanks for having me. Good to speak to you.