Buru Energy Limited (BRU) Earnings Call Transcript & Summary

Thanks very much, Shane. Good morning, ladies and gentlemen. It's now 10:30, which is the designated start time for the Buru Energy AGM. My name is Eric Streitberg, and I'm the Chairman of Buru Energy. I'm pleased to welcome you to the 2020 Annual General Meeting. And of course, for the first time in the company's history, this meeting is largely virtual. I can report that apart from Buru's staff and advisers, we have no shareholders in physical attendance at the meeting. And I'm pleased to see that people have taken the advice that we provided. But I'm also hopeful that we have an electronic audience who have taken advantage of being able to virtually attend the meeting from the comfort of their homes or offices. I'm attending via phone as is one of our other directors, Eve Howell. Our third Director, Rob Willes; and our Company Secretary, Shane McDermott, are attending the physical meetings, which is being held at the Celtic Club in West Perth. Eve and Rob and Shane, could you please confirm you're online. Eve, first?

Yes, Eric. I'm online.

Thank you. Rob?

Yes, I'm here.

And Shane?

Yes, here with Rob. Thanks, Eric.

Thanks very much. Also attending via phone are the company's auditors and lawyers, and I'll introduce them shortly. As set out in the notice of meeting in our ASX release yesterday, although we would normally welcome our shareholders to attend the AGM in person, because of the pandemic, this has not been the case this year, and we have strongly recommended that shareholders do not attend but rather listen to the proceedings via the audio webcast facility. And I would trust that all shareholders who have dialed in can hear me clearly. Shareholders listening via the webcast are not able to ask questions or vote on the resolution during the meeting using the audio webcast facility, but we have encouraged you to cast your votes by proxy and submit any questions prior to the meeting. I'm very pleased to report that we've had a very significant number of proxies and also a number of questions from shareholders. So before we move on to the formal part of the meeting, I'll make a brief Chairman's address, which was released just prior to the meeting. So hopefully, shareholders will have been able to access that. And then I'll provide a response to the questions that were submitted prior to the meeting. So moving on to my Chairman's address. Obviously, I'd welcome all shareholders to our first Buru virtual meeting. One of the defining characteristics of the oil and gas industry is that we are innovative and quickly embrace appropriate technologies. So the current circumstances have seen us able to quickly and easily adapt to working in a primarily digital environment, including today's mostly virtual meeting. We've also been very fortunate to have a state government that's taken a pragmatic and measured approach to the control of the pandemic. And this has allowed us to continue our operations in the field in a controlled and effective way. And we thank the Premier and his team for their handling of the crisis. As a Board and a company, we're also used to volatile commodity markets and to the currently rapidly changing face of the energy industry. So this turmoil in the oil markets is nothing new for us. We're used to making sure that we're always prepared to ride out these changes, and Buru is in an excellent position to do just that. We've had a prudent and deliberate strategy to ensure we've maintained a healthy balance sheet with minimal debt and that we have no commitments on our acreage that will force us into unwanted or unnecessary activity. So we're in a pretty good position, and I'd like to now address Buru's current situation and our plan for the future. I know that many shareholders are as distressed as we are with the current share price, except, of course, for those shareholders who have recently been acquiring shares at these historically low prices. Buru is one of the few listed small Australian oil and gas companies that has solid cash reserves, an excellent asset base and no material exploration commitments. This strong position reflects the long-term strategy of the company, we don't overextend and we prepare for eventualities. Although this preparedness is not reflected in the current share price, the company is well positioned to ride out the storm and take advantage of strategic and high-value opportunities that are going to inevitably arise. In regard to our current position, the company has continued to produce from its conventional oil field at a steady rate of 1,500 barrels a day or more. And then the next lifting from the CGL storage tank in Wyndham is in a few days' time, and we expect to receive a payment in line with the average Brent price for the month of May, less the buyer's normal fixed discount under the current contract. The joint venture is carefully monitoring the current oil market and shipping constraints, and we'll make a decision in the third quarter as to whether a temporary suspension of production from Ungani would be prudent. We're in a fortunate position of being able to suspend production with no material operational consequences as we've done on occasion in the past. Looking now to the future, we are currently inviting interested parties to participate in our exploration acreage. We've done a very thorough technical evaluation of the prospectivity of the acreage. And we've been delighted to not only confirm the original prospectivity, but we've also identified a number of new play concepts, which we think have very high potential. We'll release an updated corporate presentation after the AGM that sets out the results of this review in more detail, and I would encourage interested shareholders to review that presentation. The farm-out process is ongoing, with interested parties now accessing the virtual data room, which is another example of our preparedness for the current situation. The oil industry has used virtual data rooms for a very long time. These farm-out processes do take time to complete, given the level of due diligence that's undertaken by the incurring parties. And we're aiming for a completion of any potential transaction later this year as a prelude to activity next year. These are realistic time frames and realistic expectations and are partly driven by our ability to drill exploration wells in this dry season being severely limited by the very high level of disruption the pandemic has caused to exploration operations and the consequent shortage of drilling rigs and associated contracting equipment and services. It's also appropriate for Buru to defer exploration until there's some stability in the oil and equity markets. However, as the Sage of Omaha and various Chinese philosophers have noted, in times of trouble and disruption, opportunities inevitably arise. Those companies like Buru, who are well prepared for these times will find that both corporate and asset opportunities will indeed arise. These will be both in our core business activities and also in the value-adding businesses that may include, for example, local value adding to Ungani crude and the establishment of renewable energy precinct backed up by our conventional gas resources. We have formed an internal business unit from existing staff to specifically focus on opportunities. I'd like to reiterate that the company is in excellent shape to weather these turbulent times and emerge stronger and more efficient. And the Board and management has the experience and capability to deliver for the future. In that regard, I'd like to thank the staff of the company, many of whom have taken very significant salary reductions, but have continued to put in normal and in many cases, more than usual hours into the business. I'd also like to thank the many shareholders who have persevered with their investments and recognize the considerable financial difficulty that many of our smaller shareholders find themselves in. We're very hopeful that we will emerge stronger and more robust from these current circumstances, and thank you for your continued support. So thank you. That concludes my Chairman's address, and I'll now move to the questions that have been submitted by shareholders. Some of the specific questions that have been provided are also covered in some of the more general questions that have been provided. So with the number of questions that have been answered by, first of all, the presentation that will be released shortly and also a number of the matters that I referred to in my Chairman's address. So let's move now to respond to the various questions. So I'd, first of all, like to sincerely thank all those shareholders who took the opportunity to submit their questions prior to the meeting. I know it's an unusual way to attend an AGM, but people have taken the advantage of being able to submit questions, and we appreciate that. There's a number of common areas where shareholders would like more information. So rather than address each of those questions individually and repeat myself a number of times, I'll attempt to summarize them. As I mentioned, I also note that my Chairman's address addressed a number of these questions as does the updated presentation that will be released after the meeting. So one of the main questions that we received was in regard to the drilling activity this year. Again, I have addressed that to a degree in my Chairman's address. Drilling activity in Australia has collapsed. And I'm afraid we're back in a situation of low oil prices, where for some years there was no exploration drilling activity onshore in Australia. This lack of activity has been exacerbated by the pandemic, which has essentially bought all field work to a halt, particularly for people who operate in Northern Australia, like the Kimberley and the Northern Territory, where there's a large indigenous population. But from our point of view, as I mentioned, we're working very hard to introduce a new partner and get back on ground with a drilling program as soon as we can. And that drilling program will have the Rafael well as our first target. As I mentioned in my Chairman's address, we're working with a number of parties to achieve the farm-in, but these things do take time. I'm pleased to report, though, that from the interest we've had to date, we're confident we'll be able to find a good partner in due course. We also finished a major review of the prospectivity of our areas with an expanded geological team, and we've identified a number of areas where I think there is better prospectivity. And it's apparent from discussions with our potential farm-inies that they're surprised by the quality and the depth of knowledge that we have in the basin. Some of these new concepts may take time to mature, but they are very exciting. Other questions related to the value-adding activity that we might be able to undertake, and we're certainly focused on those. With the current outlook for oil price being fairly subdued through to the end of the year, we're looking at both brownfield and greenfield activity. And we're also engaging with government to ensure the potential for value adding in the Kimberley is recognized by them. A further question was in regard to the 2019 drilling program and the projected cost of the Rafael well. Well, there's no doubt that last drilling program was disappointing and that we got ambiguous results from the 2 exploration wells that we drilled last year and we were unable to complete Ungani 6. However, Ungani 7 was successful in delivering the horizontal sections that are now in production. We've carefully analyzed both the drilling performance and the geological results and then have clear lessons learned for future drilling programs and the well results have been incorporated in the prospectivity review. In regard to the other question on the cost of Rafael and the possibility of drilling at 100%, the well is estimated to cost some $10 million, but we don't know what rig mobilization might actually add to that. We've wisely refrained from drilling that at our 100% cost last year when the stock market was much more resilient and the oil price was triple of what it is now. My view and the Board's view, it will be most unwise of us to now go ahead and drill that at 100% even if we could get a rig to do it. However, as I mentioned before, that will be the first well in the next drilling program. We also had a couple of very specific questions from shareholders who asked the questions on behalf of traditional owners. The first one relates to fracking on the Yawuru country, which is a question we've addressed many times from the same shareholders. And I would refer them to our previous responses and also to the recent CSIRO study, which like the other 13 studies of fracking in Australia and the very many worldwide studies, show no evidence for environmental harm from fracking. I must say on a personal basis, I do find it challenging that there's already acceptance of the science regarding climate change, but no acceptance of the science relating to fracking. The second question in that regard relates to our proposal to access conventional gas at Yawuru. I comment that the proposal has been discussed with the Yawuru Law bosses and the Yawuru PBC board on a number of occasions. We've also been engaging with relevant stakeholders in relation to the proposed activity, and this engagement currently exceeds the requirements under our heritage protection agreements with Yawuru. So there is very strong engagement over this. There was a further question from another shareholder on behalf of a separate traditional owner, which relates to our targets for aboriginal employment. These are set out in our agreement with the traditional owners for Ungani and have been consistently exceeded when we've been able to engage suitably qualified individuals. 37% of the field operators are currently indigenous, and we consider that to be a great result for what we've been trying to achieve. The second question from that shareholder was on behalf of the traditional owners relating to the contracting of aboriginal businesses and how many we contracted in the past year. I can report that in 2019, Buru's 21 indigenous businesses, of which 20 were from the Kimberley. And the 2019 expenditure for indigenous businesses was some $7 million. So thank you, ladies and gentlemen, for the questions. And I'll now move on to the formal part of the meeting. So the time being 10:48, I now declare the meeting open. I've already introduced the other members of the Board, our nonexecutive directors, Eva Howell and Rob Willes. And in regard to the conduct of the meeting, KPMG, who are the company's auditor, represented by Jane Bayly, as well as our lawyers, Ashurst, who are represented by Roger Davies, are both in attendance via telephone. Jane, could you please confirm your attendance?

Eric, I'm here. It's Jane. Thank you.

Thank you. Welcome, Jane. And Roger?

Thanks, Eric. Yes, Roger here as well.

Thank you. Appreciate your attendance. I've been advised by the Company Secretary, Shane McDermott, that a quorum is present in the Celtic Club, principally composed of Buru staff who are shareholders, and we can now proceed with the business of the meeting. All shareholders should have received the notice of meeting, and I'll therefore take the notice and the resolutions contained therein as read. The notice of meeting and the accompanying explanatory notes outline the business that can be considered at the meeting today. There's been some changes to the ASX listing rules. And the ASX now requires that all ASX listing rule resolutions put to shareholders to be voted on by a poll rather than by a show of hands. And the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations recommend that all substantive resolutions are not just on those under the ASX listing rules should be decided by a poll rather than by a show of hands. This year, most shareholders have voted by proxy. And in fact, I can report that all shareholders voted by proxy. The staff shareholders who are at the meeting and who have attended at the Celtic Club, at the time you registered at the registration desk as a shareholder or a proxy or corporate representative, you are given a yellow card. That yellow card will be used to complete the poll, which will take place at the end of the meeting, and the results of the poll will be released subsequent to the meeting and the completion of the poll. I trust that's clear to everybody. I will now move to the formal business of the meeting with consideration of the reports. I'll refer our shareholders to the annual report of the company, the director's report and the auditor's report for the year ending the 31st of December 2019. Each of these reports are included in the company's 2019 annual report, which has been tabled. There's no vote to be taken on the reports, But as we mentioned, our auditors are present to answer any questions. We've received no questions from the auditor or the directors on the annual report. So we will take the 2019 annual report as received. So I will now turn to the resolutions. The first resolution relates to the remuneration report. The resolution relates to the adoption of the remuneration report for the year ended 31 December 2019. The resolution is set out in full in the notice of meeting and on the screen at the Celtic Club. And together with the details in relation to the number of valid proxies received before the cutoff time for this resolution, which is on the slide that's displayed. The 2019 remuneration report itself is set out in the 2019 annual report from pages 16 to 19. As you'll be aware, the vote on resolution 1 is advisory only and does not bind the directors or the company. However, if the company's remuneration report receives an against vote of 25% or more at 2 consecutive annual general meetings, the Corporation Acts require the resolution must be put at the second AGM that another meeting be held within 90 days, which all directors who are in office at that date, that the directors approved the remuneration report must stand for reelection. I'm pleased to report that the proxies received so far would not put us in that position. However, we will wait the results of the poll. I remind shareholders that remuneration report refers to the 2019 calendar year, where the industry and Buru were in a very different position. We subsequently made very substantial cuts to most senior executives' remuneration and unfortunately also made some people redundant. And we've reduced our overall corporate salaries by an aggregate 50%. So the 2020 report will look very substantially different to the 2019 report. We've not received any questions on this resolution. And as I mentioned earlier, the resolution will be decided by poll at the end of the meeting. So I'll now move to resolution 2, which is the reelection of Mr. Rob Willes as a director. The resolution is set out in full on the screen and in the notice of meeting, of course. And Rob's resume and experience are set out in the notice of meeting, so I won't repeat them here. But Rob, of course, has brought very valuable industry skills to the Board and has been a great contributor. So the Board with the exception of Rob, who does not make a recommendation due to his interest in the resolution, recommends Rob's reelection as a director. Again, we have not received any questions on this resolution. And the proxies received to date are overwhelmingly in favor of it. But the resolution itself will be decided by poll at the end of the meeting. Resolution 3 is the additional 10% placement capacity. This is in relation to the approval of the 10% additional placement capacity under ASX Listing Rule 7.1A. The listing rule allows ASX-listed companies that are not included on the ASX 300 Index and with a market cap of equal or less to $300 million -- less than $300 million, which unfortunately, we certainly qualify in that regard, to seek advance approval from shareholders by way of a special resolution to provide a further 10% placement capacity in addition to the existing 15% placement capacity permitted under ASX Listing Rule 7.1 without seeking shareholder -- subsequent shareholder approval. The company is seeking that approval set out in resolution 3 because the Board considers it's prudent for the company to have the ability to take advantage of the flexibility to be able to issue additional shares in circumstances where the Board considers it is in the best interest of shareholders to do so. It should also be noted, the Board has no current intention to issue additional shares. The company has previously obtained approval for the same resolution at our last 4 AGMs and hasn't issued any equity securities using the additional 10% placement capacity. I should also note that this is a special resolution. And for it to be passed, at least 75% of the total votes cast must be voted in favor of the resolution. The resolution is set out in the notice of meeting and in full on the screen and together with details in relation to the number of proxies received. We haven't received any questions on this resolution. And again, this resolution will be decided by poll at the end of the meeting. Although I would note that the proxies received to date are strongly in favor of it. Resolution 4 is in relation to the amendment of the constitution. Again, I also note that this is a special resolution as it should be. And for it to be passed, at least 75% of the total votes cast must be voted in favor of the resolution. In light of the COVID-19 pandemic, we have undertaken a review of the constitution to ensure that reflects our current market trends and practices in relation to administrative matters, particularly enabling us to hold virtual meetings going forward. So although today's meeting is technically still a physical meeting at the Celtic Club with myself, our lawyers and auditors and our other director who are attending it electronically and also many shareholders attending via the webcast, in future years, we want to have the ability to have fully virtual meetings, which we note another -- a number of other companies have done recently where shareholders can vote online and ask questions online. During the review, we've also identified a cost-saving measure to avoid having to send notices to shareholders when we know that they're no longer at that address. We've also updated the provisions and related restricted securities to ensure compliance with the new ASX listing rules that came into effect a few months ago. So resolution 4, therefore, proposes to amend the constitution by inserting provisions to facilitate, firstly, direct voting by shareholders at a general meeting and class meetings. Secondly, holding meetings of shareholders at 2 or more venues using technology. Thirdly, the giving of notice to shareholders in circumstances where shareholders address is not known. And fourth, the issue of restricted securities in accordance with ASX Listing Rule 15.12. This is a lengthy and complex resolution, but it's set out in full in the notice of meeting and on the screen, together with the details in relation to the number of proxies received. And again, I note that the proxies are strongly in favor of this resolution. We haven't received any questions. And the resolution will be decided by the poll. So that brings us to the end of the formal resolutions, and we'll now conduct the poll. As I've mentioned earlier, the vast majority of votes have already been lodged via proxies. So could I now please ask any shareholders at the Celtic Club to complete your votes on the yellow card. The detailed instructions on that have already been issued to the shareholders at the Celtic Club by the Company Secretary, so I won't read those all that again. Could I ask the Company Secretary to confirm when all shareholders have voted?

Eric, I can confirm all shareholders have voted.

Thanks very much, Shane. So I can confirm that the voting process has been completed. I therefore declare the poll is closed, and we will release the results of the poll directly to the ASX and on Buru's website as soon as practicable, which should be within the next hour or so. So thank you, ladies and gentlemen. That concludes the formal business of the meeting. And I declare the meeting closed. Thank you again for attending via the audio webcast and for your support of the company in these difficult times.