BW Energy Limited (BWE) Earnings Call Transcript & Summary

Welcome to the BW Energy Q2 presentation. My name is Allen. I'll be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Carl Arnet, to begin today's conference. Thank you.

Thank you, operator. A warm welcome to this BW Energy Second Quarter 2026 Update. This update will be hosted, as usual, by our Chief Operating Officer, Brice Morlot; and our Chief Financial Officer, Thomas Young; and myself, Carl Arnet. Please note our disclaimer. And then on to the second quarter highlights. We have just started the MaBoMo Phase 2 drilling campaign. Super exciting. And more of that will follow later on in the presentation. All development projects are on plan and budget. And we had, of course, a record high cash flow on the current oil prices in the quarter, which has strengthened our financial position with respect to sources and uses. We are very much on track to deliver above 100,000 barrels production per day in 2028. On the Q2 results, we had revenues of $296 million in the second quarter. We had a net profit of $44 million. Cash from operations, we're at $260 million. And we had a very healthy cash position of $254 million end of Q2. BW Energy is executing on 5 projects currently, which will add 222 million barrels of reserves, 2P reserves. And all these have low breakevens and rapid payback. This will take us to 100,000 barrels per day. We will double production in '27, and we will double again in 2028 from current levels of around 25,000 barrels. The MaBoMo Phase 2 drilling has just started and is on track. Maromba project is on track. Golfinho Boost project is on track. Bourdon is on track, and we have also the Golfinho new wells, the new infill wells we're planning. This is also on track where we have ordered all long lead items. In addition to our, let's say, very concrete plans that you will be also given more granularity on later on in the presentation, we have significant upsides in all our licenses. We have the Bourdon area upsides. We have additional Dussafu targets in the north and east of our license with Walt Whitman area. We have the Maromba carbonates, and we have the prospects of the Greater Golfinho area. So we have a significant backlog of additional targets that we are aiming to unlock as we go. Very quickly, I will give you the update or status on the Maromba project. The FPSO steel renewal is very near completion. And the current main work stream is on the topside piping and equipment refurbishment and time of new equipment. The wellhead platform, the leg extension has been executed, very impressive. We have some of the longest legs in the business right now. And we are continuing with the refurbishment of the equipment. So far, we've had no impact of the turmoil in the area and the logistic challenges have been solved without causing any project impact. SURF. The SURF contractor has been selected, and procurement is continuing of all long lead items, and we are also progressing well on the engineering. On the drilling, we have selected drilling contractor, and we are preparing for the initial 6 wells. So that's it, short and sweet. I will then leave the word to Brice, that will take you through the operational update.

Thank you, Carl. Good afternoon, everyone. Now let me walk you through the operational performance in the quarter. Total net production was 25,000 in Q2, broadly in line with Q1. At Dussafu, production was 19,000 barrel oil per day with 98% production availability, reflecting strong consistent performance in Gabon. At Golfinho, we produced 6,000 barrel oil per day at 74% availability, stable relative to Q1 and in line with expectation as we manage the ESP configuration ahead of the Boost installation. On the full year guidance of 24,000 to 27,000 barrel oil per day, this is unchanged. For the second half, 3 events would impact the production output. We have a 2 weeks planned shutdown at Dussafu in September. One Dussafu ESP is malfunctioning and potentially would require a workover if confirmed down. We are working right now to confirm this. And on the positive side, we see upside to Golfinho production should the gas lift compressor reliability be improved in the second half. We are working to resolve that as well. This is the issue that is the core improvement of the Golfinho Boost project and should be removed in total by midyear next year. As there are both events on the upside and downside that could happen, we keep the range unchanged, but production is expected to track towards the lower end of the guidance range for the full year. On the unit OpEx in Q2, it was $24 per barrel, so slightly above Q1 that was $22 per barrel. The absolute costs are largely stable. The increase is primarily driven by higher fuel prices for power generation. So no structural cost deterioration. The full year OpEx guidance of $22 to $26 per barrel is unchanged. First half average was $23 per barrel, so comfortably within the range. The H2 profile will be influenced by the Dussafu shutdown and in Brazil by the Golfinho gas cost sensitivity to oil price. So MaBoMo Phase 2 drilling campaign, I'm very pleased to present this today. The campaign has just started. We started a few days ago. We are currently drilling 2 Northwest Hibiscus appraisal wells, targeting additional reserves in a part of the Dussafu field that has not been produced before. If the appraisal confirms the resource, we will fast track conversion to production wells in late 2027, adding production with minimal incremental cost. So a successful outcome could add up to 10,000 barrel oil per day, and this is on top of the 4 MaBoMo platform production wells already planned in the business plan. These 4 production wells follow the appraisal program and each well is expected to add approximately 5,000 barrel oil per day gross. And we expect first oil from this campaign in early Q1 '27. And the sequencing is deliberate, appraisal first, then convert and scale, consistent with how we operate across the portfolio. So Dussafu has a long and layered production runway and this slide shows how it builds up. We have the MaBoMo Phase 2 delivered in -- for the first oil in Q1 2027, adding approximately 20,000 barrel oil per day for -- from 4 new producers with a further 10,000 barrel oil per day potential from the 2 appraisal wells that we are drilling as we speak, if successful. We should get the answer by September. Bourdon Phase 1 follows in Q1 '28, adding approximately 10,000 barrel oil per day from 3 initial wells across 12 slot platform. Then we'll have Bourdon Phase 2 that will come in 2029. And then Walt Whitman appraisal drilling is planned for 2030. The long-term production target for the Dussafu area is between 30,000 and 45,000 barrel oil per day gross. The Akoum platform, which is the platform for Bourdon is currently in conversion and will serve as a hub for the Bourdon development and opens up the southern part of the license for further exploration with Bourdon Updip, Bourdon Southwest, Abeille and Bourdon Southeast. So Dussafu is not a maturing asset. The asset still has the majority of its production life ahead of it. Now Thomas will take you through the financial section.

Thank you, Brice, and good afternoon, everyone. Q2 was a strong quarter. The oil price environment gave us a meaningful tailwind that sat directly into revenues and cash generation, resulting in record operating cash flow for the quarter. That cash generation has done real work on the balance sheet. Liquidity is up, leverage is down, and we've entered the second half in a better financial shape than when we started the year, which is pretty good when you're in the middle of the heaviest investment program in the company's history. Now let me take you through the key drivers behind our quarterly results. Net production came in at 2.3 million barrels or 25,300 barrels per day, essentially flat on the first quarter. Sales, though, were 3.2 million barrels against 2.2 million in Q1. That difference, what we produce and what we sell is probably worth a moment because it does drive a lot of what we see in the quarter. We produce continuously, but we sell in cargoes of roughly 1 million barrels a piece. So the 2 really line up neatly within the quarter. At the end of Q1, we were carrying about 1 million barrels of produced but unsold oil, and we sold that down in Q2. On the revenue side, that worked out well for us. We realized $103.5 per barrel before hedges against $79 per barrel in the first quarter. And with Brent averaging around $104, we captured essentially the full market price. We also lifted 1.4 million barrels in April at $121 per barrel which is a level we haven't seen since 2022. So those inventory barrels were produced in the first quarter cost and sold at second quarter prices and that timing alone was worth somewhere in the order of $20 million. Perhaps fortunate more than clever, but money is money, so. On the cost side, it works the other way, which explains why EBITDA only grew $29 million on $124 million of additional revenue. The inventory cost that was parked in Q1 came back out in Q2, a swing of roughly $76 million with higher royalty and depreciation on sold volumes on top. This is of course simply a timing effect, not margin compression, to be clear on that, and the underlying unit economics are unchanged. After $40 million hedging loss on the 1.2 million barrels of hedged barrels, effective realized price was approximately $90 per barrel and total revenue was $296 million. Which brings me to cash. And I think the $254 million that you can see on the right-hand side is best understood in 2 parts. Around $121 million is what the business actually earned in the quarter, which is sold oil, cost paid, taxes paid and I guess, can be seen as the underlying run rate at current oil price. The other $139 million came out of working capital, which is essentially the first quarter reversing. If you remember in Q1, working capital absorbed about $134 million and operating cash flow was negative. And I did say we expect this reversal in this quarter. One thing I would like to flag for your models though. The $40 million hedge loss is charged in the second quarter, but it does not actually settle in cash until the third. So it's sitting in payables as of the end of the quarter, which means first quarter operating cash flows will land roughly $40 million below what third quarter earnings would imply. Investment activities were $101 million across Maromba, Golfinho Boost and Dussafu. Financing was a net outflow of $66 million, mostly repayments of the corporate revolver. All that translates into a stronger balance sheet across most parameters. And I think the slide sums it up quite well. Starting from the left, net interest-bearing debt has come down $113 million to $698 million, with leverage falling from 2x down to 1.8x. Frankly, this is not development we expected to see before 2027. So it's a comforting sight in the middle of an investment program. Worth saying that CapEx, of course, is going to ramp up in the second half. So we do still expect to have higher leverage before we get to first oil on Maromba. Book equity increased $113 million to $1.142 billion, driven by the net profit and the hedge book moving in our favor relative to Q1. The equity ratio is back up to 40% and putting that against our equity covenant, which is effectively 25% before Maromba first oil. That leaves us with a very comfortable headroom. And on liquidity, we closed at $544 million, roughly $210 million above the first quarter. That is $254 million of cash, $290 million of undrawn revolving credit facilities across the revolver and the reserve-based lending facility. The 2 key drivers are $100 million of RBL accordion that we closed in the quarter and operating cash inflow, which, of course, is partly offset by debt repayments and ongoing investment spend. On the guidance, we are keeping the full year guidance unchanged across all 4 lines. On production, first half came in at 25,200 barrels per day, tracking the midpoint. In the second half, we expect production to be skewed towards the lower end of the range as some factors will impact production rates. At Dussafu, a 2-week planned shutdown in September and ESP potentially requiring a workover. And on the positive side, we see upsides to Golfinho production should the gas lift compressor reliability be improved in the second half. On operating costs, we were at $24 per barrel against a range of $22 to $26. Unit costs cuts both ways. Fuel costs move with oil price and unit cost moves to volume. So a strong price deck with production at the lower end pushes us slightly towards the top half of the range for the year. CapEx is at $231 million at the halfway point implies a step-up in the second half as expected on the back of a back-weighted CapEx program, let's say, with MoBoMo Phase 2 drilling underway and MoBoMo milestone payments coming through. G&A of about $11 million for the first half, tracks ahead of the midpoint. We expect it to drop in the second half compared to first half, which had a few one-offs. We remain comfortable in the full year range. This chart brings together everything we've covered today and paints a picture of what comes next. What drives us above 100,000 barrels per day by 2028 is entirely organic, 5 projects already in execution or sanctioned and funded built on the same infrastructure-led model that defines the company. And the growth does not stop at 100,000 barrels per day. The appraisal and upside layer represents a further step-up that is within reach from assets that we already own and operate. Those are already identified resources and named targets, which includes Bourdon Phase 2, Golfinho Phase 2 and 3 and upside improvement targets around the current Maromba development. Beyond that, the exploration layer adds Walt Whitman, Niosi, Guduma, Golfinho prospects and further exploration in the Maromba area. So each of these layers feed naturally into next and should enable us to comfortably sustain 100,000 barrels per day of production, hopefully into the next decade. To close, the investment case rests on 4 pillars: more than 600 million barrels of reserves and resources as the foundation for organic growth, a plan already in execution to take production from 25,000 barrels per day today to above 100,000 by the end of 2028, a portfolio that returns above 30% IRR at $60 Brent and $2 billion to $4 billion of free cash flow depending on oil price between 2026 and 2030 against an enterprise value of around $2.2 billion today. So I think that remains a pretty solid investment case. And with that, that ends the prepared presentation, and I will hand over to the operator for Q&A. Thank you very much.

There are currently no questions from the phone line. Please proceed for the written question.

All right. We have a question here. "Can you give an update on the Kudu data room process? How much interest have you seen? And what are the next steps?" Brice, you could take that.

Yes. So we did open the data room at the AAPG conference in Windhoek, that was mid-June. And actually, we have seen a very good interest from a good range of players, and we are now on -- the process is ongoing. So we will update the market when there is something material to report.