Capricorn Energy PLC (CNE) Earnings Call Transcript & Summary

Well, good morning, everyone, and welcome to Capricorn's Full year 2022 results presentation and update on our ongoing strategic review process. I'm Craig Van der Laan, Chairman, and with me are Clare Mawdsley, our acting Chief Financial Officer; and Nathan Piper, our Commercial Director. I'd firstly like to apologize on behalf of our interim CEO, Chris Cox, for not being able to speak at today's presentation due to a family medical emergency, but we wish him and his family the very best. I want to stress that the Board has been in place now for near 85 days. But in that time, we've accomplished a great deal. We've got stuck in, we've completely focused on understanding the business, and we have achieved a lot in that time. We're very keen to share our initial thoughts with you today. Importantly, we remain very confident about the future of Capricorn, and we believe there's a lot more we can do and optimizing the business to generate shareholder value. I'll begin our presentation today before handing to Nathan and Clare, and we would, of course, be happy to take your questions at the end. As you know, I was appointed Chair of Capricorn in February 2023, alongside 5 other new members of Capricorn's Board following a public campaign by a number of shareholders for change within the business. The renewed Board provides a strong and broad skill set of senior oil and gas and energy industry experience and knowledge, shareholder engagement and capital markets expertise. We recognize there is an expectation for a change in the business and that we have a strong mandate from shareholders to bring this about. As we previously announced to the market, Catherine Krajieck and Erik daugbjerg will retire from the Board at our upcoming Annual General Meeting. Both Erik and Kathy continued as nonexecutive directors as the Board was renewed and have been an enormous support to me and the rest of the Board over the last months. They will retire from the Board with our tremendous gratitude. I'm particularly pleased to announce today that a permanent chief executive, Randy Neely will be joining Capricorn from the 1st of June. Randy is a highly experienced oil and gas industry leader who notably in his previous role as President and CEO of TransGlobe Energy ran a very successful low-cost Egypt focused business, including assets in the Western Desert. Under Randy's leadership, TransGlobe successfully engaged with EGPC in Egypt to deliver and amended, extended and consolidated production sharing contract. -- and Randy also has a strong track record of creating shareholder value, having overseen the recent merger between TransGlobe and Valco Energy. Randy brings to Capricorn on a background of successful strategic execution, knowledge of our host country and that track record I mentioned of effectively managing relationships to deliver results. He will, of course, benefit from a handover period with Chris, and I want to put on record my gratitude to Chris for the enormous amount of good work he's led during his period of interim leadership. Before highlighting the Board's delivery of the strategic review priorities to date, let me remind you of the key moments for the business during 2022. The tax refund in February 2022 from the government of India of more than $1 billion, enabled Capricorn to return $529 million of capital to shareholders in the form of a tender offer and buyback program. They then followed an intense period of corporate activity, a proposed recommended combination with Tullow Oil plc was announced in June 2022, which was subsequently withdrawn by the Board after shareholder concerns. Thereafter, the Board recommended a reverse takeover with Numet Energy, which was also met with opposition and a public campaign by a number of shareholders, including demands for fundamental board renewal and determination of the new made deal. As you know, this culminated in the resignation of the majority of the previous Board and the appointment of 6 new board members at an extraordinary general meeting held on 1 February 2023. The business ended 2022 in a strong cash position, which provided the backdrop for the strategic review process immediately launched by the new Board on appointment. The guiding principle underpinning the priorities of our strategic review is the delivery of shareholder value. Nathan will break out the elements in more detail during his presentation. But at a high level, our focus in the first 85 days has been on 4 areas: first, significant cost reduction. We inherited a cost base that does not match the present or future activity set of the business. We've already taken decisive action to address this, and we'll continue our process of assessing whether further cost savings can be achieved alongside embedding a culture of cost consciousness across our operations. Secondly, a refocused exploration strategy. We'll focus sharply on low-cost, short-cycle exploration in Egypt, which has the potential to provide attractive near-term returns. Elsewhere, we've put in place a plan to monetize, farm down or exit all exploration activities and are evaluating the best value outcomes accordingly. We will not be spending new material cash on exploration outside Egypt. Thirdly, maximizing shareholder value from Egypt. We've taken the first steps in recalibrating the strategy of our Egypt business. We're developing a long-term plan now to grow value, such that the Egypt business can provide sustainable -- stronger positive cash flows to the group. We'll have further detail on this and on our Egypt strategy generally and the longer-term outlook in our Capital Markets Day, which will be held in Q4 of this year. Fourthly, shareholder returns. We are committing to return to shareholders all excess cash flow not required for our go-forward core operational focus. Cash will only be kept in the business for working capital or to be reinvested into Egypt, retaining sufficient funding to maximize value from the core business. Today, we've been pleased to announce the capital return via a special dividend of approximately $450 million, which is proposed to be paid in May, a contingent second special dividend of $100 million in Q4 2023 and the buyback of at least $25 million over the next 12 months. Furthermore, we today make a commitment, as I've said, that all additional excess capital will be returned via special dividends or buybacks. Finally, the renewal of Capricorn provides an opportunity to reset and drive a culture change to ensure that our behaviors of the business underpin what we seek to do every day. That is maximize shareholder value, maintain a laser focus on costs and engage openly and with respect with all of our stakeholders. Taken together, we believe these priorities will significantly enhance shareholder value and create a stronger and more sustainable business focused on safe and effective execution of our operations in Egypt. I'm extremely pleased with the project has made in our first 85 days and the hands on effort and collaboration from the whole Board of Directors has set the tone through our strategic priorities to enhance shareholder value. It's also important to highlight that the strategic review is an ongoing process with further updates planned as we look to tackle work streams. These include, but are not limited to, reducing our receivables position in Egypt. -- looking to extend and renegotiate our license terms, addressing restricted cash within the business and thoroughly reviewing our Egyptian business plan, all things which our incoming CEO, Randy Neely, has had previous success tackling in Egypt. And we will be looking to update our stakeholders and this at a Capital Markets Day, as I said, planned for Q4 this year -- with that, let me hand over to Clare and Nathan to take you through the 2022 performance and to provide more detail on our strategic review progress today.

Thank you, Craig, and good morning, everyone. In the next few slides, I'll take you through 2022 financial performance and cash flows and the current balance sheet position. Looking at financial and operational performance. Production for the full year for 2022 averaged 34,200 barrels of oil equivalent a day, in line with the revised guidance presented at half year. Prioritizing higher-margin liquids production has led to liquids representing 42% of total production. Revenue generated in the year was $229 million, 79% of which was generated from liquids production. Average realized prices were $98.8 a barrel for liquids and $2.90 Mcf for gas. OpEx in the year averaged $5.7 per barrel of oil equivalent. Egypt development and production CapEx was $79 million and exploration CapEx was $83 million. Gross profits in Egypt, i.e., revenue less OpEx were GBP 158 million, whilst the operating cash inflows for the period were GBP 129 million due to an increase in the receivables position over the year of GBP 34 million. Year-end receivables in Egypt were GBP 97 million, of which GBP 66 million were due for payments. That balance has increased since the year-end, which we'll see in the upcoming slides, but we've had good engagement with the Egyptian oil company -- Egyptian state oil company, EGPC on the receivables issue. Looking at cash flows over the year we started 2022 with net cash of $133 million. We received the India tax refund of just over $1 billion in February and around half that amount was subsequently returned to shareholders. Egypt cash flow is debt to a cash inflow of $15 million after exploration and development CapEx and a GBP 25 million contingent consideration payments to Shell, which will see broken down further on the next slide. After working capital settlements, contingent consideration of $67 million was received in the first half in respect of the North Sea earnouts. Exploration CapEx outside Egypt was $67 million, predominantly in the U.K. North Sea, Mexico and Mauritania. Adjusting for admin, financing and other costs, this took us to a net cash position of $597 million at the end of December. Total gross G&A in 2022 totaled $70 million, which was spread across admin, CapEx and OpEx. Since the year-end, we've received a further $137 million from the North Sea earnout. There was a net cash outflow of GBP 40 million in respect of Egypt cash flows, which I'll talk more about on the next slide. $15 million was spent on international exploration since the start of the year, mainly in respect of the Mexico as well, which was our final remaining commitment well outside of Egypt. After admin, financing and other costs, including the new Med deal fees, net cash at the end of March was $646 million. In addition to that, and as mentioned on the previous slide, the trade receivables balance has grown by around GBP 40 million since the year-end to a balance of GBP 137 million at the end of March. That's partly a timing issue a payment was received in early April. Looking now at Egypt. We saw in the last slide that Egypt cash flows netted to a cash inflow of $15 million for 2022. We can see here how that number is made up with revenue of GBP 229 million, cash collections of GBP 198 million after the impact of the 2022 receivables movements, OpEx of GBP 69 million, deferred consideration of GBP 24 million, development CapEx of GBP 62 million and exploration CapEx of GBP 28 million. The net cash outflow in Egypt of GBP 40 million for Q1 2023 is negative mainly due to a one-off deferred consideration payment for the year of GBP 25 million, which was paid to Shell in January in respect of 2022 as well as the timing of cash collections and the increase in receivables over the course of the first quarter. A key opportunity and area of focus for us is optimizing the receivables position going forward. And this is an area that our new CEO, Randy has a lot of experience in. At the end of March, gross cash of $798 million includes restricted cash outside Egypt of $30 million and a $22 million cash balance in Egypt, which is restricted due to debt covenants. Restricted cash can't be freely distributed to the wider group unless distribution conditions in the Egypt debt facilities are satisfied. These conditions include a minimum debt service cover ratio and a 12-month forward-looking liquidity test. Restricted cash balances in Egypt can be used freely by Capricorn Egypt for debt service, general running costs and CapEx and OpEx spend in respect of the Egypt producing assets. And with that, I'll hand over to Nathan to take you through guidance for 2023.

Thank you, Clare, and good morning. So for 2023, we expect production to be between 32,000 and 36,000 barrels of oil equivalent per day, with the middle similar to last year. Production is expected to grow through the year from year-end to year-end by about 20%. And again, there will be a focus on higher-value oil wells in particular. So the percentage of liquids is expected to grow. Operating cost barrel are expected to be the same as last year. And total development and production CapEx will be between $100 million to $120 million, funding 5 drilling operating throughout the year plus well tie-ins and completion of the team pilot project -- we have a drilling exploration wells through the rest of the year with total apportion CapEx in Egypt of $25 million. All of the wells represent commitment wells associated with the 3 operated exploration licenses. Our legacy international exploration CapEx will be up to $30 million, mostly associated with the Mexico costs, including the Yate exploration well that's already drilled in Mexico. That's the final international comment outside Egypt, and there are no plans for further international exploration CapEx outside Egypt, and we have no committed spending to be clear in 2024. So let's move on now to look at the progress of the strategic review so far, and we expect to say more as previously mentioned at our Capital Markets Day in Q4 of this year. First of all, on cost reduction. The renewed Capricorn is a company focused on Egypt with a primarily nonoperated business, and we will have an organization and a cost base to match. We're designing a U.K. organization, which has the minimum cost necessary to safely and effectively support our Egyptian operations with ongoing cost controls to make sure it stays this way. This includes an approximately 70% reduction in U.K. headcount and office costs to reflect this. We anticipate the 2024 G&A costs to be less than half of those of 2022. Further reductions will be achieved as we switch a handful of roles from the U.K. to Egypt in the coming period. Overall, U.K. headcount was 160 in February 2023, and this will be approximately 40 by the end of the year. As previously announced, we will not be moving into the planned new head office, and we are currently looking for an alternative office accommodation in Edinburgh, which will be sized for the new organization with a flexible term. In 2023, we will have substantial one-off restructuring costs due to redundancy payments, but we expect savings within the year to offset these. We are working hard to develop a new corporate culture of cost consciousness. We will have a small office with a technic group of employees who have made a positive decision to remain with the business. The group will also benefit from the clarity of purpose in supporting an Egypt business and making sure we generate sustainable rather and positive cash flow. On to G&A savings, and we provided more detail on the impact of the cost reductions that we're implementing on the slide. And rather than focus on individual numbers, we are confident that the ultimate output of the process will be an organization that is set up to deliver a greater value from Egypt, operate safely and performs. A much leaner head office organization will support a team in Cairo, reflecting a very clear strategic focus on Egypt, with central costs minimized to ensure we focus every dollar on driving value from our Western Desert assets. This will be an ongoing process as changes are implemented in the business. And moving on to exploration. The company is moving rapidly to reprioritize its exploration efforts in support of the Egyptian business and its intent on monetizing, farming down or exiting the rest of its exploration portfolio with no international exploration spend plan going forward. The strategic focus on Egypt reflects the failure of frontier exploration to deliver material discoveries or a return on capital. The priority is near-field short-cycle exploration and appraisal drilling in Egypt to add reserves and grow production. The portfolio will adjust to align with the strategy with a priority to reduce exploration capital spend and associated G&A costs. Elsewhere, Capricorn does hold a 1 deepwater block in Mauritania and 1 in Suriname. These blocks line 2 of the most successful new exploration provinces over the past decade. Senegal, Mauritania, where Capricorn divested Sangomar Field and the Gianetti as development are located and the Guyana Surinam basin where over 12 billion barrels in oil equivalent basis has been discovered since 2015. With renewed wider industry interest and exploration, these projects, Capricorn is seeking to find partners to carry the company in the next phase of exploration costs and maintain optionality. In Mexico, however, Capricorn has completed its commitments and having evaluated believes there's little benefit in maintaining our participation and are now in withdrawal or liquid processes for all of our Mexico licenses. As you've seen from our announcement today, we are also commencing a process for the potential sale of our U.K. assets -- we've taken a clear view of our Egypt asset base and are encouraged by the nature of the fast return low-cost onshore liquids-rich value within it. Egypt is a jurisdiction which is supportive for oil and gas development and which is currently a net importer of both oil and gas and keen to address this in balance. Our assets are in a low-cost area with significant growth potential for both liquids and gas and our existing production licenses. There is real potential to grow the value of the existing business through improvement of operational performance in both production and drilling. We currently have 5 operational rigs, which allows us to grow production in the short term with an ongoing focus on higher-value liquids. We also have substantial volumes of contingent resources, which have the potential to double our 2P reserves and increase production through a combination of appraisal and development drilling as well as improved PSC terms. The next steps are to address the receivables and restricted cash, better build relationships and optimize cash consumption and returns where our incoming CEO can help. We are very confident about the medium-term future for Egypt, and there undoubtedly although there are undoubtedly a number of challenges to address. Free jet production, our plan for 2023 is the simple one to grow production. Production decreased through 2022 as our plans to ramp up from 2 rigs at the start of the year to 5 much earlier in the year were frustrated by rig delays and logistical challenges. On average, we had 3.7 rigs per month during the year, which is not enough to halt decline. However, we have already observed that we can grow production in the short term with 5 rigs. We expect 2023 to be a mirror image of 2022, increasing production from year-end to year-end by 20%. In the year so far, we have seen encouraging results with near field extension and appraisal drilling on the edges of existing producing fields. I'll be more on that later. As mentioned in the release, we have seen a reduction in reserves in 2022, mainly as a result of poor performance in some of the gas fields. This was partially offset by a small increase in ultimate recovery expectations from oil fields. The NPV impact of these changes is not as negative as expected as the average value of a barrel of oil in our assets is about 3.5x higher than the value of an equivalent barrel of gas. This is -- I mean there is also a material upside in our asset base through the conversion of contingent resources into potentially doubling our 2P reserves and ultimately increasing production. A lot of this is either in tight gas reservoirs or in existing assets beyond the current license expiries. So will require improved gas prices or license extensions to unlock, which we're confident in doing. To give an example of the rapid high-value return opportunities in our portfolio, in 2022, we had particular success with drilling down dip in the bed area and finding oil in a well, which is designed to be a water injector, which is a nice problem to have. Encouraged by this outcome, we have drilled more down-depwells already in 2023, and 4 of these wells have returned results much better than anticipated not only have we extended reservoirs into lower parts of the reservoir, we have also been also been original reservoir pressure, indicating that the areas are untapped by existing wells. There is a potential for several more wells like this, which can be tied into production facilities very quickly and provide rapid returns. So in a short space of time, we have identified the areas we need to focus on in 2023 in order to grow the value of our Egyptian business. This is all with a view to ensure that we have a business that is sustainably free cash flow positive, able to fund its future growth internally and be able to provide regular returns to shareholders. We have established that we can grow production in the short term with 5 rigs, and we need to decide the optimum number of rigs to use over the next several years. More importantly, we need to make sure we are drilling the most valuable wells in the right order, which means having life of field development plans for all our assets and focusing on oil production when oil prices are high. In the short term, we have some operational challenges where we can assist Karan and Veeco. We have a very important pilot project at the team field to bring online, and we'll be looking to improve operational performance of some of the rigs and some production wells that have been offline due to pump failures. All of these areas where short-term improvements can be made by interventions from experienced operators, and we will have focus from Kapecon's technical team through the rest of the year in this area. Finally, we have already started discussions with Kyron to explore options to optimize and extend our current concessions in a win-win agreement with our Egyptian authorities, which would enable the unlocking of some of the potential in our base of contingent resources. And with that, let me hand you back to Craig.

Thank you, Nathan. What we've outlined today are the initial conclusions and actions delivered by the Board as Capricorn gets a fresh start, and I'm very pleased with what we've accomplished in these first 85 days. As a new Board, we've examined the cost of the business with rigor on a bottom-up basis to reset our cost base, which we believe is a better match for what we have to deliver as a sustainable and profitable business. We have a clear operational plan to execute alongside our partners in Egypt to maximize value from our producing and exploration assets, continuing our focus on higher-value liquids targets and refocusing exploration activity from capital-intensive and high-risk frontier activities to Egypt's short-cycle, lower capital opportunities. This is a business that will have a very clear identity. Egypt focused, lean and positioned to deliver sustainable and strong cash flows and returns for our investors. Finally, we're committed to returning all excess capital to shareholders as effectively and efficiently as possible, and we're very pleased to announce the significant capital return this morning. I want to emphasize that we're very excited about the future and our investment in Egypt. We have a lot of work to do, but we are optimistic that we can continue to optimize the business and generate value for our shareholders. In closing, I wanted to repeat our plans for an immediate one-off special dividend of an initial $450 million, a further $100 million special dividend later in the year, contingent on a number of factors, including addressing our receivables position in Egypt, the outcome of conversations with stakeholders in Egypt around license extension and the renegotiation of terms. Actual oil and gas prices outcomes for the remainder of 2023 and the conclusions of our strategic review as it relates to further cost actions and future investment. In addition, we also announced today an ongoing share buyback of at least $25 million over the next 12 months. To be absolutely clear, we're committed to returning all additional excess capital via buybacks or special dividends over time. Thank you very much for listening. And with that, we'll now take any questions you may have. We'll start by taking analyst questions from the room before we hand to the operator to open up to questions from the conference line. And for my benefit, in particular, I'd be grateful if you could state your name and organization as you ask your question. Thank you.

Rachel Fletcher, Morgan Stanley. I wanted to focus on the distributions that you've announced this morning. So why is $575 million of distributions at the correct level? And what underpins that first special dividend at EUR 450 million. And then also, how did you decide on the split between the dividend and the buyback? And finally, if I may, how should we think about distributions going forward?

I'll make some initial comments, Rachel, and I might pass to Clare for any top-up. As you can imagine, in the last 85 days, we've done an enormous amount of work around the cash flow forecasting for the group. And as you would have seen from the first 3 months that we've reported, cash flow can be very lumpy in this organization, and we need to reflect on that as we contemplate payments at a particular point in the cycle. We're very confident about the $575 million being available. But as a first step and conscious that shareholders are keen to receive as much as they can as early as possible. Our clear decision is to distribute $450 million immediately. Obviously, we have to go through a shareholder approval process, which will happen very quickly. But we're also very positive about the additional $100 million being available. So I want to emphasize, we're very clear and positive about the total being available. It reflects our assessment of free cash flow. It's not about -- I want to emphasize this very much. Capricorn's focus going forward is about ensuring an appropriate level of working capital, not about building war chests, not about retaining capital for the longer term. We will be lean. So what you can see here is our estimate at least over the next 12 months of the amount which under any circumstances is going to be available for distribution. The commitment around the buyback reflects, I think, a desire for us to give shareholders some optionality around the way in which they receive their return. There are certainly some people who I think would appreciate a buyback component. We've positioned that, obviously, as being a minimum at least $25 million. And clearly, there are some things that can happen going forward that would potentially increase that amount. So we'll be looking forward to obviously updating our expectations on capital as we communicate openly and frankly, with the market going forward. Clare is there anything you'd like to add to that?

Nothing other to add. No, I think you've come to a great?

Are there any other questions from the room? With that, then I might turn it over to calls from the line.

[Operator Instructions] Our first question comes from Matt Smith from Bank of America.

The first one would be just to stick on the topic of the distribution, if I could, specifically on the special dividend, the GBP 100 million targeted for 4Q. And I guess, there's various conditions sort of listed that's linked to that. I guess I just wanted to get a sense of are you able to put any probability on your sort of confidence in being able to pay that? And I guess I note there's a mention of the receivables position in Egypt, the outcome of conversations around fiscal terms. Therefore, is the GBP 100 million dividend dependent on good news in that regard? Or should we expect if the business continues at its status..

Thanks very much for that Matt. Yes, I want to really highlight an important distinction in what we've said and maybe it hasn't come through clearly enough. And that is that the $100 million is conditional, but there are a number of factors that go into releasing that condition. So the items that we've listed are not items, all of which have to be ticked in order for that $100 million to be released. They are simply factors that go to our ability to confirm that $100 million payment. As I mentioned earlier, and as I said, you've seen from the first 3 months, it's a very lumpy cash flow business. And any one of these factors can have a significant impact on cash position at any point in time. So we will be monitoring these cash flow forecasts constantly to ensure that we release -- are in a position to release the $100 million at the earliest possible moment we've indicated Q4 2023, and we're very confident about that.

Perfect. Okay. Very clear. One more for me, if that's okay, and that would be around the, I guess, the receivables position also the sort of fiscal situation in Egypt. I guess that's sort of very much work in progress or work to be done. I guess that's really my question. Is that work in progress? Have you had any sort of positive indications on outcomes here? Or is this sort of work that still needs to commence. And I suppose linked to that, I know that the CMV is targeted for the fourth quarter. So I'm just sort of wondering, is it the case that you have expectations that some of these issues might have been resolved by then?

I think it's very clear to say that we've been working conscientiously on trying to find a solution for the receivables position since the new Board took over -- it is a constant feature of working in Egypt and has been for some years. And it's -- we're not alone in this respect. Obviously, the receivables went up in the first quarter. But as you would have seen from -- or heard from what Clare had to say, there was a payment received in early April, which reduced that balance. So we would expect that receivables position in any event in the normal course to stabilize, but it's not something that we're comfortable with and we'll be working assiduously with our partners and through our relationships in Egypt to try and find a solution to this. We're very fortunate at the Board level to have Hassan Makkawi, a very experienced oil and gas industry executive able to assist us in developing our strategy for engagement with the relevant parties. And of course, now we've announced a terrific appointment in Randy Neely as our CEO, who has spent years grappling with these issues. So I think we've got the best -- we've got the A team on this. And it is clearly for us a way in which significant value and cash can be delivered potentially to the organization, and we'll have a lot of focus. As for the timing of at the Investor Day later in the year in Q4. To be frank, that's a lot about letting Randy get his feet under the desk. And we've only had 85 days. Randy hasn't even started yet. So I would have hesitated to give him an earlier date than that. He needs to be able to reflect on this, and we will certainly be providing an update on the strategy around that at the Capital Markets Day at that time. And we'll be confirming an absolute date for that very shortly after Randy is appointed and joins us.

We will take our next question from Chris Wheaton from Stifel.

Myles, thanks very much indeed. A number of questions from me, please, on Firstly, are you able to detail how much the return of capital -- sorry, the return of receivables was from Egypt paid that Clare referred to paid just after the beginning of April.

Clare?

It was a relatively significant payment. It wasn't a massive payment. I don't have the number in front of me right now, I'm afraid. But we -- as Craig alluded to, we hope to see more similar payments and to see the position stabilize as quickly as possible.

Presumably it wasn't as big as the entire GBP 40 million build in the first quarter, but it was a point.

No, it was less than that. It's probably around half of that, so just under...

Second question on EBIT production. Nathan referred to a 20% growth in the year, if you're going to average around 33%, 34% for the year, that implies you start the 20% growth entry to exit that implies current production is around 30,000 to 31,000 per day. Is that correct? And if so, how is the other particular fields or particular issues that mean it's declined that much? Because that's quite a significant drop from previous levels.

Chris, you can see in the slide on Page 21, we've detailed the trajectory of production through 2022. It's definitely stabilized through the first part of this year. And I guess the point is if we're drilling over 40 wells through the course of 2023, I would anticipate a steady growth in production. So we're not normally expecting to give exit production rate guidance, but what we're trying to show is a trajectory and a direction of travel. Because of the late arrival of rigs through 2022 production, and that meant not enough wells were drilled, production naturally declined. And so in order to arrest that and then begin to catch up, we now have 5 rigs working, but that obviously takes time. So the investments going in through the course of this year, we will leave 2023 at a production rate, which is around 20% higher than we left 2022. So giving a direction of travel and like this what we talk about a mirror image. But you're right to highlight that at the end of '22, production was dropping.

2 more questions, if I may. Firstly, on the conditionality around the $100 million of additional special dividend. Interest Senegal is mentioned as one of the conditions. But yes, renegotiation of Egypt licenses is, I would think it's extremely challenging to expect with a new chief executive in place renegotiation of the licenses by year-end. I just wonder how realistic it is to expect that license renegotiation process to take place. I wonder if Craig, you could perhaps expand on that point.

Yes, absolutely. It is a point that I made in response to an earlier question, and that is that these are not individual conditions. These are factors which go towards the conditionality of the $100 million being released. Now any one of these can contribute positively or of course, negatively towards that being released. So the condition is the commitment to make the payment. The factors which go towards releasing it are about the confidence of certainty on cash flow at the back end of the year. And that can be achieved in a number of different ways, given the lumpiness of our business. We certainly would not expect, as you rightly point out, necessarily complex renegotiations to have been achieved in a very short period of time after a CEO appointed. But obviously, trajectory is important as to the confidence it gives on cash flow. And we see a lot of positive signs there, but our role as a Board is to be very careful in our stewardship of the cash of this business -- and that's what we're telegraphing here. So that's the condition. Please do not regard the factors as themselves individual conditions that need to be ticked off.

And probably my last question coming up. GBP 35 million targeted G&A cost ongoing. If you look back at 2022 performance, first half 2022 G&A cost annualized is $42 million. Your GBP 35 million is about 10% to 12% below that number. Have you looked at ways of being more aggressive on cutting G&A costs because this seems to be taking you back to a position that wasn't isn't that much better than first half '22 levels when you've got quite a substantially different business that your design that you intend to deliver in the future.

I'll make some initial comments, and I'll ask Clare to respond in more detail on some of the numbers. But I think what's very clear is that as you would have heard, there are a lot of things that we have to run off here. There are activities that still need to be carried out by people who are in role in order to deliver value for shareholders. We've talked about exiting. We talked about realizing value. So there are -- clearly, there's a level of overhead that we need to keep for some period within the business to service that value generation for shareholders. And we've also highlighted in our presentation in the announcement that this represents our initial path based on our view of where we think we can get to. We intend to be sharply focused on cost going forward. We have a CEO being appointed today who ran an extremely lean operation historically, and we hope that sends a very strong message about where we might get to. But at the same time, we have to be sensible. We don't want to put ourselves in a position where the lack of resources challenges our ability to liberate value. So we're going to ask shareholders to bear with us through this transition period, conscious that we are absolutely laser sharp focused on reducing costs. We've taken a first step in that, which is the numbers that you've seen. But I'm confident that there is more to come. And with that, I'll ask Clare to make some comments about the detailed numbers that you mentioned.

Yes. So I guess just to add, obviously, Craig said, it's a first pass. It's also a minimum, the GBP 35 million or the 50% on the total cost base of GBP 70 million is a minimum cash saving target, and we do expect to exceed that. Another point is this is gross G&A that we're talking about. So the $70 million figure for 2022 is gross G&A, i.e., our total cost base for the business. That is not the same as net admin or admin in a cash flow waterfall that we've presented previously, which is after allocations to things like CapEx and OpEx, and we'll provide more information in further updates and results announcements around the impact on net admin of these cost-saving initiatives.

Are there any more questions on the line?

We have no additional questions, so I'd like to hand back for closing remarks. We have polished have an additional question in the room.

It's Dan Slater from Zeus. I just want to ask a little bit more about the receivables. Obviously, it's GBP 97 million at the end of last year. It's probably gone up since then, and we're talking quite a bit about that stabilizing as opposed to necessarily reducing. So is that where we sort of think it is? Are we hoping it's going to kind of stop at 110 and just -- and then you start getting paid? Or do you think there's, what, hopefully, some sort of potential to actually sort of reduce that? And where do we think that might get to? And the other thought I had was slightly more widely in the context of your other peers in Egypt. I'm sure there's a bit of a hierarchy of who gets paid the dollars and who has to sort of get in line? And do you have much of a feeling for where you fall in that queue? Obviously, it's going to be below some of the much larger companies. But where are you in terms of that Queue, if you see what I mean?

If you'll allow me to answer the second question first. Part of our commitment to Egypt is around having the right team in place, as I've said, having the right people, building the right relationships. That to us is key to the resolution of the receivables position, being front of mind and ensuring that it's well understood that this is an issue that we need to address, but dealing respectfully and appropriately with the relevant counterparties and working with our partners in this. So we think bringing the right team to bear will certainly assist in accelerating the resolution of this issue. It is a common feature, as we've highlighted of doing business in Egypt, but we're very keen to ensure that we do something to address it, and we're bringing everything to bear on it. So I'm confident that we will do the best we can to be at the front of the queue. -- of course, always, as I said, being respectful of the context in which we find ourselves and the cultural context and the commercial context of our relationships in Egypt. We talked a lot about our enthusiasm for the market, and that is very real. We see a significant opportunity. It is Capricorn going forward. So that's something, I think, that will come across to our counterparties to the relevant government agencies. Very clearly, it's already been communicated effectively through our Egypt team but through Hesham, our Board members, as I've mentioned, and of course, Randy will bring that to bear. So I think we've got the right team, the right strategy in place to deal with this. In terms of the numbers, Clare, you've already addressed the fact that the number came down at the end of March. -- in early April. It stabilized is a difficult term. I think what we're wanting to send you a signal is we're not seeing any special adverse treatment of us in this. It does jump around a lot. We've given you a different level of disclosure, we hope, which is appreciated, which is the receivables position at the end of March, precisely because we want to show that to you that it does jump around a bit. It is the issue, the sort of thing that we grapple with on a daily basis. That's the part of the challenge. But our efforts will be directed solely but bringing that down and as rapidly as possible through the new team. Clare, do you want to add anything else to that?

No, I think you've cut everything Craig.

Any more questions?

Just want to confirm, there are no further questions in the room. So I'd like to hand back for any additional or closing remarks.

Well, thank you very much, everyone, for your attention, for your questions today. I want to pay tribute at this point to my Board colleagues and the nonexecutive directors who were appointed just 85 days ago and the 2 continuing directors who remain on the Board during that period. We have been completely hands on with this business for the last 85 days. You can't get to this sort of position in such a brief period of time without being completely dedicated to understanding the business and its challenges. And I'm very proud of the amount of effort that's gone into it. But I want to say that universally, we are enthusiastic about the opportunities we see in Egypt. There are clearly challenges. Every business has challenges. But we're up for it. We put the right team in place, and I think we're very well positioned to generate value for our shareholders going forward. And I very much look forward to the next opportunity to update you on where we're headed. Thank you very much for your engagement today.