Capricorn Energy PLC (CNE) Earnings Call Transcript & Summary

Good morning, good afternoon, and welcome, everybody, to the Capricorn Energy 2023 Full Year Results Presentation. Speaking today will be Geoff Probert, Chief Operating Officer; Nathan Piper, Director, Commercial; and myself, Randy Neely, CEO of Capricorn. Following our presentation we will open the floor to questions. First, I want to start out with a quick review of the year, our achievements and milestones as well as a snapshot of what we've been working on so far in 2024. Following on the stated objectives and strategy outlined during 2023 to rightsize the organization, maximize the return to shareholders, exit the non-core positions, particularly exploration commitments, et cetera, and resetting our corporate culture, I can confidently state that we have achieved these. We declared $550 million in dividends and started a $25 million share buyback. The buyback continues and we hope that volumes improve. We will complete it as quickly as permitted. We transformed the organization through the reduction of our staffing contingent to less than 50 people. And when all of the legacy elements are worked through, which we expect to achieve this year, will provide for a G&A run rate of approximately $20 million, which is an 80% drop from the 2022 gross G&A cost to the organization. We have now exited all of our non-core exploration ventures in Mauritania, Suriname, and Mexico, with some administrative cleanup ongoing in Mexico to ensure a proper wind-down of those activities in order to minimize potential liabilities and maximize any recoveries. Culturally, we have taken an organization where cost was no object, including high-profile real estate, company cars and pretty much every oil and gas software subscription available to a culture where it's the shareholder's money, and every expense needs to be considered with that in mind. And we continue to work very closely with our JV partner, Cheiron, to improve the results being achieved in our Egyptian JV. And I can report that our objectives are more and more aligned every day, and Geoff will touch on that progress as well a little later. So far in 2024, we have continued to be focused on our core objectives, returning excess capital to shareholders, including a declaration of a special dividend to be paid in Q2 of $50 million, bringing the total dividends declared since the changeover in the Board last year to $600 million. I'm thrilled that both Geoff Probert and Eddie Ok agreed to join me here at Capricorn. Some of you already know them from past lives, and I'm sure our shareholders will get to know them and appreciate them as much as I do. They are a terrific complement to the already first-class leadership group and employee contingent we were able to retain through the transition as well as the very experienced Board the shareholders put into place last year. While I have the full confidence that our Egyptian business will improve both financially and operationally in the coming months, since my time at my last company, I've always run Egypt operations based on what can be afforded. In effect, if the asset can generate an adequate return and funding, then it should be invested in. Our shareholders were very clear in communications that excess funds should be returned to them. And I worked to reassure the shareholders that Capricorn would not allow the uncertainty in Egypt to ultimately absorb all of the PLC funds that were received from the Indian legal settlement. As a result, there has been no transfer of PLC cash to the Egypt operations since Q2 of 2023. And Egypt has been maintaining itself solely on the funds made available through collection of Egyptian-sourced revenues. Lastly, ultimately, our value in Egypt will be driven by our success in drilling for and producing hydrocarbons. And as started in 2023, we have reorganized and refocused our limited team to assist in optimizing the delivery of those objectives. Our immediate business priorities. As already stated, our priority remains to pay out excess capital to our shareholders in as timely a manner as possible. With the legacy contingent payments steadily unwinding, our downside modeling will become less dependent on uncontrollable factors in forecasting the required company cash reserves and liquidity. A key priority for myself and the management team will be to increase investor interest in our stock. We have significant unrecognized value in the share price, and I'll go into this further on the next slide. To ultimately obtain the highest value for our Egypt operations, we need to be self-sustaining, and a long-term payment plan or agreement needs to be achieved in some form as soon as possible. Geoff and I were just in Egypt this week, meeting with representatives of both EGPC and the Ministry, having very constructive conversations on this very topic. The collection of the company accounts receivable owed by the Egyptian government is always a priority. And regardless of the near term payment, we will remain a very high priority for management in the U.K. as well as in Cairo. I'm very pleased to announce that just this week, the company received a payment of USD 30 million, bringing collections in Q1 to a total of approximately $55 million. With the scarcity of U.S. dollars in Egypt, which existed for the entirety of 2023, combined with the company's pledge to shareholders to have Egypt operations fund Egypt investment, we had to manage our activities in U.S. dollar commitments very carefully. This ultimately led to the company to not approve any new drilling in Egypt for the past few months, which led to the JV having to lay down all of the rigs. That is from using 6 in mid-2023 to currently 0 rigs operating. We see this as necessary but also temporary. Ultimately, we see the value and potential in the asset base in Egypt, and we continue to work with our partner to finalize an investment budget for 2024, which once we have the clarity of the payment program, as I just mentioned, we will expedite the approval of the budget and hopefully see the restart of activities in the very near term. An important aspect of what I think our team can bring to the partnership is experience and expertise to improve the exploitation of the existing assets, and we will work very closely with our partner to achieve this. We have been working for several months to form a joint view on how best to amend and extend the 50-50 held concessions. These discussions have been very productive, and we expect to begin direct discussions with the Egyptian government petroleum company in the coming weeks, who I will also add, are very keen to begin those same discussions. Last but not least, we will be working with TASE to capitalize on our competitive advantage in the U.K. North Sea to acquire production assets that fit a very strict set of criteria. The investment thesis. In my opinion, the stock price of Capricorn has been severely impacted by a perception in the marketplace that the Egypt business, because cash has only flowed in one direction since Capricorn bought these interests, could ultimately and perhaps quickly absorb all the company's disposable cash and liquidity. As I stated earlier, this just simply is not the case. Egypt has not received $1 of support from head office since Q2 of 2023. That means that all the amounts advanced to the JV to sustain operations, payments made to service the reserve-based loans and the junior facility as well as G&A costs have all been funded exclusively by cash flow provided by Egypt operations. And as I mentioned, this led to ceasing all drilling activity. As I said earlier, this is not necessarily the pathway to best value, but it is the way I believe the business should be run. Egypt must stand on its own 2 feet. For that matter, any investable business needs to do the same. Since inception, the company has invested over $350 million in the Egypt business. It now needs to demonstrate a return can be earned. To be crystal clear, I'm very confident in that occurring. I wouldn't have joined the company last year and I wouldn't have convinced my 2 closest colleagues to join me at the company this year if I didn't. I think this graph provides a reasonable view on value. For Egypt, we add up our net working capital, deduct our debts, and add the NPV15 of our reserves as calculated by a third-party engineering firm, one that was not involved in any way on the original transaction. That value is almost $100 million more than the current stock price. That alone justifies a higher price than what we are trading at in the market. And this is before we add in the other value components, that excluding any potential from a Woodside payout from the Senegal continued payment, also adds up to essentially the current stock price. These 2 pieces added together points to a potential value in the USD 500 million range or approximately -- or greater than $300 million above the current market value. And this excludes the potential value generation that we can create from our U.K. business and the value-add that can be created in Egypt by renegotiating the existing concession agreements to expand the opportunity base in Egypt. Look, Egypt has never defaulted on its oil and gas debts, and as you're aware, Egypt has just, in the past month, secured over $50 billion in external financial investment and support and has already made a substantial payment to the industry in general and as specifically for overdue amounts. Recent announcements have been a welcome sight for all companies doing business in Egypt. Those include both the investment and support announcements but also the fiscal announcements that will hopefully allow these funds to provide a sustainable platform to improve the long-term viability of the Egyptian economy. I'll now turn you over to Nathan who will walk us through the 2023 results and the 2024 guidance.

Thank you, Randy, and good afternoon, everyone. In the next few slides, I'll take you through the full year 2023 financial performance, the cash flows, balance sheet, and recent progress on the receivables position along with preliminary 2024 guidance. So onto the financial performance of 2023, where our working interest production at Bapetco averaged around 30,000 barrels a day of oil equivalent. We continue to prioritize higher-margin liquids production that represents 47% of total production in 2023, up slightly on the prior year. Revenue generated through the period was $200 million. Around 80% of that was from liquids. And average realized prices were $81 a barrel for oil and $2.60 per MCF for gas. OpEx in 2023 was a bit above $5 a barrel of oil equivalent, helped by a weaker Egyptian pound. The majority of our OpEx is in EGP. Total CapEx on an accruals basis was around $140 million. Egypt CapEx, where a meaningful component is also denominated in EGP, was around $106 million, split across $91 million in development and production and $15 million on exploration. The remainder of the exploration spend is largely related to the Yatzil well offshore Mexico. Gross profits in Egypt, that's revenue less OpEx, were $140 million, whilst the operating cash inflows for the period were $32 million before CapEx, Shell contingent payment, RBL repayments. Although macro headwinds are rapidly easing, as outlined by Randy earlier, our current receivables position continues to reflect the period of challenge the industry faced in 2023 around the pace of payment in Egypt. Gross receivables increased from around $100 million at the end of 2022 to $178 million at the end of 2023, of which $151 million were due for payment. To the end of February, this has moved to $179 million with $166 million due for payment. However, as mentioned earlier, we can confirm that $30 million has been paid to us earlier this week, around 20% of the outstanding position at year-end. This is in line with the recent announcements for Egypt, where 20% of the amounts outstanding to the industry were to be paid pretty much straight away. We anticipate further payments through 2024 to address the remaining balance. If we move on to the next slide, I want to detail the cash movement over the period in '23. We started the year with a net cash position of $597 million. We then returned over $560 million to shareholders through the year via 2 special dividends in May and September with an ongoing share buyback. Since initiating in early May, we bought back almost $19 million in stock through 2023 with around $21 million bought back in total to date. For clarity, differences compared to the headline return amounts reflect FX movements as we convert a U.S. dollar return into a U.K. pound dividend. After working capital settlements, a contingent consideration of over $140 million was received in the first half in respect to the North Sea earn-outs from Waldorf Production. It was boosted by a further $48 million in December, following our settlement agreement with them announced at the end of 2023. As a reminder, under the agreement with Waldorf, we have a further $24.5 million to be paid, well, in fact, $2 million of which we received today and the remaining $22.5 million will be received in early January '25 along with, subject to final completion, a 25% stake in the U.K. North Sea Columbus gas field. Egypt cash flows netted to a cash inflow of $32 million before exploration and development CapEx and a $25 million contingent consideration payment to Shell. Legacy exploration CapEx outside Egypt was about $30 million predominantly in Mexico, along with spending in Mauritania, U.K., and Suriname as we exited those exploration positions. To be clear, there will be no further international expiration spend beyond 2023. Adjusting for admin, financing and other costs, this took us to a cash position of $190 million. And if we net the drawn debt position held at our Egypt subsidiary, we move to a net $76 million cash position at the end of 2023. For clarity, as previously disclosed, excluding depreciation, gross cash G&A for 2023 was slightly less than $70 million. Moving on to guidance for this year. As outlined in our pre-close update in January, an approved 2024 budget for activity onshore Egypt remains contingent upon the confirmation of an acceptable payment plan. Therefore, the guidance we provide today reflects our current position where activity levels are matching the in-country funding position with no rigs currently drilling. This means a lower year-on-year well count, and as previously outlined, production is expected to decline by 20% to 30% over the year to average 20,000 to 24,000 barrels of oil equipment per day. Once we have clarity around the future-looking payment plan, hopefully very soon, we will update on our guidance position. As Geoff will detail, even with the resumption of drilling, the impact on 2024 production is likely to be modest. OpEx is expected to be a little higher than last year at $79 per barrel oil equivalent, given lower volumes going through a largely fixed cost base. However, the number does not reflect any short-term impact of Egyptian pound devaluation. G&A through 2024 is expected to be around $20 million as we manage residual contractual positions. By year-end though, we anticipate that business will have transitioned to a sub $20 million run rate for G&A. For completeness, we've included the production contribution from our emerging U.K. business, which as I mentioned before, is subject to completion. But I'll now hand over to our COO, Geoff Probert to talk through our operational performance. Thank you.

Thanks, Nathan. It's a bit of a relief to be discussing our Egypt operations, having just received the first bullet payment in dollars from Egypt in quite some time. That, and the positive economic signals that accompany it, mean that expectations for '24 are much higher than they would have been even a few short weeks ago. I've been with the company for a little over 10 weeks now, having spent a fair bit of my career operating across Egypt, North Africa, and the Middle East. A familiar look to the challenges and opportunities Capricorn have faced and continue to face to the ones I've experienced in the past. The good news is there's a pathway forward that stabilizes the business and moves us along a healthier trajectory, where development investment restarts and collections align with our in-country needs. Today, briefly, I'm just going to go through, in a few minutes, our '23 Egypt development activity and the operational mindset that continues into 2024, a look at year-end '23 reserves and resources, and then a reflection on what we see as the next steps for Capricorn in terms of value-add in Egypt beyond just improving the operation performance of and through our partner. Nathan and Randy both mentioned that a lot's changed, and this '24 investment and development program as it currently stands is caveated on the absence of a payment plan beyond what we see so far from EGPC. But we see movement, unblocking payments and we're working quickly now even the past couple of days to realign investment with EGPC payment plan to permit a return to drilling. And then when we get that of course, we expect to come back, as Nathan said, to the market with our budget and plans for drilling along with updated production guidance. As Nathan has alluded to, look, a return to drilling in Q2 2024 is relatively late. It takes quite a bit of while to drill and bring these wells into production. So as a bit of a spoiler, it is not going to have a materially large impact on 2024 guidance in terms of production if we start drilling particularly later on in Q2. Onto the first slide of the pack, please. So this map really is a story about focus, focus on liquids development activity in '23, but the back story there also in preparing ourselves for future activity through the near-field exploitation wells and also nimbleness that allowed us to accelerate development where we had near-field success and scale back drilling through cutting rigs as payment shortfalls mounted. You can see here the key focus area has been drilling in BED2 and BED3, liquids, both for pure development drilling and near-field exploitation. It's a story of chasing liquids. We intend to continue and expect to continue through in 2024 as we return to drilling. And we, as Capricorn, invested measurable technical effort into our own understanding of these fields on their potential to make sure we can improve success rates going forward. And in that vein, it's probably worth highlighting that to ensure the best outcomes for the partnership and our shareholders, we're taking the technical initiative a number of areas now despite our nominal non-operated position. Next slide, please. This slide is really to illustrate how we've controlled rig activity in Egypt to better fit receipt of funds from EGPC. As Randy noted earlier, we've not sent any dollars to Egypt since Q2 '23, so forcing a fit was a requirement. We're well aware that cessation of drilling impacts production, but our tolerance for shipping further dollars to Egypt, while a line of sight on payments, wore thin. And it didn't fit with our strategic objective of Egypt becoming self-funding. We're confident -- we were confident that we'd get paid eventually, but we continue -- and couldn't continue, rather, keeping on increasing our investment in such an uncontrolled manner. Recent news backs up that confidence that both Capricorn-EGPC now have renewed impetus to agree a forward plan for funding on the back of the improved economic climate in Egypt. We're ready and waiting to return to drilling as soon as the go-forward alignment is reached. And as I mentioned earlier, we put a lot of time and effort into making sure '24 drilling, when it restarts, is as effective as the land offers. Next slide. This year, we wanted to start afresh on reserves, break with the past, get an honest external assessment or a resource base from a new third-party, and that was GLJ. The outcome is a mixed bag, but I take heart from the fact the resource base hasn't materially shrunk more than -- what was previously classified as reserves before now look more correctly like contingent resources, resources that we may be able to reclassify in the future through improved development planning and bringing deferred wells back into the booking window in line with SPE PRMS. I do want to note, we've also had a closer look at the contingent resources picture, particularly those resources associated with projects that have the potential to be unlocked by increased investment, incentivized by improved PSC concession terms and longer PSC durations. That's an unrisked working interest best estimate of 150 million barrels contingent on 100 million barrels perspective. And that really brings me onto my final slide. I'm not going to dwell on this as you can read it and it tells its own story. Sufficient to say, renegotiation of the PSCs, potentially merging the 50-50 concessions into a single agreement makes perfect sense for Egypt, Capricorn, and our partner. Everyone stands to gain here and I give nothing away by saying that our counterparties are eager to engage and move this forward. It's been done before, it's been done in Egypt. It's been done by the team we have before us -- before you today, including Eddie, of course, isn't with us at the moment. And the Capricorn team that remains, that comprise the technical, commercial, and finance functions, are highly motivated to make this happen, to secure running room for investment and value for EGPC and shareholders alike. With our partner, we're refining our proposal on this so we can submit them imminently to EGPC. And while much of the engagement will, by design, remain commercially confidential, we expect to keep you updated where we can on progress. I'm going to wrap up now but with a parting note that while I talk here about operations, at the end of the day, it's about company investing to generate the best possible cash returns for our shareholders from our assets, and that's what informs our every operating decision day in, day out. Thanks for your time and attention. Pass it back over to Randy to wrap up.

Thank you, Geoff. I'm going to leave off on this value slide again and reiterate a few messages. We are confident the receivable position will improve, and we will see a return to more normal operations in Egypt in the coming months. Regardless of these near-term changes, we will remain committed to aligning Egyptian investment with funds available and generated in the country. We will continue to work with our partner in Egypt to maximize the potential of those assets, which includes progressing the amendment and renewal of the concession agreements. We will work at pace to build a cash flow business in the U.K. to leverage our advantage there. And we will not lose sight that returning capital to shareholders will always be a strategic priority for the company. I'll now open it up for questions from the floor.

Just a quick 1 from me. Just regarding receivables, obviously, you've received this payment now. I suppose, does that change your mind in terms what the CapEx program looks like for this year? And if not, where do you anticipate that threshold to be in terms of kind of committing more CapEx to Egypt?

Thanks, James. We've been very clear for, well, at least for the last 6, 8 months since I've been in the seat, that we were going to match cash flow available in the country. And we've been working pretty hard with our partner for the past 6 months to develop a program -- sort of an unconstrained program for 2024, and then trying to look at -- back-calculate what that would mean in terms of cash flow. So we're now in that process of working, as Geoff alluded to, working with EGPC to try to get a proper payment program that would match that. And so we're -- the payment itself is great. It's a nice signal but we need continuous payments. And I do see the tide turning here pretty rapidly to getting back to more sort of normal operations in Egypt. It's been a tough 18 months for the entire industry and the country. And obviously with the big announcements in the past month or so, we're seeing big changes. But single payments don't change our direction. It's more of a continuous line of sight on payments.

That's maybe worth noting that a lot of the rigs, although they've been dropped, are still in the field so activity can restart quite quickly.

I just wanted to ask, obviously, there's plenty of stuff for you to be doing in Egypt at the moment, restarting, drilling, normalizing payments, anything around the PSC, et cetera, et cetera. But obviously as well at the same time, you've got into Columbus in the North Sea, and you're going to have plenty of cash knocking around at some point depending on what you want to do with that. Are there any thoughts about any other operations outside Egypt? Any sort of using that to maybe grow the business or anything like that? Or are you just really going to be focusing down on Egypt over the sort of foreseeable future?

Yes, I think -- thanks, Dan. For the -- in the short term, our intent is to get Egypt working as highest and best possible scenario. And because the opportunity set is there, it's just been hindered by the situation, and, of course, improving the contracts will go a long way to laying out a pathway for us, a runway, I should say. The U.K. North Sea is an opportunity that's sort of embedded in the company because of historical activity and continuous activity over the past decade or so. And we want to take advantage of that. We're in a unique position vis-à-vis sort of our status here. And we want to take as much advantage of that as possible and as quickly as possible because we think we can bring that value forward quite rapidly. So outside of those 2 jurisdictions for the moment, no, we're not thinking about it, but we get those things working perhaps.

Just a quick question really on these lump-sum receipts from -- regarding the receivables and potentially also Senegal in due course. How do you think or how should we think about how you might split that between investment and return to shareholders, given that shareholders are paramount, as you've explained?

Thanks, Charlie. We've been very clear about the potential payment from Woodside on the contingent payment from the Senegal sale in that if we receive it, those funds are sort of earmarked to go back to the shareholders. With respect to payments in Egypt, at this stage, we think the optimal plan in Egypt is far larger than the $30 million payment that's come so far. So at this stage, we would be looking to reinvest what we have in Egypt to try to maximize the potential of that business and get the production moving back in the direction that it should be moving. That's our goal there. But in terms of payments that come outside of Egypt, like the potential 1 from Senegal, we would look to -- try to return that to the shareholders once it's in our hands.

And so if you receive back this $150 or so million, it's a little more than that as a receivable, will that all go back into the ground either in Egypt or in the U.K.? Or should we expect some of that to go back to shareholders? I guess just trying to push you a little bit on where that might land.

Yes. Well, while it's possible we could get a big bullet payment of $150 million or whatever is still owed to us, I haven't seen that happen in my career in Egypt to be. So it's possible. And I'd like...

Even if it's over time, if you get payments of $30 million every 3 or 4 or 6 months, whatever it is, would that be recycled, do you think? Or would you say, well, 2/3 of that we'll recycle and 1/3 will go to...?

At this stage, Charlie, we're looking at it from a standpoint of what we would need to reinvest in a proper program. And if we start achieving cash flows beyond that, then we would look at the opportunity to ultimately return value to shareholders. That would always be a priority to us. And you know me from a past life and that would be a priority for us. Right now, we think the highest and best use for funds that are coming out of Egypt is to reinvest in the Egypt business. But if we exceed what is highest and best use, we'd be looking to distribute those to our shareholders.

And if I can just follow up with 1 much easier question. The 2C resources, which is a large number, is that resources that's in the ground but just falls outside the current license periods?

So Charlie, it's not just resources that are in the ground outside of the license period. Some of it is obviously out of license period. Some of it's associated with new development activity that may be more expensive, more risky. Near-fields exploitation that's more expensive, more risky. That isn't incentivized currently by the existing terms of the multiple concession agreements. You're familiar with the previous company and how we packaged together, you'll see something very similar here.

Just a very quick 1 for me. With regards to the CapEx expenditure, will that also, I suppose for the next couple of years, partly depend on whether you manage to assess or you renegotiate the PSC and get improved terms? Will that affect the kind of CapEx rollout in the next couple of years?

Absolutely. I mean, if we're able to achieve a renewed, renegotiated concession agreements, typically, that will enhance the investability of the projects. And we would probably look -- and we'd get a higher return, but we'd probably be looking at increased investment rather than decreased investment, but you have increased cash flow to go along with that. So it's still fitting into the sort of the model where the asset would feed itself to grow as opposed to having to fund it from someplace else.

George, it looks like we've got a couple of callers with questions on the conference call. Could you bring them in for us, please?

[Operator Instructions] The first one will be coming from Chris Wheaton of Stifel.

A few questions from me, if I may. I'm just trying to think ahead to hopefully a point later on this year when you will have more clarity on the receivables coming back and therefore more clarity on that cash cycle. Assuming you end up with a working capital position of $50 million to $70 million, so you releasing $70 million, $80 million of receivables within Egypt, what kind of steady-state production does that get you to if you were to reinvest that? I'm assuming you end up somewhere either in the sort of the high 20s to low 30s KBOE a day on that kind of level of annual reinvestment. It's not a reasonable sort of estimate to make. And that's my first question on Egypt.

Yes, so Geoff here. I think you're in the right kind of ballpark, the higher end of the 20s. I mean, obviously as you're aware, these western desert fields of Bapetco operate as a joint venture operating company, tend to have quite high decline rates. So yes, the earlier we get back, the faster we can return to those sorts of levels. As I mentioned, bringing those wells, it's starting and drilling again before the middle of the year. We're going to see a somewhat limited impact on '24 average. We'll get a better exit but it still isn't going to be up in the high 20s. It'll take continued -- I'm not giving you the rig numbers but continued activity at the kind of levels you mentioned there, say around $50 million to $70 million to bring us back up to those sorts of numbers. Beyond that, more rigs, more money, better terms. We can do more. Will it ever go -- this is our working interest share we're talking about here. Will it ever go to 40,000, 50,000? I'm not sure, but towards 30,000 and in the low 30s? Potentially, yes.

I think the market's moved on from the 45,000 to 50,000 a day target that was originally set when these assets were acquired. I'm not holding you to that. Okay, that is helpful. So I guess you are saying, so with the current situation, if you can get the cash cycle working, high 20s if there's upside, if there's license renegotiation if Randy can work his magic as he did with TransGlobe, then maybe you can get into the 30s. But you're probably talking about get to -- on the current license terms, you're probably talking about 2026 before you get to that sort of 28,000 to sort of -- say, 28 to 30 KBOE a day range, that kind of trajectory. Is that a fair summary of what you've said?

That's a fair summary. I mean, look, I mean, one of the reasons one wants to do renegotiation, bring it into 1 contract, simplify structures, attracts -- let's say you get more opportunities to take a little bit more risk, frankly. And obviously you take more risks, sometimes you get lucky. But the base plan would be about where you described.

But I think importantly, Chris, is a focus on value. So I think that volumes are all very well, but at $2.90 and if that's gas, that's not quite the same as if we're producing oil at $80 a barrel. So there's an awful lot more rigor around value as well as volume, yes.

For sure.

That's okay. I guess my second -- my follow on question is exactly that point on the value creation. Is there an expectation at all in the next 3 to 5 years that you might actually start being able to get cash out of Egypt? It's one thing actually getting paid within Egypt, and I think you've been very clear about saying you're not putting any more money into the Egypt business. It'd be great at some point if you could actually start getting some of that cash out of Egypt, some of that $400 million that has been paid for the assets so far. And I wonder at what point, if you are at steady state, does that actually start to become realistic. Or is what we should expect really just all the cash in Egypt gets reinvested to get to that sort of 30,000 a day, maybe get a little bit more with license change but get to that level of production?

Chris, it's Randy again. In the short term, there'd be a focus on investment and getting the asset back to its proper sort of maximum potential. And of course that's going to be influenced by the contracts themselves and the returns as we just talked about. So that will always be a focus for us. But yes, I look back at my prior career at TransGlobe and we were able to return capital, we were able to pay dividends there and I see the potential here coming as well. It's just we got to get it to the right level. And of course, the last couple years have been difficult and the last 1.5 years regarding payments has caused some certain -- quite a bit of strain. But we've now implemented a team here over the past 8 months or so to really dedicate themselves to sort of assisting the partnership in general to drilling the best wells and getting the best performance out of the assets. And I think that's where we're going to add significant value to the joint venture itself and ultimately get to a point where we are getting funds back to shareholders through this investment. I'm not going to stand by the price that was paid 2.5 years ago and the promises that were made, and I know you've already forgiven us for that. You're not wrapping us into that. But the reality is it's a good set of assets. It's a jurisdiction where they want investment. They're eager to get us to grow. They've had hard times but they're willing to work with us to try to maximize the potential here. And I think the opportunity is going to come at us rather rapidly in the coming year to hopefully expand that potential.

Understood. The way we'd say, I think returns matter very little if you can't actually ever get the cash out of the country because then shareholders won't ever see that because it'll remain locked within Egypt.

Yes. It's similar to Nathan's point earlier, like volumes are interesting but value matters. So we are talking about producing at 30,000 BOE a day, like who cares if you're making a $1 a BOE? You got to get returns. It's always got to be top of mind and returns to shareholders has got to be top of mind. So that's going to be our focus.

Okay, that's great. My last question, if I may. You talk about wanting to grow business in the U.K. North Sea, but you've also announced today the $50 million special dividend. Would that money not have been better reinvested into North Sea assets, given the tax loss advantage you have from being able to do -- or sorry, the advantage you have in doing acquisitions of being able to monetize the tax losses you have and therefore create value from those locked-up tax losses? You have no other means of monetizing at the moment. I'm interested in that sort of dichotomy between wanting to invest in the North Sea, yet returning some of your scarce capital to shareholders?

Yes, I mean, to be fair, I mean, I think the shareholders have deserved this payment and that's why it was top of our uses. I don't think this payment hinders our ability to do anything in the North Sea. I mean, we have a very unique advantage looking at the assets that are there as a small company and looking at, on average, small acquisitions but potentially quite valuable to us, not necessarily valuable to others. And that's where we hope to fill that. We don't think this will hinder us at all in terms of taking advantage of that.

We now move to Matt Smith of Bank of America.

I just had 1 question left actually, and it was around, in the release, you refer to seeking to defer amounts in relation to contingent obligations that you have in relation to the original acquisition of those Egyptian assets. So I just wanted to -- could you go through the sort of rights you have and sort of what the range of outcomes thereafter that, please?

Yes, there's an obligation for the partnership with being both partners to pay additional amounts to Shell on the original acquisition. That's the key ones. And there's been a scarcity of U.S. dollars in Egypt for all parties. And so there's incentive for us to try to sort of better match dollars that come from Egypt to dollars that have to sort of pay for Egypt, and that goes for our partner as well. So I think the industry is all sort of conscious of this and so we're continuing to have dialogue in this area, but I can't really comment any more than that.

We have 1 more question. It is from Mark Wilson of Jefferies.

Most of my questions have been answered but just to ask again on the shareholder return, the $50 million. Just on the amount, simply put, the absolute amount of $50 million versus your current cash reserves, and obviously, you've said confidence of getting more receivables back in. But if that doesn't occur, what's like the balance of that potential risk versus the level of funds returned? Just interested on how you set that number.

Well, the number's really set based on looking at a fairly drastic downside scenario over the next 18 months to 3 years, looking at all the potential downsides that occur, whether it's low oil prices or contingent payments needing to be made or joint -- several elements being brought into the formula. We look at all that and running our business, and that's what we see is the affordable level of a dividend to be able to pay out to the shareholders and doesn't jeopardize our -- part of that formula is doesn't jeopardize the way that we plan to run the business. So there's a lot that goes into it even though it comes out at a fairly round number. $100 million last fall and $50 million now seems like a round number. But there's a lot more that -- a lot of work that goes into it and a lot of late nights, a lot of modeling goes into it, a lot of detailed analysis and all the assumptions that come to that figure. But yes, that's the figure that we feel very comfortable with being affordable for the company, particularly as we look at potential downside scenarios.

And in terms of a lower versus longer shareholder return, it seems quite upfront, considering obviously the $568 million last year?

I suppose, Mark, in short, we're trying to get the working capital position of the business down to the level it probably ought to be for the size of it. And this is another step towards that as we fine-tune the business and work through the legacies versus being in a sort of point forward position where we could be a bit more proactive. So this is another part of that. The shareholders and Board change from last year identified excess cash as being a key consideration we had to work through. And as Randy detailed, we continue to do that work relatively actively, and this is the output from that. But given the receivables position in Egypt, it can fund itself, and given the remaining working capital we have in the U.K., we can do what we want to here as well.

We have no further audio questions at this time. I'll turn the call back over to the live audience. Thank you.

Okay. Well, thank you very much for attending this morning or this afternoon, and we look forward to catching up in the coming months.