Centaurus Energy Inc. (CTA) Earnings Call Transcript & Summary

Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Centaurus Energy First Quarter Earnings Conference Call. [Operator Instructions] Mr. Tawil, you may now begin the conference.

Thank you very much, operator, and thank you all for joining us on Centaurus Energy's 2021 First Quarter Earnings Conference Call. As I have done in the past on previous quarterly investor calls, I would like to first review some applicable worldwide and Argentina-specific developments that have relevance to Centaurus. Remarkably and thankfully, the world is on the mends from the COVID pandemic. And with that, business and travel activity has started to pick up. And with that, the price of oil is climbing. Unfortunately, the circumstances in the emerging markets and the developing world, including in Argentina, have not rebounded as quickly as in the developed world. Specifically, in Argentina, the number of COVID cases has been increasing recently to record levels as the country goes through a second wave of infections and as the country enters its winter season. And in reaction to that spike, the President imposed more stringent quarantine and travel restrictions this past weekend. Children have not attended school in person in over a year, and gatherings are limited to 10 people, with the overwhelming majority of citizens working from home. Weakness in the Argentine peso has been a double whammy for the local population as inflation for commodities and staples is prevalent worldwide and continues to rise locally, while the country's economy is in early stages of recovery. We're watching patiently for the emergence of a federal energy law in Argentina and the federal government's ongoing negotiations with the IMF over a debt restructuring for debt that the country currently has in place with the IMF. Furthermore, these anticipated events need to be seen in the context of an upcoming midterm election cycle in Argentina. In our opinion, the biggest story in energy during the past 12 months, which was overshadowed and somewhat concealed by the pandemic, is the spike in environmental concerns and intense focus on carbon emissions and the long-term focus away from carbon-emitting fuel sources. No oil major, sovereign or independent, has avoided speaking boldly and loudly on the matter. From BP to Exxon, Chevron and Shell, and from Equinor to Saudi Aramco, all have addressed the matter in words and in actions. In addition, throngs of companies, nonenergy-based, have started setting 0 carbon targets for upcoming years and decades. As a result, the pullback in oil drilling may be serious, and the rebound in worldwide production and consumption levels coming from the COVID rehabilitation and escape velocity could easily and quickly lead to an amazing spike in the price of oil in the short term. In summary, we think that oil is a short game, and we are playing it that way. We are focused on conventional production with immediate and near-term positive cash flow. We are keeping our costs down and planning for a rightsized operational platform. I will now touch on a couple of developments in Argentina. The Argentine capital markets are effectively closed and will likely remain so at least until the resolution with the IMF. Debt issuance is very few and far between, and the local stock market is at anemic trading at issuance levels. Nevertheless, we continue to stay very close to the markets and await the moment that access opens. To conclude my remarks on recent developments, I will reiterate the recent announcements that Centaurus Energy made in April. In April, Centaurus entered into an agreement to sell its remaining working interest in Coiron Amargo Sur Este petroleum block to Pan American Energy, the operator of the block. In addition, the company has exited its activity and involvement in Curamhuele, Palmar Largo, El Chivil and Coiron Amargo Norte, including exiting Coiron Amargo Norte without any residual liabilities. As a result of the transactions and activities, the company has exited and monetized assets with relatively high development costs and limited or no recurring output. And this will allow some tourists to move forward with a rightsized balance sheet and a focus on production activities in core conventional assets with lower cost in a rising oil price environment. The Coiron Amargo Sur Este transaction will transfer value of more than $51 million to Centaurus, including, firstly, satisfaction of all amounts owed by the company under the loan agreement between Pan American Energy and Centaurus, which effectively is all of the long-term debt of the company, and in addition, payment by Pan American Energy to Centaurus over time of a 2.5% overriding royalty interest over the net proceeds corresponding to the working interest being assigned by Centaurus to Pan American Energy totaling USD 25 million. In support of our company's exit from the unconventional oil business, I will reiterate the comments made by YPF's CEO, Sergio Affronti, on YPF's first quarter earnings call just a few days ago. YPF, as you know, is the state-controlled oil and gas producing company in Argentina and by far, the largest producer in the country. In response to a comment on the conference call surrounding delevering the company's balance sheet through asset sales and partnerships, the CEO stated that although YPF is in talks with international drillers for farm-ins and JVs in Vaca Muerta, so far, the company has had no luck in closing a transaction since "Valuation assessments are well apart." In our opinion, based on the current environment and circumstances, we believe that watching and waiting to see whether valuation assessments by investors and oil majors regarding Vaca Muerta investment will reach seller expectations is not a proper risk to assume with our investors' capital. Now I would like to turn to our first quarter financial results. For the third consecutive quarter, the company has reported positive EBITDA. Also, Centaurus reported its lowest operating expense base in recent years, along with an almost halving of G&A quarter-over-quarter. Unfortunately, the Argentine peso is still very weak, and the average realized price for oil in the country during the first quarter was still below $40 per barrel. However, our OpEx per barrel continues to come down and our netbacks are similar to when the company was receiving over $50 per barrel for its oil production. Quarter-over-quarter, our cash balance is up and our payables are down. In short, we are furthering the company's goal of achieving a slim-down operating complex to achieve better EBITDA margins and profitability. I will now turn the call over to the operator for questions.

[Operator Instructions] And at this time, Mr. Tawil, it appears that we have no further question -- no questions. Please proceed.

Okay. Thank you, operator. I appreciate your time, and I appreciate your focus. On behalf of management and the Board of Directors of Centaurus Energy, I thank you for participating in our 2021 first quarter earnings call, and I look forward to speaking with you after our second quarter has concluded. Thank you, and have a good day.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.