Keo Capital AB (publ) (KEOC) Earnings Call Transcript & Summary

[Foreign Language] Hi, guys. Great to have you online.

Hi, Kaarlo. Thanks for having us today.

[Foreign Language]

[Foreign Language] Mr. Andrés Modarelli, if we go to Slide 4, I would appreciate if you can help me to explain our very good Q1 quarter despite the COVID-19 pandemic. So please go ahead.

Absolutely. Thanks, Jonas, and thanks -- thank you, Kaarlo, for having us today. Good afternoon, everyone, and welcome to another webcast. I'm pleased to present our Maha's Q1 2020 results. So if I get in right to it, if I may direct your attention to Slide 4, where we present a summary of our Q1 financial highlights. You'll see a table with our most recent quarters. These are expressed in thousands of U.S. dollars and are unaudited quarterly figures. So overall, strong results in Q1 despite lower prices that we have been seeing since the beginning of 2020 and the early effects of COVID-19 during March. As you can see, revenues were lower by 5% versus the comparative period and 18% versus the most recent quarter. And this was despite our production increasing by 23% versus the average a year ago and 4% versus the most recent quarter. We did realize lower prices per barrel for the quarter, $43.81, which is down 21% from the comparable period and 19% versus Q4. This, in turn, had an effect in EBITDA, which was lower 16% versus Q1 of 2019 and 23% versus the most recent quarter. Here also is the effect of certain onetime OpEx cost during Q1, which included maintenance and slickline costs. Our operating netbacks were also lower this quarter, down 31% versus the comparable period and 20% versus the most recent quarter. We will discuss this a bit further in a later slide. Net result, strong and $3.2 million and up 19% versus the most recent quarter. Positive EPS of $0.03 versus $0.04 a year ago. So moving on to Slide 5, where we present certain balance sheet items. The balance sheet remains strong overall. Our net cash unrestricted position is -- was $19.2 million, and this is after a $4 million disbursement at -- on March 31 in relation to the Illinois Basin acquisition. Working capital surplus was $16 million. This is -- this was lower than at year-end, but following a high capital activity during Q1 of $16 million from well operations and facility upgrades as well as the $4 million acquisition payment that I referred to earlier. Total assets and shareholders' equity, despite this -- the capital investment and the acquisition, these are lower from the translation effect of the functional currencies in our foreign operations, being the Brazilian real and the Swedish krona, which were down 29% and 9% at quarter end, as we translate these into our reporting currency, which is the U.S. dollar. Also, we have our bond of SEK 300 million, with the next interest payment occurring this week and with our financial covenants being met. And as mentioned earlier, no dividends payments are being contemplated. Next, Slide 6 is our quarterly production chart, where we show the growth of production in the recent quarters. This was the second highest production month on record. And this was despite having a 3-week strike at Petrobras, a maintenance shutdown on our gas end user and the effects -- the early effects of COVID-19 in March. So this high production is -- was sustaining the strong results of the company as prices have been declining in 2020, as you can see on the lower chart, and further accentuated in March. Next on Slide 7, we show some of our key metrics. As you will see, netbacks have been declining as realized prices and overall Brent prices have been declining. But the decline of the netbacks is in a lower proportion than the pricing, which signals per unit cost improvement. So for example, versus Q4, our realized price was lower by $13, whereas the netback was lower by about $12, so -- I'm sorry, by $7. So operating costs remained around that $6 to $7 range, including transportation, and despite the onetime items I referred to earlier. Lastly, our cash balances remained high, which if you compare -- comparing with Q4, the balance came down by $3 million, but that was after $6 million of capital spending and $4 million of acquisition payments. Lastly, on Slide 8, this has been another strong quarter, our 10th consecutive profitable quarter from production -- as a result of production increases and cost efficiencies, despite the initial effects of COVID in March. And we're hopeful prices keep improving from here onwards, so our Q2 isn't affected significantly. So overall, another strong production quarter end results. I'll hand it back to Jonas.

Thanks, Andrés. We've got 2 questions actually, maybe we want to clarify. You mentioned on the balance sheet, the effect of the Brazilian real versus the U.S. dollar. That is also helping us in reducing our operating cost, correct? What's -- it's gone down quite a bit, right? The Brazilian currency has been devalued quite a bit, right, from, what, BRL 3.9, BRL 3.8 to something, right, to BRL 3.5 at the end of the quarter. So that's effectively from year-end till the end of March, it was 30%. 30%. Yes. So that's actually helping us, even though it's coming through in a different way on the balance sheet.

That's right.

All right. And the other was OpEx. We have, what, $6.46 per barrel BOE, I think, and we expect it to come down further for 2 reasons. One is the increase in production that we're anticipating. And two, we had some onetime costs you mentioned. There were some slickline costs in there and some other onetime costs in the first quarter. So...

And thirdly, because these are mostly in real, that should also bring the cost down.

There you go. So we're very happy with that. Thank you very much, Andrés. Okay. So at this point, I will go back to Swedish. It might be a little bit of Swinglish as I'll jump between perhaps the 2 languages. [Foreign Language]

[Foreign Language] Questions of a financial nature will probably be replied to by Andrés and thus in English. [Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] Because Andrés, we have a financial question here as well. It's connected to the effect of Brazil. And if push comes to shove and you need to close down further of the operations, there's a lot of questions of what will happen to the cash flow and particularly of the outstanding bond?

So the question is, if we have to shut down production in Brazil, how will it look for us? Of course, we -- of course, I'll let you ask Sir Andrés. But before we -- as we communicated in the earlier press release, I think it was back in March, we do stress tests at least every 2 weeks. And we just finished one last week. So with that in mind, I think you go ahead and give your opinion on what will happen if...

Right. We put out our guidance with a new production range. And within that range, we modeled and concluded that -- and under certain assumptions that the obligations would be met over the next 12 months. Now if we have any circumstance where we're mandated to cut production down, we would have to, at that point, reevaluate and remeasure the effect of that. But at this point, there's no indication that, that will happen.

No. And I think it's fair to say that the only impact that we've seen has been through our gas customers. And quite funnily, not ha-ha funny, but strangely, the shutdown was due to not because of, say, COVID, that they're affected by COVID, people being sick, but it was affected by people not buying their product. They are a ceramic manufacturing company. They manufacture ceramics. And apparently, nobody is remodeling their bathrooms during COVID times. So they had too much inventory and they decided to stop production and go home and conserve cash. So that was sort of the domino effect for us. I don't know, Kaarlo, did we answer that question satisfactory or not?

Yes, I think that you answered the question as well as anyone could, I would say. [Foreign Language]

[Foreign Language] The best thing for price is price, and the best thing for high prices are high prices. [Foreign Language]