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

Hello, everybody. Good afternoon. It's a pleasure here to be with you all. My name is Paulo Mendonca. I'm CEO of Maha. Just making here also introducing Bernardo Guterres, CFO of the company; and Alan Johnson, the COO. We also have here with us our friends from DBO, which we will introduce them. I think we have just announced a press release that we concluded this transaction. Very happy here to have concluded this important milestone for the company. So I think the idea here will be, is making a presentation, trying to update all of you about the company and the main steps. Then I will call here the team of DBO to introduce yourselves, our new shareholders here in Maha subject to some present conditions. And then we want -- we will open here for questions and answers from all of you. Thank you for being here today. I think just a quick introduction. This is the FPSO of Papa Terra, one of the assets that we are acquiring here from DBO. So I just wanted to show here the relevance of -- and the size of this asset for the production on the offshore of Brazil. So here, I have myself, Bernardo and Alan and be happy here to answer all your questions after this presentation. So here, starting here with the -- one of the updates from the company. I think on October, we made -- the company had a change on the shareholder structure for Starboard, a Brazilian private equity firm, which was the architect of 3R, that is an onshore company in Brazil, who actively participated in the divestment program from Petrobras. So Starboard entered here at Maha and it achieved 19.9% of ownership as well as representation on the Board and the management. The company also successfully achieved a capital increase in December 2022, raising $20 million. I think this not only strengthened a lot the balance sheet of the company, but we were very happy that new long-term and fundamental investors approached the company and are part of the shareholder structure of Maha. The company also announced the sale of Maha Brazil, in December 27. This deal is still subject to a closing, which we expect to happen this month. The antitrust agencies have already approved the transaction without restrictions. And finally, we signed today the definitive agreement with DBO Energy, which will acquire 15% in 3R Offshore's assets, namely Peroa and Papa Terra. With this new reshuffling of assets, the company is now actively looking for M&A opportunities, mainly in Brazil and Latin America. We do strongly believe that a company having this equity position in cash is a very powerful tool to be in the oil and gas space here. It lacks a lot of equity in the oil and gas space in Brazil and in Latin America. And we do believe that with this cash, we will be able to really acquire very accretive transactions, very accretive assets and always with the focus of being cash flow-oriented, oil and gas. So this is the main approach that Maha will have here for this year is a very strong M&A work stream with -- always with this approach. Assets with a large P of production, very low exploratory risk and very cash flow oriented. And I think it -- the acquisition of Papa Terra and Peroa already proved that, assets that are producing that have reserves. I think that Peroa brings to Maha a gas production, which we believe it's not linked -- not 100% linked to oil, so this also provides some stability here to our revenue. So this is something that we believe it's very important here for the construction of the portfolio. And finally, we announced at the end of January, the farmout and JO agreement with Mafraq Energy, in which we assigned 35% of Block 17 in Oman to a local partner. And this was basically the last step for us to really initiate production and testing for the field. We expect to start producing [ still ] this quarter. And this is our team, our technical team here, Alan, will answer if you have any questions as well. But we are very excited here with really starting this in the very short-term. So giving here a quick introduction of Maha's assets. Today the market cap of the company is of USD 131 million, in terms of Swedish, SEK 1.36 billion. Our production in the last 12 months, of course, this was considering Tie and Tartaruga as well as the U.S. assets. We produced 3,300 barrels of oil equivalent. As you may have seen, we have disclosed last Friday, the new reserve and resources report in which we have 3.2 million barrels of oil equivalent of 2P reserves of Oman and IB assets -- U.S. assets. As we have sold -- we have -- as we are in the process of divesting Brazilian assets, the reserves of Brazil have not been incorporated in this reserve report. And we also disclosed the net contingent resources for Oman of 21 million barrels, very in line with last year's numbers. This is already our stake of 65%. So originally, 100% of the asset is of around 32 million barrels of oil equivalent. Remembering that these are still classified as contingency sources. I think the production of this asset will, alongside this year, will allow us to create a development plan and declare commerciality. And in case it's economically feasible, these assets could be in the future classified as potential reserves, again, depending on all of those economic assumptions. As we have spoke, Starboard has become the reference shareholder for the company with almost 20%, with a significant experience and track record. And we are here with 2 transactions, in fact, 3 transactions ongoing, the term sheet with -- the agreement with DBO, which will be subject to a general meeting, the company will realize. And the SPA of the Brazilian assets sold to PetroReconcavo. And finally, as we have also disclosed, the company is investigating the divestment of the U.S. assets, LAK Ranch and IB. And regarding Oman, we are very -- we're ready here to start production in this quarter. Very excited again with this opportunity. And we brought Mafraq Energy, the farmout agreement signed in August, and we closed it last week. So giving here an overview of our assets, we will be strongly in Peroa and Papa Terra, offshore assets, oil and gas; Tie and Tartaruga with this divestment program, also U.S. and our asset in Oman. Regarding our shareholder structure, we have Starboard with 20%, BTG Pactual with 5.7%, a very renowned Brazilian investment bank, Avanza, and others. So this strategic position, we want really to have Maha with a very strong balance sheet and a very strong capital structure. We do want to deploy this capital in very accretive and attractive opportunities with the optimization of OpEx and CapEx. And at the end, this reshuffling of the assets once allows us to have a portfolio optimization, always looking at attractive entry multiples. But as we saw here in DBO, we really acquired this asset for, in our view, solid and cash flow-oriented approaches. One thing that we always like to highlight is why Brazil maybe. And one of the things that we most like is that the Brazilian oil and gas environment is very friendly when we talk about taxes. So in Brazil, for the onshore, we sometimes have 5% royalties, depending on the offshore field 10%, but those rates can already achieve 7%. In addition to that, if you're located in some specific regions in Brazil, you also have a benefit called Sudene, that is a 75% reduction in your tax rate. So this allows us to have a very strong netback per barrel. In fact we see Brazilian assets having the largest free cash flow per barrel probably in the world for each barrel we produce. Sometimes you, at current $80 a barrel, we have sometime $65 per barrel of EBITDA. So this is one of the reasons that we are attracted for Brazil. We see other countries such as Middle East, even Norway, even U.S.A. with much larger royalties plus tax rates. So we do want here to be positioned in Brazil and other Latin American countries. Speaking here about the transaction of DBO, this agreement will hold 15% of the 3R Offshore's assets. Remembering that Maha will -- DBO is a shareholder of another company called 3R Offshore, but Maha has the option to go directly to the asset and have access to the cash flow. This is the path that the company is willing to take to have direct access to the cash flow. The consideration of these assets is around 36.8 million shares. The company decided to pay in shares exactly to maintain its capital structure very solid and with a very low leverage ratios. This would imply a valuation of $33.7 million at a share price of February 3. This would increase Maha's net 2P reserves in 18.5 million barrels of oil equivalent, oil and gas, and add 2,000 barrels of net production. I think, again, this transaction reinforces our -- the construction of a diversified portfolio with -- on a low multiple basis. And also, when we look here of multiples, we're really talking of on a price to NAV of 0.39x on 1P and 0.23x on 2P. And when we see the market of the offshore assets, probably trading at 0.6, 0.7. When we look at 2P reserves, and maybe this is the reason Brazil looks a lot at the enterprise value on 2P is because we have a very different regulatory framework and royalty. So we'd like to see the 2P. We are talking of $3, while mainly the main peers in Brazil are trading at $10, $11 or even $12, $13. According to the certification of reserves published by 3R, only in 2023, these assets will provide a net cash flow of $60 million. So when we look also at the multiples in terms of free cash flow to firm, they are also very accretive with an NPV of $86 million for 1P and $145 million on the 2P reserves. Here we wanted to highlight the new capital structure of the company. So when we look at our -- the new Maha, let me call it this way, we will basically have the DBO's assets and a substantial portion of cash position and receivables plus some other assets, U.S. and Oman, just making here the disclosure that, that contingent resources of Oman, they don't have as they are not reserves yet, they are not considered here in this calculation of gross asset value. So this potential value is excluded from this calculation. So we have here according to the certification for DBO's assets, $166 million. And we had a cash position of -- cash position plus receivables of $204 million, including the cash position, plus the $26.9 million of the U.S. assets and a very small portion of Oman in reserves of around 515,000 barrels. When we discount the debt that the company has, in light, this is green, right, in light green, we have $49 million of the BTG's debt. And we have this $21 million that we call it a contingent payment from the DBO's assets. This we want -- we call it as a debt, but these are contingent payments that are done to Petrobras. We will be very happy if we pay this contingent payment to Petrobras because they are payments that are trigged according to production and oil prices. So we cannot see when are we going to pay because this depends a lot in the production profile of the asset. But certainly, if we pay this to Petrobras, it's because the asset has, in fact, increased a lot of the production. But we -- even still we consider it as a debt, even though this is almost like an earnout payment back to Petrobras. So looking to this graph, we see here, if we discount the cash position and receivables of the BTG's debt and DBO's assets on the $21 million, we're reaching on an NAV basis $145 million for Peroa and Papa Terra, $155 million basically of cash position and receivables and around $27 million of U.S. and Oman assets. Being 50% of this value, cash are almost cash receivables and vis-a-vis our market cap that we have included illustratively here, of course, it's still subject to general meeting, the market cap that DBO's shares would imply here to the assets. So basically we would be talking here of a market cap of $165 million, reinforcing here the multiples for the DBO's transaction of 0.23x, the company would be on a price to NAV of 0.51x, however, predominantly cash. So I think this puts Maha in a very interesting position that the current market cap is really below the cash position of the company. And of course, here, the management and these new shareholders, they really want to deploy this capital at the same multiples that we are thinking on acquisitions, 0.2, 0.3. So if we are successful in deploying this $155 million, 0.2, 0.3, we would be probably talking here on potentially $700 million, $800 million NAV. Here talking a little bit about DBO's assets. We do expect -- remember, we have 15% of Peroa and 9.375% of Papa Terra's field. These assets have -- are already under operation of 3R since August, Peroa since August and Papa Terra since December. This is the net production to DBO according to the certification of DeGolyer and MacNaughton and GaffneyCline, which we expect to almost double within the next 3 to 4 years. The Papa Terra's production is predominantly oil and Peroa, gas. Talking a little bit here about the assets, really wanted to give this disclosure for you all. Peroa is a gas cluster located in Espirito Santo, in this region. The gas is a very important supply for this region, this region has a lot of industries. So the gas -- when we look at the prices that our gas are being sold, it's really a very high price per cubic meter. We are talking here of -- in dollars per million British thermal units, almost a double in other gas fields in the country sell because of the importance for the gas in this region, not only for the industry, but also this gas is sometimes used to onshore fields that need the gas for steam injection facilities. So regarding Peroa, we have around 3 million barrels of oil equivalent of gas. These numbers are from 2021. These numbers will be updated by 3R. So we will probably have a new certification in the short-term. In terms of NPV, we have $23 million on 2P reserves and the cumulative net cash flow for the next seventh year of $36 million. This asset has a very important field that is called Malombe, is a significant upside. And the idea is to tie in from the current facilities for a well on this Malombe field. One of the main reasons we like -- also like this asset is because it has a very low lifting cost. According to public information and recent realized prices, the OpEx of this asset is around $5 per barrel. And remembering this asset is located in Espirito Santo, the region where we have that Sudene benefit. So in addition to a low lifting costs, in addition to low royalties, we also have 75% reduction in our tax rate. So this will allow us to have a very strong cash flow per barrel. And one last thing that is very relevant here, not only for Peroa, but also to Papa Terra, is that all the infrastructure belongs to the consortium. So not Maha, not 3R, they don't have to pay any daily rates for the platform. It's a 100% owned. This also allows to have a very strong cash flow as we don't pay any leasings. And Papa Terra, the same thing. We have the net stake for DBO and Maha of around 15.6 million barrels. We're talking here of an NPV of 122. So when we add up the 23 plus the 122, we're talking of that 145 a year of NAV, a cumulative cash flow of $126 million for the next 7 years and around 1,800 barrels of production. Again, here, this is a heavy oil field. It's around 100 kilometers of the coast of the State of Rio de Janeiro. We see the location of Papa Terra here is close to very active other oilfield and huge oil fields. Papa Terra, we are talking of almost 2 billion barrels of oil in place. And we have Peregrino, Polvo, Tubarao Martelo and Maromba neighbor fields. One other thing that is important here in our thesis is that all the infrastructure is owned by Maha. So again, there are no daily rates here to be paid to the platform. Everything is owned. This asset today is producing approximately 100%, 15,000 barrel, 15,000 to 16,000. And there is also a significant ramp-up of production. One last thing that we like to say, this asset was built by Petrobras and Chevron in 2011, 2012, and they spent almost $3 billion in building this asset. And they -- and this FPSO has a production capacity of 140,000 barrels of oil, while today is producing 15,000. So lots of people ask that, oh, but this asset Petrobras lot of money, yes. They spent $3 billion in this asset, but we are assuming its operation for a fraction of this price already with production. In fact the asset was -- when they built the asset, the expectation of each well was higher, but we are really generating a lot of cash flow, assuming that the assets are owned and that all the infrastructure has already been built. So it's -- I think the timing of this asset is what makes us very optimistic on developing it. I think finally, I've already spoken that, but these estimates of NPV, they are from 2021 with an oil price between 71 and 66. So this might be updated for this new reality of oil curves. Talking here about the production profile according to the Public Reserve report. As we previously said, we are talking here of almost 18.6 million barrels and an NPV of -- gross asset value of 166 and $145 million for NAV. And regarding production, if you see here, this asset has already -- only Peroa stake reached almost 6,000 barrels, and we expect to go up to the 1,000 barrels again of oil. And regarding Papa Terra, our 2P reserves, we expect to reach a peak of 3,000 barrels of oil equivalent. Talking here, moving to the Middle East now. As you all know, Block 70 is located in Oman and considering the Mafraq oil discovery from Shell back in 1998, the company, Maha, has already drilled 6 wells, remembering that our commitment is of 8 producing wells, 2 appraisal wells and 1 exploratory well. We are moving now to the 9th well, 7 producing wells, 1 appraisal well, and we're moving to the last producing well. The formal agreement will allow Maha to be reimbursed for 35% of all past costs, this number, approximately $11 million to $12 million and also having a partner to share all the future expenditures on Block 70. We have already had the Royal Decree by the Sultanate of Oman, which reinforces the importance of this asset also to the country. In terms of reserves and resources, we have those net contingent resource of 21 million barrels and the 2P reserves of 515,000 barrels, just to be clear, it is only -- this is 515,000 barrels. It's 1M and the others 2Ms and an oil in place of 350 million barrels. We expect to start testing the wells in the first quarter. We are very optimistic on that. And you see here the location of Block 70, we are close to lots of relevant oil fields in the country, which are really producing, some of them 50,000 to 60,000 barrels. So we are in a very proliferous region in the country. Regarding United States, the company is investigating the total sale of those assets. We have just updated the reserves report, having 2.7 million barrels of reserves and $20.7 million in terms of NPV 10. We had a net production of 314 barrels in the last quarter, third quarter of 2022. I think the reason why we are investigating is lack of scale. I think lots of companies, neighbor companies could have a lot of scale in developing this asset. And regionally speaking, we want to concentrate the scale in some specific regions. I will leave Bernardo here to speak a little bit about our financial position. Of course, here, still reflects an image from the company prior to the divestment of the Brazilian assets. After the divestment, we will be even in a much stronger cash flow position and leverage ratios. But I will leave this here to Bernardo. Please, Bernardo. Talk a little bit about the share and performance.

Yes. So roughly, we're speaking here about the last 12 months as of the third quarter and in September. On the next 28th of February, we will publish the fourth quarter results. But basically, speaking first about the numbers. We ended -- we had an LTM production of 3.3 boepd net reduction. We have $90 million revenue, which was pretty solid and operating cash flow of $48 million. And a net result of $30 million, right? We had a very good production in the first quarter and beginning of second quarter, but we had those problems with the production in Tie, which we couldn't find also rigs to make the work over. So our results could even be better, but we had this issue. And to speak a little bit about the shares. I believe that our share performance, we can split in 2 last year, right? The first one, it grew a lot. It increased a lot the price in the beginning because the oil price, our share is very correlated with the Brent. So the Brent price increase and our production increase. So if you see the beginning of the curve, we had an inclination much steeper when compared to the Brent price. We had the -- all of you guys know that we had the issue of the past management that was kind of like an interim CEO for some time. It coincided with a decrease in the Brent price. So this correlation curve inverted, right? So we decreased more than the Brent price. And as of the last quarter, right, I think things got a little bit more stable. And this latest volatility in the share price has much to do first with the, again, with the Brent price that you guys have probably seen, it went to 88, yesterday it was 79. So it's very volatile. And I believe that we should also explain to all of you guys, all the rational of what we made in this past 3 months of selling an asset, buying another asset, doing the capital raise. And this ties up, I think from now on, we believe that we can increase this value because; first, we have cash, right, after the sale. And we have, as Paulo mentioned, we have opportunities to try to replicate good acquisitions. We have a very solid balance sheet. We have very low debt, and this is very important when we talk about our commodity company. So I believe that from now on, we can expect improvement in our share price.

Thank you, Bernardo. So now I will bring here our friends from DBO, Svein Harald, Kjetil, Halvard. I just wanted to say that we are very happy with this partnership. I think not only on the quality of the assets, but the quality of the partners, I think, they have a very good reputation in the oil and gas industry. There are people with very good nature. So I just wanted to highlight here that we are very happy with this partnership. And hopefully we build a very strong case of success here, I think then.

Thank you. So the idea now is basically to introduce the 3 of us. We have key roles in DBO. So I guess it's good for you to see us. And we will also, after the transaction, become large shareholders in Maha. It's me, Svein Harald Oygard. I've worked in oil and gas for 20, 30 years. Economist by training, and I worked in McKinsey for 21 years. My last position was leading oil and gas in South America. And then I left McKinsey and I formed DBO together with Halvard and Kjetil and I will let them introduce themselves. I will say a few words about DBO. We were established in 2017 with the purpose of acquiring mature assets in Brazil. The idea was that, with our background, we are all Norwegians of origin, we have seen what happens as a basin matures and transferring that knowledge and technology to Brazil would be important and could be a potential source of value. To qualify to participate in the divestiture process in Brazil, we needed to become technically qualified. And we achieved that, among others, by a partnership with AGR Petroleum, which is a Norwegian petroleum consultancy focused on subsurface. They are owned by Akastor, which again is owned by Aker. So we got a link between DBO and Aker Group of Companies. We were also fortunate to ensure financing from RWE, the German utility, that had a private equity vehicle called RWE Principal Investments that committed to back DBO in the sense that as we matured potential transactions, we would then get the support from RWE private equity to execute on those transactions. We bid on a number of assets and to bid of course you need to do technical studies, you need to review the topside, the integrity and the total structure and potential of the different assets. So it's quite a process and it's an expensive process to, yes, to place a bid in a way that makes sense. And we bid on a handful of assets, I think, 6, 7 altogether, and we were successful with some and less successful with others. But we ended up buying an asset together with our friends in Starboard, the Macau asset up in Northern Brazil, which is a cluster of 7 small fields. Right after we had executed that transaction and ownership has been transferred, 3R and Starboard proposed that this vehicle should be IPO-ed, and that led to the IPO of 3R Petroleum, which is a company that has gone from 0 value to $3 billion enterprise value in 4 years and is now top 50 companies in Brazil. As that was IPO-ed, we basically merged our asset into 3R and got shares in 3R in return to the DBO shareholders. And that was then passed on to all the shareholders, including RWE Principal Investments. They then left DBO, and we started what's DBO 2.0, which explains the name of the company. It's the second time we do this. So it was basically our -- the name that we used in our working documents that by a fault became the name of the company. But any way now you know the story. In that entity we, again, were fortunate to get AGR Petroleum, again, on [indiscernible] as a key shareholder, which explains why they are now on the list of even shareholders in Maha. So I'm not saying Maha becomes Aker company, but at least there is a small thread back to Aker. Then with this new vehicle, we started the process, again, of acquiring assets. And we looked at all the assets that were available in Brazil, and in particular, in the offshore. We zoomed in on, firstly, I think, one asset, which is the Peroa asset, and we brought that forward and took it to 3R and said, shouldn't we bid on this. And then we decide to bid and then eventually we won. And then in [indiscernible] we worked on some others. And again, with the help of this guy, who basically was the mastermind behind the Papa Terra transaction, we again teamed up and acquired part of Papa Terra. So that's the long story. So then the question is, what do we guys know? I think we know a bit about business development, oil and gas. I think we know a bit of how to play the mega trends of the industries and understand the discontinuities. We have learned that oil and gas is basically an industry that's full of [ ship ] yes. But basically, as you say in Norwegian [Foreign Language] that basically everyone, well, this is fashionable this year. This is fashionable next year. When we bought Peroa, gas was non-fashionable, and it's only 3 years ago. People hated gas. And no one wanted to bid on a gas asset, especially in Brazil. What people didn't see was that Brazil actually is a gas importer. And now you all know what's happened to the gas prices, they are sky high. And Peroa, which was basically the lowest asset on the priority list is now a very high-value asset. So I think that's an example of what we try to do and that we will all now be part of the Maha team, and we look forward to supporting and working with Maha and try to help Maha and the team of Maha in the positions that we might have. Again, we will be key shareholders, and the deal says that we will be here for a long period of time, and hopefully that will help to add value to all of us. That was -- with that, I will give the word to the Chairman of DBO. I give the word to the CEO of DBO.

Yes, I mean, you see the whole company on stage here. So we have nice titles, but actually, that's the whole team also. So there's only Cs, including Chairman, CEO and CFO. Yes, I think we covered basically the most important things. So my name is Kjetil Solbraekke. Say a little bit about my background. I come from the Norwegian oil and gas industry. Used to work for the -- I started my career working for the ministry for 7 years and then later was invited to work for Norsk Hydro where I served as the CFO for their oil and gas activities and later was heading the international business, business development and we did then the acquisition of Peregrino and that became the largest development project that Hydro had ever had embarked on. And then I took charge of the development of the Peregrino and moved to Brazil. And coming to Brazil was a fascinating thing, and then I had been responsible for business development, but never really focused a lot on Latin America. And it was for me an eye opener to come to Brazil back in 2006 and to see all these opportunities and also find a country that already at that time, I found it to be very well functioning actually comparing to -- I spent a lot of time up and down in Africa and also in Caucasus and in Russia. And so I was really intrigued by all the opportunities that we saw. Then we did the pre-salt discoveries and then things stalled, I would say, for quite so many years. But the dream of really being able to get into projects in Brazil was still very much alive. So then later on, I was CEO for Panoro Energy and we tried to build that into a company that could basically benefit from these opportunities in Brazil. But it never happened, Brazil was still stalling. And then later on, we had the chance together, then Svein and Halvard and myself to start of DBO. And I think Svein covered that very well. I think what we, of course, believe that we can contribute and we were known from different positions also with Petrobras. So Petrobras was immediately quite comfortable in allowing a team like ourselves to come on board. So we were invited to participate in the shallow water processes and also then looking into these other assets. But I think we were very pleased when we then started to talk to Starboard. Paulo and Halvard had worked together. So they knew each other well. So there was immediately a good connection on the people side. And we quite liked the way they were working, very serious, very thorough and very eager to get things done. And I think they felt more comfortable, also to be honest, with having some of our experience in into the whole setting. So then we did, as Svein said, we did the Macau transaction and started a very long and fruitful collaboration with Starboard. And as a more seasoned guy, I think I'm super happy to see what kind of energy and experience they have gained, what kind of energy they have and what kind of experience they have gained over a short period of time and very comfortable with starting up now and other collaboration with these guys. We will give them all the support and spend, yes, use our experience to make sure that we keep everybody on the right task because, of course, we had -- working with oil and gas projects, there's always risks. So I mean anybody that says there's no risk, doesn't understand the business. But I think what we are good at and what we have experience in is actually managing this risk. And that's a super important part of the whole game is to be able to understand the risk, mitigate it, deal with it, manage it on a daily basis, on a monthly basis on a strategic level and on the operational level. I think that's something we can really -- we will contribute with, and we have already done it. And I will say, I'm very comfortable with the portfolio we have. We think Peroa has significant upsides and quite limited risk, I would say, altogether, very low cost, as Paulo has been through already, but more to say. I think Papa Terra is, of course, a much bigger animal, huge FPSO. And -- but we bought it very cheap. So I think, again, the risk in connection to continuous operations also because of the price that we bought this all equipment for is quite low. It's a quite fairly reasonably new piece of equipment with the FPSO. So I'm -- I would say that I'm very comfortable with the level of risk we are taking into also that project. And we have seen that the production and the reservoir is responding very well. And this was actually done by Petrobras and Chevron themselves. But they were already -- this was how big companies are, it's not you turn around very quickly. So I think they realized that the wells will produce better than what they anticipated after having -- realizing that the field had a huge problem, and they had then a big write-off. So we today are actually benefiting from the reservoir model work and so on that Petrobras and Chevron did. I'm very optimistic when it comes to the development of these assets. When I just came back also from a trip in Oman that we in DBO decided to do also as part of getting to know what we are getting into. And of course, now we're going to end -- start up the test phase, and it's always -- that's the exciting thing. Do we know what will come out of the test? No, we don't know yet. So I think we have to run through the test and have to see them. Am I optimistic? Yes, I am quite optimistic because of what I saw and so on. But we will -- we cannot know before we've done the tests. So -- but I'm really looking forward to it. I'm looking forward to, again, working with Starboard, as I said, and the team. And we are here for the long run. We will push. We will make sure that we manage the risk going forward. So Halvard maybe?

Yes. My name is Halvard Idland. I've been in Brazil for, came down here in 2006. Before that, I worked in DNB in Oslo. I've been working in banking, also from -- in Brazil, together with Paulo and [indiscernible] and also in Pareto. And also works in the industry, went down to Brazil for the Aker Group. So there seem to be a link always to that one. And again, what has already been said here now twice, but I will repeat it as well. We are really looking forward to doing it again. I think we did it with a tremendous success in 3R. We are very happy to be, again, together with Starboard in Maha and really looking forward to generating value for all the shareholders in Maha. I think you did mention your favorite story, Kjetil. He mentioned that he was responsible for Peregrino. And Paulo showed that Peregrino is neighbor of Papa Terra. The current recovery factor we're working with is 11% in Papa Terra and Peregrino is 17%, right? So there's no reason why Papa Terra should be that much lower. So just in the assets we have, we are very, very enthusiastic about the potential in these assets. And also together with Starboard that we can find new interesting opportunities like Peroa, like Papa Terra and others we have done before to chase and generate shareholder values. So I think that's it for me. Yes.

Thank you very much. It's a pleasure, again, to have you and hope to reinforcing the word of the 3 of you, let's generate value for the shareholders. This is the target we all have now. Thank you very much. Now I would like to open for questions and answers. Maybe Bernard and Alan can come here and we are available here for questions and answers you might have.

I'm very curious about [indiscernible] about the investment plans that you have. You mentioned Brazil, that's an obvious target for those conditions. But what about other countries that [indiscernible]? What about Guyana for example?

Perfect. I'm going to repeat the question, so everybody can listen. He's asking a little bit, what's your name, sorry? [ Ake]. So Ake is asking a little bit about which is -- which are our investment plans, not only Brazil, but also in Latin America? In fact our, I wouldn't call it focus, but our determination in looking assets, we see that Brazil has still plenty of room of assets, nonoperating stakes for instance. And again, with that -- with this mindset of very cash flow oriented. In terms of Latin America, there are lots -- I think this having equity today in the oil and gas space makes a very powerful tool. So I think we do see here countries such as Colombia, Peru, that are fair -- that we are very interested. We -- how can I say, we do want to look to production-oriented assets. When we look at Guyana, there are still massive projects offshore, and they are still in, I would call it, in the development phase. I think it wouldn't be our profile to getting to this kind of risk. We do want to be an E&P company with a large P, but with a small E. We want to concentrate maybe our focus in assets that are already producing that have history of production, and we have more predictability, even though there is risk, but we want to have more predictability. For instance, Oman is an asset that, of course, now we are in it, but it's an asset that we are still in a stage that we don't know the production. So we have a much higher risk in that asset. So I don't know if this answers a little bit of your question. You're welcome.

[indiscernible] Can you talk a little bit about pipeline? So where you are, kind of, are you having discussions? Or were these discussions that you had? So kind of where are you in terms of timelines? Because you're talking about employing the capital that you'll get from Brazil. So what kind of timeline should we expect in kind of deploying those cash?

No, perfect. I think this question was the timing of deploying this capital and our current pipeline. In fact, we are seeing today, mainly because when we look at the oil and gas space, not only in Brazil, but maybe in lots of other countries with this very significant raise of the interest rates worldwide, we are seeing a lack of equity and debt. So we are seeing here, and we are very active in this process of being very opportunistic and very agile. I think agility here is something that we want really to bring to Maha. So we have a -- our intention really is that within the next 2 quarters, we are able to conclude 3 or 4 transactions that we are, how can I say, very actively working internally. Does this answer your question, sorry?

Yes, it does. So my next question is, I guess, I can continue. So if I understand things right with the DBO, you will have access to the cash flow, right? And you will -- so with the DBO, you will have access to the cash flow, right? Does that also mean that you will take part in the CapEx programs? And what kind of CapEx outflows do you expect to the DBO assets?

No, perfect. I think today, DBO -- well, Maha is incorporating DBO and DBO has 15% of 3R Offshore, right? So at this moment, we are a shareholder of a company. In a subsequent moment, we are going to drop and go directly to the asset level. So we will have -- we will have access directly to the cash flow of the asset. So how would it work? It would basically we would have the revenues directed to Maha as well as cash cost for OpEx and CapEx like a regular [ GOE ]. In terms of cash flow, for instance, for 2023, we expect a part -- again, this is according to the certification of reserves, right? So for 2023, we have a surplus of $16 million according with an average price of 50 to 70. For 2024, with the current oil levels, and again, I'm just -- I'm getting the certification of reserves and disclosing this value, we have almost slightly positive because in 2024, it will start the -- a more active CapEx in the field. For instance, our stake for 2024 of CapEx, we're roughly estimating according to reserve in the range of $20 million. So on the other hand, the company -- the assets are also generating cash flow. So for 2024, it's almost like neutral. And then we have the CapEx plan for 2025, 2026. But this asset, maybe the beauty of this asset is that the same cash flow of the company is going to be able to bear for the CapEx expenses. So this is the idea we have.

[indiscernible]

So when we analyzed and acquired this field, our basic assumption was that this was going to be self-financed from the day we acquired. But then, of course, as you go along and depending on how oil price develop and how comfortable you get with the field and the development plans, you may want to accelerate CapEx to get a better cash flow and to get a better NPV value, right? So those considerations are there for us to be made together with 3R. But the basic assumption and the beauty of these fields is that the infrastructure is already there. So you can drill when there is an opportune moment to do so. And you can drill one well or you can drill 5 wells, depending on what the market tells you, you should do depending on the oil price, depending on how good the outlook is on the prospects of new wells.

But if I get you right, just so I understand, so you don't actually expect to put any cash into the project, but the project will pay for itself and then you will get kind of dividends from the project. That's how it should…

Exactly. I think, as Halvard was saying, for 2023, the expectation is a positive cash flow for 2024, the same cash flow the company want to bear with the CapEx for 2024. And if we want to accelerate the CapEx, I think there's still room to lever at the asset level. For instance, this asset today, again, with the name, with the certification, we can sometimes generate depending on oil price from $25 million to $30 million of EBITDA. And when you look at the ratios those assets could lever, we could -- again, we don't want to lever the company. We want to always preserve a solid capital structure. But if we want to anticipate CapEx, we could use -- and one of the beauty of this asset of Papa Terra is that we export 100% of the oil. So levering anticipating 6 months of revenues is really easy with the trading companies, Shell, Glencore. So it's a very easy asset to lever, if you want to accelerate part of the CapEx.

And then just one more, if I may, and then I'll come back later. But -- so you mentioned, I think, $11 million to $12 million coming from Oman, right, from -- if I got it right?

Correct.

When do you expect that inflow?

According to the farmout, it's 30 days after closing. We made the closing on the January 28. So we expect February 27, I believe.

Yes. Just a strategic question. I mean the former management was very much operational improvements. You guys seem to be much more into financial play and M&A and leverage, which I think is positive given the historic development of the company. But have you also considered more share price management, dividend policy, et cetera? How do you think that ties up with your M&A play and financial play?

Yes. I think here, we do have a very strong operational team. I think Maha, in fact, we are having -- when we look at the CapEx plan that we have already started, we are not only reducing costs, like we have been -- we are in the 7th well, and we have really the first -- since the first well to the 7th well, we have reduced -- 7th well is now in $1.5 million. We have been not only financially improving, but operationally, the works are being well done. So we do have a very good operational team. So we want to preserve this. We want to preserve the team. Of course, in Brazil, we want to preserve some technical people as well to keep with us. So maybe the first answer to your question. Regarding, I would say, the dividend policy. Again, we do want, one of our main approaches here is to be a cash flow-oriented company. So yes, we do have plans here to be a company that distributes dividends. And not only distributing dividend, but remember that possibly here, let's say that Oman is a huge success, even bringing partners to help us fund the asset is also in place. So I think we do want -- I don't know if it does a little bit of your question, but we want to be here a high-return company. This is our main focus.

If I may also help with the financial perspective, we -- I think that the main thing that myself and Paulo add to the great job that Alan is doing in the operational side is to help in the allocation of capital. So we do believe that with these guys by our side, searching for good assets, the whole experience of the DBO guys helping us to find this asset that are very good to develop. We can together decide where to best allocate our capital. When we jumped in Maha, we saw [indiscernible] spread around Oman, the U.S. something very tiny, then something in Brazil, listed in Sweden. So right now, what we're doing, we try to do this tree transaction in order to optimize our cap, to bring up like a war chest for the company. And now we're in a position to allocate the capital. And this will -- this -- if we make good allocations, we tend to bring dividends. We tend to bring -- we tend to enhance the price. We're refurbishing our IR Department. Jakob just joined us. He has a great experience in the oil and gas sector, to be more in contact with our shareholders, to translate more this oil and gas world to our shareholders. So this certainly will bring some good results not only to the company, but also to the share price, in bringing this transparency. I believe this will reflect in our share price.

I would just like maybe give the word to Alan, so he can tell a little bit about our operational team.

That would be my follow-up. It was a broad question. Sorry about that, not being specific. But I think when it comes to operational improvement [indiscernible] have been all about operational improvement, increased cash flow from the wells et cetera [indiscernible] successful to be honest. But I like your financial play as a contrast. But of course I'm very curious to hear from you, Alan, how do you review your predecessor and [indiscernible]?

Yes. No, I think just a point that I would just add is that Starboard and DBO will be the 2 reference shareholders basically with the same stake, similar stake. But we do -- one of our highest interest is really to create and to keep with a very strong operational team. So Alan, please talk a little bit about our structure in Oman and also our standards in Oman that are being very highly recognized by the government.

Yes. I think Oman is -- it's been an easier place to operate perhaps than the smaller activities we had going on in Brazil. We're able to leverage the fact that Shell has been there for 30, 40, 50 years. So the rig that's drilling for us came off a Shell contract. They have good safety standards, their well-trained crews. So although the first well was expensive, that's always the case on a new project; you come in, you pay upfront costs, and you're on a learning curve. As Paulo said, now we're drilling them faster, cheaper. We've learned a lot as a team and the rig team gets more efficient. So if we do move in a development phase in Oman, we're going to invest more capital, we can upgrade the equipment, move forward and get more efficient. So there's still a long way to go in Oman in terms of reducing our cost and cycle time. I think there's a lot we can do there. In Brazil, the company definitely had its challenges. And I think one of the issues was scale. We were a small player surrounded by a lot of big players. That's why the sale of the PetroReconcavo makes sense. They surround us. They have rigs, they've got people, they've got large facilities. They sell their gas and oil at a better price. And so that's why they are able to pay a good price for those assets. And that's perhaps why Maha struggled, I think. So as we deploy the capital we have here and if we can get scale, then again, we can get operational efficiencies and be cost effective and deliver the results that we promise, which is the key. We have to deliver what we promise. And that's the focus as well.

Yes. Well, the capital you have right now, right now would it be enough to fund the company? Or are you planning on new capital increases?

No, I think -- can you go to the -- no, now to the graph slide, please. When we look at our, let me say, balance sheet post the divestment of Brazil, we will be a company that we have of net cash plus receivables, almost $155 million. And we have an asset that the NAV is $144 million and generates, according to the certification, $25 million or $16 million of free cash flow, so -- and $25 million maybe of a bit, I'm just putting the rate. So we will be a company completely net cash with EBITDA generation. So we -- at least at this moment, we want to use this money to divest. So if this transaction concludes, we will be in a very strong cash position, not needing any movements of capital increase.

I was just curious because you made an additional capital increase just before you sold the assets. So I thought if you knew that you were going to get a lot of money, why then make a capital increase?

Yes, I think the capital increase is like you raise capital when you can, not when you need. So at that moment, the oil prices were very high, and the company needed cash. If today, if we hadn't done the capital increase, the cash would be negative. So I think not only the company was needing the cash, I think, independent here of the transaction. This transaction we expect to close by February, but the company, due to the obligations in Brazil, due to the obligations in Oman and also the debt of BTG, the company needed this money. Otherwise it would have to start renegotiating with suppliers with that, and we didn't want to put the company in that position. And I think in addition -- so maybe this answers. And in addition to that, I think that capital increase also put Maha in a strong position to negotiate with [indiscernible], if it's not being sold, we have the money to still develop. So I think this is a little bit of the situation. The company really needed the cash. Otherwise it would be in a negative cash now, right now.