Meren Energy Inc. (MER) Earnings Call Transcript & Summary

[Audio Gap] today for our first quarter 2023 results call. I'm joined today with our President and Chief Executive Officer, Mr. Keith Hill; and our Chief Financial Officer, Mr. Pascal Nicodeme. Keith and Pascal will present the quarter's highlights and the business outlook before we go into a Q&A session. I would like to remind everyone that remarks made during this session are subject to forward-looking statements, which involve significant risk factors and assumptions that have been fully described in the company's continuous disclosure reports. The information discussed is made as of today's date and time, and Africa Oil assumes no obligation to update or revise this information to reflect new events or circumstances, except as required by law. The company's complete financial statements and related MD&A are available on the company's website and on SEDAR. Keith, we're ready for you. Please go ahead.

ng thing is that we are now drilling in both Namibia and Nigeria. So we don't have a lot of results from that drilling to report yet, but the fact that it's taken us some time to get off in drilling, and we are now drilling, I think, is a very, very good achievement. Obviously, Venus well is not being matched only by our shareholders, but by the whole world. And I think it's probably one of the top wells being drilled in the world this year. So I think that's getting a lot of buzz around it. that people are calling him to try to find that we are going to give any updates on that, but isn't in public domain. I'm afraid we may have to disappoint you as more for the operator and the part to do them than ourselves. But we'll certainly talk about what we can and then tell you why we're so interested. The OML 130 drilling infill program is something we've been working on for a long time to get up and running. It took us about a year longer than we wanted, but it's now up and going, and we're hoping to see by the end of the next quarter to see some results of that campaign. From a financial standpoint, we did declare a pay our dividend last quarter. So this means that just over a year, we've returned more than $80 million to shareholders through dividends and share buybacks. And we will be looking to continue that share buyback going forward, blackout periods from Venus drilling permitted. So -- as far as the -- where our balance sheet is, again, we're at almost 0 debt, consolidated net debt at only $3.5 million. When you look at the cash we have in the bank of $158 million versus the net debt position we've got at prior of $161 million. So again, very good standing on the balance sheet. And then we are, of course, the main difference between our money in the bank last quarter and this quarter is we have invested another $31 million in the Impact drilling program. We're going to be paying that in 2 tranches and will ultimately increase our interest slightly to 31.1%. Again, Venus is probably the most exciting well I've ever drilled. And I think if you read all of the things coming from Upstream Magazine, Orange Basin probably stands just behind Guyana as probably the highest exploration play on earth. Again, I will leave it to the operator and to our partner Impact to disclose any details. I'll only talk about what's already in the press today. I think one of our biggest promoters is Patrick Pouyanné of the CEO of Total, who has called us a golden lock kind of referencing to their golden block in Angola. And I think everybody is very excited about this block. I think you don't find prospects this size very often. So we are doing an appraisal well, 12 kilometers to the north, and we hope to see the results of that within the next 30 to 60 days. that's being drilled by the Tungsten Explorer. We've got a second rig coming the Deeps mirror well, it should be maybe in the next few days, and it will undertake a testing program. I think it's still to be determined whether that test would be on the original well or this appraisal well of 1A. But I think that's one of the critical missing pieces is a test rate. You may have seen in upstream magazine. There's some reports from the nearby Shell graft well that the test rates there were quite high, and we are hopeful from looking at the more engineering standpoint that we see some high test on that. So I think that's something we need to confirm. The Tungsten Explorer will move over to the NARA-1A well when they completed operations and the Venus drilling program. And that is the large westerly extension of Venus, which I think will also be a very big catalyst and a very important role for us to understand how this accumulation is developing. In Nigeria, it took us about a year longer than we were hoping to get our rig on station that we've got on there now, and they're doing a drilling program of up to 9 wells on Egina and Akpo. It's a combination of production wells and injection wells. And by next quarter, we should be able to report where we are on the drilling of those as well as what the results of those are EMEA of daily production. So we're also seeing a 4D seismic program over Egina to get a better idea of how we've been draining the reservoir so far to guide us in the future production wells. But so far, the guidance looks good. We're within -- I'd say within the upper range of upper part of the guidance range, and we are very confident that if the levels that we're drilling in a Egina come in as expected that we'll be able to stay within that guidance or possibly even the upper end of that guidance. We still are working on Preowei. I think people have seen questions already about people asking about the license extension. I think Preowei's important to get the license extension, but we are moving forward on that as we speak. So you may have seen reports in the press that most of the issues surrounding the extension had been agreed, which appears to be the case. But I think, obviously, working in Africa or a working anywhere in the oil industry until we have everything buttoned up, we're not in a position to say where we are on that license extension. So I think we're confident that there's a very high chance that's going to be done possibly before the end of this month. Again, on guidance, we're in the first quarter, we're in the upper end of that range. And I think we're feeling pretty comfortable that both on the working interest and entitlement production, we will be able to stay there. It will require some of the wells that we're drilling in Egina to help us stay in that upper end of the range. But I think particularly Agbami is performing very well this year. So I think we're fairly confident that we're going to going to be able to deliver it as we stated. So I'll turn it over to Pascal I'll let him go through our oil sales. I think we've had a fairly revolutionary change since we put our treating mechanism in place. So I'll turn it over to you, Pascal.

Thank you, Keith. No, indeed, I think it's been another good quarter in terms of average sale prices. So this quarter, we sold on average, $81.5 per barrel, which is almost equal to Brent average the quarter. And as Keith said, I mean, in the last 3 quarters, we've seen a significant improvement in the sales price we were getting, thanks to the new marketing strategy. And well before Q2 2022, we were basically selling all our oil forward a few months before the actual date. So when the oil price was increasing, of course, the oil price move securing was much lower than the actual Brent price. So which has changed since Q2 2022, as you can see on this chart, the improvement is quite dramatic here are now selling consistently at Brent or oil Brents, thanks to the positive quality premium on Egina. So post period we also sold 2 gallons at $89 per barrel on average. And one more category is due to the sale for Q2. And going forward, in the second half of the year, we have 6 cargos planned for uptake, which are not sold yet, but they have this average trigger price of $66 per barrel. So unless the actual spot price goes below these figures, this counts will be on spot. So next slide is on the capital expenditures. We've incurred $10 million of capital expenditures, our share, mainly at the Prime level, of course. And we have a guidance between $80 million to $100 million for 2023, which reflects the activity we are incurring in Prime at the moment this engineering campaign. And this is to be compared to $24 million last year. So a pretty busy year in terms of capital expenditures, which is going in -- so in terms of financials, of course, you will see this red bar in Q4 2022, which was the actual impairment we took on Kenya. We had a one-off impairment of around $70 million on our Kenya assets. Prime has also booked an impairment due to the return on rate of $40 million of share. So over quarter is positive. We booked a $22 million net income, which is comparable to the other quarters without impairments. And then of course, the main contributor for this quarter profit is our share of profit coming from Prime, which was $37.5 million. And we are ending up the quarter with a very strong cash on the balance sheet of $158 million. In terms of performance at Prime, it's been affected various lower production and overall quite secure, but we still have very strong EBITDAX and cash flow EBITDA of $113 million for the quarter and almost $6 million of cash flow from operations. Prime has ended up the quarter with almost $200 million of cash on the balance sheet net to us and $360 million of debt net to us as well. So translating this into net debt position. I think it's important to see how this has improved over the past since we completed the acquisition of Prime in Q1 2021, where at that time, you will remember that we had a $250 million debt at Prime -- at Africa level, plus to try more. Since we've booked $300 million or paid at the Prime level, and that we have continued to repay consistently the RBL facility. And we are now since Q2 2022 at almost 0 consolidated net position, i.e., 50% of Prime plus Africa's cash on the balance sheet. So that's very good news. And of course, we are willing for this license to be extended in Nigeria in order to complete the referencing of both the Prime RBL facility and PXF, and also the corporate facility we have at African level, which is still under one at the moment. Keith, what about you?

Yes. I think in combination with this, I think we're quite proud of the significant decrease in the flaring we've had. I think if you look at this chart, maybe concentrate a little bit on the dark blue bars for a moment or with dark gray line that's the Agbami field. So you can see when -- before we bought it, it was flaring almost 100 million cubic feet a day. Since we bought it, we've actually been very vocal with the operator trying to bring this down. And I think we're finally seeing the results on that. You can see in -- between '21 and '22, there was a significant decrease. But in '23, we've got those flaring volumes of indicating it's down to about 1/4 of what they were. So we did have a little flaring at the Egina this year. This is not a normal thing that happens. It has to do with some of the LNG offtake requirements and associated with some of the drilling that we've been doing. So we don't expect either Akpo and Egina to have recurring flaring. So the one that's always been our troublesome one was Agbami and I think we've -- the operator Chevron has that under control now. So I think, again, we are a catalyst risk company. The biggest catalyst we've got is Venus. We will be putting results out alongside the operator. And I think the timing of those and the amount of release is still to be determined. But I think we see a very catalyst-rich drilling environment in the minus area. The summer with 2 rigs working full time as of the end of this month. I think within that, the NARA is really the biggest one of those wells. That is [ extentially ] Western extension of the Venus discovery, which has a chance to really increase the volume significantly if it's successful. We are still looking at doing strategic assets, acquiring production assets, very specific in what we're looking for. We're looking for producing assets that have current cash flow and we'll have -- take advantage of what we still think is a very plant oil market for the next 3 to 5 years. So there still are a number of producing assets on the -- that are for sale, and we've been participating in some of these processes, but we will be careful about making sure we pay the right amount of price for those, but also when we compare these acquisitions with returning money to our shareholders, primarily in the form of buybacks. Again, OML 130. I think we're all feeling quite much more comfortable than we did I'd say a quarter ago that we've got all these things resolved, but having been in this business for some years until we actually have everything finished, I think I don't make any promises, but I think we're getting more and more confident that we'll have something done hopefully by the end of this month. And when that happens, then we'll be able to refinance the RBL and PXF facilities, both at the Prime level and the Africa Oil corporate level. And we sell a working we're working on the farmout of Block 3B/4B. You also saw that we picked up 2 new blocks in Equatorial Guinea. We're out looking for partners on those as well. So I think our goal is to have a partner secured on both of those blocks by the end of the year with 3B/4B possibly coming first because there's obviously a lot of industry interest of everything that's been going on in the Orange Basin. So with that, I will leave you to carefully read the reader advisory in the forward-looking statements. And to say thank you again for dialing in to express interest in the company. And I do feel we're in a very good spot right now. And I think it's going to be a very interesting summer as we work through not only the Venus drilling the farmouts, but also hopefully get license extension, which will free up a lot of cash at the Prime level. Okay.

Thank you, Keith. Nadia. if you could remind the participants, and we are ready for the Q&A session.

[Operator Instructions] Now we're going to take our first question and the question comes from the line of James Hosie from Barclays.

I guess let's start with Namibia. And I was wondering what would you consider to be a high flow rate for Venus and just what are the capacity constraints in the rigs that will limit your testing capacity for that?

Yes. James, always happy to talk to you. You always seem to be the first one on the line, so I appreciate your eagerness. But yes, I think us getting into that realm, I think that's something the operator should be talking about as opposed to myself. I mean I think, obviously, the higher flow rate, the better. You'll see the descriptive thing of flowing like a freight train and upstream magazine on the graft well, I think we haven't seen any hard numbers out of that, but the flow rates will be very instrumental in the economics. But again, I think I would defer to the operator to talk about those -- the upcoming program and the rates.

Okay. So you can't even comment on what the testing capacity limits are in the rig?

I think that's my place. I think that it's probably better for Total.

Okay. right. One very much for you guys there is the buyback and just what needs to happen to restart the buyback? I mean you mentioned blackout periods linked to Venus drilling. I'm just wondering if that means you're going to blackout periods almost through the rest of this year with the drilling campaign continuing in Namibia?

Well, we believe -- so we're just coming out of our -- obviously our quarterly blackout. We've been in blackout for the release of our financials, but we anticipate that we'll be going back into blackout as we start getting results out of the leanness. We believe there will be breaks in that blackout because the -- as well results are announced as test results are announced, I think there will be the ability to close the market. And we do look at taking advantage of that and trying to recommence the buybacks. We bought about half of the shares back that we can under the 10% program, and we still have significant budget to continue that. But I think we're being selective of when we do that, and we're being constrained by when we can restart the process with the blackout conditions.

[Operator Instructions] And the question comes from the line of Teodor Sveen-Nilsen from SB1 Markets.

I have a few questions. First one is just on the 3B/4B farm down process. Did you say that you expected to conclude that during year and what kind of structure will that -- should we expect the farm down to be only carry or carry plus cash? Any more information there would be useful. And then on the outlook for dividend from Prime, I noticed there hasn't been any dividend for the first quarter. Do you have any kind of expectations for the level of dividends received from Prime the next 2 quarters? And my last question, that is on potentially new investments in Africa Energy and Eco Atlantic. When do you expect to inject more equity into those entities?

kay. Well, maybe taking them in order of the -- in reverse order, I would say the equity requirements of both Africa Energy and Eco Atlantic are fairly small this year. So I think we will be standing in our corner in both of those companies to make sure that they continue on. Obviously, patience have been required in Africa Energy, but we really like the asset. We think the Brulpadda upper discoveries will be monetized at some point, and I think we want to be part of that process. You may also have heard from the Africa Energy presentation that the -- we still think there's a lot of exploration potential in the eastern part of that block as well, which I think won't be addressed until we actually find a way to monetize the existing discoveries, but we do like to block a lot. So of course, Eco has not only a nice portfolio that's with us in 3 for me. They also have some lock in Northern Namibia, which seems to be heating up. There's a good chance E&P will be drilling a well up. There's shortly, which could change the dynamics up there. And of course, they've got locks on either side of the golden trend in Guyana. So I think we're quite happy to support those companies and move forward with them. As far as the dividend from Prime, I think the -- that's all -- a lot of that is tied into the license extension. But as you can see from Pascal's presentation, it's throwing off a lot of cash. And the real question is do we use that cash to pay dividends or do we use that cash to pay down debt. I mean neither one of these is a bad thing, but I think paying -- giving dividends is our preference. So I think once license extension is obtained and we refinanced the RBL at the Prime level, we'll have a lot more cash to free up in dividends. But I think right now, we're kind of keeping cash close to our best to make sure that we can meet our obligations for a debt repayment in the event we don't get license extension right now. The first one was -- Yes, I think, again, the reason I said that may happen faster than the Equatorial Guinea farmout is just because of all the catalysts that are coming on. So I think with the Shell results kind of partially coming up, but hopefully, coming out more detailed not only the Graff but in the Jonker with our results coming out on Venus, you may have seen the press that our friends at [ Galp ] contracted a rig to come drilled to the north of us. So I think this is becoming the highest pace besides probably Guyana on earth. And I think from the activity we've had in the data room, I think there's a lot of super majors and midsized companies that don't want to be shut out of that process. So I believe we will have a deal to be done within 3B/4B. And I think we're fairly confident we can close that by the middle -- by I'd say the end of the summer.

Teodor, had an extension of that question, whether it's going to be carry only or carry U.S. cash. You can comment on that.

Well, that will take the best deal we can get. But what we've asked partners is to essentially pay back our back costs in cash, but more importantly, to carry us forward on 1 to 2 exploration less.

Okay. Just on 3B/4B again. How much do you expect to [indiscernible] or do you also want to give away the operatorship?

Yes. But again, we're talking with several different companies that have different objectives. Obviously super majors love to operate and for the right price and the right deal, we would be willing to give up operatorship. I think as far as giving up interest, I think it's pretty much proportional. We're not that interested in giving up too much interest. We've only got 20%, so I don't think we would go below 15%. I think our 2 partners have other criteria particularly re-procure the interest [indiscernible] a bigger number, I think if we add up as a group giving up plus or minus 50% between us I think we stand with that goal.

There are no further questions at this moment over the phone, and I would like now to hand the conference over to Mr. Amini for any written questions.

Thank you very much, Nadia. Yes, we do have a number of questions through the webcast facility. I think it's time to turn the session to Pascal. One question is actually kind the general lot of banks are filling out oil and gas space. What are your views and what are the implications for Prime and the current syndicates.

[indiscernible] announced that they were reducing their export to oil and gas to focus on the energy transition. The fact is that Prime has successfully refinanced their facility subject to license - of course, and we did the same. And most banks have stayed in the syndicate. Even some banks were announced that they would reduce their exposure. So I think endorse of the quality of the assets of Prime and the business model. And equally for us, we managed to double the size of our Corporate Facility, which [indiscernible] and all the banks, except one, decided to increase the project to the company. So, I think it's a matter of selecting the right banks going forward, but there been very stronger appetite, especially from South African Bank under African players of many banks.

I think just as a general comment, so we should highlight that Pascal, you were a reserve based lender, yourself for many years.

Absolutely, and the right people to talk to me.

So that's extremely, and it's been very successful for us [indiscernible]. That was very good to have that. So know how and networks. There's just following from the RBL, there's also one about we do get license for OML 130, can you make any comments about what the refinancing could look like in terms of concern or any particular features?

Yes, the refinancing with safety refinement in the existing oil facility and the banker so also and it was $1 billion at current level, so $500 million network that will be a simple refinancing very similar to the existing one, of course, that maturity date could put back for 5 years.

Okay. And there's one question on Impact which I am going to put to you as well, Pascal as you're director. I know you can't answer this question. But perhaps you can use it.

Thank you for asking me.

Well, no, because I use that as a launch to just getting reviews about the recent Impact fundraising. So the question is the Africa Oil is obviously largely increase its interest, so some shareholders didn't participate. The question is who didn't participate? Now, I don't whether you can answer that.

Of course I can't - any shareholder, but you can imagine that the Impact on your shoulder is made of large institutions like ourselves and then other large investors, but it's also made by individuals who are former managers and so on. So not everyone could stand their corner indeed and integrate. So that's why we were able to get a few more shares into the equity rates.

But more broadly, any comments on the successes of the fundraising and the support from the major shareholders?

Yes, all the major shareholders through their client.