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

This is Africa Oil's Chief Legal Officer and Corporate Secretary. It's my pleasure to welcome you to Africa Oil's Annual General Meeting today. The purpose of this meeting is as follows: First, to receive the consolidated audit for audited financial statements and accompanying management's discussion and analysis for the company for the year ended December 31, 2023, together with the report of the auditors; second is to appoint PricewaterhouseCoopers LLP as auditors of the company to hold office until the next AGM as a remuneration to be fixed by the directors of the company; third, to consider and if deemed advisable, approve an advisory resolution to accept the company's approach to executive compensation; and fourth and finally, to elect the directors to hold on this for the following year. After completing the formal part of today's meeting, we will host a question-and-answer session for the company's shareholders. I'll now hand you over to Africa Oil's CFO, Pascal Nicodeme.

Good morning, ladies and gentlemen. My name is Pascal Nicodeme, I'm the Chief Financial Officer of Africa Oil Corp. Welcome to the company's year's Annual General Meeting of Shareholders. I'd like to introduce John Craig, Africa Oil's Chairman. Roger Tucker, CEO of Africa Oil; Joanna Kay, who has just presented herself, Oliver Quinn, Chief Commercial Officer; and Shahin Amini, our IR Manager. The meeting will now come to order. I will act as Chair of the meeting, and Ms. Suzanne [ Ferguson ] will act as [ Legal end ] Secretary of the meeting. The company's register and transfer agent is Computershare Investor Services Inc. Ms. Pamela Oswald is here on behalf of Computershare who will act as scrutineer of the meeting. The notice of the meeting and the other meeting materials were made to the shareholders of the company on the 24th of April 2024, as evidenced by the affidavit of mailing received from Computershare. As such, I declare proper notice of the meeting has been given and the meeting has been duly constituted for the conduct of the business of the meeting. The company's article provided at a quorum is, 2 shareholders entitled to vote at the meeting, whether in person or by proxy who hold in aggregate at least 5% of the issued shares entitled to be voted at the meeting. I have the scrutineers' preliminary written report on attendance, which indicates that quorum is present. Before commencing with the formal business of the meeting, I would like to comment on the voting procedure. The proxy cutoff was 10 a.m. Pacific Time on the 21st of May 2024. Only registered shareholders may be permitted to vote in person during the meeting. Shareholders wishing to raise questions or comments pertaining to the business before the meeting will have an opportunity to do so following the formal business of the meeting when recognized by the chair. As the first item of business, I would like to present to the meeting, the audited consolidated financial statements of the company for the year ended 31st of December 2023. Together with the report of the auditors on the statements. Copies of these documents were made to the shareholders who requested them, and they are available on the company's website. It is not proposed to read them at this meeting. The next item of business is the reappointment of the Company's Auditors and the granting of authority to the Board of Directors of the company to fix the remuneration to be paid to the auditors. PricewaterhouseCoopers Chartered Accountants, PwC has been company's auditors since the eighth of October 2008. Shareholders voted by proxy and VIF, and have voted in favor of the reappointment of PwC company's auditors to hold office until the close of the next Annual Meeting of Shareholders or until their successors are appointed at the remuneration to the [ fixed ] by the directors. As more particularly described in the management information circular for this meeting, shareholders were being asked to consider and vote on an advisory resolution on executive compensation, otherwise known as, Say-on-Pay, to enhance the company's dialogue with shareholders with respect to its compensation programs on an advisory basis only and not to diminish the role and responsibility of the company's Board of Directors, shareholders voted by proxy and VIF and have voted in favor of the company's approach to executive compensation, disclosed in the management information circular. The next item of business is the election of the directors of the company. The company did not receive notice of any director nominations in connection with the meeting within the time prescribed in the company's articles. As such, the only person eligible to be nominated for election to the Board were the persons nominated by management. Shareholders, who are being asked to elect the directors of the company to serve until the next Annual Meeting of Shareholders or until such successors are elected or appointed. Management nominated the following 8 persons as Director of the company. Andrew Bartlett, John Craig, Michael Ebsary, Gary Guidry, Keith Hill, Erin Johnson, Roger Tucker and Kimberley Wood. Shareholders voted by proxy and VIF, and have voted in favor of electing the nominees as directors of the company to serve until the next Annual Meeting of Shareholders or until their successors are elected or appointed. I will now ask if there is any further business to be properly brought before this meeting. If there is no further business, I declare the meeting terminated.

Thank you, Pascal. Now that the formal part of the business is over. I am delighted to welcome our shareholders who joined on the webcast and on the conference call facility and also attending in person. My name is Shahin Amini, I'm the Investor Relations Manager for the company, and I'll coordinate a Q&A session. Our Chairman John Craig and our President and CEO, Roger Tucker, will start with introductory statements before we open up the Q&A session. You can submit your questions or comments through the webcast facility at any time or for those attending in person in Vancouver, please let Suzanne know if you wish to ask a question. [Operator Instructions] Before we get started, it is important to remind everyone that remarks made during this session are subject to forward-looking statements, which involve significant risk factors and assumptions and have been fully described in the company's continuous disclosure reports. The information discussed is made as of today's date end and the company assumes no obligation to update or revise the information to reflect new events or circumstances, except as required by law. The company's complete financial statements are available on the company's website and on SEDAR. On that note, I am pleased to hand over to our Chairman, Mr. John Craig, we are ready for you. Please go ahead.

Okay. apologized. I put my head up again. I'm the Chairman of the company. And on behalf of the Board, I thank you for your continued support of the company. and I am pleased to have this opportunity today to engage with you in our post AGM Q&A session. I have been the Chair of the Board since 2016, and I am proud of our progress over the last 8 years. The company has transformed from a single development project enterprise to a full-cycle E&P company with material reserves, production and free cash flows. There were many ups and downs during this period. as you're all aware, but we have navigated the challenges and opportunities to have a company today that has a strong debt-free balance sheet, high netback production and attractive growth opportunities that are funded. I am proud that we have delivered on our shareholder capital returns aspiration with the institution of a base dividend policy and executing share buybacks. Your Board is focused on disciplined capital allocation as we work with the management team to grow the company sustainably over the long term. We must strike the right capital allocation balance between preserving balance sheet strength, shareholder capital returns and growth. On that note, I will hand you over to Roger.

Haven't been with Africa Oil as long as John, but I was very pleased 10 months ago to receive the Board's endorsement to take over the reins from predecessor, Keith Hill to lead the company on its next stage of growth and value creation. The first thing that attracted me to the company, and as you've all seen, is the Africa Oil has underlying assets of great quality. And I've worked with the Board to deliver over these past 10 months, a disciplined strategic business plan that is focused on our 4 key assets: which are Nigeria, Namibia, South Africa, the West Coast of South Africa and Equatorial Guinea. And as part of this process, we implemented some important organizational changes including key strategic recruitments, and these have already yielded positive results as demonstrated by our recent farm-down agreements for assets offshore Namibia and South Africa. These agreements announced earlier this year are key in securing the company's long-term growth prospects and derisking our balance sheet going forward. These agreements were also critical in enabling us to increase our shareholder capital returns, which we did immediately after announcing the farm-out of Namibia and we have a good balance with the existing portfolio between funded growth opportunities, a robust balance, and we continued disciplined work to optimize those core assets while following key capital allocation priorities. So okay, let's hear from our shareholders, and Shahin, I'll leave you to administer that.

Thank you for joining us with the webcast. [Operator Instructions] But first, let's look to Vancouver and see if there are any questions from those attending in person. So Suzanne, can you please check with -- would -- I believe it's a [ loan ] shareholder. Whether they have any comments or questions? So I will now go to the operator, Heidi. Can you please see if we have any attendees joining through the conference call facility. And well, we do have only -- we've only had 1 registered and that is Michael from Sweden. So if you could open up his line, please.

Great. Thank you very much for the webcast today of this AGM and opportunity to ask some questions. As I said, look, I am the author of a recent letter to the Board signed by the close to 200 collective shareholders. I'm not representing those today, but it might be worth mentioning. So I have 4 questions for today. First off, Craig, around the mid-2010 Africa Oil drilling boarding close to $1 billion in equity financing. As of today, Africa Oil current market cap is close to $800 million. In hindsight, how do you see Africa Oil has capitalized on those funds?

Well, I would say in that regard -- okay, I want to thank you for your question. We have developed the company to 1 with reserves, production and free cash flows. We have returned about $130 million through dividends and share buybacks, we have a high netback production business through our shareholding in Prime. Prime acquisition was a transformational investment for Africa Oil. Recall that we paid, I think, $520 million in closing on cash payment, and we received full payback in under 3 years. We have 2P reserves of more than 50 million barrels to underpin our long-term production outlay. Africa Oil also has the leading position in the highly sought after Orange Basin amongst our independent E&P peer groups, and we have retained exposure to the development of the Venus discovery at no upfront cost. We have also retained upside exposure to follow-on prospectivity in the Orange Basin, where we are carried to production. Overall, I think the company is in a financially strong position and we have balanced shareholder returns with funded growth opportunities. I think I would point out that a lot of the capital was raised on the back of our early discoveries in Kenya. Obviously, that project has not turned out the way we wished. And as you know, we've announced that we are exiting that project. But I think it is important to recall that we did monetize some of our interest in Kenya through a farm-down agreement with Maersk in 2015 and. This deal [ without ] Africa Oil to acquire its Nigerian business. And I think that's an important thing to keep in mind. We would not have been able to acquire our interest in Prime if we have not achieved that farm-down, which was on the back of our Kenya interest. So I think overall, I'm proud of what we've accomplished. I know that there's been disappointment in the stock price. And believe me, the Board and Management are disappointed as well. But I think we have underpinned a story here, our growth story, a sustainable shareholder return story. And I'm very confident that we've accomplished something that will be rewarded in the market in due course.

And so for my second question here, long-term share price maybe not develop as expected. Equity financing, current market cap. Looking at the compensation paid over the last 10 years, we see close to USD 75 million paid. How would you justify continuing such a pace, if I may use that word. Without -- for what I see, a clear and override share price metric connected to the long-term incentive programs. How the discussions around but such a metric being done in -- on the board?

It is for me, I believe -- thank you. There's an extensive description of our compensation process and the results of that process in the annual information form that was sent out in conjunction with this meeting. Clearly, the key principle in our compensation philosophy is linking the pay to performance. And this is focused on the long-term delivery by the executive management, linking corporate strategy, performance and compensation. We also have specific criteria for environmental, social, governance, health and safety performance. It is important to highlight that, that significant elements of our LTIP for the executive management compensation is at risk. The share-based compensation can also be volatile from 1 year to next. As the LTIP units awarded and how they are accounted for, i.e., noncash cost reported on the income statement are impacted by the share price movements. You've asked, how do we link share performance. I think if you look at our compensation process, both the PSUs and the RSUs are invested after 3 years. They are priced at the beginning of that period of time and only valued at the end of the 3-year period. Obviously, the change in share price has a substantial impact on those values. And you saw that in our 2023 compensation report. So I would challenge your statement that it's not share linked. I think it is substantially linked to shareholder price and also in our assessment, our performance table in conjunction with the PSUs, total shareholder return is a factor. So I think that I would also point out that I recognize that compensation is always an issue for shareholders. But we have -- we get [ a lot ] on Say-on-Pay. And this year, we received 96.5% support for our compensation system as compared to 92.2% last year. So I think our compensation system works well. And I think that the shareholder approval of our compensation system reflects that.

A recent comparison for Africa's Oil's G&A compared to some of the peers mentioned by Africa Oil, where numbers is disclosed by these peers show that comparably Africa Oil has a fairly high G&A, [ 5 ] is the number I have versus closer to USD 1.5 per barrel. Is that something you have reflected on or discussed in the Board?

[ Projects ] at that point, can we actually -- because often there's a bit of a technical accounting point to that. If I may, I would like to actually ask Pascal to perhaps share your views because we received a similar question in our town hall meeting a few weeks ago. So could you just share your views on that? And then we could go to it and see if John has any follow-on comments.

Yes. No, exactly. I think -- I mean, a few comments on that. First, I mean you need to be careful when you look at G&As and make sure that you exclude any non-cash G&A from the calculation, especially when you refer to equity-linked remuneration. But looking at the G&A and our peer group, I mean you have to realize that we are mostly non-operators of our asset. And if you compare it to other companies, other peers which are operating their own assets, they have the ability to return most of their G&A to their projects and assets, which is not our case at the moment. I think at the same time, we are keen to find sources of cost savings, as always. So we try to optimize our G&As permanently. But very recently, I think we decided to expand the team to make sure that we would have internal competencies that would replace the third-party contractors we were using so far, which was a source of, well, significant G&A and with the objective to reduce this G&A. So we are very hopeful to see the impact of these efforts soon in our financial statements, while keeping a very high level of activity. So I think this gives you a few elements to answer this question.

Thank you, Pascal. John, do you have any follow-on that? Okay. Thank you very much.

Then I have a final question then, maybe a more holistic one. If you -- with the air on the market, I might say that the confidence in Africa Oil in terms of delivering value and delivering on promises, maybe a bit of shaky buybacks going a bit back and forth. Confidence might not be at the highest. I'm not sure that's my view of the current situation. How is the Board assessing the situation? And how can the Board -- what are the Board doing to improve on that and in terms -- and in follow-up shareholder value.

My previous answer to one of your questions that what I felt was the accomplishment of the Board, I did indicate that the Board and management are disappointed with their share price. But I think that one of the concerns may have been early on and certainly with the Kenya project, we underdelivered, I acknowledge that. And I think that might have been a problem. I think that, that has changed. I think that Roger came in with a new strategy, which was fully endorsed by the Board, and he's delivering on that strategy. I am very confident that the Board will -- or the shareholders will recognize and the investment public will recognize what we have accomplished and the potential value that we've created that is not currently reflected in the share price. And as I said, I think that your company is extremely well positioned. I think our story is now clear. It may have been an unclear strategy in the past with a mix of emphasis on exploration and development at the same time. I think the story is very clear. I think your management team is delivering that message very clearly. And I believe with the support of the Board, the management will deliver and you will see this value created in the market.

To share some of my views. Some of you know, I used to cover the company as a sell-side analyst from 20 -- going back to 2010, 2011, and obviously, Kenya did have a disappointing outcome. But I do recall the farm-down to Maersk in 2015, I really have to give credit to the Board at that time, that was, in hindsight, a great strategic decision to do that farm-down agreement, which allowed us to do so much now. We've got the Prime acquisition under our belt which given us the free cash flow to build a leading position in the Orange Basin. So March have been disappointing, but again, all credit to the Board at that time for getting the right risk/return decision. Anyhow, just my view on that note.

I think I'm done for questions. I have taken up a long enough time here. So hopefully, we got more.

And we do appreciate your helping to coordinate amongst the Swedish investors and other European investors. We do appreciate your constructive engagements. So let's move to the webcast and other questions that we have received over e-mail. And I think it's suppose to give John a break and maybe put the lime light on Roger. So Roger, an easy one, well, maybe not an easy one. We have a question. Roger, what keeps you at night.

The good news is it's not the quality of the underlying assets, which is often a problem that other CEOs face because as I said in the introduction, the underlying assets this company owns and are focused on are very, very high quality. But I did say in the Town Hall that we did in Stockholm. We, all, as a management team, were kept very much awake at night, leading up to the transaction with Total, where we farmed out the -- our interest to achieve a full carry right through to first oil. And the thing that was keeping us up at night is that we knew the quality of the underlying asset and we were getting ready to commit to investing at further year in following our belief in that asset. The moment that we got that deal through, as you have seen, we immediately started the share buybacks because we've secured the -- and derisk the balance sheet because of that transaction. And right now, it's good news that keeps us awake because we've got a great asset set. We are in a situation where we have no debt on the balance sheet. And amazingly, for an E&P company, we have virtually no CapEx going forward. So we are in a very, very interesting situation. And the thing that keeps you awake at night is making sure that we do the correcting with the company going forward.

[indiscernible] Well, you've obviously been giving the markets the new strategic focus for the company. And the important part of it is the focus on core assets. And there is a question, what is the company's priority in terms of looking at optimizing its core assets? Is it to consolidate Prime or Impact? Or is the case that we need to work on both those fronts?

One thing that I did inherit, and John knows this is a nonoptimal way of holding our assets via the holding companies that were -- that are out there like the impacts and the Primes and Eco and Africa Oil Energy. And it made it very difficult, I think, for analysts to see through to where the true value is. And so the first step that we're pursuing is to try to consolidate our positions in the assets that we're focused on. That's why we did the farm-out in Namibia. And that transaction was 100% done by Africa Oil on behalf of Impact. As you've seen that we've made an offer to try to acquire more of the minority interest in that asset. And we've made that offer on the basis that the gross asset is -- for Impact is worth a value of $805 million as our minimum. Now if you look at the market cap of the company going forward and to Michael's question, the market cap would suggest that there is a fraction of that $805 million, which is built into our market cap. And so we're busy trying to consolidate to improve the way that investors can see through to where the value lies in this company.

When you joined, you obviously had to call with a new strategic plan, discuss and get it approved by the Board. But you obviously were busy in reorganizing the company and there were strategic recruitments as well as an office move. And that was actually a question about the office move. Could you just share your thoughts on, you just joined Africa Oil and you're trying to take us forward on the next value creation step what was that process all of that? What drove you for those recruitments and the reorganization and why the office move?