Seascape Energy Asia plc (SEA) Earnings Call Transcript & Summary

Good morning, and welcome to the Seascape Energy Asia plc Full Year Results Investor Presentation. [Operator Instructions] Before we begin, I'd like to make the following poll. I'd now like to hand you to James Menzies. Good morning to you, sir.

Good morning, everyone, and welcome to Seascape Energy Asia's Full Year Results Presentation. I'm here with Nick Ingrassia, the CEO. It's a brief presentation. We're going to just put our results out. They're obviously backward looking. It's a bit of a summary of what happened, but we thought it was a good opportunity to put those results in context and talk a little bit about what we're doing at the moment and what you might expect to see from Seascape during the course of this year. So I won't dwell on the Board. I've talked about this, we presented this before. Obviously, I'm here with Nick. Pierre is over in Kuala Lumpur at the moment, and we've recently hired Haida which I think we mentioned at the last presentation to join Gerald Ingram as nonexecs on the Board. I wanted to dwell a little bit on this chart, which I think does provide a good context for -- where Seascape sits at the moment in its history because a lot of what we hear is all around the history of Long bot and where it came from. And this chart shows -- although it's a share price, it does show a story of where the origins of the company lie and how it's changed? Because obviously, we've seen during the last 12 months, quite a dramatic shift in our activity and what we're focused on. And this isn't really to rubbish Longboat particularly. I think from my perspective, I think it had quite a difficult time of things when it launched with the best one in the world. It actually had an extremely high-quality workforce. I mean, some very, very, very good employees, very high-end technical skills. And on paper, you would have had it down to succeed. But I think the issue it had was really where it was investing and drilling in Norway where small companies really are at a disadvantage. And I think in the round, Longboat was competitively disadvantaged there despite having an exceptionally good workforce and good technical expertise, as I mentioned. And that's really because in Norway, the cost of capital required is at a level which Longboat could not compete with. The time lines involved were so long that really it affected the commercial decisions. The competition levels are very high, and you're competing with companies, which were of a much a radically different scale to Longboat and who could look at opportunities with a very long time horizon. And were Longboat skills, which they definitely had valued by the incumbent Norwegian infrastructure -- corporate infrastructure I'd say, but probably not. There wasn't really a need for Longboat to be investing in Norway, and that sort of came through despite the fact that it found oil and gas successfully, the commercial issues are always clouding whether there was the value creation part of it because time lines were so long and out with its control. So ultimately, that did lead to a pivot, which we're going to talk about that's happened within the last 12 months. And we can see quite a shift in the way the share price has behaved from originally people being quite surprised by this shift, this change of geography to, I think, some support and kind of positivity. So we've seen the share price starting to recover, and we would really hope that's going to continue. And again, I think we've got a high-quality workforce that's focused on Southeast Asia. We have skills where I think the that are valued, particularly in Malaysia. We're doing things that they want, and we're being actively encouraged by the NOC and the regulator. Our cost of capital and our peer group are -- the competitive pressures are much, much, much reduced. And to the extent that we are being encouraged and people want us, NOCs around that region want us to invest. They're encouraging us to come and participate in their upstream sector. And Nick is going to talk a little bit about that. So I think we've seen a radical shift in the macro environment in which this company operates. It's the same company, but it's a different geography. And of course, during that pivot, we have streamlined the company. So we've had largely a change of the Board changed the personnel. And we're in a very, very, very different place. So we should look at these results in that context. It's been within the last 12 months. We're on a different footing. We are operating in a different space. And we feel it's extremely positive, and it started to show results. So really, the key messages I want you to take away from this, and we will look at the numbers, and we'll talk through those and we'll talk a little bit of detail about some new stuff we're looking at. But really, I want you to get clear on the fact that the pivot is complete. It's done, and it was done extremely efficiently and extremely quickly. Our foothold in Malaysia has been established, and we've got a great high-quality small incipient portfolio, which we're looking to expand around the region. And that covers, as we'll see, obviously, exploration excitement, but also hard assets for development. And we've changed the shape of the Board. The balance sheet has been rebuilt. So we've done deals, which has brought in cash. We're not looking to raise money. We've got cash to do what we want to do right now. And I think the last point, which we will dwell on a bit, I'm sure there'll be lots of questions about, is we've done our homework on business development. I think 1 thing we've always been very good at is our network around the region is second to none. I mean we are aware of assets on the market countries with their bidding rounds, who's doing what, who's interested in what, who doesn't -- who's not interested in assets they own. We've looked at -- and we can screen very quickly asset transactions, organic BD efforts can be screened and acted or not. We know where it is, given that it is a very organic and kind of a bit of activity that is live all the time. But I would say that we know where we -- what we like, and we've identified as we'll go through some things that we particularly like and that we want to pull the trigger on in short order. So the portfolio as it stands at the moment, has only got the 2 assets. DEWA, we talked about a few months ago that we got into with EnQuest as our operator, it's a gas cluster development, 300, 400 Bcf as we show here. We're doing some -- we're going to be doing some work on the resource numbers to talk to you about in the near future. But that looks really exciting, very interesting, close to infrastructure. and being encouraged really to go very quickly that this is what PETRONAS want here. And this is the stark contrast to what we saw in Norway where we could drill a well, make a discovery and really not know what's going to happen with all of that in 5 years' time, 10 years' time. Here, it's quite clear. They want us to crack on. And then we have the giant Kertang where we've now got ourselves to 10% 0 cost. This is a free ride for shareholders on 2 wells on probably the biggest undrilled prospect in Malaysia. So that's going to be super exciting and got ourselves into a great position on that one. So that's our foothold as it stands today. Obviously, we'd like to see that change. I'm going to let Nick talk you through the results.

Thank you, James. Good morning, everyone. Thank you for joining us this morning. We'll just do a couple of pages on our results. High-level stuff, just to give you an idea of the numbers, as James mentioned, this is really backward-looking stuff represents a different business, different time. So -- and I don't think it's reflective of the business as it stands today and going forward. But I guess those are financials for you. So it goes without saying that the results for '24 cover a period of really significant business transition. As you recall -- you may recall, coming out of '23, we had done a deal with JAPEX and so we had changed our accounting practices to equity account for our Norwegian joint venture which we then had to unwind for these accounts, but also sort of a write-off in relation to that whole thing, making the accounts relatively messy and a little bit hard to understand sadly. There was a significant operating loss. That's really impacted by both these sort of nonrecurring costs and some of the restructuring that we suffered as part of the exit from Norway. But I think the thing to focus on is that our run rate G&A has been reduced quite significantly. We have a very lean team. However, we are growth focused, and we've left a little bit of that in there. so that we could chase interesting opportunities, which will sort of come on to a little bit more as we go through this presentation. Post period end, I guess, again unhelpfully whilst we announced, our farmout in December last year to impacts on Block 2A, the cash only hit our accounts during the first quarter, which was in line with what our expectations were, but it just means that our balance sheet doesn't reflect that. So it's a push period. We had about GBP 10 million of cash, no debt and limited financial commitments. And I think that, that's really where that balance sheet, rebuilding our balance sheet strength comes from. So just a quick peak through the key financial numbers. So there's a little bit of income. These were effectively management fees that plc got paid for from the Longboat, JAPEX joint venture. So it's not really income per se. Again, the operating loss is about GBP 5.7 million. It included a bunch of nonrecurring costs from the restructuring. So it's the stuff relation to sort of different payments to people and cost of just exiting that business. And so really, the thing to focus in on is the ongoing G&A. The loss from discontinued operations. Again, that discontinued piece being Norway. There was a large write-off there associated with the joint venture of close to GBP 11 million. There were some assets held for sale. This is the reflection of the cost historically associated with Block 2A. I think the important thing to note is we effectively got those back as part of the transaction, should we got reimbursed for our historic costs associated with 2A. This is something that we have mentioned a number of times, which is that actually that was a very small amount of money, GBP 1 million to capture the 2A block. Something that we've subsequently now got basically that money back plus $10 million in cash plus a contingent payment plus this full carry on the exploration. So we invested a very small amount of money and have gotten a very, very big return. And that's the sort of transactions that we're trying to identify and using our networks and our knowledge of the region to try and replicate. Year-end cash was relatively low at GBP 2.8 million. But actually, with the cash inflow from the farmout proceeds, we've ended the first quarter with around GBP 10 million in cash. This includes a little bit associated with bank guarantees for our work programs in Malaysia, there's a very small one with DEWA as we've mentioned previously. But that is moving forward sort of quite quickly, and those get unwound as work goes on. So just in terms of sort of those movements, I won't kind of go through this in a lot of detail, but you can see that where we started the year, where we ended the year was pretty much the same during with the big inflows coming from the sale of Norway, for which we got $2.5 million and JAPEX also assumed a considerable amount of debt that was sat in that JV. So that's sort of left all of the financial obligations with that entity part with them, nothing going forward with that. So again, that's part of this whole pivot. We had a small equity raise at the end of last year to allow us to get through to completion post period end, which you can see there, which is the farmout proceeds of GBP 8.5 million. Expenditure in quarter -- in the first quarter this year was slightly higher than our sort of run rate, which is around GBP 250,000 a month of cost but that includes some of the expenditures that were sort of carried through period end associated with the farm out itself and just some costs that roll over from '24. But again, the thing to take away here is that we've created -- from that reset point using a very small amount of capital, we've created quite a significant amount of value. And this is really something that we're looking to replicate as we look further across the region. So I think for some time, we've been saying that we are pursuing a sort of material growth I think that that's what these businesses really are about is trying to get those step change movements in the share price through doing interesting and exciting things. And we have not really taken a break since we formed out 2A, it has been straight into looking for other opportunities, we see a huge amount of exciting things going across the region. We've seen, I think, unfortunately, recently with oil price volatility, a real sort of struggle to kind of transact on more production basis at the moment. Buyer-seller expectations as the oil price gets more volatile tends to expand. And so that, I think, sort of presents a challenge. And in fact, I'm glad we didn't cut any production deals earlier on here when oil prices were substantially higher. So 1 thing we've been looking at really is what we would describe as ground floor opportunities. So when I talk about ground floor, these are things that cost very little other than perhaps our own time, energy, maybe some consulting fees, but has this opportunity to really have a step change in value because we've identified something early using our knowledge and our network, using access to the data that we have. We've talked a lot about that historically, especially in places like Malaysia, where we have a huge access to it as an incumbent and huge access to data across the very many basins in Malaysia. And our ability to then sort of tease out and find unique opportunities. And so we've really been sort of focusing on what would be the right fit for our skill set and our ambition. So we have a fully screened short list, things that we've been really pursuing with a lot of bigger. I think our ambitions include eventually becoming an operator. I think that's an important thing for this business. Previously, we were operating 2A. That's now been handed over to INPEX, who will take that through to drilling. And so having somewhere to -- I think as James says, plant our flag and really have a flagship asset for the business is important. So that's one of the sort of the key considerations for us. as well as kind of using our balance sheet to the highest effect. So a limited upfront capital commitment, perhaps taking a high equity stake in something and allows us to sell down either all at once or over several steps in order to help finance the business going forward and finance our ambitions for growing the business. So I think the key takeaway here is that we have a fully screened short list. We've been very active. We've been -- for those of you who follow us on socials, we've been all over the region during the first quarter and in the past sort of even recently, really sort of keeping an eye on and identifying some crucial opportunities that we see as being able to take this business to the next step. Give us another flagship asset and really expand the portfolio in a material way going forward and growing the business.

Fabulous. Thank you, Nick. So yes, just to reemphasize that the pivot is done. We're now very active in a region where we see things that work for us, limited competitor set, limited peer group, very, very well developed regional network, strong -- I would argue, we are competitively advantaged certainly in Malaysia. And we've reshaped the organization. So it's extremely lean. We're kind of starting with a blank sheet of paper, but with some very strong advantages, more cards that we hold right now. plus the portfolio is small. We know that. We want to expand it. We need to expand it for all sorts of good reasons. But even the small portfolio we have today is extremely high quality. And it's a combination of 2 things I love, hard value, the gas in the ground, close to market, cheap to develop plus blue sky excitement and probably the most exciting well that's going to be drilled out in this part of the world in the next couple of years. And we're getting a ride on that. 10% of that, that's costing us nothing at all. And the balance sheet is in great shape. So I mean, I think for me and probably for you as shareholders or people looking to invest in this company, it's actually what's the next step? That's the critical thing. We can look backwards. We can talk about Longboat, I think that story is done. And I think we're in the right place. We're in the right address. I think you need to have confidence that we understand the region. We know what we're doing, that we have high-graded and we have -- we're locked and loaded now on what we want to do, and we have some things in the crosshairs, and that's where we sit today. But we don't want to chase something that is the wrong fit for us. We don't want to downgrade the portfolio quality. We want to maintain that. I think there are some things we want to add, as Nick was saying, but we need to grow in areas where we're valued. Our skills are valued, where we can have access to plentiful amounts of data where the costs are reasonable and time frames are reasonable for a company of our scale and with shareholders like we have here in London that will meet their expectations. So I think that's pretty much what we can say on that for the moment. But -- so it's been quite a short presentation. There are some questions. So should we jump into those.

All right. Let's go onto Q&A, our favorite bit.

Well, that's right. I notice there's an interesting question. This is very pertinent about Veleura Energy and Mubadala and do we think we could do a deal like that. And probably 1 -- I mean, Nick can give his comments. I would say that -- and I was active looking for deals at the time that this was on the market, and it was a deal that took a long time to get done. Mubadala has stretched out that sale for the best part of 18 months. Sadly, very few people were around financing deals at that time. So I think Veleura had an edge just because they had some cash, whereas most people didn't. They're extremely rare of these kind of deals in Asia. So there was a time, and Nick will know this better than me, but the North Sea, these kind of deals are quite common. These low NPV, high cash flow deals, late life assets. And I think they look great from a metrics point of view. And I think on the surface, they look extremely attractive. Obviously, the unknowns are all around abandonment, but that's the play. It's basically an abandonment play, and that can work for you. Absolutely can. I would just say that they're like hen's teeth. I mean really, these come along so infrequently, particularly with sellers like Mubadala, who wanted to get out of oil, they're very focused on gas. They took a corporate decision just to exit oil production. I wouldn't say any cost, but really, they were pricing sensitive, which was great. So I think full marks to Veleura, they did a great job with that. They've done a great job with the assets. It's a very different business model to ours. I mean these are late-life squeeze the additional barrel just extend it as far as you can, push it, push it, push it. I think we're looking more greenfield. But having said that, when you're our size, you've got to be opportunistic. So you never say never. What do you think?

Completely. Completely. No, hats off, they did a fantastic deal. As James said, that those are a little bit unique in some ways, we've done a unique transaction with 2A, either finding something of that order of magnitude and being able to farm out and get so much cash in. So these things do happen, and we certainly keep our eyes open. I would say that we are experienced transactors. So there's not a financial structure we haven't seen, and there's not a -- we've done a lot of sort of interesting deals. And so we're always open to doing interesting, structured transactions. But they really have to work for all parties. I think that the volatility we're going to see for a little while and the oil price would make some of those more challenging, albeit it also might mean that we're going to end up doing some interesting stuff because that's the sort of time periods where opportunity is created. So we're very much keeping our eyes and ears open. So watch this space. We would love to get some production into the business, but not at any cost. And I'd say that, that's kind of one of those things where cost of capital needs to match the price at which you're purchasing any production, also taking into account any sort of market-based discounts that people are getting. So -- and we really wouldn't want to dilute people just to buy production for production's sake, issue a bunch of equity and everyone's very sort of grumbly about that. We think that there are other routes. But certainly, we're keeping our eyes open for all types of transactions. I think...

I think that probably is -- I think there's -- I think that company structure in 12 months. I think just to -- I'd probably add, I mean, Nick made the comment earlier, we think becoming an operator is probably an important thing for us. And we're not afraid to do it. We'd welcome that opportunity I think it does open up more doors to you makes you that much more attractive to most governments as well once you're an operator. We certainly saw that in Salamander when we became an operator. Suddenly lots of people were interested in us coming into their countries and we're putting opportunities under our nose. So yes, we would like to see that. Do we think production, we've kind of answered. It's -- I would add to what Nick was saying, it's hard to find production deals that you can acquire for value and then have that production trade in your shares at the market. The stock market and the asset market are valuing things very differently. And that's why it does -- it's difficult to make it work unless you're buying it extremely cheaply, which is unlikely. So you can waste a lot of time and effort chasing a deal, you're never going to get at a price that works for you. I would say, though, as a backstop, if we don't get there through the asset market, our backstop is actually production from DEWA, and we're being encouraged to go so quickly with that. We could be looking at a production back end of next year and into '27, we could be on stream. That is 5,000 barrels a day net to Seascape. So if all else fails, that's where we'll get to. So yes, I think we're going to be a producer. And hopefully, it will be soon. But if it isn't soon, it will be then, and that's fine. We're happy with that. So we don't feel -- we don't have a gun to our heads looking for flowing barrels to get into the portfolio.

And in fact, EnQuest EGM announcement out this morning specifically mentioning growth in Asia and DEWA being one of those the key pillars to their growth as they look to expand their Southeast Asian business. So it's not just us talking about it. They are as well as operators. So that's kind of -- so I would say to take some part on that, that they are really going at full steam there, and we're very excited about that. I think we'd like to sort of try to put some more definition around the size of that in the coming months. We're looking at potential to maybe do a CPR. So kind of watch this space. But there's a lot of work going on the moment behind the scenes. And hopefully, we can talk a little bit more about that maybe AGM time.

Question on, is there an option to farm down DEWA or swap production I guess we could. But to be honest, I think at 28%, my gut tells me we're at the right level. it's not too much. It's not too small. It's meaningful for us. I think if we got rid of some of that equity, it starts to get too small. So I'm kind of happy where we're at, to be honest with you. So I'd stick with that. But I would say there may be opportunities to swap other things we could get into. So it's a neat idea.

There's a technical question here around tax losses. So there's no tax laws synergy or anything between what was the Norwegian business, which is now all gone and what is the sort of current business now. So -- but they are tax offsets. So there's no sort of potential sort of being double taxed in Malaysia and in the U.K. In fact, we spent a lot of time ensuring that the INPEX transaction attracted no tax. That was not something that we should have made a big deal out of it, but the reality is that we spend a lot of time making sure that, that structure meant that there was no tax leakage, which is, I think, kind of quite unusual. And again, this comes from the fact that we're long in the tooth when it comes to transacting and making sure to sort of maximize benefit for shareholders. Favorites, other countries.

Other countries in Southeast Asia, yes. Well, obviously, we would rank Malaysia, 1. But outside of that, I think Thailand features quite a lot in our discussions. And when we go around looking at license rounds obviously got one going on right now onshore, to be honest, it's some -- it's an area we know very, very well, probably not for us, I would say. But I think some of the offshore definitely could be for us. Vietnam, we look at. It's a much smaller industry in Vietnam, but this had some notable success of recent times in the -- certainly in the Cuu Long Basin. And we do periodically have burst of enthusiasm for Vietnam and maybe 1 day, I'll get there. I think you'll hear a lot about Indonesia, which is I wouldn't say it had a renaissance, but there's certainly been a big push by the Indonesians to get the industry looking at their acreage again. I mean for me, it's again, it's a country I know very well. It's still highly bureaucratic. I think the -- when you compare it to Malaysia, the costs of doing business in Indonesia is so high relative to Malaysia, and the data access is nowhere near as good. And the time frames are ridiculously long. Plus, I think the competitor set in Indonesia, you've got hundreds of small E&P companies milling around trying to make money out of you as an investor in the country or ways that probably don't really align with ourselves. So I'd still struggle a bit in Indonesia. I think it's a place where a bigger company could do very well. who can write these things out, who don't worry so much about the cost of access to data there and time frames. But for nimble independence, I think it's still going to be a bit of a challenge. It can be done. But anyway, we have more than enough. I promise you, we're not scratching around wondering what to do next. We certainly have quite a full roster.

I think it's fair to say that we keep an active eye on all of these places. So we visit them all regularly because you never know when some new development might happen or something changes. So we're sort of constantly on the road and seeing different places, being with different people. Just trying to make sure we stay on top of that, and that's part of having this access and this network.

I mean, you were in Brunei recently, Nick.

I was in Brunei recently. There's a new licensing round that was announced there. We had someone gave us the nod that there was likely to be a new licensing round announced there. So we showed up there to presentation they had a sort of a conference around the launch of their new round. It's been more publicized recently. I think Upland Resources mentioned that they had gotten into that. So we're having to look at that as well. We don't press release stuff like that. But we're always keeping an eye on things. But making sure that we're judicious with how we spend our time. We're still a relatively small team. And we're trying to really focus all of our efforts on things that grow the most amount of value with the least amount of effort. A couple more maybe and then we'll maybe call it here. There's a timing on Kertang. Again, impact is the operator. We're hoping that they are going to be committing to that this summer. I don't think that there's a day in the diary yet, but we're having close contact with them. In fact, I think we're seeing them -- I saw an e-mail from them this morning. I think we're seeing them out at the Energy Asia conference a couple of weeks' time. So we are very much -- they're very focused on getting that to a commitment, everyone's very excited about it from the very top of INPEX. We know that [ Caragele ] is also -- PETRONAS is also very excited about moving that forward. So everyone's keen to get that committed to. So I would think that we're going to see that this summer. And that will give us a little bit more visibility on the sort of drilling timing for that. But we're hoping that's going to be next year, maybe back into next year. Okay. I mean that's probably about it.

I think we've answered all those.

That's great. Nick James, thanks so much answering those questions from investors. Of course, the company can view the questions submitted today, and we will publish a response that in the Investor Meet company platform. Just before redirecting investors to provide their feedback, which I know is knows particularly important to the company. Nick could I just ask you for a few closing comments.

Look, we've got a very exciting year ahead. Stick with us. We've shown that we've been able to pivot this business with very limited capital a lot of hard work and a lot of enthusiasm into something that could be very, very exciting. And our mission this year is to continue that path of growth to get a hold of some assets to expand the portfolio, hopefully, become an operator and start down that path towards a full-cycle E&P. We've got all the building blocks in place, and we're really set for an exciting year ahead.

Nick, James, thank you, once again for updating investors today. Could I please ask investors not to close the session as you will now be automatically redirected to provide your feedback in order for management team can better understand your views and expectations. It is only going to take a few moments complete, and I'm sure will be greatly valued by the company. On behalf of the management team of Seascape Energy Asia plc, we'd like to thank you for attending today's presentation, and good morning to you.