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Edited Transcript of PEN.OL earnings conference call or presentation 23-May-19 7:00am GMT

Q1 2019 Panoro Energy ASA Earnings Call

Jun 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Panoro Energy ASA earnings conference call or presentation Thursday, May 23, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* John Andrew Hamilton

Panoro Energy ASA - CEO

* Qazi Qadeer

Panoro Energy ASA - CFO

* Richard Morton

Panoro Energy ASA - Technical Director

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Conference Call Participants

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* Teodor Sveen-Nilsen

Sparebank 1 Markets AS, Research Division - Research Analyst

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Presentation

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Operator [1]

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Hello, and welcome to the Panoro Energy First Quarter Results Conference Call.

My name is Courtney, and I will be your coordinator for today's event. (Operator Instructions)

I will now hand you over to your host, John Hamilton, to begin today's conference. Thank you.

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John Andrew Hamilton, Panoro Energy ASA - CEO [2]

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Thank you, Courtney, for the introduction. And good morning, everybody, and thank you for participating in our first quarter 2019 conference call.

And on the call with me today are Qazi Qadeer, our CFO; Richard Morton, our Technical Director; and a new name, Nigel McKim, who's our Projects Director who's joining us for the first time on this conference call. Following a brief introduction, Richard will take you through an update on the assets, and then we'll turn it over to Qazi to take you through some of the key issues on the financials, after which we'll open up for Q&A.

As a reminder, today's conference call contains certain statements that are or may be deemed to be forward-looking statements, which include all statements other than statements of historical fact. Forward-looking statements involve making certain assumptions based on the company's experience; and perception of historical trends, current conditions, expected future developments; and other factors that we believe are appropriate under the circumstances. Although we believe the expectations reflected in these forward-looking statements are reasonable, actual events or results may differ materially from those projected or implied in such forward-looking statements due to known or unknown risks, uncertainties and other factors.

Now for your reference, our results announcement was released this morning. A copy of the press release and our first quarter 2019 report are also available on our website, www.panoroenergy.com.

So the financials we released today clearly demonstrate the transformation that we've made at Panoro over the past year. I'd like to just point out a few key high-level takeaways, if I could, before turning over to Richard.

Firstly, very strong financials. We've had a particularly strong lifting schedule in quarter 1, where we have revenue of approximately $20 million and EBITDA of over $11 million for the quarter, so again a very strong financial quarter. Second thing I'd like to point out is operational performance. Group production for the quarter was approximately 2,600 barrels a day net to Panoro, which was a sixfold increase from this quarter last year. In Gabon, Dussafu production is stronger than expectations in Q1, with continued strength in Q2 to date of over 12,000 barrels a day on average. We note today as well that BW Offshore have produced their first quarter results today and also a series of other announcements. And in those announcements, you will see that they have raised their production guidance on Dussafu as well, as well as raising their reserve guidance at Dussafu to 80 million barrels. That is an internal operator number. So BW are echoing the strong production information that we have also today released.

Continue on operational performance. In Tunisia, we're approximately producing at the moment about 4,300 barrels a day gross. That is an uplift of a little bit less than 10% from when we took over the asset and is making headway towards our stated initial production target of raising production by 15% to 20% by the end of Q3. So we're well underway there. We've also today announced, with some upcoming drilling and workover activity, we're now targeting an exit rate in -- for the TPS assets in Tunisia of 5,000 barrels a day gross production, with additional opportunities being evaluated.

The last thing I'd like to point out in terms of the high level is our large upcoming work program. Starting in July, we will commence a 6-well program at Dussafu consisting of 1 exploration well, followed by 4 production wells and an additional exploration well. The first oil from this new production drilling is expected in Q1 2020 and has the potential to increase gross production at Dussafu to over 20,000 barrels a day of oil. The drilling of the Salloum West exploration well this year is also on target. We're working together with the state-owned oil company ETAP. Exploration success there could see production also fast-tracked.

So now I'll turn you over to Richard, who'll take you a little bit more through the operational aspects of the assets.

Richard?

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Richard Morton, Panoro Energy ASA - Technical Director [3]

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Thank you, John. And good morning to everyone.

Firstly, in Tunisia. On the exploration side, we've advanced our plans to drill the -- a commitment well on the Sfax Offshore Exploration Permit. The well, Salloum West, is proposed to test a prospect which is located in the fault block to the west and updip of the Salloum structure, an oil discovery that was drilled and tested by British Gas in 1991. We are currently working closely with our partner ETAP regarding the technical program and the formalization of drilling plans, including the well planning, the location and approvals for drilling and testing. We've started building a drilling team in -- based in Sfax, and we've hired a experienced drilling manager who has drilled many similar wells in the past. So that's all coming together to deliver the well towards the end of this year.

The primary target of the Salloum West well is the Bireno formation which produces from the neighboring El Ain and Guebiba fields which are located in the TPS assets. The well is planned to test the Bireno at approximately 3,200 meters vertical depth, where we've identified on 2D and 3D seismic what we believe to be an independent fault block located west of the Salloum-1 discovery. So the objective of this well is to prove up additional resources in the vicinity of the discovery well and to aggregate them in order to fast track the development of Salloum through a tie-in to the existing oil infrastructure at TPS.

For TPS, the producing assets, production there during the first quarter was equivalent to an average rate of 3,930 barrels of oil per day gross. And current production rates remain very strong and are approximately 4,300 barrels a day gross. Activities undertaken on the fields during the quarter included detailed planning for the restart of production from the El Ain field, which has been shut in for over a year, pending a new concession. The plan includes workovers for 2 existing wells on the field to install new ESP pumps, but plans are also being made to enhance production at the Guebiba field, where a sidetrack and 2 additional workovers are being considered alongside an enhanced water injection program.

So we believe the near-term opportunities here could provide a significant production uplift of between 15% to 20% by Q3 compared to the 4,000 barrels we were averaging at the end of last year. And we think, by the end of 2019, we can target a gross production from these assets of about 5,000 barrels per day gross. So you can see that initial results of this program have been positive. And production currently is at 4,300, so we're getting close to our 5,000 target already. There was 1 large international and 2 smaller domestic liftings from the TPS assets for the company during Q1 2019 of 118,490 barrels net to Panoro. Q2 lifting schedule is anticipated to include 2 domestic liftings only, and we anticipate 27,000 barrels net to Panoro from those 2 liftings.

The other exploration license acquired as part of the DNO transaction last year, the Hammamet Offshore Exploration Permit, expired in September last year; and is in the process of being relinquished; and costs approximately USD 2 million, which is USD 1.2 million net to Panoro.

Meanwhile, in Gabon, production from the Tortue field continued from the DTM-2H and 3H wells during the quarter, at an average gross rate of over 12,500 barrels per day. This compared to an average gross rate of 11,900 in the fourth quarter 2018. 2 liftings of approximately 650,000 barrels each were completed in the quarter, in late January and late March; and we expect 1 lifting of a similar size to be completed during Q2. Post period end, the production rates from Tortue have continued to exceed initial expectations and remained very strong in April and May at an average gross rate of over 12,000 barrels per day. So that's about 25% uplift on the forecasts that we made when we started the project.

The Phase 2 development at Tortue is underway and will consist of an additional 4 subsea horizontal oil development wells. 3 of the wells will be drilled in the Gamba reservoir, and 1 well in the Dentale D6 reservoir. The drilling campaign will be carried out in the second half of 2019 and will conclude in early 2020. We expect production from these additional wells to come online in 2020, and BW estimates that the total production at the time could be up to 25,000 barrels of oil per day. Prior to that development drilling, we're going to drill an exploration well on the Hibiscus Updip prospect. We expect the rig for this well to be mobilized in July 2019. And this Hibiscus Updip prospect is mapped as a 4-way closure at the Gamba level. And Gamba is the reservoir that produces at Tortue. The operator has estimated that this structure may contain recoverable volumes in the same magnitude as the Ruche, Ruche North East and Tortue discoveries previously drilled on the 3D seismic. The well will be drilled southwest of an exploration well which was drilled in 1991. And that well found oil in core samples and good reservoir quality; and dipmeter data indicating a higher structure to the southwest, where we plan to drill.

Following the development drilling, a further exploration well is planned in early 2020. Candidate locations for this well include prospect B to the south, which is a large Dentale closure. Another candidate is the Espadon prospect to the north of Ruche North East discovery, which has closure at both the Gamba and the Dentale levels. The JV partners are currently reprocessing the 3D seismic covering the Dussafu block and we will use this new data to help select the prospect location and also better define the Phase 3 development at Dussafu. As a reminder, we have prospect A and B area with a compliant P50 prospective gross resources of 482 million barrels. And we think the reprocessing could refine this structure and may be a good candidate for the drilling next year. Additional exploration drilling may be carried out in 2020, depending on the results of the reprocessing and the Phase 2 drilling. The concept work for Phase 3 of Dussafu progressed during the quarter. And that phase will consist of development of the Ruche field and the Ruche North East fields, which are likely to be tied back to the BW Adolo FPSO which is stationed at Tortue.

Furthermore, as previously indicated, Tullow has confirmed their intent to exercise the 10% back-in right into the Dussafu license as stipulated in the production sharing contract. And Tullow will be required to pay a portion of past costs, and following completion of this, Panoro's interest in the Dussafu license will be down to 7.5%.

Finally, in Nigeria, the Aje field produces, continues to produce; and produced an average of 383 barrels of oil per day net to Panoro during the quarter. And this compares to 368 barrels of oil per day net in Q4 2018. Production from the field continued from the 4 and 5 wells, with the 4 well producing from the Cenomanian oil reservoir and the 5 producing from the oil rim of the Turonian reservoir. We had a crude lifting in March 2019, and the next lifting is anticipated for Q2 2019. Proceeds from the crude sales are being applied to the JV -- by the JV towards operating expenses and the reduction of historical payables. The JV partners are continuing to progress the next phase of activity at the field which is based around the Turonian gas field development plan.

So that concludes the review of the operational activities in the quarter. And I will hand over to Qazi for the financial update.

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Qazi Qadeer, Panoro Energy ASA - CFO [4]

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Thank you very much, Richard. And good morning, everyone.

In our results announced this morning, we have as usual included a detailed narrative on a line-by-line analysis of Q1 results comparing the previous quarter against the first quarter of 2018 and to the first quarter of 2019. Therefore, on the call today I am only going to cover the key highlights of the first quarter 2019 results. It is also customary to note here that the results published this morning and discussed on this call are unaudited.

Q1 '19 is the first quarter where we have included operational results of the producing assets acquired in Tunisia that completed in late December last year.

Key highlights for this quarter on the income statement that I want to bring out are revenue in total which was $19.9 million, comprising of $17.4 million in oil sales revenue and $2.5 million of other revenue that relate to the gross-up of state profit oil allocation under Dussafu PSC. This compares to $4.8 million of oil sales revenue and other revenue of $877,000 in Q4 2018. It should be noted that we account for our revenue on lifting basis under the IFRS standard. The lifting scheduling across various production assets will vary quarter on quarter. And as such, due to revenue recognition on a lifting basis, uneven quarterly financial results are to be expected despite stable operational performance.

Other revenue of $2.4 million for the current quarter relates to the gross-up of state profit oil allocation, as I mentioned before, for Dussafu PSC with a corresponding number included in the tax expense. This compares to $877,000 for the fourth quarter 2018.

We also saw a significant improvement in EBITDA for the current quarter, increasing from $711,000 to -- in Q4 2018 to $11.2 million in the current quarter. This is mainly driven by higher sales volume in the current quarter.

Other than revenue, the most significant impacts of operations on the cost side are OpEx, which is up from $3.4 million to $7.1 million. This has been expensed on a lifting basis as well. G&A costs are up from $1.1 million to $1.4 million. Again this is due to a larger set of operations we have and also due to the inclusion of new staff members to cater to the increased activity in the group. Depreciation charge for the quarter is up from $1.2 million to $2.4 million. This is again due to a higher production base.

Net finance costs also are up from $117,000 in Q4 to $1.2 million in the current quarter. This is reflecting a full quarter of accumulated interest for Mercuria loan facility. And also the -- since the first oil on Dussafu, we have started to expense the interest cost on the nonrecourse loan which was previously capitalized.

In accordance with IFRS, we have to fair value our hedging contracts at each reporting date, which will generate unrealized noncash gains and losses in the income statement for this period presented. As a result, like many peers in the sector, we have introduced a reporting of adjusted non-GAAP financial measures which isolate items of such nature and reflect the core operational performance.

Considering the non-GAAP measure, our underlying profit before tax was $7.8 million on an adjusted basis compared to the accounting net profit before tax of $3.5 million on a reporting basis. The difference between the two is primarily the hedging contract's fair valuation charge as of the end of the first quarter. Thus, the reported accounting net loss for the period is $1.5 million compared to a similar number in Q4 2018. On an adjusted basis, the underlying operating profit after tax is $2.7 million for the first quarter 2019 versus an underlying loss of USD 1.8 million for the fourth quarter 2018.

On the balance sheet side.

Cash balances stood at $18.1 million, comprising $8.1 million in available cash and $10 million held for bank guarantee in relation to the obligation to drill a well at Sfax Offshore Exploration Permit in Tunisia. This obligation will be discharged, and cash released, at the commencement of drilling operations.

Crude oil inventory was down by half. This again is a function of higher sales in the quarter. Trade and other receivables have increased from $5.6 million in Q4 to $13.3 million in Q1. This is mainly a result of crude sales receivables which were collected in April 2019. And the nonrecourse loan from BW Energy also reduced by $1.7 million due to repayments from our cost oil allocation.

The last item I will discuss here is the corporation tax liability, which includes a 2018 taxes payable in TPS operations that are due in 2019. It also includes a provision for the 1Q '19 taxes on income.

This concludes my review of our financials, and I will now turn back the call to John for opening up for questions and his closing remarks.

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John Andrew Hamilton, Panoro Energy ASA - CEO [5]

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Thanks, Qazi. Thanks, Richard.

So this quarterly report, I think, underlines the new strengths within the company; and points the way towards further growth also over the coming 12 months which could see the company's production, reserves and financial performance continue upwards based solely on its current portfolio. As usual, we continue to evaluate other further growth opportunities. We look forward to updating shareholders during this busy upcoming and extended drilling program period we have in Gabon and Tunisia.

So I'd like to turn it over to questions now if we could open up the line to any questions there may be.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Okay. So our first question comes in from the line of Teodor Nilsen calling from SB1 Markets.

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Teodor Sveen-Nilsen, Sparebank 1 Markets AS, Research Division - Research Analyst [2]

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Congrats for -- with the strong, strong Q1 results. I have 3 questions from me. First, regarding your revenue, could you indicate how much of the Q1 revenue that was related to inventory sales? Second question is related to TPS. I really appreciate the comments regarding exit rate production for 2019, but how should we think around average production for 2020 for TPS? And then my third question, last question: Could you please remind me of the predrill resource estimate for Salloum West well?

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Qazi Qadeer, Panoro Energy ASA - CFO [3]

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Right. So the first question, around revenue and how much of it was inventory sales. I think it's a little bit sort of difficult to quantify that, on this call at least, but we had about 150,000 barrels sold for Tunisian lifting, the international lifting we had. And then there were some local liftings as well which were part of the domestic sales. The real difference is basically Dussafu, which basically we were getting sort of a higher inventory as of last quarter. And then we managed to sell 2 cargoes. One of them was right at the very end; the parcel size, I think, was 650,000 barrels on a gross basis.

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John Andrew Hamilton, Panoro Energy ASA - CEO [4]

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Okay, yes. So Teodor, we can probably get a little bit more into gory detail there, but I think the key point is that with revenue recognition now, it's all about sales, not production. So certainly, we had a good quarter based on the volumes we sold, which included some inventory that was probably there at January 1. On the TPS, yes. So we're -- we've been in the asset now for 4, 5 months now. We're very encouraged by what we see. We've started to try and articulate some of that to the market. We are currently producing around 4,300 barrels a day gross, which is an uplift as we said. As Richard pointed out, we've kind of uplifted our year-end target to try to get to about 5,000 barrels a day. So when you're looking at 2020 production based on what we're saying now, I think that that's probably a good starting point. I mean obviously you're -- in the oil and gas business you're always fighting a decline, but I think that that's probably a good place to be for your expectations for 2020 until such time as we perhaps make some further decisions around additional activity, which we'll obviously update the market on in due course.

The predrill estimates on Salloum West. We -- the original Salloum discovery, which is what we've previously talked about, had been estimated at 5 million barrels recoverable by the previous operator, and we don't see anything at the moment that'd make us change our mind about that. And I think the predrill targets we're looking for in the Salloum West structure are kind of directionally about the same. We've not put out a specific predrill estimate on it, but you can kind of think about it in the same area.

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Operator [5]

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We currently have no further questions coming through. (Operator Instructions) No, we still have no questions coming through. (Operator Instructions)

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John Andrew Hamilton, Panoro Energy ASA - CEO [6]

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Okay, Courtney, thank you very much. And thank you, everybody, for joining. You let us off easy today with the questions, but we would encourage anybody who has an off-line question to email us. The contact information is on the website. Email us directly. We'll try and respond to any questions that you might have that are not being articulated on the call. We thank everybody for joining, and we look forward to updating you in the near future as to our activities.

Thank you very much.

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Operator [7]

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Thank you for joining today's call. You may now disconnect your handsets.