Good morning, afternoon, and thank you all for attending or listening in remotely. I'm joined here today by Eddie Ok, our CFO, who will walk you through the operational financial highlights, and Geoff Probert, our COO, who will provide a review of ongoing operations and summarize our plan to improve our production sharing contracts in Egypt. And by the way, for those listening, it's Randy Neely speaking. Over the past year and a half, the new board, myself, and the rest of management, and the rest of the management team, have made a major effort to transform the culture, priorities, and focus of Capricorn. The company has now returned over $600 million to shareholders through dividends and share buybacks. Our intention is to continue to provide returns as appropriate, including returning amounts associated with the Senegal contingent receipt expected in early 2025.
The board will also assess the company's ability to continue to buy back shares upon the completion of the current buyback program, which is about 80% complete. With respect to priorities, we have, since my arrival, been working hard to improve our knowledge of our producing assets and our working relationships with both our partner and the government of Egypt. As part of that effort to improve our understanding of our assets, we published a third-party CPR early this year, a summary of which is available to view on our website. The hard work being performed by our technical team and financial teams have already led to better predictability of operating results and cash collections, of which we collected over $90 million in the first half of the year and an additional $20 million subsequent to the end of the half year.
During the first half of the year, we continued to exit our non-core activities, shutting down the Mexico office, although we still have some cleanup there to ensure a full and tidy exit. We have continued our efforts to refine our overhead, and we are on target to see an approximate 80% reduction in G&A costs from 2022 to 2025. All of these efforts are leading to a more predictable base of operations, better forecasting of both production and cash flows. The technical team is actively working with our partner to help prioritize operations, specifically focused on liquids to improve profitability. Key to a significant value add in the future is an amended, extended, improved set of production sharing contracts to promote the partnership's ability or incentive to invest and grow production in Egypt.
As I mentioned, Geoff will review the process and progress the joint venture, that is, Capricorn and our partner Cheiron, are making on this a little later. Another area of focus for the team, a much leaner team, by the way, is to identify a suitable North Sea asset that Capricorn can leverage its position and capabilities to unlock value from its legacy operations in the U.K. Beyond the North Sea, ultimately, we feel that in order to enhance our investment thesis, the company needs to show growth, certainly in terms of production and reserves, but most importantly, cash flow. Regardless of our size, the value proposition of our shares is compelling. Our Egyptian business alone supports the current price, but that excludes the near-term tangible receipts due and the midterm value realizations that we are focused on as key strategic objectives.
Our Egypt business, which is an improving proposition and probably been overly penalized for the situation that existed in Egypt during the past couple of years, on its own, is worth more than the current market cap of the company. Closing the gap between the underlying asset value and market value continues to be a management priority. The market capitalization of Capricorn implies Egypt is heavily risked. However, Egypt has never defaulted on its oil and gas debts, and Capricorn's Egypt business is ring-fenced in that the PLC has not provided a single dollar of support to the production and development business in Egypt since July of last year. The significant and near-term potential realization of contingent and scheduled receipts on historical transactions also appears to be valued at near zero.
The company currently anticipates that the contingent elements of the Sangomar $50 million payment, that is the Brent price and the continuous production requirements, will be confirmed, and we will then be due that amount from Woodside in early 2025. As we have disclosed, there are tax challenges being advanced by the Senegalese government, which may result in reductions to the potential distributable amount, and we also hope to have that clarity before year-end. The company will be due a final amount on the restructuring of the contingent amounts due from Waldorf Energy, and we are reasonably confident the full amount will be received in early 2025 as well. Those two amounts together are potentially worth an additional 75p per share, and that's certainly not immaterial given our current stock price.
In addition to those very tangible elements of value, the company is also pursuing the realization of value in both the U.K. and Egypt. We believe those independent strategic objectives could also create another GBP 1 of value each for the shares. I'll now turn it over to Eddie, our CFO, to provide some first-half financial and operating highlights.
Thanks, Randy, and good afternoon, all. Encouraging financial performance through the first half of the year. We averaged 26,200 BOEs per day with a higher liquids weighting of about 42%. Oil prices have hung in over the first half, where an average oil price is $78.60 a barrel and a contractual gas price of about $2.97 per MSCF, supplied revenues of $80 million. OpEx of $4.70 a BOE have been higher than forecast, but this was due to the material devaluation of the EGP in the period. We're not expecting to hang on to those cost savings, as they'll be inflated away through increasing input costs, contract renewals, and negotiations.
The company also allocated $53 million to shareholders in the period through dividends and share repurchases, and ended the half with cash of $148 million. We expect to meet guidance given earlier in the year of between 20,000 to 24,000 BOEs per day and total CapEx of $50 to $60 million. We're gonna continue to monitor receipts against our outstanding receivables balance and gauge against our commitments in Egypt. Taking into consideration $108 million in Egypt debt, the company exited June 30th with $40 million in net cash. Geoff's gonna take over here for an operational update.
Thanks, Eddie. This operational update will be relatively brief, as the rigs remobilized in quarter two didn't get fully active until July. Following the company's approval of a work program budget and a return to regular receipts from EGPC. As Eddie noted, when we weren't drilling in H1, production declines were in line with our expectations, and overall, working interest production to date remains in line with our full-year guidance. Both drilling and workover activity have principally been focused on liquids in the BED Area and a renewed effort to actively manage those reservoirs with water injection. This will continue into the first half of 2025 .
We also noted at the full year results, that the time lag between drilling and bringing new wells into production this late in the year, will not have a significant impact on the year average 2024 production, and that continues to be the case. However, this year's drilling is expected to have a more significant 2025 production impact over no further activity. Capricorn continues to work independently to influence the development direction of the consortium, high-grading the opportunity set, and we're pleased to see our technical insights being largely adopted by the operating company, Bapetco. Three rigs are currently active in the Western Desert, with two of those rigs expected to move to execute outstanding exploration drilling commitments in Q4.
Finally, I'd like to update you on the significant progress made on getting better alignment between the company and EGPC with respect to improving the PSCs, the concession agreements. During the third quarter, we engaged directly with EGPC and the Ministry of Petroleum, resulting in Cheiron delivering a proposal on our behalf to EGPC to amend and extend the eight concession agreements owned on a fifty-fifty basis with our partner. Following this significant step, EGPC has formally convened an investment committee to assess the proposal and negotiate with the consortium on the fiscal and investment terms of a new concession agreement over these areas. Engagement with that committee has already commenced.
There's no set timeline for this negotiation, but it's clear that EGPC and the Ministry of Petroleum are as motivated as we are to create an investment environment in the Western Desert that incentivizes the company to go after additional production and reserves at pace. The resources in the ground are present. We just need the necessary improved agreements to invest and convert them into reserves and production and returns for EGPC and the company alike. I put an indicative timeline up there based on our historical expectations, though we note the positive engagement we've had to date this time round. Needless to say, we'll not be providing a blow-by-blow account to these negotiations as they progress, but we'll disclose material progress as appropriate. I'll now hand back to Randy to wrap up.
Yeah. Thanks, Geoff. The Egyptian business environment is improving, and we believe, based on communications, both directly and through the local media, that Egypt intends to continue to address overdue receivables to the industry. The company is now meeting its operational and financial guidance and has returned to profitability for the first time in a few years. Capricorn's objective is to create and add and realize value for our shareholders through the development and production and exploitation of the oil and gas assets, and through the realization of embedded value in the company. We intend to do that through maximizing the value of the Egyptian asset within a self-funding business model, and remain committed to aligning Egyptian investment with the funds available and generated in the country.
We believe this will become a much more compelling proposition when we finalize the negotiations to amend, extend, and improve our production sharing contracts, which have begun over the past few weeks. Additionally, we are focused on adding further value with the creation of a material cash flow business in the U.K. to leverage our legacy North Sea position. I would now like to invite any questions you may have on the presentation and the results. James?
Thanks, guys. Thanks for the presentation. Just a very quick one from me. On when it comes to the North Sea assets, are you able to give any more detail on the kind of assets you're looking at, kind of in terms of hydrocarbon or levels of production? What kind of things are you kind of focused on there?
I would say that we're being very selective. We wanna find something that is developed, so we're not looking to, you know, put additional capital in, at least not in the near term. And we wanna see, you know... I mean, it's sort of a bit of unicorn hunting. We want development, cash flow, and long, you know, decommissioning way out into the future. But, we are being very selective of what we're looking for. And we're looking for a certain size, which would be, you know, in the sort of five to 10,000 BOE a day basis, would be something we'd be looking for and of interest to us. We think that generates the right amount of cash flow and basically allows us to, recognize or use up our legacy position in a timely manner.
Thank you.
Thanks. Yeah, Mark Wilson, Jefferies. Could I ask about the Egyptian PSC terms? What specifically in them is so onerous to producers today, and one imagines you're not the only ones doing this, or maybe you are. What's the competition like for this kind of change?
I guess maybe a little history here. So, you're looking really at the people that kicked this off back in 2017, 2018, in terms of, you know, looking for the Government, in discussions with us, asked, you know, "Is there any way you can push production?" We said: "Certainly, there's a way we can push production, but we don't have any incentive to do so." They said, "We're open to ideas." We came up with the idea of consolidating our contracts and improving the terms, because some of these contracts can be 40, 50 years old, and struck at a time when OpEx costs were much lower and capital was much lower, and, of course, oil prices projections for oil prices might have been a lot higher.
So as you work through from an exploration, sort of, beginning of time, where you think you're gonna find something really large, and therefore, you have economies of scale, to something which is more brownfield, where you have the existing resources, you have the resources discovered, and you've maybe drilled the best parts of the play, but there's still a lot more oil to come out of the ground, but it's gonna take new technology, increased costs, et cetera, that you realize that there's no more fiscal incentive for the company to do it, but there's still a lot of potential there. So it's not really a competition.
Really, I think the government would be quite happy if every company that had the capability and the resources but didn't have the incentive would be happy to have the discussions about how do we incentivize you? It's exact opposite of the U.K. Like, how do we disincent you to do anything in the U.K.? It's we'll tax you until you do nothing. And in Egypt, they're saying, "We have a resource here. We're energy short. We need that. Our cheapest source of energy is to have it come out of our own ground, 'cause we get a share of it. How do we get you to do it?" And so it's a negotiation.
When we started it, we were sort of—w e were the pioneers. It took a long time, and as time has gone on, it's gotten shorter, and they've learned. So it's become a much more, I guess, the rules of play are much—
The model.
The model is set, in effect.
So we're looking for perhaps faster cost recovery and better profitability. I mean, as of today, we—t here's also cost sharing, but cost oil sharing, but as of today, we maybe get 40% of the barrel, maybe.
Yeah.
And that's including our cost recovery and our profit oil, and what you're trying to move it to is, you know, something better than that, like, you know, especially when you're in cost recovery.
But a much larger recovered volume of which they get their share, so it's a true win-win. We have to obviously invest. We have ideas, a lot of ideas in terms of the resources, contingent resources, that one could convert into reserves with the better terms. I mean, as Randy says, it is about profitability, it's about cost recovery, particularly where more expensive technology is deployed, and then actually some of the contracts, some more attractive leases, the ones we see great potential on, they're actually expiring as well, over the next few years. So, you know, the runway to invest is just isn't there today, and they need the production today, so there's a strong incentive.
The messaging is very clear. The model is available in terms of the new contracts, how it works, both you know for the purposes of EGPC and through into Parliament, where it has, of course, ultimately ratified. So, you know, it's about as open a door as you can push at, but it's still a negotiation. You know, and that that's the key part of it. We still have to have that negotiation.
And what do you think is different from when you were at TransGlobe? You're Western Desert, you were Eastern Desert, I think. Got probably a different regime in charge here. You've got Cheiron as a partner. How do all those things play into this?
It's a little bit more complex with a partner because you have to get aligned, but I would say we've worked that out over the past twelve months in terms of aligning on what the potential is. You need to understand what the potential of the field is, and then, you know, how you can present that to the government to make it attractive for both parties. So I think that's been sorted out. In terms of whether it's Eastern Desert, heavier oil or Western Desert, it's not really that much different. It's about, is there resource in the ground that you can develop and exploit with better terms, and that's what you aim for.
Thanks. It's James Hosey at Shore Capital. I guess following up on Mark's questions about the PSC terms, you've obviously now stepped up your spending in Egypt already at the same time as starting these negotiations. So how should we think about the amount of money you're spending today? Is that about just maintaining production, and then there'd be another material step-up you could do when you get better terms?
Our expectation is that with an improved terms, we'd be able to sustain the investment and sustain production for a longer period of time. The fields are generally mature, and we're looking to, you know, push out the recoveries, push the recoveries higher. But you won't see... We're not anticipating you'd see a vastly improved level of production in the fields, but you would recover a lot more reserves over the next, say, ten years.
The decline rates are very high over here, particularly on the oil side. So, you know, if you run out of activity, and, you know, it's, you know, we would run out of activity in the next few years, then it harms them as much as it harms us. Probably more, to be honest, 'cause they're importing at market prices to fill what they get for, well, for nothing, really. Yeah, it's. And they get pretty much all our production as well, they buy. They'd have to import. So it's the way it's set up at the moment is there are opportunities to invest, but there's not opportunities to. You're not gonna bring in 15 rigs, you know, and then suddenly unless we have some surprises.
There's always possibility of some surprises, you know, a different reservoir, different horizon, that we haven't taken the risk of trying to exploit before, and that's part of it. It's taking the risk to exploit. Terms before didn't incentivize you to take those sorts of risks. So there's an area we might look at. I'm not saying it's gonna be, you know, kick us up from where we are today and double production. It's. That's just unlikely to happen, frankly. Very unlikely. But it does give us incentive to look at those sorts of technologies that currently aren't deployed in Egypt.
And then, just on... So you're focusing at the moment on the liquid side of things. I mean, do you have a lot of runway where you could do more liquids drilling next year, or are you really, you know, it then becomes a question of the incentives to develop some more gas?
We need better terms to extend beyond what we're doing at the moment, you know.
Yep.
We're doing. I mentioned that we've got two rigs moving to exploration. Those are the commitment, the three or two of the leases, SEH and WEH, that we've committed, and we have, you know, guarantees in place. So, you know, you pays your money, you takes your choice. That money's burning in our hands anyway, so we're gonna drill those wells because we have to drill those wells now. And that'll keep a couple of rigs occupied, and when that's done, they'll go back to developing wells in 2025. There's not a long runway for a lot of activity in Egypt without the improved terms, and our partners in Egypt know that.
Okay, thank you.
Thanks. Chris Wheaton from Stifel. Couple of questions, if I may. Firstly, following up on the questions on Egypt PSC renegotiation. That timetable you've given, the 12 to 24 months, is that a P50, a P90 number? I'm interested in that because it took TransGlobe, you and Randy—
Yes
Two, three and a half years to deliver that? I mean, it's a great - it was a good result in the end—
Yeah, it—
but it took a long, it took a long time.
It did take a long time, but remember that we were the pioneers, and the companies that followed behind us did it in half the amount of time.
Yeah.
So it's. I wouldn't say it's a completely worn path. Every situation is unique because the contracts are unique, and the assets are unique. But it's a much more understood process to go through—
Yeah
... and there's a lot of motivation. I... There was motivation, you know, five years ago, but there's. I would say there's even more motivation today than there was five years ago because they're short both gas and oil, whereas when we were doing it, they were only short oil. When we concluded effectively the model, the new model contract with the terms and everything with EGPC, they effectively slowed everything down while they then brought other companies along beside us. Because you can imagine politically, they wanted to bring multiple companies with multiple improved PSCs at the same time. They didn't want to just bring one company—
At a time.
And that delayed us significantly. So we don't have that problem this time around.
So, you're not working in parallel with the—
We're not see—
negotiation process with other people?
Other companies are discussing, are in negotiation, for sure.
Yeah.
But it's not impacting our ability to negotiate.
Okay.
Yeah.
It seems the two terms that particularly in the PSC need changing are gas price, because at $3, you're not making any money, and that's a recycle ratio of, you know, 1.8 or something. That just doesn't work. You need a higher gas price. I know Apache got what? $4 a MSCF against your $3. So, I mean, how realistic is that higher gas price? Also, it strikes me you need to lift your own oil rather than be reliant on someone else sell it, and then you wait for the to get paid. It's going to speed up that working capital cycle a lot, a lot, and that's important.
How likely is it that you get those changes, and what's the trade-off there between, you know, lower take for the government, higher for you, and those terms on price and liftings?
Well, you know, I don't want to speculate too much on the sort of outcome of the negotiations, but for us, we're focused on a lot of the oil for the time being. We do see. You know, you've got to remember that at the end of the day, the government gets, let's say, roughly speaking, they get half of whatever comes out. Whatever you produce, they get half of it. So if they're giving you, like, for gas, we're talking about gas, if they're giving you four and they're getting half for free, they've effectively paid two for it. So, you know, I don't want to say there's...
You know, I don't want to get caught into the dogma that, "Oh, it can't happen," because frankly, when we started this at TransGlobe, everyone said, "You'll never do it." And I said, for years, "It's not about a matter of if, it's about when. We'll get it done because it makes sense for both parties to get it done." So I think, you know, again, here, we'll, you know, as the other companies do as well, a deal will happen, and it'll be, it'll be struck at a level that incentivizes us to invest, whether it's gas or oil. And sorry, your other... You had another question in there.
Liftings.
Lifting.
Oh, liftings. Well, I mean, technically speaking, we can lift right now, but the government is taking up... They're buying all the oil. So they're taking up all the oil because they need it internally. But they pay... It's, it's really not so much about the lifting per se. It's more about the payments, and the payments are improving. So I, you know, I, I see these as that's more mechanical, kind of after the fact. I mean, if everything worked perfectly, yes, we would wanna lift our own oil and try to do a little bit better on the marketing. But chief concern for us is getting better economics and getting paid on time.
... Cool. Thank you.
To be fair, that that's factored into the negotiation, the pace of payment.
Sort of NPV, an NPV impact on it?
It has to be, you know, when you're calculating your cost of capital and what the NPV of your investments look like, and you're discussing with your counterparty, it has to be a factor.
Okay, thank you. And one last question to Eddie, if I may. Eddie, with the current cost base and three rigs working, $60 million CapEx a year, what's the sort of the run rate of receivables you should end up at on balance sheet, assuming you get everything overdue back? You know, what's that sort of amount of receivables you should normally have if you're running that level of cost and investment?
Yeah. So in my dozen years in Egypt, it's gone down to us owing the government money, so a negative receivable, right up to over 14 months. So long-term average that I've seen is kinda in that six-to-nine-month range.
Brilliant. Thank you.
Hello, Dan Slater from Zeus. Just to come back to James's question, actually, on the North Sea. Ian, I'm just wondering what you're seeing in terms of the current asset market. In particular, you'd have thought at the moment, it's probably a bit of a buyer's market. But one of the remaining bits of uncertainty, which may continue even after the end of this year, is what happens after the EPL ends in 2030. And there, there's still a decent amount of uncertainty about that, and that itself then goes to how long platforms may be in service for decommissioning, things like that. And obviously, you're talking about keeping something, you know, for five, ten years, all of that.
And so I suppose the question is: Are you seeing assets already starting to be offered at prices that give you comfort around those elements and allow you to perhaps take a bit of risk around the post-2030 fiscal environment and the timing of decommissioning? Are those prices getting that low yet? Do you sort of see what I mean?
Yeah, I think I understand your question, Dan. You know, as I said earlier, we are being very selective at what we're looking at. You know, we sort of see this as it's a finite prize for us, and so we don't want it. We don't have to. You just said it yourself: it's a bit of a buyer's market. You know, I don't wanna say that too much. People get the wrong. You know, everyone will look like, "Oh, I don't wanna look stupid selling something to these guys." But, we're gonna be really selective with what we look at, and we're not about just sort of trading off reward now for a big risk later. That's not something we're gonna do.
Okay, perfect. Thank you.
Uh, hello.
Yeah, thanks for the follow-up. Something struck me from, I'm gonna focus on the negotiations again. I mean, firstly, it's great to see the focus in the business, and it's clear that your history should have some bearing on those negotiations. But, can you point to what you saw from those TransGlobe assets and how they're doing today, for example, even though... That's the first point. Second one, on the North Sea, Waldorf and the payments, you know, some of these companies are in physical distress or financial distress. Anything concerning that?
Sure. Okay, so on the... So what—i n the TransGlobe transaction or renegotiation, we saw a significant sort of pool of resources. Really, just increasing our percentage of recovery was really what it was all about, like, sort of downspacing and—
And expiry.
Of course, there's expiry. That was the other element. So there's just truncating the contracts would just end, and therefore, we would have no more. So by just extending them alone, we picked up resources. As far as I know, that seems to be ticking along, sort of sustaining production, which is what we expected. We thought we would be able to sustain production by continuing to downspace and look for opportunities to potentially get horizontals working in the country, which would take, you know, it's not one, it's usually, you know, a dozen or so before you get it working properly. So I think overall, that's worked as anticipated.
I'm sure George would tell me.
Yeah. And then, with regard to Waldorf, our view on it is we're, I'd say, reasonably confident it's gonna get paid. They refinanced earlier this year outside of our repayment, which would mean that it would have to have been taken into account, that they would have to repay us early next year. So that's where we gained some confidence.
Have you got any tie to the assets if they don't?
We don't have a tie directly to the assets corporately.
Thanks. Yeah, just a numbers question. There was reference this morning about extending the buyback beyond, so that could possibly, could you be doing beyond 25 million this year?
When we get it finished, we're gonna assess continuing to return capital to the shareholders via the buyback. I mean, we haven't had a huge amount of liquidity in the stock, so that's why it's kind of dribbled along. But we do like the idea of buying back the stock cheaper than, you know, the graph shows that it's worth.
Thanks.
Okay, well...
Are there any questions on the conference call?
Yes, we do appear to have some questions already in the queue, but once again, ladies and gentlemen, if you wish to ask any questions, please press star one.
... Our first audio question is going to be from Matthew Smith of Bank of America. Please go ahead, your line is open.
Hi there, good afternoon. Thanks for taking my questions over the phone. I had a couple please, and perhaps I'll ask them together, relatively brief. And the first one was just a clarification on the receivable situation in Egypt. Obviously, that continues to improve, very encouraging to see. But just to clarify, is there currently a payment plan in place for the overdue receivables? Or do you expect a more formalized payment plan to be put into place, or is this really sort of something that will be dealt with on an ad hoc basis? So that's the first question. And then the second question was on a different topic back to the U.K. and M&A opportunities. It's really a question of how you would look to fund that transaction.
Are you comfortable with the size of the transaction that you mentioned is something that could be funded off the balance sheet? Or are you looking for more creative structures in terms of the consideration there? Thanks.
Yeah, I'll take the receivables question. As it stands right now, we do not have a formal payment plan from EGPC. That said, with the new minister that's come into the portfolio, he's been very upbeat, positive on getting the IOCs back into something approaching current status and to get us as a sector investing back into the basin again. So there's continual optimism. We're playing it a little bit by ear at this point, but we're expecting payments to continue through the fall, and we did have a material reduction in our receivables balance for the first half, and our expectation is that that momentum will continue.
Yeah, and on the U.K. M&A, yeah, we're not. I guess I'd say with everything that we're looking at so far, we don't think we need to come up with anything overly creative on how to finance it. We're in a unique position vis-à-vis our balance sheet, and the, I guess, the financability of any assets that we're looking at. Remember, we're sort of looking at a very select criteria for what we might buy. So in terms of financing them, we see it as being relatively straightforward, and we have looked at at least six different assets to date, so we're not overly concerned about financing them.
Okay, perfect. Thank you very much. Happy to pass it on.
Thanks, Matthew.
Thank you. Sorry, sir. We do not have any further audio questions. Thank you.
All right. Well, thanks, everybody, for listening in today, and we look forward to catching you up early next year at our year-end. And in the interim, we'll keep you posted if anything big and exciting transpires. Have a great day and a great weekend.