Hello, welcome to the BW Energy trading update Q2 2020. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question- and- answer session. Please begin your meeting.
Good afternoon, welcome to BW Energy presentation of the second quarter and first half 2020. This presentation will be hosted by myself, Carl Arnet, our CFO, Knut Sæthre, and COO, Lin Espey. The presenters will be myself, and then followed with Knut, who will take you through the financials, and then we will all be present to answer any Q&A that will be organized later in the call. Onto our disclaimer, page two of the presentation. Please note our disclaimer. Onto page three, our highlights. The second quarter gave an EBITDA of $21.8 million. We had continued to have a strong cash position at the end of the second quarter of $127 million. We completed one lifting in the second quarter to the company. We did, as you know, defer our investment projects due to the COVID-19 restrictions affecting our smooth operations of projects.
We have focused on protecting our employees and partners from the COVID-19 pandemic. We have had certain effects on our operation as we have related to you before. Tortue production increased in March 2020, with the addition of two wells, part of the Tortue Phase 2 campaign. We then held the second phase of the Tortue campaign, deferring two wells due to the COVID-19 restrictions. We did do some further reductions in our capital spending from the first quarter. Our estimate for the current year is now $110 million versus the previous estimate of $115 million. I'll go onto slide four, safety. We did have COVID-19 effects in, of course, this quarter as well. Movements in and out of Gabon was restricted. Mainly we have been able to contain the situation.
We did have one incident of COVID-19 infection on Adolo affecting operation, and we shut down for four days and deep-cleaned the vessel and was able to resume production thereafter. In 2020, we've had four LTIs. These were previously reported as well. There's no further LTIs in the second quarter. We had zero environmental incidents and have now produced 2.5 million barrels. On to slide five. We have an active program supporting local communities in Gabon and other places we operate. We have certain activities related to the COVID-19, particularly in Namibia and Brazil, with donations to local agencies. In Gabon, where we are producing, we have, of course, more comprehensive program, and you see that related on the slide five. On to slide six. This is our path to, let's say, restart our activities.
We are waiting, of course, to see what effects we have of COVID and when restrictions caused by COVID can be lifted, and we can resume normal operations in terms of project execution. Our current plans, based, of course, on the caveat that this depends on the restriction imposed by COVID, is to restart the Tortue Phase 2 program, complete the drilling of 7H well, and the tying of then 6H and 7H. The DTM6H is already drilled in the previous part of our program prior to the COVID restrictions. Our aim is to have first oil from these two wells in the second quarter 2021. We are doing engineering work that we can undertake at this point to refine our Ruche Phase 1 program. Of course, the objective is to reach first oil in the first quarter of 2023.
We will tell you more about that program later on in the presentation. We have Ruche Phase 2, which will take us up to 2024. Maromba, we are working on the field development plan and move towards final investment decision in the first quarter of 2022 to achieve oil in 2024. Other activities is, of course, the RBL, which we will also cover later, and of course, other activities related to farm-ins or acquisitions. I will then move on to slide seven to cover Dussafu in more detail, and then swiftly on to slide eight. We have had continued strong operational performance in the second quarter and have produced 1.4 million barrels or equal to about 16,000 bbl gross per day.
The performance of the two wells of phase two that we were able to put in production, the DTM-4H and DTM-5H, has been strong and they have been performing in line with our expectations. The Q2 OPEX is in line with plan and reduced from about $21.8 per barrel to about $17 per barrel in the second quarter. We expect the full-year OPEX to be in the range of $17-$18, probably closer to $18, with the current trajectory of events. On to slide nine. We are preparing to resume Tortue Phase 2. We managed to suspend the project with minimal costs. Borr Norve is currently in Port Gentil, and we have entered into a letter of intent with Borr, and we hope that we will then be able to restart drilling early in 2021.
We have managed to reduce the total spend of the Tortue Phase 2 from about $275 million, which was the original FID budget, to about $238, according to our last estimate. It's a bit difficult to specify exactly what we mean by normal business and travel. Of course, it doesn't have to be back to what it was prior to the COVID-19, but at least we need a certain level of normality to move people in particular, but also goods and services across borders, which is now restricted. We are continuously supervising, let's say, these restrictions and the minute we see that we are ready to restart activities, we will do so.
Current expectation is that we hope to be getting first oil in the second quarter of 2021, but that is, of course, pending that these restrictions will be lifted to a certain level and we can move freely the people and resources we need. On to page 10, the production forecast. The 2020 estimate is now 5.4 million barrels to 5.8 million barrels versus our previous forecast of 5.8 million barrels from the four wells currently producing. Main reason for taking this estimate slightly back is that during the low, low oil price, we decided to do a comprehensive program of pressure buildup on our wells, and we deliberately curtailed production a little bit to do this program. In addition, we've had some effects. I previously told you about the four days of COVID shutdown. There's been some effects of the COVID as well.
We have taken our estimate back a little bit, but we still expect very good production through 2020. We are in compliance with the OPEC reductions that have been imposed on Gabon as a member of OPEC. As you can see from our lifting program in the caption in the bottom right-hand corner of the slide, we have now two liftings in the fourth quarter and one lifting in the third quarter. We have pushed one lifting from third to fourth quarter compared to previous plans. On to slide 11. Dussafu is very profitable still at low oil price. We are using the project hiatus to rework the Hibiscus Ruche field development plan with respect to CapEx and schedule.
We have improvements in our current plans, and we expect to improve significantly on the previous sanctioned 15% IRR at $35 per barrel for the incremental Ruche Hibiscus development. The project restart decision will be made, again, as soon as the COVID restrictions are at acceptable level to perform work. We are planning further Hibiscus area exploration wells to appraise the Hibiscus discovery further and find the final localization of the platform, and that is going to be part of the drilling program as soon as we restart the drilling operations. On to slide 12. As a result of our reprocessed seismic, we find that the greater Hibiscus oil in place could be significantly larger than previously anticipated.
The reprocessed seismic indicates that this area, called Hibiscus Mupale and Hibiscus South, could be one large structure, one single structure. In this case, we would have a significant increase in recoverable reserves, and of course, barrels of oil in place compared to the current 45 million. You can see the development from the caption in the structure map in the left-hand bottom corner, that there's been a significant increase in the potential size. This will require further exploration work. We are, of course, extremely pleased with this new information and we are, of course, going to work hard to prove up further reserves in the Hibiscus area. On to slide 13. There is, of course, significant remaining potential in the Ruche EEA area. The more wells we drill, the more data we get, the better we can interpret the seismic.
We are seeing also other areas where interesting potential is showing up. Walt Whitman area is one such. The so-called Walt Whitman string of pearls is very interesting. We also see new structures coming up in the Tortue area. All in, it's a very oily area. It's a lot of very good structural traps, and we still have lots of exploration and further refinement of this huge area to do. On to page 14 and Maromba. Quickly on to page 15. The project team is progressing towards regulatory approval. The field development plan has been presented to ANP, and the management of ANP has put it forward to their board for resolution. Current program is to optimize CapEx and OpEx and reduce time from FID to first oil. We are also evaluating other FPSO candidates.
There are alternatives now to Berge Helene. That may be more appropriate for this development in terms of technical fit. We are currently looking at a very interesting candidate for this development, which would significantly reduce our development costs. We're also working with the government to optimize the, let's say, field economics by other means. We are in the process of requesting a field royalty reduction due to the marginal field definition in Brazil. That's work going on. We move swiftly to page 16 and Q2 financials. Here I will hand over to Knut that will cover the financials as usual. Knut?
Thank you, Carl. We move on to slide 17, the income statement. Good afternoon, everyone, by the way. As you can see, the revenues increased in the quarter, we recorded $32 million of revenues. We lifted in June, we achieved the average dated Brent oil price in June, which was $41 million. Sorry, $41 per barrel. We increased production during the quarter from the two wells that Carl mentioned, giving us an average daily production of 16,000 bbl. The OpEx per barrel was then reduced from the previous $21.6 to $17. Out of those $17, actually $12 reflects the FPSO cost for the lease of BW Adolo. Depreciation increased according to sales, $17.7 million. Giving us an operating profit of $4 million for the quarter. The lease liabilities have changed.
We have changed the discount rate from 4.5% in the previous quarter to 5.25% now, which will, going forward, give us a higher lease liability interest expense and we also get some consequences for the balance sheet that we'll see in a moment. The net financial expense was for $3.6, giving us a profit before taxes of $0.3, and after taxes, we have a net loss of $5.6 million for the quarter. Over to the balance sheet, slide 18. BW Energy has a very robust balance sheet, and we are prepared to resume accretive investments. We have a strong cash position of $127.6 million with an equity ratio of 58.6%. Then to the change in discount rate impacting the right of use assets and lease liabilities. Just to give you some flavor of what that is.
That is the lease liability for BW Adolo, where we have included more than 20 years of FPSO lease in those liabilities. You can see here that the right of use assets is increasing by The change is $28 million quarter-over-quarter. On the other side, you can also see that the long-term lease liabilities are decreasing. Also in the quarter, we have a reduction in payables as we have paid for most of the Phase 2 developments in the second quarter. Over to the cash flow for the second quarter, not a lot to say. Cash position, we started with $168 million. As mentioned, we've paid a lot of the invoices related to Dussafu, which you can see in reduction in trade payables, which then gave us a negative operating cash flow of $23 million.
Net investment that we recorded was $10 million. We have the lease liabilities of $8, giving us close to $128 million in cash at the end of the quarter. Over to the next slide showing an overview of our CapEx over time. We have removed Kudu from this overview as this has been fully impaired in the first quarter. You can also see that the recorded investments were very low in the second quarter and also going forward, we have some $20 million-$25 million of CapEx remaining for the rest of the year. Just to remind you, we suspended all activities due to COVID, so that's how we reduced the original CapEx program from close to $250 million down to $110 for the full year of 2020. Yeah, I don't think there's more to say on this one.
I leave it over to you, Carl, for the summary slide before we open up for questions.
Thank you, Knut. On to page 21 summary and swiftly on to page 22. At BW Energy, I think we have a very strong strategy for the current oil environment. Our asset portfolio remains extremely robust, and it's developing in a very good and potentially extremely good way with further discoveries and further potential on Dussafu in particular. Our net certified reserves, so 2P reserves of 83 million barrels is very strong, and we have 2C reserves of a further 164 million barrels. There's significant upside in our portfolio. We have operational and financial robustness to move as soon as we see we have a certain level of normality and can undertake the operations in a productive way. We are in good health, I would say, and we're looking extremely positive forward to the future.
We will move on to slide 23, which is saying just BW Energy, which is really over to the operator who will organize the Q&A for this session. Thank you very much.
Thank you. If you would like to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. That is zero one if you would like to ask a question. Our first question is from Teodor Sveen-Nilsen from SpareBank 1 Markets. Please go ahead.
Good afternoon, thanks for taking my questions. A couple of questions from me if I may. You mentioned, Carl, that you have moved one lifting from Q4. Just to be clear here, will you still have, or did you still have one lifting in August? If so, can you say anything about the prices you achieved on that one?
Can you take that, Lin?
Yeah, sure. We're still scheduled to have a lifting, in August. Here we are at the very end of August. It'll be at the end of August. It may wrap into first part of September. The price that we realize is Brent, roughly Brent plus $1. The average Brent price for the month plus $1.
Okay, thank you. Just regarding my model things are moving forward. Is it possible to give a quick update on what we should expect in terms of CapEx, either on a per barrel basis or absolute numbers? That would be helpful.
I can start a little bit there. As you know, we've suspended the Ruche and the latest or the last well and the connection of the last two wells onto Tortue Phase 2. Yes, there is CapEx there that is remaining, that will mostly come in 2021. I think, the number there is some $35, if I'm not mistaken, that remains on Tortue Phase 2. On Ruche, as Carl mentioned earlier in the presentation, we're working on a reduction of CapEx, and it's a little bit premature to go into details on CapEx per barrels. As you also saw, the barrels might also change after we have proved up the new reserves within the appraisal well. But the economics for now look a lot better for the Ruche development as well as we have interesting ways of reducing CapEx. I don't know if you can add something, Lin.
I think that gives a good summary of it. Going forward, and also a request to do it on a per barrel, but as you mentioned, we can take a look at that and try to apply those guidance going forward.
Okay. Do we have any further questions?
Just as a reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. Our next question is from Tom Erik Kristiansen from Pareto Securities. Please go ahead.
Thank you for taking my question. First, congratulations on Hibiscus. That just seems to be growing even further. Could you comment a bit more on how much of the upside potentially being three times as large as previously guided you can prove up with just one more well? If that is successful, how should we think about the development? Will you basically just keep the FPSO you have there full for an extended period of time, probably many years more than what people expect? Do we see a potential here to bring in a second unit as well?
I can-
Just a couple of questions.
Okay. I can take the first part or actually the last part of that. I think we are looking at potential expansion of the Adolo capacity. As we have told the market before, the current nameplate at around 40,000 bbl can be expanded and without significant cost. It's more of a debottlenecking activity. We expect to be able to increase capacity by 50% with fairly nominal investment. On the more subsurface part of the question, I'll let Lin answer that.
Sure. Yes, we do think it's going to take a well or two to fully appraise it. We have already budgeted an appraisal well, which was nominally scheduled for the Hibiscus South area. We are also actively planning for additional appraisal, which would be more in the Mupale area as well. Those plans are not fully defined right now, especially with the COVID, we're in a little bit of a flux area, but we're very excited about that. It would take probably at least two wells to further appraise that. Any sort of development plan that we would for restarting Ruche Hibiscus would incorporate the
The possibility that this greater Hibiscus area is the larger size.
Thank you.
Okay.
One further question from me, if I may. It was touched on during the presentation, the potential for M&A. Can you say a bit more about what kind of opportunities you see out there now? With the potential of the, call it development portfolio you already have being growing now, is it increasingly interesting to look at expanding the current production base as opposed to taking on a second, call it, more development-focused asset?
The market is in flux. There's a lot of companies that have, let's say, without overstating it, strained balance sheets that are looking to rejig their portfolios, and this creates a number of opportunities. We are working flat out to evaluate a number of actually both types of M&A activities. Both acquisitions of fields but also acquisition of brownfield production. We're looking at both. We don't want to be too specific at what we're looking at. Even though you can say the oil market is returning to some sort of, I would say, a little bit of normality in terms of oil price, it's still a challenge. There's still competition out there, so we don't want to be too specific about what we are looking at in particular. We're looking at both sets of opportunities that you mentioned.
Okay. Thank you. Just a very short follow-up. How early at the earliest do you think it's possible that you can drill an appraisal at Hibiscus to prove up that bigger potential? Is that kind of assuming that the situation with travel and restrictions like that normalizes on path, can you kind of move on that option?
Well, I think that we are in the process of putting together the new program, as Lin mentioned. It's a bit premature to be specific on when. We are monitoring very closely restrictions, and we're talking constantly to our suppliers and all the people we need to accomplish a smooth operation. We are, of course, very sensitive to start work without being sure that we can complete in an efficient manner, because that is going to affect the costs badly. It is important that we are absolutely confident that we can undertake the business we're setting out to do. As an addition to what Lin is saying, our board actually approved a further. We had one exploration well in the program that we deferred in Q2.
Our board actually approved a further exploration well as part of that program, one of the so-called option wells that we had agreed with Borr. Of course, we are not holding Borr to that, but I think the new seismic interpretation and the opportunities indicates that we will be more aggressive rather than less aggressive in drilling to prove up additional reserves.
Thanks, Carl. That was all from my side.
Just as a final reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. There seem to be no further audio questions, so I will hand the word back to the speakers.
There are some questions that have come in on the web. One is from Jørgen Bruaset in Nordea, and the question is, "When will you conduct further appraisal on Hibiscus? And can you give us an idea of the CapEx attached to the added barrels?" I think this is the same question as we already got a little bit earlier in the call. It's a little bit too soon to come back to or to start discussing it per barrel. We'll come back to that in a later presentation. As we said, the appraisal on Hibiscus might take place when we can restart the drilling program in 2021. We have another question that came in. "What was the entitlement production in Q2?
Is there any impact on you if the government lifts profit oil at lower oil price than what we are getting? The answer to the last part, no. We don't have any links to, let's say, the government liftings. The government had a lifting in April, where the oil price was really depressed, and they had another one in July. We are not affected by the price they achieved on that lifting. Our entitlement production was, the net sold barrels to BWE was 530,000-ish barrels from the lifting that we did in June. Just to remind you, in revenues, we also have some sales for the domestic market obligations that flows through as both sales and OPEX. We also have part of the state profit oil for the barrels, and that was about 180,000 bbl. That was for the state profit oil in Q2.
We have the final question from Danske Bank, Christian Yggeseth. There seems to be plenty of resources to be developed and found in Gabon. Have you considered only focusing on Gabon and drop Brazil, as the asset seems relatively marginal and risky? That's definitely a question for you, Carl.
I think we're still of the opinion that Maromba is a very good asset, and we are working to optimize it. We see that as part of our ongoing work to always optimize what we're doing. We still have the view that when we move into Maromba, we will do so with a very good set of data. The previous operator spent a small fortune or even a large fortune, if you like, on developing this asset, and we think it fits our strategy extremely well.
We have also mitigated the acquisition cost so that we have paid a down payment, but we will pay the brunt of the cost much closer to production. It fits very well our profile, where we have short time from we start to invest significant sums until we get cash back through production. We think Maromba still fits our strategy very well. Our aim is to continue on. The long play we have is Kudu. It's a very long play, and we decided to write off our investment in that, which is of course an indication that we see that as more of a, let's say, a marginal project at this stage. We will revisit that when the world comes out of the COVID crisis and we take stock continuously, of course.
Good. That concludes all the questions from the web. Okay.
I think we can say thank you to everybody for participating in this call.