Earnings Call: Q1 2020

May 20, 2020

Hello, and welcome to the BW Energy Q1 Presentation. Throughout the call, all participants will be in a listen only mode, and afterwards, there will be a question and answer session. Today, I am pleased to present Carl Arnett, CEO Knut Sesta, CFO. Please begin your meeting. Good afternoon, everybody, and welcome to this conference call conference call for BW Energy, our first conference call and our first quarterly presentation. This presentation will be hosted by myself, Karl Arndt our CFO, Knut Seter and our chief operating officer, Lyn Nesby. Knut and myself will take you through this presentation. I move on to the second slide. This is our disclaimer. Please note the contents of our disclaimer. Third slide is our highlights for the quarter. Our chief concern in this COVID nineteen situation has been to protect our employees, our partners, and ensuring our assets. We have done one lifting in the first quarter, and we have raised the, of course, the IPO proceeds of 121,000,000 We got listed and started trading on the Oslo Stock Exchange on the February 19. Our EBITDA was $14,800,000 related then to the lifting. We have, in the quarter, done a noncash impairment on of the QD assets, and Knut will cover that in more detail. We did achieve a production increase in the first quarter, and that was by the two first well of the Tortue phase two project that we managed to hook up before our operations was interrupted by the COVID nineteen restrictions, and that will also be covered in more detail. We curtailed and deferred operations on our projects and reduced our capital spending from 250 and 215,000,000, of which $49,000,000 is expensed in the first quarter. I will then move on to Slide four. Business continuity during COVID-nineteen has been extremely tricky. We were very quickly hit by restrictions in travel, making it very difficult for us to conduct normal project operations. We did, however, manage to deal with the situation on the FPSO BW Adolo with the help of our sister company, BW Offshore. We were able to move a second crew into country before the travel restrictions made it impossible to move people. So we have two full sets of crew and is cycling this crew these two crews to and from the unit and have been able to continue operation. For all home for all onshore locations, we have been able to use work from home and use home offices. Then on to slide five. Safety, we had extremely good performance in 2019, where we had zero LTIs on 1,100,000 worked hours. We didn't have a similar good start to 2020. We have had one LTI reported from VW Adolo by VW Offshore, and we had three LTIs reported by SPM related to the hookup activity of the two Tortue the first two Tortue phase two wells. With respect to the environment, we have had zero incidents, and we have produced 1,600,000 barrels with no environmental incidents. Moving on then to slide six, we will cover then Dussafu in a bit more detail. And then on to slide seven, we have had continued strong operational performance on Dussafu. Production has been as expected. First quarter gave about 11,485 barrels per day gross production. We did achieve first oil from DTM four h and DTM five h, the two first wells of the TORQ two phase two in early March, and we did achieve significant savings from lower end drilling and completion costs. Our OpEx for the first quarter was in line with our expectations and came out at $21.8 per barrel. We expect the full year to achieve about for the full year, we expect to achieve about 16 to $18 per barrel. We are preparing to resume moving on to slide eight, we are preparing to resume TOR two phase two developments as soon as we can work efficiently and move people and have normal operations. This will entail that we tie in DTM six h that we managed to complete, but not tie in, and, of course, then drill complete and tie in DTM seven h. We are today expecting first oil from DTM six h and seven h in the second quarter twenty twenty one, I e, approximately one year later than initially envisaged. But we are, of course, working to see if we can improve on that if conditions should the overall conditions related to COVID should improve sufficiently. We have repatriated all personnel and contractors to their home countries that was working on the TOR two phase two, and Voronorve has been discontinued and is today in Port Franti, and we have agreed on the the the deferred operations with Bornorve. Our gross investment forecast for the TORQ two phase two due to these improvements is today $238,000,000 versus a original budget of $275,000,000 from the final investment decision. Moving on to slide nine. The production forecast has been revised due to the the two wells that we have not been able to complete and tie in. That's the estimate today is 5,800,000 barrels gross for the year versus the previous forecast of 7,100,000 barrels. This should then be about 15 to 16 and a half thousand barrels per day for the full year. We also have given an indication of our lifting schedule at the bottom right hand corner of the page where you see we plan to do a further lifting in the second quarter, a lifting in the third quarter, and then two liftings in the fourth quarter. Moving on to slide 10. Dussafu is profitable at low oil price, and the Hadescu Shrooge investment is profitable at current oil prices. It is very important for the long term viability of the Dussafu license, and we will, of course, restart the Hibiscus Rouge project that has been FID ed as soon as the challenges created by COVID nineteen are resolved, and we can resume normal operations. Moving on to slide 11. Dussafu is, of course, still a very, very interesting area with lots of prospects, and we are, of course, going to continue to unlock the significant reserves that we expect, not only from the Hibiscus Rouge area, but from all the other prospects that we have given you a oversight over in this slide. Moving on then to Maramba, slide 12, and then to third slide 13. With the hiatus created by the COVID restrictions, We have stopped the ramp up of the Marumba project that we had envisaged in our plans. We have our core team, and the core team is progressing towards regulatory approvals for the project. So we are engaging with, Obama and, AMP, and, we are derisking the project by going after the approvals ahead of any execution activities. We are, in addition to that, work reworking the project and field economics, optimizing CapEx, OpEx, and reducing time from our final investment position to first oil. We're also evaluating more FPSO candidates as we now have more time, and there will be hopefully also more FPSOs candidates available. And we are also requesting the the finance ministry in Brazil for marginal field royalty reductions. So we are working on improving the overall field economics. I will then hand over to Knud who will take you through the financials. Knud? Thank you, Carl. Then we move over to the first quarter financials of BW Energy, and that is on slide 15. So you can see here that operating revenues decreased to $22,000,000 in in the quarter. Production was, however, up to 1,045,000 barrels of oil versus nine eighty seven thousand in in the fourth quarter. We hooked on the hooked up to the two new wells in in in February, March, and we had some some scheduled downtime related to that. And then we had the lifting in the only lifting in the quarter happened happened in in March. So the the, let's say, the sold volumes were were considerably down to 400,000 barrels versus 1,300,000 in the in the in the fourth quarter of of twenty nineteen. Also, the the oil price was was down or the achieved realized oil price was was down to $33 per per barrel in in the first quarter versus 65 in in the fourth quarter. So we used the average oil price of of March. That's that's the realized oil price. So EBITDA was also then down to to fourteen point point eight million in in the first quarter. Depreciation is all down also following production and and sold volumes. Then we we have recognized $10,700,000 of a noncash impairment on Kudu, reflecting lower pricing and also the fact that we are revisiting the development of of Kudu, and it's just it's been pushed out out in time. And, hence, we have written down the value of the QDO asset to to zero in in the first quarter. So operating loss came in at $11,500,000. On the financial items, we had some noncash mark to market effects over interest rate swap and also some some currency losses due to the strengthening of of the US dollars in in March, which resulted in in 5,900,000.0 in other financial items, bringing the profit or sorry, the loss for the quarter to to SEK 17,000,000 and the the then we had some some taxes related to the sold volumes and and production of SEK 6,600,000.0 and and in total then a net loss of 23,600,000.0 in in the quarter. Then we move on to to the balance sheet. Next slide. Just to highlight some of the the main main changes from from the April to the first quarter. The the rights of use assets that's related to the the the the lease of of BW Adolo has increased in in the quarter. That is due to the modifications for two Tortue phase two has been been carried out by by BW Offshore, and there has been a an increase in in the in the day rate due to those those upgrades and, hence, also an increase in in the right of of use assets up to $262,600,000. And, again, also the increase to tangible assets, it's also mainly attributed to the TOR two phase phase two development. On the other side of the balance sheet, the equity increased in in in the quarter due to the IPO and and capital raise that we did in in in February. So the shareholders' equity is now standing at 460 point $900,000, giving us a robust balance sheet. Moving on to to cash flows. We started off with with $1,881,000,000 dollars and had a very good operating cash flow that was mainly due to the, let's say, the payment of the lifting we did in in December came in in in in January, so we have $50,000,000 of operating cash flow. Net investments of 49 is mainly related to the TOR two phase two development. Also, some some some CapEx there related to to Rouge phase one before that was suspended in in March. So we we managed to to suspend the the Rouge development prior to entering into to main contracts, and and we're able to to suspend other contracts for long lead items where we can can restart when when when the circumstances allows us to restart that that project. We had the debt repayments of of 28, so now we're we're we're totally debt free. External debt, the three. And then we have the net proceeds from from the capital raise of $121,000,000 coming in in in February. We also had a gain on the green shoe option, that was then also offset by by other costs related to the IPO. So the net proceeds were a 121. And then finally, lease liability payments, that is the the interest rate element of of the lease of seven, and that gave us a solid cash position at the end of the quarter of $168,000,000. Then we're moving on to to to the investments, then my final slide. This slide shows you our our CapEx since since we kind of started up with with VW Energy back in in 2017. In q two seventeen, you can see here the acquisition price, and then we started off with with the TOR two phase one development that went on in in in the '18 and out to to first oil in in September 18. And then we the increase again started in in towards the '19 with the with the TORQ phase two development. In q three nineteen, you can also see the the start of of spending money for Maramba. That was $30,000,000 that we paid as the first installment to to Petrobras and Chevron for for the Maramba asset. So the next next milestone for Maramba is is is start of of drilling, which has also been been pushed out in in time somewhat compared to what we communicated in the IPO material. So that concludes my comments to to the financial section, and then it's back to you, Karl, for for the summary. Thank you, Knut. So I'll then take you straight to slide 20. VW Energy is a E and P company with a diversified asset portfolio, West Africa and Brazil. Our strategy to convert discovered resources to commercial reserves, I think, is very still very solid and applicable to the market. Full year production from Dussefoo this year will be a bit reduced due to the impact of COVID-nineteen and will be 15,000 to 16,500 barrels per day gross, but our reserve base is solid. We have two P reserves of 83,000,000 barrels and two series sources of 164,000,000 barrels, and it's all oil. Through the listing, we got 4,000 new 4,200 new shareholders. Our main shareholders, VW Group and VW Offshore, of course, remain large shareholders. A lot of the shares was also picked up by institutional shareholders. Moving on to 21, the business model that we have built the company around is very, think, very adaptable to the current environment. We have proven capability to grow and pick up opportunities that are available in the market. Our philosophy of staged development or phased development allows us great flexibility, And the discretion we have over CapEx, we have just proven how we can take our foot off the pedal and, of course, be ready to put it back on the pedal and go again as soon as the markets and the conditions allow. This is safeguarding our operational and financial robustness, and then we can move when the time is right and stopped when we definitely should stop due to outside events. So that takes us through the presentation. We are then ready to start the q and a. Operator, please. And just as a reminder, that is zero one if you would like to ask a question. And there seem to be no audio questions at this time, so I will hand the word back to the speakers. Hi. This is Knut. I see that we have a couple of questions from the web. And and the first question there is on Maramba. And the question is if the Polvo FPSO that currently is working for for PetroRio in Brazil becomes available, would if that would reduce our cost to develop Maramba materially. Maybe, Carl, you could take that question. Oh, happy to. Well, we are looking at several FPSO opportunities, and Volvo is definitely one of them as it is operating on a nearby field. It's a unit that is in operation, and it's complying with Brazilian regulations. So it is an obvious candidate to look at. We do know that there's one year remaining option for the current client. So we are going to wait how that pans out. Okay. And then there is a second question on on from the web, and that maybe for you, Lynn, if you're on. And the question is what kind of decline rate we see in Gabon for the next two next one to two years if we assume that we are not tying in additional wells? Hello, Knut. Thank you. Yeah. No. Good question. The decline rate in Gabon, we've we've been very fortunate, a very good reservoir performance in that field. And I guess with the assumption that we do not tie back the d two and six h or the seven h, you know, we would expect to carry on plateau at our our current potential and then perhaps see a decline rate of maybe 15% after a couple years. Okay. And then we don't have any further questions from the web. So then I go back to you, operator, if you have any anyone from the call. That is 01 if you would like to ask a question. And we have no further audio questions. I will hand the floor back for any final comments. Okay. I thank you all for listening in to this our first quarterly presentation by BW Energy. We are, well, we are pleased that you have been with us and hope to that you will join us again for further COP presentations. Let's see how the world works in a few months' time. So we will see if it will be a repeat or if there will be some other venue where we can meet again. Thank you so much.