Good morning, everyone. This is John Hamilton, Chief Executive Officer of Panoro. I'm joined today by my colleagues, Richard Morton, Technical Director, Nigel McKim, Projects Director, Christoffer Bachke, Group Financial Controller, and Andy Dymond, Head of Corporate Finance and Communications. Welcome today to our fourth quarter 2021 trading and financial update, which also comprises our annual figures, ahead of our annual report, which we publish at the end of April. What I'm gonna do is typically I'm just gonna go through the slides, which have already been made available on our website and through the Oslo Stock Exchange. We'll be open to some questions which myself or my colleagues will endeavor to answer your questions that you've got.
As a reminder, today's conference call contains certain statements that are or may be deemed to be forward 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 that 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. As a reminder, the system that we have here, you can see our housekeeping slide here.
If you wanna ask a question verbally, you can raise your hand using the Raise Hand icon, or if you'd rather type a question for us, you can type it in to the questions panel, and we will hopefully try to answer those questions as well. What we'll probably do is go through and answer the verbal questions first and then address any remaining questions that haven't been already addressed through the questions panel. Next slide, please. Next slide, please. Thank you. These are the results highlights. I think they speak for themselves. This has been a very, very big year for us with huge growth in revenue, in EBITDA, in cash from operations. Pretty much every metric that you can imagine, this company is completely transformed from what you saw exactly one year ago.
I won't dwell so much on the numbers here. We have a couple more slides which go through it. Needless to say, I think that we're in a very, very strong position from a revenue perspective, a P&L perspective, a cash flow perspective, and a balance sheet perspective. At the year-end, we had $24 million in cash and about $40 million in receivables, which we've already received. Those related to a lifting that happened towards the end, two liftings that happened towards the end of the year, where the cash was only received in January. Next slide, please. Here it is in a slightly different format. Just to remind people, we're showing numbers based on IFRS reporting in a pro forma basis.
Just to remind people, the difference here really is that we effectively owned the new barrels that we bought from Tullow as at the first of January 2021, although we did not complete the transactions until the second quarter. One at actually right at the end of the first quarter and the second in the second quarter. From an IFRS perspective, we can't book all the revenue that was associated with that until we completed the transactions. What we're trying to show on a pro forma basis is what it actually looked like from a real perspective, which is that we did own the barrels from the first of January. That's why we're trying to show that. You will not see this continuing in 2022.
We will be purely reporting on an IFRS reporting basis. In order to kind of demystify all the major movements and some of the things that was less clear because of the trickiness around the closing of these transactions, we did wanna show our shareholders this on a pro forma basis as well. The main items here really are just looking at, again, the cash balance, I think, and the cash flow is kind of what the main drivers are, really, I think the best evidence of the strength of this business. Next slide, please. Here's what production looked like.
Obviously from 2019, 2020, we've completely transformed the business through positive developments in Gabon, but also through the acquisitions that we made last year this time. We also have provided guidance for next year, which should see us between 8,000 and 9,000 barrels a day guidance, so an uplift from 2021. None of this is new. This has all been previously guided. Including the 2023 target, which sees us trying to exceed 12,500 during 2023 as Hibiscus-Ruche wells start coming on, and then we get some additional uplift from Equatorial Guinea as well. None of this is new information, but it's just a graphic way of explaining that we believe we're on an upward trajectory at a time when oil prices are very strong.
We feel that this is an important message to get across, that we are growing organically our business here with already identified and approved projects. There's more to come, I think, as well, but this gives you an idea of the trajectory that we're on in the coming two years. Next slide, please. Just a few high-level updates on the business. Equatorial Guinea is by far and away our most important production asset at the moment. Gabon will catch up and become more important. At the moment, Equatorial Guinea is roughly 60% of our business. We had a very successful drilling campaign in 2021. Two new wells on stream.
There's a third well which requires a small sidetrack on it already previously announced. We'll try and bring that online perhaps even this year, working together with the operator to try and get that well online as well. There's been a new gas lift distribution unit installed at the Ceiba field, and we are working on further growth activities right now with the operator, and a potential drilling development drilling campaign is being planned for 2023 and beyond that as well. These are not yet approved. However, when we entered this asset, we always hoped and expected that the operator would continue to go after the substantial 2P reserves and contingent resource that are in this asset.
As we get through 2022, I think we're gonna start talking more and more about the upside potential here. At the moment, the asset is doing extremely well, higher than expectation. We're very, very pleased with what's going on there with the operator, Trident. In Gabon, our production there, this is a production from last year on a pro forma basis, with the two new production wells having been drilled, and those are now on stream. Production is being optimized during the course of this year. We had some issues with gas lift capacity on the FPSO, which have been previously flagged and remediation of that is underway. We hope to get these wells operating at their full capacity during the course of this year.
The big Hibiscus-Ruche development, which is really what's gonna catapult this asset into a much bigger asset for us and for Gabon, is underway. At the moment it's on schedule and on budget. We're looking at first oil from the first couple of wells in Q4 of this year. You're really gonna see further development of our Gabonese acreage. In Tunisia is now our smallest asset in terms of production, but remains a very important foundation to the company in terms of its cash flow and its reserves. There is a huge beehive of activity going on there, in particular in the Guebiba and Cercina fields. We've had some real successes with workovers and ESP replacements.
We are busy really getting under the hood of the subsurface models in these assets, something that OMV had left unattended for many years, and we really are getting after remodeling everything here and trying to accelerate the full potential of these assets. We've done very well since buying them from OMV. Production's up about 30% or 40% from the time we bought them, but we believe there's more to be done. Next slide, please. Just on some of our other assets and ongoings, sale of OML 113 Aje has now received full presidential consent in Nigeria. We had to wait a long time for that. That is the key condition to completion of that transaction. We're now going through the final completion steps with PetroNor, who are now migrating to a ASA.
It was previously an Australian topco. Previously, our intention was to dividend $10 million worth of PetroNor shares. Those were gonna be depository receipts of an Australian company. However, these will now be Norwegian shares on the main board of the Oslo Børs. We think that's a positive development. They are going through that procedure now, and that will form part of the completion mechanics around this. We'll be making some press releases in due course in terms of trying to zero in on exact completion dates, but it's all underway now.
In Gabon, we announced the provisional award of some exciting exploration blocks which completely surround the key production areas in southern Gabon, in Dussafu, where we've been since 2008, but also around Etame, which is a more mature development just to the north of us. You know, we're in a very, very big oil fairway here, and we have been working on this for two or three years now, trying to get into these exploration blocks in and around there. We have a provisional award. We're negotiating with the government at the moment. We'll make announcements in due course when we are able to formalize those arrangements. Block 2B in South Africa, you will have seen that, Eco Atlantic are proposing or have bought Azinam.
Azinam are the operator of this block. That's been able to unlock, I think, some of the delay in drilling of this well. We are now hoping to drill this well towards the end of this year together with Eco Atlantic and Africa Energy. Next slide, please. I won't dwell too much on this slide, but what we're trying to do is show all the cash flow waterfall, how the cash started at the end of the year and what the major movements were. This is a particularly unusual year given all the transactions that we did in the raising of equity and debt and paying out of the monies and the cash flows coming from operations.
This is a slide we will continue to show to make sure that how cash moves through the system, which is gonna be the most important part for analyzing this company, we believe, how that has built up during the course of the year. Expect to see a similar slide to this ongoing from us. The text box there around hedging, just to make the point that at the moment, we have 600 barrels a day hedged for 2022. We have nothing beyond that. That 600 barrels a day, that was put in place in 2021 as part of our loan requirements for our Tunisian business.
If you look at our production assumptions and guidance for the year, you'll see that we're basically well over 90% unhedged at the moment. Now, we do get a lot of questions, particularly with the volatility in the oil price and the strong oil price we're seeing at the moment about hedging. We will look to lock in some of the oil price strength that we're seeing towards the second half of this year. Oil price is in backwardation now, so you can't hedge at $97 a barrel, but you can certainly hedge at far higher levels than we had previously dreamed about. So we'll probably be looking to put some shorter term hedges in place around the 2022 lifting schedule.
At the moment, we're almost entirely exposed to the oil price developments that you're seeing. Next slide, please. Again, we're trying to be as transparent as possible. We've provided these slides before. There's nothing really new here. On the capital expenditure side, 2021 capital expenditure came in lower than our guidance, and that's simply a timing issue. Some of that has now migrated into 2022. Most of this is 2022 guidance is already guided CapEx on Dussafu. BW and ourselves have been very transparent in terms of those numbers. Nothing has changed there. Perhaps some small timing things around the balance sheet dates or the timing dates, but the numbers have remained the same.
Equatorial Guinea, we are actually spending some more money here, and this is a positive thing. We're spending some capital on projects and some CapEx there. Some of that is long lead items for a possible drilling campaign in 2023. But most of this is going towards smaller production growth activities in Equatorial Guinea this year. We're very, very pleased to see that. It's always what we wanted when we entered that asset, is to have some money reinvested in the asset to bring out the tail. Most, when we bought the asset in Equatorial Guinea, we assumed that no further investment. Most of the analysts I know are assuming we just have basically no further investment and therefore production drops off a cliff in a few years.
Not a cliff, but it declines without any remediation. What we had always hoped, and now we're seeing, is that the partnership is interested in continuing to grow this production base. We also show our loans. Nothing's changed here. This is a simple reserve-based loan. It's our principal thing with not a very aggressive amortization profile. We have no looming bond repayments or bullet repayments. These are very sensible and conservatively structured loans that pay out over a number of time. We can accelerate the repayment of these if we choose to. As you can see, it's not a particularly aggressive amortization profile. Next slide, please.
Our lifting schedule, as a reminder, we recognize revenue when we lift barrels, not as we produce barrels. In terms of looking at the volatility of our quarterly numbers, we always try and get people to look at least six months or preferably 12 months when they're making assumptions about us, because it can be a huge amount of volatility. If you just look at 2021, you can see that, you know, we had absolutely crazy fourth quarter, but third quarter we had almost nothing. This year there's gonna be a little bit more balance to it, but it's still quite heavily weighted towards the second half of the year. That's when we intend to lift the barrels. Now, this could change a little bit.
We'll continue to update the market as we get more information. This is our best estimate at the moment of our lifting schedule for this year. As you can see, we'll probably be lifting about 50% more this year than we did last year. Again, it'll be second half weighted. It's important to remember that our quarterly numbers sometimes can be quite volatile. As you saw last year, this year will be a similar dynamic. We'd encourage everybody to look at us on a longer term basis than simply the quarterly reporting that we are obliged to do. Next slide, please. We're trying to demonstrate what free cash flow looks like this year.
What we've done is we've plotted on the left there, an oil price assumption for this year. We're not brave enough to type in $95 here, but you can see the trend here. In terms of the free cash flow that we expect to be able to generate at varying oil prices and what that means against our market capitalization in terms of expresses a free cash flow yield. As you can see, now with oil prices being strong and our production solid and growing, that we are able to generate significant free cash flow even in a year where arguably this is our big CapEx year with Dussafu. We're still gonna be generating significant amounts of free cash flow.
Free cash flow defined as, cash flow after capital expenditure, after tax, after operating costs, but before, debt repayments. In terms of our capital allocation, priorities, we are absolutely committed to paying a sustainable quarterly cash dividend, as soon as possible. We get a lot of questions about when that might be, and we retain our language around that, which is we wanna bring that forward to as soon as possible. We're just looking at that lifting schedule and trying to make sure we do start something, at a time when we can continue to do it and do it with a degree of confidence and comfort.
We also obviously will look to repay our debt, which we have an obligation to do, but it could also be the right thing to do from a capital management perspective. We plan to continue to sustain and grow CapEx. This is more a story for 2023 and beyond, but we're already spending quite a bit of money on CapEx this year. You know, capital allocation will also prioritize making sure that we continue to fill the hopper back up, produce new barrels, generate additional cash flow, and really smooth out or perhaps even grow the production curve that most analysts have in their models now, which again shows a decline after 2024.
Well, it's our job to fill that back up through smart capital expenditure. Of course, we continue to look at growth at the moment. With oil prices where they are, asset prices are similarly high. We have to be careful that we do things that are accretive for us and for our shareholders. We continue to look at opportunities as long as they are accretive and often opportunistic. Next slide, please. What we've attempted to do here is to look at where we see our crystal ball. There are a lot of uncertainties in the world, of course. Nonetheless, we have very good visibility over the next four years in terms of at least a baseline of our production and our business.
That has to do with the coming online of the Hibiscus-Ruche. It has to do with what's happening in Equatorial Guinea. We try and look at that as against a couple different oil prices. We've used $65 and $85 here to demonstrate what we think the free cash flow is for the next 12 months in the sort of orange as we get into the reds there over the 36 months, so 2023 through 2025. In the blue to kind of tot it all up. You know, I think the conclusions are self-evident. We're gonna be generating a lot of cash over the next four years. Against our current market capitalization, I don't think our capitalization is challenging at all.
The free cash flow yields are extremely high. I don't know if sector-beating, but we're certainly at the top- end, I would have thought. That really just comes down to the strength of our business, the fiscal terms that we have, the low operating costs of the assets that we have. We're also not a terminal business. At 2025, it's not like the lights turn off and cash flow goes to zero. We have so much remaining to be reserved at that point. We have contingent resources. We have lots of things we believe we can do in Equatorial Guinea, Block G. There's more things to do in Dussafu, undoubtedly. There are other potential opportunities out there. Again, this is a long-term business we're in.
We have a very long reserve life here. If you just look at the next four years, I don't think you will be amazed at our share price at the moment. It really is quite unchallenging in our view. Next slide, please. This is a summary slide that we're using when we're talking to shareholders or analysts a little bit at the moment, which is, you know, taking a step back a little bit from all the details, just the strength that we believe we have in this company at the moment.
If I start with the blue, we believe we have a very high quality asset base, long reserve life on it, low operating cost per barrel, all set in favorable taxation regimes. We look at the light blue, and we have organic reserves growth, so we have active development programs in all of our assets. We have exploration assets which could continue to add additional resource to our company. Coming into the yellow on all of this activity is housed within a Norwegian main board-listed company that has, in our opinion, very strong governance, and very good financial discipline, low leverage ratios, a lean structure.
We believe that all this opportunity is housed within a very sensible company with a very good, strong shareholder base and financial support from our lenders. On top of that, we have visible production growth. It depends on your view, of course, of oil price, but we are growing our production into a time of high macro oil prices. This is not a declining business. This is a growing business as we speak. With that, I will finish off my story and turn it over to any questions if there are any. As a reminder, you can raise your hand using the hand icon, or you can type a question into the question panel.
John, the first question from Stéphane Foucaud is: Given the current high oil prices, what needs to happen for the Block G joint venture in Equatorial Guinea to sanction further infill drilling activity?
It's a really good question. Stephane, what I'd say is that, you know, if you look at the reserve base there and the contingent resource base, which we've talked about a lot, in Equatorial Guinea, you know, when we bought the asset, we had to assume, and oil was $45, nothing else would really happen. We knew that the operator, Trident, had spent three years investing a lot of capital to improve the infrastructure that they had taken over from Amerada Hess, and spent a lot of time and money just maintaining a flat line of production, and improving the deliverability and the infrastructure of those assets. 2021 was the first year that they drilled any new wells. We talked about the two wells.
That was the first hint that we had, that you know, that the operator and the joint venture together with the government were looking at growing production for the first time. Now, that's been achieved, and that was our kind of hint that the operator was gonna do things. We couldn't assume they were gonna do anything more, so we planned for nothing else, really. What's happening now is, you know, we're really benefiting from 4D seismic on this asset, and there are many opportunities remaining on this block. What needs to happen, the joint venture needs to agree on work program and budget. Those have been well scoped out by the joint venture partners.
There needs to be some dialogue with the government in respect of that work program, which is a typical thing that happens annually, and those conversations are ongoing. It's really just a question of lining everybody up, all the stakeholders, including the government in respect of a forward-looking work program and budget. It's already been approved for 2022, which, as I suggested, is gonna see a lot of activity that will yield production growth from where we were last year. The big question is, you know, when will we get after bringing a drilling rig in, and that could be as early as 2023. We hope it will be.
It just needs a little bit more time to work with the government on exactly how that works and when that's gonna happen. I don't know, Andy. I don't know that there's so many more questions. I know that we have. I think there's some school holidays also in Norway.
Yeah.
Um-
Okay, John. Another question submitted online with-
Okay.
With regards to Dussafu. Can you provide an update on the current status of the gas lift capacity situation at Dussafu? Have operations been restored following the planned maintenance shutdown in January? Is the timeframe for the installation of new gas lift compression unchanged at Dussafu? That question is from Risto Heinonen .
Yes. As flagged by BW, who announce tomorrow, I believe, as well, you may get some additional color from them as well tomorrow. There was a planned shutdown. That's all fine. Production's been restored. That's all gone to plan. The gas lift compression project is still ongoing. We have no additional guidance on that at the moment other than say that it's underway. Production on the field has been strong. It's been held back, as we know, because of the lack of compression, so it's not operating at its full capacity, but the asset is doing quite well.
We're not quite in a position to give an update on the exact timing of the big solution on the gas lift compression. It's possible that BW tomorrow may be drawn out to say a little bit more, but at the moment, progress is underway.
Thank you. A question over the phone from Oddvar Bjørgan. Oddvar, you are unmuted now.
Yeah. Thank you. I had some problems with the unmuting here. A question about CapEx. Of course, you are guiding $65 million for 2022, and you still have a very impressive free cash flow, yeah, already in 2022. Could you give us a very rough indication of what kind of CapEx you're looking at in 2023?
Sure. Well, 2023 at the moment, you know, we have the last part of the Hibiscus-Ruche development, so I think we previously got it. If I remember, Oddvar, you have in your model assumed CapEx in 2023. Most of the analysts also have that in their models, and that simply relates to the, you know, the Hibiscus-Ruche development, is ongoing now. First oil is in later this year, but we're gonna be bringing wells on, drilling wells all the way through the first half of next year. You still have the rump there. I don't believe we've put out a number on it, but what I would say is your estimates are accurate.
Because a number of analysts also follow BW, I think these have been well followed. There's no change to that. Tunisia might have some CapEx, but it's gonna be reasonably small, particularly in relation to Hibiscus-Ruche, Dussafu. In Equatorial Guinea, I think you should assume some CapEx, but we just don't know what it is yet. Again, we're trying to solidify plans for next year, but what we'd like to see is additional drilling on that asset, and that will require some CapEx. Will CapEx be as high next year as this year? Probably not.
It would be good to assume some additional CapEx in 2023, which should then also have, you know, this is kind of CapEx that's gonna grow production, so you'd have to make adjustments to both. When we look at our free cash flow assumptions we've given you, it's kind of on an only what's already been identified basis. We're not assuming any additional production from anything that might happen in Equatorial Guinea. We're also not assuming that there's large amounts of capital expenditure for that either. A few moving parts in there, but I think if you assume, you know, some CapEx in 2023, it's probably not a bad idea. We're not quite ready to guide on it yet.
Okay, thanks. Maybe another one, if there are time.
Sure.
Maybe if you could have a comment on the general M&A market. I understand it's difficult to be specific here, but could you give us a brief update on how you see this market? Do you still see larger oil companies looking to sell out to African oil assets driven by their newfound love in renewables?
Yes. We are definitely seeing it in, we're seeing it the world around, of course. We're seeing it in Africa as well. Normal disposals that majors have always done, that trend continues. You also have, as you say, the sort of move towards energy transition and the desire to perhaps accelerate those disposals. We are definitely seeing activity. The M&A market is characterized by, you know, obviously oil prices have gone up, which makes finding real deals like the one we did last year, perhaps more difficult. We're having to be very, very choosy. There's definitely deals in the market and, deals that we expect to come to the market. Now, some of those are extremely large. You know, Exxon and Shell have announced big transactions in Nigeria.
Those are not for us. Those are multi-billion-dollar transactions, but gives you a hint that there's probably more of that to come. The issue of course is financial capacity, which companies can buy these assets. You know, the oil markets are now strong and people's cash flows are strong, but there's been a lack of capital available to the sector for such a long time. That trend is improved now with the higher oil price, but still remains challenged, I would say. You know, not every bank wants to lend into the sector at the moment. You're finding that, I think an interesting dynamic where there's a limited universe of buyers that actually have the capital to do these things.
You've got lots of assets that are coming for sale, but the seller's expectations are high. It'll be one to watch, Oddvar. The M&A market is there. I just don't know whether all of these transactions will close in the way that the sellers expect them to. I think people are having to be creative. You're finding sellers having to retain equity in the business. Perhaps they're having to finance it. We're seeing a lot of the majors having to finance the sale of their own business by providing loans and contingent payments and deferred payments. You're seeing a lot more creativity coming into the M&A market.
I hope that answers your question, but clearly it's gonna be hard for us to pull off something quite like what we did last year, but it's our job to continue to look for those. We always do. Yeah.
Okay. John, a question from-
Right.
Multiple participants, can you comment on expected timing of Block 2B exploration well in South Africa?
Sure. Well, we've been largely, you know, delayed for quite a while now, as everybody's probably gotten frustrated to see. That's not through anything that Panoro's done. It's simply that Azinam have been busy, you know, I think trying to commit to the well and the drilling rig and all those things. What's happened with the takeover by Eco is that it's kind of now coming. It's actually getting some real traction. I think that we will guide for a Q4 well in 2022. It's possible it could be Q3, but at the moment, I would say we'd probably guide for Q4.
Thank you. Question from Odin [Narvostakk]. Could you please provide some further commentary around your hedging strategy and particularly, in respect of the lifting schedule you envisage?
Yeah, I touched on it a little bit in the comments to the slides. We do have a hedging strategy, which is unless we're required by our loans in Tunisia to look one or two years in advance. Which is why we still have a couple of hedges for 2022 that are at lower prices, 600 barrels a day. But for the rest, we're unhedged. What we did last year is probably a good example. In the summertime, we saw that we had a lifting in Equatorial Guinea, a big lifting. We wanted to hedge up some of that price. We knew we were lifting in about 5 months.
What we wanna do is take out some of the drama around prices in and around the lifting, 'cause normally you're getting paid based on the prevailing prices around the lifting. That's what we're gonna do. We're gonna target visibility on liftings, and then we try and build in some price protection around that. We don't hedge everything out, but we will, you know, try and establish a, you know, a foundation to the price. That can work against us, it can work for us. In that last example I gave you, it worked a little bit against us. Prevailing oil prices were around $75 when we lifted. Some of our hedges were at $70, so we lost, you know, with collars around them. We lost $5 a barrel on that.
Having said that, you know, $70 looked pretty darn good last summer. Now that's not looking so great. At the moment, we don't have those hedges in place, but we're in active dialogue to probably try to lock in some second half hedging through the use of costless collars, maybe some swaps. We don't wanna spend money on the hedges, but, you know, in order to protect some downside risk on any volatility in the oil price. Again, we're in backwardation a little bit, so again, you can't hedge at $97 a barrel for the second half of this year. The prices are strongly in the mid-80s, which is more than good enough.
Thank you. A couple of questions on Tunisia. Could you possibly comment if there is scope to accelerate production development activities there as is being contemplated elsewhere in the portfolio?
Maybe I'll take a breather and ask Nigel, maybe, my colleague, Nigel, Projects Director, Nigel McKim, to make a couple comments on Tunisia.
Sure, John. Yes. John touched on the work in progress in Tunisia, and it's very much a focus at present on understanding the opportunities in our fields there. We have a joint ETAP Panoro team working through the subsurface models on several fields, trying to get a proper understanding of what's driving the performance and where the additional opportunities lie. That work will progress through this year, and we are hoping will lead to a development drilling campaign next year. That's very much on our sights at the moment. It has come about as we've gained a learning of the understanding of the field performance and the work that needs to be done to deliver up on those further opportunities. That is all coming.
There's a team very busy down in Sfax at present, working through those opportunities and preparing to make recommendations to management at ETAP and Panoro.
Right. Andy, how are we doing on questions?
That concludes the Q&A, John.
Okay. Great. Well, listen, if anybody does have any other questions, you know, you can reach out to us at info@panoroenergy.com or through other channels. You know, I hope that this presentation has kind of laid out all the breadcrumbs, so to speak. We're trying to be as transparent about our business as possible, and hopefully that's come through in this presentation. I thank you all for listening, and I hope that you continue to watch the developments during the course of this year. We will be back doing this again for our first quarter results in May. Thank you very much.