Good morning, everyone. This is John Hamilton, Chief Executive Officer of Panoro Energy ASA, welcome today to our 2020 trading statement. I'm joined today by our CFO, Qazi Qadeer, our Technical Director, Richard Morton, Projects Director, Nigel McKim. I will take you through a few slides, many of which you may have seen before because we have been producing a lot of information recently. We'll also open up to Q&A as well, and we'll touch on a few headline financials. As a reminder, today's conference call contains certain statements that are or may be deemed to be forward-looking statements, which include all statements other than statements of historical fact.
Forward-looking statements involve making certain assumptions based on the company's experience and perception of historical trends, current conditions, expected future developments, and other factors that we believe are appropriate under the circumstances. Although we believe the expectations reflected in these forward-looking statements are reasonable, actual events or results may differ materially from those projected or implied in such forward-looking statements due to known or unknown risks, uncertainties, and other factors. For reference, our trading statement was published and released this morning and is available on our website, www.panoroenergy.com. We also make reference to the announcements dated 9 February and 10 February regarding the acquisitions in Equatorial Guinea and Gabon and the completed private placement of new shares.
Due to the transformational nature of the acquisitions and the process of having a prospectus approved by Finanstilsynet, the board of records has decided not to publish a formal Q4 2020 financial report. However, we are today issuing a trading and financial update, which includes some of the main line items for Q4 in 2020. Of course, we will publish as usual our annual report on the 30th April 2021. In terms of how this system works, if you want a question, you can either raise your hand, as you can see on the left, by hitting the hand button, or you can type in a question on the question pane, as you can see in the lower left there.
We will remind you of this at the end of the slides. Next slide, please. Disclaimer. Next slide. Thank you. This is a sort of a Panoro pro forma at a glance. We've announced some transactions, which I'll touch on again. These transactions are still subject to completion. Once they're done, you know, we are gonna be a company with a rather significant market capitalization north of $200 million, 38 million barrels of reserves, net production of in excess of 9,000 barrels a day with activities across Africa, in Tunisia, in Equatorial Guinea, in Gabon, in South Africa. Nigeria, we are in the process of disposing, selling that to PetroNor. That one's shaded a little bit differently.
As you can see, we're gonna start being a much more substantial company than we were before and putting ourselves in a different league. Next slide, please. Just a quick reminder on the transactions. Most of you on the phone I think will have followed these. Last summer, during the lockdown and the height of the COVID situation, we were negotiating with Tullow Oil plc, which is a large U.K.-listed company focused largely on Africa, who were in the process of needing to make some disposals. They had sold one asset to Total in Uganda, and we were able to negotiate the sale of two assets.
One being in Equatorial Guinea, the Ceiba field and the Okume complex in Equatorial Guinea, and an additional 10% stake in Dussafu Marin, which we're already in Gabon. These transactions were negotiated at a time that oil was in the mid-$40s. Those transactions made a lot of sense for Panoro at that time. Clearly, we're in a different oil price environment today than we were in the summer when we negotiated these deals. The deals looked great then. They look even better now.
with the great assistance of our supportive large shareholders who have helped us raise $70 million in a private placement, which was announced a couple of weeks ago, subject to the general meeting, which is coming up in about a week's time, and a debt facility up to $90 million provided by Trafigura. Very, very large financing to support these acquisitions, and we hope to complete those in the next two months. Next slide, please. Again, this slide, for those of you who follow this, is a repeat of the ones we've used recently, but it just again goes to highlight a few important messages. The first is that the acquisitions transform Panoro
We will be having 3x-4x as much production, 3x as many 2P reserves. Our 2C resources go up by 8x . Our operating cash flow based on $55 oil is going up 8x . Sorry, 5.8x . As a result of these transactions, even at $45 oil, we were planning to be fully financed for all the foreseeable CapEx that we can see for the next few years. Everything that's on the radar screen, fully financed, and a ramp up towards 12,000 barrels a day of production. It's not just transformational, but it will put us in a very robust financial position. Next slide, please. Again, this is exactly the same slide.
We've not updated it for the recent oil prices. On the left, you see the production growth that we hope to achieve. This is coming through development drilling in Equatorial Guinea, which is happening this year, and is coming through additional production drilling in Gabon, in Dussafu. You should see us over the next couple of years going from north of 9,000 barrels a day this year to perhaps closer to 10,000 next year, and over 12,000 in 2023. Beyond that, you can see a 2P profile as it's declining, but obviously in the real world, we'll be doing more things as long as we can find the right projects and bring some of our 2C resources into 2P and continuing that upward trend, hopefully.
On the graph in the middle, the blue, you can see our free cash flow in the blue charts, which is based on $55 a barrel this year and $50 in the subsequent years. Obviously, if oil prices stay where they are now, this will look even better. Even at $50 oil, you can see that our free cash, which is the lighter blue line, not our free cash, our year-end cash position, is growing every year. During 2023, we should be in a net cash position, so extremely strong cash position for the next few years, which puts us in a position where we'll be able to pay a dividend.
We've signaled that we would be prepared to start thinking about paying a dividend in 2023, that's to coincide with the completion of the Hibiscus Ruche Phase I project, which is a CapEx-intensive project that we are embarking on this year and next. Next slide, please. We, as I said, we've decided to put out highlights, key financial statements without doing a full Q4 report in line with what I stated earlier. I won't go through all these issues. I think most of them have been well flagged, if not all of them. I don't think there are any surprises in here. Obviously, 2020, looking back here, back was a difficult year with COVID and the precipitous drop in oil prices. That impacted our financials. That impacted everybody's financials.
We did okay during the year, I think. Operationally, certainly we were able to grow production in Tunisia. We were able, through our hedging program, to withstand some of the worst aspects of last year's oil price drama. We also managed our health and safety systems very well, despite everything that was thrown at the industry during the course of the year. I think it's a year to hopefully look at in the rearview mirror, but one nonetheless to be a little bit proud of. Next slide, please. We provided some guidance.
Again, this is all pretty much already well flagged through our materials that we've announced as in light of the transactions where we have production guidance in excess of 9,000 barrels a day this year, which a lot of it is coming from the acquired assets in Dussafu and EG. We have a 2021 capital expenditure guidance as well, which is at a little over $40 million, which includes drilling in South Africa. It includes about $10 million being spent in Equatorial Guinea, which is going towards boosting production there this year. About $22 million going into Dussafu, which is the completion of the Tortue program, the drilling of an exploration well, which I'll come back to, and the start of the Hibiscus Ruche project.
Again, Dussafu will be capital intensive this year and next year as we seek to ramp up production to 40,000 barrels a day there. On the lifting side, we're gonna be, you know, busy in Tunisia. We have both domestic and international liftings. We should have a bunch of those. In Gabon, we're at the moment envisioning five liftings during the course of the year. In Equatorial Guinea, Tullow have always lifted their own barrels there, which simply means they don't lift with the rest of the partners. The number of liftings is a lot smaller, but the size of the liftings is quite a bit bigger.
For instance, Tullow or Panoro, once we complete, will be lifting 950,000 barrels cargoes or 650,000 barrel cargoes on our own. These are quite big, dramatic revenue moments for the company. Whereas in Gabon, for instance, we lift together with BW and Tullow. They're spread out a little bit more of the year. We have a smaller slice of more liftings. In EG, we're gonna have a huge slice of smaller amount of lifting. One to look out for, in terms of what that does in terms of our quarterly P&Ls, which we'll, you know, we'll have some rather dramatic variations as a result.
what matters, of course, is during the course of the year, the total number of liftings is, you know, we're spreading out our oil price risk quite nicely. Next slide, please. just some outlook and summary. again, just a reminder of why we like the acquisitions that we've done. again, that provides us transformational growth. It increases our business by 3x or 4x , and we're on a route to producing in excess of 12,000 barrels a day.
The metrics on the transactions, again, they were negotiated in a very different oil price environment, but even in those, in those times, these were very accretive, pay back extremely quickly, and they result in a very, very limited increase in our overall cost base as a company in terms of our overheads. We'll probably need to add a few more staff, but it's not like we've taken on a team of 100 people and bricks and mortar and all kinds of other things. These are non-operating positions, so all we have to do is make sure our organization is right-sized to deal with the bigger company, but it's a very, very limited increase. The assets we believe are very high quality.
They're low OPEX, they're long life, they're very complementary towards each other in terms of the way where they are in their maturity. There's upside in these projects. We'll talk a little bit about Hibiscus, but we have production growth and we have exploration opportunities in both. We have operators who are extremely focused on driving down costs, finding new oil, you know, extending out the life of these fields. Both our operators in Gabon and in Equatorial Guinea are effectively private equity backed operators, if you can look at it that way. These management teams are highly incentivized to do as well as they can. Panoro is very blessed to be working with such good operators that are so financially incentivized to really do the best for these assets.
Of course, on the cash side, we are, you know, gonna be fully funded for everything that we can see in front of us and putting ourselves in a position to pay a dividend from 2023. In summary, a growth-oriented company, Panoro, with the capacity to pay dividends. It's really how we're defining ourselves, and it's really, you know, what we've always wanted to be at finding that balance between growth and dividend capacity. We put ourselves in an excellent position to deliver both those things. Next slide, please. A reminder of Hibiscus because, we've talked about Hibiscus a lot. BW Energy has talked about Hibiscus a lot.
What's interesting, just to remind people, is that we're gonna be drilling a well in the Q2, probably April, drilling something called the Hibiscus Extension well. This is a well that has been talked about a lot, but it was only recently in the past few weeks been confirmed that this will be drilled in April, which is just around the corner, frankly. We, as a reminder, we made a discovery in Hibiscus about a year and a half ago, which established about 44 million barrels of reserves, which was a huge event in itself because we were expecting a lot lower. It was exploration, first of all, it could have been zero. If it was gonna come in, we thought it was gonna be around 10 million or 11 million barrels.
We ended up having a very pleasant result and booked about 44 million barrels of reserves. The operators come out and said that they believe that the entire larger structure could be as big as 155 million barrels. That's gonna require some exploration drilling to be done. In the meantime, what we've done is we've reprocessed the seismic that Panoro acquired back in 2013, 2014, and you can see the maps on the left and on the right.
The left is the old map with before the reprocessing. Hibiscus is the nice orange shaped thing kind of in the middle of the map, if I can put it that way, with the two black dots and the black line, that those are the two wells that we drilled there. The original well bore plus the sidetrack that established the 44 million barrels. You can see the map on the right, which is a result of the reprocessing work that has been done by by the operator, but also by Panoro. These are our maps. What you can see is that the reprocessing has suggested that Hibiscus could be quite a bit bigger.
There's bigger, larger area in the red and in the yellow and the higher relief. What we plan to do with the Hibiscus Extension well is to drill into the northern part of this enlarged structure, again, in April, results probably sometime in May. If that establishes contact with oil, coming or water contact, we could see the chance of crippling the size of Hibiscus. If that is successful, we'll probably end up drilling a sidetrack or perhaps even another one to delineate that as much as we can in this period. We also have an optional well slot with the Borr Norve rig to drill an additional well into Hibiscus perhaps in the Q3 .
We haven't decided on that yet as a joint venture, but it's quite exciting to have this kind of event happening so soon. All eyes will be on this obviously, if we can triple the reserves of Hibiscus, you know, I think it's another game changer. It was already a game changer. I think it's gonna have the possibility of doing that again. Next slide, please. Right. Just a reminder, you know, we're a public company. We thrive on news flow, and we believe we have a lot of it this year. In Gabon, we're gonna be drilling the production well, the DTM-7H well, which was postponed due to COVID last year.
We're gonna be drilling that in the, you know, somewhere in the summer, bringing that and DTM-6H well online, probably during the middle part, back end of Q3 perhaps, which should boost production up to about 20,000 barrels a day in Tortue. We're gonna be drilling the Hibiscus well, which I just talked about in the Q2, and we have the optional well slot in the Q3 to bring in that, to keep that rig and drill another well, probably into the greater Hibiscus area. In Equatorial Guinea, the operator has approved, together with the joint venture partners, the three infill wells, which will be starting to drill in the Q2.
The idea here is to boost production from where it was last year, about 32,000 barrels a day gross, to something like 37,000 barrels a day gross. We'll have some activity there as well. In Tunisia, we have constantly some well workover activities. We have some activities planned in the back end of the first quarter going into the Q2, and then to be defined further activity. There will always be activity in Tunisia to try to maintain and hopefully boost production as well. The exploration well Salloum is pending approvals. It's not entirely clear yet when we will drill that, but we have indicated it here as at least as a possibility this year.
PetroNor, for those of you who follow us, we have sold our Nigerian business, Aje to PetroNor, a Norwegian-listed entity, with also African focus, at $10 million worth of their shares. We intend upon regulatory approval of that transaction in Nigeria to distribute those shares to our shareholders. A dividend of PetroNor paper to our shareholders, $10 million, hopefully during the Q2. In South Africa, we have been waiting for the closing conditions to be met on that transaction, but we're currently indicating a sort of Q3, well, if the closing conditions can be satisfied. There is a bit of a lead time once we complete to being able to drill the well, so we're indicating the Q3 at the moment.
There's probably other activity as well that we haven't, we haven't fully approved or, or debated or defined yet, but there's gonna be other things as well. I think we're gonna have a very, very busy year. With that, I'd like to turn it over to questions. Again, you can type in a question or you can raise your hand. Qazi is going to officiate the questions. I will attempt to answer the questions and I might drag in my colleagues as well, depending on the nature of the question. Qazi, do you wanna go ahead and get some questions rolling?
Yes, John. Good morning, everyone. We have the first question from Stephane Fossard from Auctus. I will unmute his line. Stephane, you may speak now.
Yes. Hi, Qazi. Hi, John. Two the same technical question for me. The first one is the CapEx program for 2021, I think does not include Salloum, and I think technically you said it's because it's already part of a cash provision. I assume that the restricted cash that it will be covered with, if you could confirm that would be great. Second question, with the lifting in EG in Q1, given its importance, I guess, and it's again for more purposes than anything else, I guess that might have a quite material impact on the price, the cash price you will be paying on closing of the acquisition. Could you confirm that? You guys started to define it, if I'm correct. Thank you.
Thank you, Stephane. Yes. Your first question on Salloum. If you look at the sort of the notes under the CapEx program, all we've done is say that the drilling cost at Salloum has kind of been set aside contractually. We didn't add it to the CapEx line there because it's already effectively been taken care of through the cash being set aside. Your question on EG, yes, there's a planned lifting in Equatorial Guinea in March. It's a big lifting. We have an effective date with Tullow of our transaction of the 1 July, 2020.
What happens when we complete the deal, if we say we complete the deal, let's say in April sometime, what will happen is we have to pay the consideration that we've agreed with Tullow, but there's all kinds of moving, completion adjustments that happen. You know, Tullow will have paid money out for operating costs in the meantime. There may be other smaller adjustments. And when it comes to the revenue line, obviously that revenue is ours. So it will, you know, it will either, depending on exactly when completion happens, it will either, form an adjustment to the completion price, or it will show up, potentially as a receivable, again, depending on the timing, on our balance sheet. It may not come into our official P&L.
I think Qazi will attempt at that time to show something on a pro forma basis. It is a big number, and we're very happy in a lot of ways. Oil is, you know, trading, you know, well above $60 a barrel now, which we didn't imagine at the time that we would, you know, I think we had $45 in our model. It's actually quite a nice event that's happening, but it is quite a big event that we'll have to make sure at completion that we explain to the market well exactly how that filters through. At the end of the day, cash is cash. It is our economic right.
like I said, at the end of the day, cash is cash. It just may be interesting how exactly we account for it.
Okay. Thank you. Back on Salloum, the provision, you say it's already provisions. Where could I find that provision on the balance sheet? That would be restricted cash, and that would be taken out at that time?
Yeah. On our balance sheet, we have cash, and then we have the cash held for bank guarantee it says.
Yeah. That's under that.
Yeah.
The $10 million, whatever.
Yeah, exactly.
Okay.
Yeah.
Okay.
Yeah.
Great. Thank you, guys. Well done.
Sure. Qazi, who's next?
Yes. John, the next question we have from Teodor. I will unmute the line. Teodor, you may unmute your line to speak now.
Yes. Good morning. Can you hear me?
Yes, I can. Thank you.
Yeah. Perfect. Thanks for taking my questions. Two small questions, if I may. First one, or that's maybe not actually that small, but it's on future M&A. John, you highlighted that the...
Production profile you show on your slides, that's of course, based on current plans and then that, things may change. I guess you will still look out for equity in ladies. If you can just share a few thoughts around what you will look for. Second question, just thought on the cash flow in Q4. Looks like you have some release working capital. Could you please confirm that?
I'll let Qazi answer the second one. The first one, couple of thoughts, Teodor. I think you're right. When you look at. You know, again, when we set out to finance this transaction, we had $45 in mind for forever, basically, which was a sensible thing to do, obviously. You know, what you can see is obviously if oil prices hold up, we'll be generating even more free cash than we thought, which puts us in a very nice position. You know, we had a board meeting yesterday. We talked about this issue. You know, I think we're 100% focused on completing these deals.
I mean, I don't foresee any issue completing them, but you know, there's quite a task, a lot of paper pushing and that kind of thing over the next month or two months. We're entirely focused on that. Despite the fact we're getting calls from every oil company and every investment bank in the world now, who think that, you know, we're ready to do more deals. I think the reality is, I think we're gonna keep our head down. We're gonna complete these transactions. We're gonna make sure we integrate the businesses properly. We set ourselves up to manage these and deliver what we've set out to do. That's the most important thing.
I think looking beyond the next few months, and maybe even a couple of days of holiday somewhere in there, I think, you know, of course, we're gonna be open to looking at opportunities. We have with Trafigura, they've given us an additional $550 million on our loan facility, which is what they call an accordion, which is simply a sort of an extra bit of facility we can use if we find more production assets. I think that in terms of targeting additional things, I think we would be looking to bring perhaps some additional production assets into the business. Perhaps adding a little bit more on the exploration front as well.
We find that, you know, we're quite good at it and we think it's important to plan for the future by having a few more exploration plays in the business. Those could be in Gabon or they could be in EG, they could be in Tunisia, they could be in other countries. You may see us maybe trying to do a little bit more on that front, but never betting the farm kind of thing. We're not certainly looking to go and spend all our cash on the next acquisition in May. Far from it. I think we're gonna be very careful and only look for transactions that really make sense for the company and its stakeholders.
You know, look, we're open for business, for sure. Qazi, do you wanna answer the question on the working capital?
Yes, Teodor. Could you just repeat the question for, from a benefit if I understand it correctly?
Yeah. Yeah, sure. I just noticed that since you don't disclose a full cash flow statement for Q4, just looks like operation cash flow was pretty strong. I just wonder if there were some release of net working capital boosting operation cash flow.
Yes. Obviously we haven't given the details, so I can't be specific. But I think if you look at our disclosure of the operating cash flow and our, you know, statistics on the liftings, we had, you know, more liftings in the Q4 compared to the third, which basically, you know, helped. Obviously, you know, it's a combination of, you know, the receivables and, you know, accumulating some payables as well. The receivables have been released, yes, to some extent. We are, you know, compared to 31 December 2019, carrying a lower amount of trade receivable from, you know, in the 2020 balance sheet.
Okay, thank you.
The next question is from Ørjan Gjerde. Ørjan, you may speak now, please.
Yes, good morning.
Good morning, Ø rjan.
Yes. Hey. Just a question around your production profile, showed on page seven. You're showing the production guidance for the, for the next five years. And I guess some might be a little bit surprised that the guided production is falling in 2024 and 2025. Part of the reason is, of course, that you are just modeling in existing official 2P reserves. But is it possible for you to give some rough guidance on what you think is the most likely production outlook for 2024, 2025, maybe 2026? And if it's higher, what has to change with your initial assumptions that you have used in order to make the production profile on graph on page seven?
Well, it's a great question, indeed. What you said is correct, which is, what we're modeling there is a sort of a 2P profile of sanctioned activity. It principally is assuming, for instance, that Tunisia is just flat, which obviously, you know, we hope to be able to do more there during that period, but we've taken a conservative approach there. In Gabon, it assumes obviously we bring Hibiscus phase I and phase II online at the current FPSO maximum rate, which is around 45,000 barrels a day.
You know, clearly if we are getting encouragement from the production, and there's a case to be made and we're finding more reserves in that area, there's a case to be made to try and look at boosting the production capacity of the FPSO. That's possible. The production capacity can be taken to in excess of 60,000 barrels a day. That would require some capital expenditure, et cetera. It is possible that we're able to boost production beyond that in Dussafu, which has not been accounted for in those graphs.
The third thing really is in Equatorial Guinea, where, you know, the operator has spent the past two years or three years after having bought the asset from Hess, has been focused on infrastructure, getting the oil field infrastructure in place and is now for the first setting out to do some production drilling, where we have three wells this year. We've accounted for those three wells, but no more. We're not in the JV yet. What we would like to believe, if oil prices stay, you know, something reasonable, let's say, you know, $45-$50 a barrel, that the operator will seek to start trying to drill quite a bit more there.
This field at its peak produced 100,000 barrels a day. Even if we can get it to, you know, 50,000 barrels a day, say, I think it'd be a great result and we could see further increase there. We've not put that into our assumptions because it's not been approved by the joint venture yet. I would say as an overall comment, it's a sort of a conservative, what we can see in front of us type of forecast. Clearly, there is upside to that. You know, we think it's enough at the moment. As you can see, you know, even that profile does wonderful things for the company. Look, there is upside from there.
It's probably just not worth, it's not sensible to articulate that yet, perhaps.
Yeah. Thanks. That probably makes sense. Easier to surprise on upside then.
Yes, I think so.
Right.
Yes, we have one other question from the chat window, from Tom Erik, from Pareto Securities. I'll read out the question, John. With the fellow acquisition done in a $45 a barrel environment, he thinks many will speculate that Panoro did not attach a lot of value to the 2C resources at Ceiba and Okume. His second question is that, however, with this resource being 1.7x current 2P reserves, the upside looks substantial. It certainly did, but how do economics go? You know, economics of the, you know, of these resources, if you go after them, look like at $60 per barrel environment?
Right. I might get Nigel to help here. The first question is, you know, did we attach a lot of value to the 2C resources in Ceiba and Okume? The simple answer is, we saw that as our upside a little bit, if I can put it that way. Nigel, do you wanna just add a little bit to that?
Absolutely, John. Yes. I mean, clearly we're not part of the joint venture as yet, and are very much looking forward to engaging with the team and working through these opportunities when the time comes. As John has touched on, the operator has been focusing over the last couple of years on stabilizing production, upgrading the infrastructure at both Okume and Ceiba, and are just now getting into looking at the forward development opportunities. The three-well campaign that's coming up this year is the first part of that. Clearly there's a lot in addition to chase. It's very clear that the joint venture team has been looking at all of the fields. They've got detailed subsurface models.
New seismic data has come in this past year and is now being processed. In this set of fields, what is called 4D seismic is being applied. Shooting seismic over time gives you an indication of where the fluids exist in the subsurface, so you can track water flood through the oil reservoirs and identify targets of undrilled, undrained, unproduced oil. We're confident that the team is on top of that now. They're looking at opportunities, and we would certainly expect to see further drilling campaigns in the years ahead. Precisely what they will be clearly depends on that subsurface work, and then a ranking of priorities and a justification on a value basis as we go forward.
As I say, we're looking forward to engaging with the team on that, but we haven't worked the details precisely with the team at this point.
Just to finish up, I mean, the obviously the economics of those, you know, the 2C resources have the potential to, you know, double the reserves in the field from those that we, you know, modeled in terms of our valuation. Obviously, oil is $60 a barrel rather than $45. Those reserves are much more valuable. You know, we always In EG, we always saw that as our sort of upside case, is the we've got two ways of making more money than just a cost of capital in EG. One is, if you get the 2C resources into 2P, into production, and if oil prices go up from $45.
You know, we're hoping that both of those things happen, in which case it'll have been an extremely good acquisition for us. Dussafu is obviously a slightly different story. Dussafu is just in the beginning of its life and has all that exploration in front of it. We think it's been a fantastic acquisition as well, and looks even better at $60 than it did at $45. Qazi, is that it?
Thank you, John, Nigel. I have no other questions. Again, a reminder, anybody who wish to ask questions, they may submit on the questions window or raise your hand. At present, John, there are no further questions.
Okay. Well, I'd like to thank everybody for joining. You know, if you have additional questions, you can come in through our website, through our email address on the website. We look forward to making a number of announcements over the next few weeks. We have the general meeting coming up soon. We have the completions to look forward to. We have Hibiscus to look forward to. I'm sure we're gonna be actively in contact with the market in the next few months. Thank you very much.