Thank you, Guler. On behalf of management, I thank you for joining us today for our second quarter 2022 results call. I am joined today with our President and Chief Executive Officer, Mr. Keith Hill, and Chief Financial Officer, Mr. Pascal Nicodeme. Keith and Pascal will present the quarter's highlights and the business outlook before we go into a Q&A session.
I would like to remind everyone that remarks made during this session are subject to forward-looking statements which involve significant risk factors and assumptions and have been fully described in the company's continuous disclosure reports. The information discussed is made as of today's date and time, and Africa Oil assumes no obligation to update or revise this information to reflect new events or circumstances except as required by law. The company's complete financial statements and related MD&A are available on the company's website and SEDAR. Keith, over to you. Please go ahead.
All right. Thanks, Shahin. And thanks everybody for calling in today. Obviously, from the materials you can see we had a very nice quarter. I think, obviously the financial results probably are the headline of the quarter, and I think the shareholder return program that was announced seemed to be getting a much better reception than the dividend program that we announced earlier this year. I think we've heard loud and clear the voices of our investors, and I think we've always put shareholder returns as a priority, and I think now you'll see us kicking into the share buybacks with a vengeance.
I think, you know, for those of you who have been on the journey a long time, and I know some of you have, that, you know, I think we really are rounding into a well- rounded oil company now. A full cycle oil company that has production cash flow out of Nigeria as the kind of the primary driver of the engine. We still have some very exciting exploration prospects that we'll be drilling this year, and I will talk a bit about them.
On development, it's really driven mostly by Kenya and within our OML 130 block, the Preowei development, but we do have some nice development. We are looking at acquisitions. You know, we'll talk a little bit about that when we look at our NAV slide. I mean, any acquisition will always be compared against returning money to shareholders and will have to be a better use of our funds than returning it to shareholders. I do still think there are some compelling acquisitions out there. Shareholder returns, I think now we're kicking off in earnest. We kind of put our toe in the water earlier this year, but I think now we're you know, you're going to see that as a focal point going forward.
Good production. We'll be within guidance this year. We're just about 99% on guidance. The financials speak for themselves. You know, I think the journey we've gone for from being very cash strapped and debt laden when we made this acquisition, I think we stretched ourselves a little more than most of us were comfortable with. Now that has turned around where we actually are sitting on $190 million of cash. We do have debt net to us of $170 million at the Prime level. If you take a look at the cash, obviously we're $20 million ahead on that, so we're actually a debt-free company at this point. Then you can see our debt-to-EBITDAX ratio is very attractive.
Production, again keeps surprising to the upside, you know, particularly in our Akpo field. It seemed to be a very good welcome surprise. I think two years ago it was supposed to be going on decline, and it's still at a higher rate, and that's still been holding up much better than expected. I think you'll see at the end of the year, we will be within our management guidance.
Shareholder returns, obviously the $0.05 a share will continue. We will be examining that as we go forward. There could be an increase to the dividend depending on how the company goes. I think the buyback, you know, we a s I said, we've heard some fairly spirited calls from investors that right now the best thing we can do with our money, with as cheap as our shares are, is to go ahead and buy them back.
We have to go through some regulatory approvals. You know, it'll probably take us a couple of weeks to get that, and there will be a press release towards the end of the month on the exact mechanics of how we're going to do this. I think we've got a board approval yesterday to go ahead and commence that repurchase of the first 10%. You know, I think our sister company, IPC, has done very well with their repurchase program, and I think we will continue to look at that on a going forward basis.
Again, exploration may not be some people's cup of tea, but we'd still see it as a big value driver. Obviously, the Venus light oil discovery is very exciting and could be quite transformational on our share price. We will be going out and drilling two appraisal wells this year. It came in a much thicker reservoir and a much lower oil- water contact than expected. It looks like it could be quite big, but I think, you know, we do need to drill some appraisal wells and confirm that. But the good news on that is that we have a lot of acreage in that new petroleum province, which is now opened up by not only the Total discovery, but Shell's Graff well as well.
Next slide. Again, my dear friend Lukas Lundin, who has recently departed, used to always tell me cash is king. I think what we've found is the cash has been generating at quite a good rate on our asset in Nigeria. Again, we've received $562 million of dividends since we did the acquisition. We have another $260 million in the bank that we will be getting some distributions of by the end of this year.
We've had a major reduction in Prime's debt net to Africa Oil. I think you know, it was a little bit of a bold acquisition when we did it at the time, but I think we've proven right, you know, we paid out in just over two years of our acquisition price. Again, it just is kind of the gift that keeps on giving.
Next slide, the assets themselves. O f course, in Nigeria, these are the two best fields in Nigeria. They account for 23% of Nigeria's production. They're over 100 km offshore, so we don't have some of the problems that they have in the onshore fields in Nigeria. Very low lifting costs, about $7 a barrel. Nice light sweet oil.
You'll see, we'll talk a little bit about our hedging strategy, but, you know, recent cargo we sold actually got an $11 premium out of Egina. All of our crude trades at a premium to Brent. The reserves keep ticking up every year. We've had over 100% reserve replacement. The old adage of big fields getting bigger, it's certainly applicable here. We have two good operators, TotalEnergies in OML 130 and Chevron in OML 127. I think it was quite fortunate for us to be able to get into this asset at the time we did.
Next slide. We are putting some investment into particularly OML 130. OML 130, we have twice as much interest here as we have in OML 127, 16% versus 8%. It is about 75% of our revenue. This is really the gem. Egina field is the new field on the block and has been performing quite well. We are gonna be bringing a rig in at the end of this year and drilling some infill wells to increase production there. We also have the Preowei field to the north, which right now we're very close to having a license extension in that block. Once we have that license extension, we're going to be developing the Preowei field, which we're gonna tie right back into Egina.
There's also quite a bit of other things that are of interest to us there. There's deeper targets. There's actually a Egina South field that could be tied in. There's a Egina West field that we may be drilling an exploration well on. I think the key is we've got two very good FPSOs here capable of 250,000 bpd production. You know, we wanna keep those as full as possible. You'll see some investment here. We've recently shot a 4D seismic on Egina, and you'll see a fairly aggressive appraisal campaign kicking in at the end of this year.
Hedging, obviously, that's near and dear to a lot of people's hearts, especially mine. You know, those of you who know me, I have been an oil bull for the last four or five years. I continue to be an oil bull. I think even at today's price, you know, the underlying fundamentals, obviously the crisis in Ukraine and Russia has exacerbated it. The underlying fundamentals that we have not invested enough in oil and gas to keep, you know, supplies coming while demand continues to increase, and the fact that the transition is going to take much longer than most people originally thought. We're probably looking at a 30-, 40-year transition to away from oil and gas.
I think oil is still gonna be very relevant in the upcoming decades. I think we're seeing that now. We're seeing the Saudis and others telling, you know, world leaders that there is no chance that they're going to be able to increase production to meet the demand. I think even hopefully the Russia situation resolves itself quickly. I think even when that happens, I think, you know, the overall market is still very bullish for oil.
We did have a lot of debt when we took [this], and of course, banks like you to have hedging. We did do quite a bit of hedging early on, and I think, you know, it was a great strategy in 2020. We made over $450 million on hedging gains in 2020. We reversed that a bit this year in particular, gave some of that money back as we had hedged in the first half of this year, and didn't get quite as much out as we would like out of our oil. I think we've put in a new program now that really gives us opportunity to keep all of the upside without but still protecting the downside.
Right now we're hedged just about 50%. Our range is 50%-70%, but I think we're keeping down to the bottom of that 50% target. It's a fairly clever hedging strategy, I think, that was developed by one of our partners, BTG and POGBV, where we actually forward sell the cargos, but we don't fix the price when we sell it. What we have is a trigger, and it's a costless trigger. We don't pay for a put. When we actually sell the cargo, we set a trigger of 80% below the price on the date of that trigger. Then if the oil price gets to that level, we actually do a sale.
We just sold a cargo in January of next year, and it has an $85 trigger. If oil ever gets down to $85 a barrel, it's an automatic sale. If it doesn't get down to that trigger, which is the case for our cargo next month or this month in August, we have a cargo coming up in a week where the trigger was never set, was never realized, w e just sell on the spot market.
It's a very clever instrument. I think it allows us to keep all of the upside, and if I'm right about oil prices, we will be just selling our crude at spot market prices, the majority of it. If I'm wrong about oil prices, which a lot of people have been wrong about oil prices in the past, we have a nice little security blanket that where we will sell at 80% of whatever the price was at the time. Anyway, I think it's so far it's working quite nicely, and I think we'll be using this as an instrument going forward.
I was quite excited to see the July cargo. We sold a Egina July cargo for $123 a barrel, which included an $11 premium to Brent. Our crude is good quality. We're getting somewhere between $4 and $11 a barrel premium right now for all of our crude. I think hopefully that continues going forward. Next slide, I'll turn over to Pascal, our CFO, to go through some of the financial highlights.
Thank you, Keith. As Keith mentioned, I mean, this has been another good quarter, especially from a cash perspective. He's mentioned that we've received in the first semester $162 million of dividend from Prime, which explains our very large cash position at the moment. From an accounting perspective, the net income for Q2 has been impacted by a one-off non-cash booking entry at Prime level in relation to decommissioning costs, and this was $23 million. Without that one-off exceptional entry, we would have posted a quarterly net income of $29 million, which would have been in line with the other quarters since we made the acquisition.
Apart from that, as Keith mentioned, very strong cash position, $191 million at the end of the quarter. We are now debt-free on a consolidated basis with Prime and the AOC put together. That's a very, very good outcome knowing the amount of the RBL facility and the acquisition debt we had to book when we made the acquisition back in January 2020. In less than three years, we've basically repaid all the Prime debt and our acquisition facility, which is really outstanding given the oil price downturn in 2020 and 2021. I think this quarter is just a normal quarter from a cash and accounting perspective. Thank you.
Prime has continued to deliver it in terms of EBITDA, in terms of cash flow from operation around $130 million over the quarter, which is really in line with what they have performed since we made the acquisition. As we said, a very strong balance sheet both at AOC level and Prime level. Prime still has their RBL facility around $700 million outstanding. They have the $300 million of PXF. Gross, on a gross basis total, they have $1 billion of debt, which is $500 million net to us. Of course, they have a very large cash balance. You will probably remember that they have received this security deposit last year, and they will consider distributing this extra cash as dividends going forward. Next slide, please. Thank you.
This slide about liquidity. As you know, liquidity has always been in the center of focus for the company. We've always maximized our liquidity and make sure that we could go through any unexpected event, well, something like COVID, for instance. I think we were proven right. We still have this corporate facility available and undrawn on our balance sheet of $400 million. We are considering increasing it and extending it to make sure we have this backup line available for general corporate purposes, in particular, acquisitions.
You probably know that this facility has been provided by five banks. We want to keep these five banks in the syndicate and make sure we continue to work with them. I think it's key going forward that we keep very good relations with our banks. They have shown their support until today, and they are very keen to continue to support us in the future for our development, especially for acquisition.
In terms of dividends, we have received $162 million in the first half of the year, which is more than the annual budget we were expecting. We expect Prime to continue to deliver very strong dividends in the second semester. Again, our liquidity position is going from strength to strength. Next slide, please. Keith, over to you.
Yeah, again, those of you who know me, I'm still a very big exploration bug. I think exploration is going to be key to keeping the supply during the transition period. I think we've done a fairly good job of getting an exploration portfolio in really the hottest basins in the world.
I think, you know, the Guyana is one that we hold through Eco, and you see that Guyana has probably been the best place in the past 10 years to look for oil and gas. Now I think we're looking in South Africa and Namibia, which is kind of turning into sort of the next Guyana and the hottest place to look for oil and gas in the world. I think we have a very good position there. You know, obviously, we've announced the Venus discovery. We've had the big discoveries in Luiperd and Brulpadda in South Africa, and 11B/ 12B.
I think if you move to the next slide, we kind of look at you know, we think this is going to be a fantastic place to be in the upcoming years. This is an interesting map. It shows the Orange Basin is really the last delta on the west side of Africa that hasn't been explored. You know, if you look at the Niger Delta, if you look at the Congo delta, you know, that's where the majority of oil reserves are in West Africa.
You know, this basin has been underexplored mostly because of, I think, the discovery at Kudu 20 years ago kind of put a bad light on this, saying it's pure gas and it's fairly small. I think, you know, the two wells that have been drilled in the last year, the Venus-1 discovery and the Graff-1 discovery, have not only shown that this is an oil-prone basin but that these can be extremely large. These are probably both multi-billion- barrel fields. I think now the industry is looking at great excitement.
The good news is we have not only our position in the Venus block, but also we have what I think is probably one of the most attractive blocks, Block 3B/4B, which has the same type of geology and really an extension of that. We also have Block 2B, where the Gazania well is going to be drilled. I think we're looking at that well should spud sometime in September, and it looks like we're quite keen on that as well. That's an updip from an existing discovery, so I think it's got a very high chance of success.
I think the inset map on the bottom left is an interesting one to look at because that's the Guyana Basin, which again is over 15 billion barrels of oil found in the last decade, and probably the best place on Earth. You can see the scale of that. That's the same scale that map as the Orange Basin. You could easily fit all those discoveries within Block 3B/ 4B alone. So this delta is, you know, roughly 8x the size of the Guyana delta. And, you know, it's the Guyana Basin. And I think it's early days but certainly exciting.
On Block 3B/ 4B, we've got many major oil companies interested in farming out. Our local partner is out right now looking for a farm-in, and I think they have a very high chance of success of attracting one of the majors. The most important thing we'll be doing this year in this area besides drilling a Gazania well is drilling the two Venus appraisal wells. Again, very encouraging results from the first one. We wanna appraise those, we wanna test those, and I think if those go successfully, I think you'll see us fast-tracking a development in the Venus field as well.
Again, these are held through portfolio companies. We are looking at how we want to manage those portfolio companies going forward. Regardless of how we manage that and monetize it, it is creating a lot of value for the company going forward. Next slide.
You know, we don't wanna forget about Kenya. Kenya was where we started this company, and Kenya was where we saw early success here. We've been working very closely with our partners, particularly our operator, Tullow, and we've, you know, redesigned the whole development scheme at Kenya. I think it's a very fulsome, economically attractive scheme. We are currently in discussions with partners, potential partners, to try to get someone in the block to kind of be the lead investment partner in the block. I think those discussions are going well.
Nothing's done till it's done, but I think we're still very optimistic that we're going to be able to attract a partner and finally get Kenya moving forward. Again, this is a great location to be in on the Indian Ocean. I think there's a lot of ready markets nearby. Again, the crude is quite good quality. I think we're finally getting fully aligned with the partners, with government, and with the project itself. I think you know, hopefully we'll be moving forward with this fairly soon.
Next slide. I think you know, obviously, investors care about catalysts. We have a lot of catalysts coming up even in the second half of this year. Again, probably the two most impactful ones are going to be the Venus [appraisal testing] program confirming this, you know, massive new discovery. The license extension in Nigeria is also a very big one for us. Because what happens in the license extension, it allows us to refinance our RBL debt and again increase our dividends by pushing out some of our debt payments.
Pascal mentioned briefly the Equinor security deposit. We believe we found some mechanisms that we can use to be able to return that cash to shareholders. By the end of this year, we would expect to see that Equinor security deposit being drawn down and paid out as dividends. I think, you know, for the cash is king strategy, that is gonna be very important for us.
Gazania is a well that hasn't maybe got quite as much press as some of the other big wells, but the nice thing about Gazania is it's in 150 m of water. If it's a 200 million-400 million- barrel type prospect, if we find it there, not only can it be brought on stream very quickly, but the profitability of this would be quite high.
Gazania, we own through two different companies, Eco Atlantic, who's the operator with 50%, but also, of course, our other portfolio company, Africa Energy, has a sizable carried portion of that well. I think we have a double exposure to the Gazania well if it's successful. Again, I think it's a very high chance of success as we're really just coming updip from a proven light oil discovery that was drilled back in the 1980s.
Acquisition-wise, we are still looking at a number of strategic producing assets. You know, I think we will always compare returning money to shareholders versus acquisition, so it has to be accretive to our share price and our value proposition. We do think there are some interesting acquisitions out there. You know, the majors are still in the process of redoing their portfolios and selling off non-core assets. Honestly, there's just not that many people out there to buy them.
You know, people who have the financial strength that we do and can come in and buy these, in a sort of a difficult financing market, I think we have a real leg up on doing some of these acquisitions. We will continue to look at that. I already mentioned the Kenya farm- out. We're hoping to have news on that in the next couple of months. You know, I think that would be a real big boon for us if we can finally get that project moving forward.
The other one I haven't talked too much about, and I think some of you, o bviously those of you who are Africa Energy shareholders, you know, we are the largest Africa Energy shareholder if you combine our direct interest and our interest held through Impact. You know, we are quite keen on Africa Energy and the 11B/12B development.
I'd encourage you. I believe the Africa Energy results are coming out shortly. You know, there's good progress being made on that. I think the plan is to basically apply for the petroleum rights on the Luiperd discovery next month. Again, I think a lot of things moving forward and a lot of catalysts coming up. You know, your company's in very good shape financially. I think, you know, we see the future as quite bright in the company.
If you look at, you know, the value proposition, and I think this is one of the reasons we talk about buying back our shares may be the best investment we can make. If you look at our market cap now, it's really, if you just look at Nigeria, we're trading at a pretty significant discount to Nigeria. You know, depending on what oil price you wanna use, we have a $60, a $70, an $80 case here, you know, with a small amount of debt, you know, we're probably trading at about a 40% discount to just our 2P NAV if you assume $80 barrel oil.
All of these other things you see to the right are not in the stock. You know, you're basically getting everything to the right for free. You're getting the, you know, the portfolio companies, which, you know, m ost of them, two of the three of them, have market prices that you can directly take the value of our shares at that price, $125 million.
Kenya, we put a risk on it, a risk of actually completing the farm- out. You know, we still have another $250 million on that. Venus discovery could be quite large. You know, I think we all wanna see the results of these appraisal wells before we start putting numbers on that. It legitimately could be a billion- barrel discovery. Some of the other exploration, including 3B/ 4B, Gazania, all of that, you know, shows that, you know, we have a very good chance to at least double our core NAV in the near term on these projects.
Again, this is the kind of chart we look at when we make decisions about allocation of capital. Right now, I think, you know, the board made the decision that buying our shares is probably the best investment we can make right now. We will be instituting that 10% buyback as soon as possible. We will be looking at this chart every time we go to either spend money on acquisitions or return capital to shareholders.
Anyway, I think that's all for today. I'll let you read the reader's advisory and the forward-looking statements lawyer speak and just wanna thank everybody again, and I think we're now ready to field any questions you might have.
At this time, I would like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad. If you wish to withdraw your question, please press the star one again. Press star and one to ask a question. Your first question comes from the line of Teodor Sveen-Nilsen from SpareBank 1 Markets. Your line is now open.
Good morning, Keith, and I guess it's a good afternoon to you, Pascal. Congrats on yet another strong quarter. A couple of questions from me. First, on the share buyback, just on the time horizon for buying back those 10% of the share. Will that happen this calendar year, or will it also r un into next year? Would you have any buyback criteria? For example, there would be a certain share price range that you will execute the buybacks within? Or don't you have such kind of share price range for buybacks?
Second question, on Venus. You mentioned fast track here, Keith. Could you talk a little bit more about that and also the timeframe for that? Also what's the latest around the size of the discovery? What should be our best guesstimate for size? My final question, just for clarification. Did you say, Keith, that the Egina lifting was sold at the $11 premium to Brent, the last lifting? Thanks.
Okay. Well, there's a few things. Always good to hear from you, Teodor, and looking forward to seeing you when we come to Scandinavia. For those of you who haven't seen me in a while, we do have a Scandinavia trip planned on the 13th, 14th of September. Looking forward to seeing all of you in Scandinavia again. I've missed you, but f irst one, about the buybacks.
We will be giving a very comprehensive press release that talks about it. It's essentially a one-year buyback program under the normal course issuer bid framework. You know, I think the ability to accelerate that or decelerate it, there are limits of how much you can do per calendar month. You know, there will be more details on the pricing, more details on the brokers assisting us, et cetera, et cetera in the when we get the final approval from the exchange. You'll see probably in about two-three weeks a press release coming out with all the specifics on that.
The idea is it probably will spill into next calendar year, but I think, you know, it will be price sensitive. We'll be looking at, you know, putting price brackets on it to buy the shares back. You know, I think what the board has advised us is that they wanna be fairly aggressive on this. Within the limits imposed on us by the program, I think you'll see us trying to accelerate that and doing it sooner than later.
Other question is about Venus. The Venus appraisal wells should be spudding next month. We have two appraisal wells there. You know, one of the keys there, we wanna test both of those wells. You know, the reservoir thickness was quite good in those wells. I think, obviously before you commit, you wanna see some nice flow rates to go along with those with the logging results we've got.
I think those two wells will be critical. You know, the idea that we've you know and TotalEnergies has said in the press is that they want to fast-track that development once they confirm basically the reservoir by the testing and drilling of those two wells. The reservoir extent and the deliverability are kind of the two main questions to answer now.
I think, timing-wise, I'd probably not want to step on, you know, I think that's for TotalEnergies to talk about. I think if you look at the Guyana example, you know, the Liza well, you know, which also would be done with an FPSO, you know, and which was done by ExxonMobil in Guyana. You know, I think they were looking at three years from basically pulling the trigger to first oil. You know, I think that's kind of the target to shoot for but, a gain, don't wanna presume to talk on the operator's behalf on that development.
If I remember right, the last one is the Egina $11 premium. That was the highest we ever got, and it was a true premium. You know, we have seen $6, $7 premiums in the past. I think, you know, this is very good quality, you know, high gravity, low sulfur, low metals, you know, whatever you would want a good oil to be. It's very desirable from the refining community. I think you'll still see, you know, I don't want to predict that we're gonna continue to get that $11 a barrel. I think we will be seeing a significant premium on all of our crude coming out of Nigeria. Did I miss anything, Teodor?
No. That's all clear. Thank you very much. I'm looking forward to see you in September. Thank you.
Okay.
Your next question comes from the line of James Hosie from Barclays. Please ask y our question.
Hi there. Yeah, a couple of questions from me. Just first off, and maybe it's slightly vague, but if you could really quantify the size of acquisitions you're targeting and how that might influence how much cash you want to hold in the balance sheet. Then if you could just clarify your comments about the Equinor security deposit. You're saying that if you can move all the cash, I think it's about $150 million, from Prime to Africa Oil, you'd then return that to shareholders.
Yeah. I think that's the plan. I'll start with the second question first. You know, the $150 million, that is being held kind of as a security deposit. I think we've got ways. There's some complications around that that I think we've talked about in the past. I think we've found ways to potentially get around that.
I think it's actually, you know, we have no real restriction of taking that money out. But I think from a tax and legal perspective, we just wanna make sure we do it without incurring any additional tax or legal ramifications, and I think we've kind of figured that out. I think that will be available by the end of the year for distribution to shareholders. At least that's the plan.
The first question, on acquisition size. You know, I think we're looking to do something significant. I mean, I think, you know, there were a number of acquisition targets we looked at in the sort of 3,000, 5,000, 7,000 barrel a day range. You know, I don't think that really moves the needle enough for us. I think we've been looking at stuff that, you know, potentially double our production or even more. But again, each time we look at an acquisition, you know, we have to look at how much funding is available and, you know, there is still funding available for acquisitions in Africa for production acquisitions.
Again, we're very laser-focused on production cash flow. We're not buying exploration things, we're not buying even development things. We're looking at stuff that's actually on production and producing cash flow. There are banks that are willing to finance that. All of that will go into the decision of whether we do acquisitions versus shareholder returns. Certainly, we think there are still some attractive acquisitions out there, and we think there's debt financing that can be used on that so that we can kind of save our equity to kind of be the, I'd say, the primary use of it to do shareholder returns.
Okay. Just one further question, maybe just on Venus. I mean, obviously you've understandably invested more to fund the appraisal campaign, but I guess, how far into the appraisal phase do you need to get before Africa Oil can look at monetizing that stake you have?
Hopefully, I'm not speaking out of turn, but you know, we have raised the money at the Impact level to do the next appraisal campaign. It's fully financed going forward to stay in on this next appraisal campaign. I think after that appraisal campaign is finished, I think we have to look at all options. Do we wanna stay in? Which will of course require more funding from all of the current shareholders of Impact. Maybe it's time to look to see what we can get in the market on it, you know. You know, I think there's a number of options to be looked at.
Again, I'll leave that to Impact to inform the market. You know, I think, until we drill these appraisal wells, we would not be able to get as much as we think it's worth. I think we need to confirm that. I do think that's one of the options to look at going forward is, you know, how much could we monetize it for, you know, right now, you know, either selling our share or selling the whole company.
Thank you very much.
Your next question comes from the line of [Tal Adams]. Your line is open.
Good morning and good afternoon. My question about the forward sale stop loss mechanism has been partially answered by your informative slide. Just to clarify, if I understand correctly, 50%-70% means Prime is selling six-eight months forward on a rolling basis. If that's correct, what governs the choice of the stop price of the forward sale, circa 80% of the Brent forward curve? You said there's no put premium, but is there discount built into the oil price below the futures price? Thanks. I have a follow-up.
There's no put premium. It's just a trigger. It's not really a put, so we don't pay for it. You know, it doesn't oblige. Let's maybe walk through an example. Say oil price starts dropping and we do hit that trigger. Then the person we've sold it to has the obligation to immediately sell that at that point. He doesn't have an obligation to give us, you know, whatever that. S ay it's $85, y ou know, as the market is going. We believe we'll get roughly that price for it, but it could be a little more, it could be a little less. But you know, immediately at that point, it's just a trigger and he sells. You know, that kind of gives us the cushion on the bottom that we'd like.
The 80% was just an arbitrary thing that we as the board of POGBV selected to start this program off. I think that'll be reviewed every quarter to see how that's working. You know, should it be a little more? Should it be a little less? So far, it seemed to be about the right number. You know, we haven't hit any of those triggers yet. You know, depending on what happens with world markets, you know, again, you're talking to the biggest oil bull that, you know, you'll probably ever talk to, I don't think we'll ever see those targets hit. I think we'll be selling on the spot market, going forward, for some time.
You know, as we all know, we can all be wrong about oil price. I was an advocate of not hedging too much in 2020, which I'm glad that didn't happen because, you know, we would've been in a lot of trouble if we didn't have our nice hedges in 2020. I think you need to have a little bit of a t his program really gives us kind of both sides. It'd give a little security to our investors and our bankers that we're being prudent in handling the downside risk. I think, you know, it now gives us the upside potential that we didn't have kind of by the old program.
Okay. That's helpful. Thanks. My follow-up question is just on the potential for any stranded undeveloped resources adjacent to blocks OML 127 and 130 which might be tied into the PSAs through a negotiation with the license holders. Is that a possibility?
Yeah, I think that's, you know, the near field development. You know, again, it's all about those three FPSOs. You know, we have capacity in all three of those FPSOs, probably less in Egina because we'll be bringing Preowei in. Even there, you know, in the medium term, we're going to start seeing some capacity. That's one of the things that I think could be a real value driver.
There are some fields nearby that we have looked at. You know, our CEO, Ron Cochrane, you know, had five years with Shell as one of the principals and Nigeria and knows the area like the back of his hand. I think he has some great ideas of stuff that we could bring in to basically fill up those FPSOs.
I think, you know, the license extension is a big thing for us. Once we have that 20-year license extension, then we can really start looking down the road and looking at some of these bigger tie-in projects and the ability to finance them. You know, again, we like to take advantage of all the debt financing we can to keep cash available for shareholder returns and for acquisitions.
I do think that's one of the most attractive things we can do is, you know, we do have some things within our license, but it's a great point, you know. Th e stuff outside our license may be just as attractive. For those operators holding those discoveries, they're worthless basically because they don't have infrastructure and they can't afford to put in their own infrastructure. It would be a great way to grow the business down there.
Great. That's it for me. Thank you, Keith.
Your next question comes from the line of Matt Cooper from Peel Hunt. Please ask your question.
Hi, thank you for the presentation. Firstly, I wonder if you could talk a little bit about the likely costs for the Nigeria license extensions. Also, should we expect to see a material increase in Nigeria infill drilling next year if oil stays above $100?
Yeah. The cost is a negotiated cost. It's based on the NPV10 of the license going forward, and basically a percentage of that, usually in the 3%-5% range. This is something that's been done for the last 20 years. The operator is negotiating that number on our behalf. You know, again, I kinda don't wanna presume to put numbers out there, but, you know, it's a number that we think is. You know, the numbers being bandied about now are numbers that are quite reasonable to us. I think, given, you know, the importance of license extension, we feel very comfortable paying those types of numbers.
Again, you know, it has a couple of knock-on effects for us. It allows us to basically refinance our RBL. You know, we have been generating a lot of cash and, you know, a lot of it's been going to our bankers. You know, we'd like to see more of it go to our shareholders, and by doing that, we push out that, you know, the amortization of that RBL by, you know, several years so we'll have more access to cash. What was the second question? Sorry.
No, that was great. I was just asking, you know, are you looking to materially accelerate Nigeria infill drilling next year at all?
Yes. The only field that, you know, we really are behind on, you know, is Egina. We were hoping to have that rig in March, and for a combination of factors, you know, rigs are getting quite tight now as oil prices came up. The start of the rig is now in December. We got that rig now, and we have, you know, somewhere between seven and eight locations that we'd like to drill on that, including possibly, you know, one of the, call it, exploration wells to look at one of those tie-in opportunities.
I think you'll see that on Agbami. We've also been looking at drilling infill wells there as well. We've now got our 4D seismic there, and you know, I think there's some great locations there as well. I think, you know, we haven't been putting much capital into these assets, and they still are performing strong.
I think, you know, if you look at the history of all three of these oil fields, especially Agbami and Akpo, you know, there's a consistent reinvestment program where we're drilling infill wells to keep the production up as high as possible. I think you'll see over the next year that we'll be putting a bit of focus on making sure that we take care of these fields.
Okay. That's helpful. Thanks. Just a final one that's probably for Pascal. I mean the new hedging policy looks, you know, pretty big step forward. I just wanted to check in terms of barrels sold under the previous policy. Can I confirm, for this year, the total number of barrels sold forward by Prime and the weighted average price on those?
Yeah. Well, I don't have the exact figures at hand now. We can provide this to you without problem.
Yeah.
The new hedging policy has covered one cargo so far, the August cargo. As you know, Prime has given basically the instruction to sell this cargo two months ago. Since the oil price never went down the threshold or rather the trigger that was set at that time, which was around $85 per barrel, actually, that cargo was never sold forward. Ultimately, it was sold spot, and that will be the same strategy going forward. All the cargoes are going to be hedged under the same strategy going forward.
Yeah. I think we only have one more cargo that was actually under the old program. I think there was only one more cargo that was actually under the old program. It was about an $85 cargo, I think. I don't remember. There might be two. I'd have to check on that. Going forward, we shouldn't have, you know, we shouldn't have any more than, I'd say, two cargoes that would be sold under the old program.
Gotcha. Okay. That's great. Thank you.
We have no further questions over the phone at the moment.
Okay. Well, there are a number of questions submitted via the webcast facility. As we have about five-10 minutes left, I'm gonna put some of those to Keith and Pascal. Pascal, here's one for you. In relation to the Prime RBL refinancing, potential RBL refinancing, do you have any views on the potential size if a refinancing was to be successfully undertaken?
On the potential price.
No, the size of the facility.
The size. The target was, you know, the outstanding under the current RBL is around $700 million. The target would be slightly above $700, probably $750 million. That's the target of the company and I think it's on good track to raise that amount of money. The feedback from the banks has been very good.
Yeah. I suppose it's fair comment to say that the Prime credit output is one of the best credit files for the international banks, right?
No, exactly. I think Prime is relatively confident to get a pricing in the same range as the existing pricing.
Okay. Thank you for that, Pascal. Keith, there's a question on Block 3B/4B, and the question goes, "Do you have any intention of farming out some of your interest in this block? Or is it [just markets with the partners] looking to farm down?
I would say, you know, we're at 20% an operator, and we kinda like where we are. I mean, if to facilitate a bigger deal with a major, we might consider putting a little bit of our interest into that pot but, you know, I'd say, no more than 5%. I think we wanna keep a material position in there. Our preference would be to stay at 20% an operator, you know, at least through the exploration phase. You know, obviously we need to see what offers come in .
And you know, I think the key is really our partner, Ricocure, who owns 60%, who's our local black empowered partner. I think they're very keen to farm out 30%-40% interest, which would be material enough to attract a major oil company. If the price is right, you know, giving up 5% to facilitate the deal and take a little of our risk off the table, you know, we'd be happy to consider that.
I suppose a follow-on question would be, if there's the right offer on the table, would you consider giving your operatorship, say, if a super major was to come in?
Well, I mean, there's everything has its price. We're not gonna give it up for free. That's, you know, we actually paid for it when we got it, and, you know, we feel pretty comfortable operating during exploration. You know, we think we can probably do it cheaper and more efficiently than most companies, you know, for the exploration drilling phase. So our preference would be to operator, but, you know, everything's for sale if the price is right.
But, you know, I think, on development, you know, I think the I think I've quoted the great American philosopher Clint Eastwood several times, you know, "Man's got to know his limitations." I think a deep water development operator probably needs to be a major, you know, not an Africa Oil. So I think, during development, I see no issue in, you know, doing a joint operating structure or giving up operatorship. Exploration, we feel pretty comfortable we can do that ourselves.
Very good. There's a question on Africa Energy and, I suppose, Africa Oil's strategy around Africa Energy, our younger associated company. What is the Africa Oil's long-term strategy for Africa Energy in particular amongst our portfolio companies? Is there scope for Africa Oil to be, for its Block 11B/1 2B and Gazania player, to be consolidated within the Africa Oil portfolio?
Yeah, I think, you know, we've obviously looked at all possibilities of, you know, how we want to move forward with Africa Energy. And consolidation would be one, you know. So far, we've been basically just maintaining our corner and fundraising, you know, and happy to move forward on that. I think, you know, we've got two pretty big triggers coming up, Gazania-1 and the petroleum right application. I think, once those are completed, I think we will continue to look at that strategy, you know, should we be more interested, more, you know.
You know, right now I really like, you know, both of those prospects, so I'm quite happy where we are as the de facto largest shareholder of the company. I think, going forward, we will have to come up with a strategy that, you know, allows Africa Energy to keep up with the development and to obtain funding and, you know, whether it's folding it into Africa Oil or, you know, getting a strategic investor, you know, even selling out the asset if the price is right. You know, I think all of those are on the table.
Okay. Very good. There is a question which is about chance of success for the appraisal program on Venus. Obviously, we're not in a position to give that. Can you provide some general color on what you would be looking at from an exploration appraisal lens? What would you be looking for from the appraisal program, Keith?
Yeah, again, I don't wanna put words in Total's mouth. You know, they are the operator. We don't have a direct interest in Venus. We only have a investment interest in Impact. I think I'd be a little careful about us telling our view of it. I think that's more for Impact or Total to opine on.
We aren't stepping out very far from that major discovery. You know, as a geologist, I can tell you that, you know, to have the massive, thick sand body just disappear as you move to the north, not very far, would be very unlikely. I think it's really about, you know, the chance of success, we are gonna find oil and gas and we're gonna find sand in there. It's really the thickness and the quality and the flow rates that we're really looking for out of those appraisal wells.
Very good. Well, look, that's it for questions that have been submitted. There are a number of other questions, but I believe we've answered those through the presentations and through answering the earlier questions. I'll hand the call back to the operator to wrap things up.