Q2 2024 Africa Oil Corp Earnings Call
Thank you.
Shahin: Hello everyone, my name is Shahin and I will be your conference operator today. At this time I would like to welcome everyone to the Africa Oil Corp Q2-24 Results Management presentation. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session.
Shahin: If you would like to ask a question during this time, simply press star 1 and 1 on your telephone keypad.
Shahin: If you would like to withdraw your question, please press star 1 and 1 again.
Speaker Change: Please note that any time participants on the webcast can submit questions using the Q&A box on the webcast interface.
Speaker Change: Please note that this event is being recorded. The recording will be available for playback on the company's website. I would now like to pass the meeting to Mr. Shahin Amini, Africa Oils Investor Relations Manager. Please go ahead, Mr. Amini.
Shahin Amini: Thank you, operator. On behalf of management, I thank you for joining us today for our second quarter 2024 results presentation.
Speaker Change: On the call today we have President and CEO Roger Tucker, our CFO Pascal Nicodeme, and our Chief Commercial Officer Oliver Quinn. There will be a presentation for around 20 minutes before we go into the Q&A session.
Speaker Change: or third
Speaker Change: 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.
Speaker Change: and these have been fully described in the company's continuous disclosure reports.
Speaker Change: [inaudible]
Speaker Change: 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 MDMA are available on our website and on CDAR.
Speaker Change: I will now pass you over to Pascal for the highlight of the second quarter and Pascal over to you. Go ahead please.
Pascal Nicodeme: Thank you, Shahin. Can you please move to the next slide? So I will present the
Pascal Nicodeme: the financial statements for the second quarter of 2024 and the first half 2024. And first, I would like to start this presentation.
Pascal Nicodeme: by showing how we've used our resources and how we've maintained the strength of our balance sheet in the first half of this year. So we started the year with $232 million of cash on the balance sheet. We are ending.
Pascal Nicodeme: The second quarter with 185 and the main use of this cash for the first half of the year has been the return to the shareholders to a magnitude of about $51 million both in dividend and share buyback. I will come back onto that.
Pascal Nicodeme: minimal exploration expenditures mainly on energy about six million dollars
Pascal Nicodeme: And the negative $11 million that you can see on this chart, the false bar, named as Operating Activities, is mainly GNAs, actually, and you will see in this $11 million that
Pascal Nicodeme: A significant portion of this $11.5 million is one-off cost in relation to the signing of the amalgamation agreement with BTG.
Pascal Nicodeme: We've received another dividend from Prime, the first of the year, a $25 million net to Africa Oil in April.
Pascal Nicodeme: which is the only source of cash that we received this first half which explains our end of a quarter balance, cash balance of 185 million dollars.
Pascal Nicodeme: So, if we aggregate this cash balance with the prime net debt of, at the moment, of $222 million, it means that we have a combined net debt of $36 million.
Pascal Nicodeme: which, once we have completed the deal with with Prime, is what you will see actually on the balance sheet as we are going to consolidate 100% of Prime going forward after the completion of the transaction with BTG.
Pascal Nicodeme: Next slide, please
Thanks Shahin: Thanks Shahin. So, yeah, in terms of buyback and dividends, I think it has been the main use of our cash in the first half.
Thanks Shahin: We want to...
Thanks Shahin: continue to manage the company and the balance sheet.
Thanks Shahin: and continue to return some...
Thanks Shahin: some of these positive resources to our shareholders. So in the first half we've basically bought back some shares for an amount of $39 million plus $11 million of first half dividend paid in March.
Thanks Shahin: and so in total since we have started the dividend return program in March 2022, we've returned a total of 143 million dollars to our shareholders.
Thanks Shahin: And the board has also decided to reconduct the existing semi-annual dividends So we are going to pay another 2.5 cents US cents per share to our shareholders end of September
Shahin Amini: Next slide, please, Shahin.
Shahin Amini: Thank you. So, yeah, a few financial highlights for the quarter and the previous quarters. So, Prime's performance has remained very solid.
Shahin Amini: with an EBITDAx for the quarter of $92 million and a free cash flow of $77 million.
Shahin Amini: So very stable, very stable performance. Looking on the left side of this of this slide, you will see the the African net income and which has been impacted by
Shahin Amini: civil exceptional items and and this quarter again we had a few a few exceptional items
Shahin Amini: The first one has been, we've picked up...
Shahin Amini: our share of loss of Africa energy following the withdrawal of Total and CNR from the Block 11 B12 in South Africa.
Shahin Amini: We've basically accounted for our share of that loss, that impairment, into our net income. So that accounts for an additional loss of about $7 million. And also...
Shahin Amini: of a lift balance of about 12 million dollar net to us so which explains why the net income for the quarter just breaks even.
Shahin Amini: Next slide, please.
Speaker Change: Thank you. So coming back to ourselves...
Speaker Change: I've explained in the past what we market our oil now and I think this quarter has been the evidence that we manage now to sell our oil in Nigeria.
Speaker Change: consistently above dated brands. In Q2 has been the case again where we sold on average our barrels at $89 per barrel.
Speaker Change: while Dated Brand has been 85. So we sold three cargos. Prime has sold three cargos, so one and a half cargo net to us.
Speaker Change: and going forward, two cargos.
Speaker Change: have actually hit their trigger price in September and October.
Speaker Change: with a price, an average price of $79 per barrel, which also evidences that the marketing strategy that we have now is efficient and when the oil price goes down, we manage to secure a flow for our cargoes. So that's also very good news.
Speaker Change: Next slide, please.
Speaker Change: Thank you Shahin. So yeah, just a few words on our production performance this quarter.
Speaker Change: So you will have noticed that our production is slightly down and the average production has been down at 16,700 working interest.
Speaker Change: and 19,300,000 for the first half, on average, on an entitlement basis.
Speaker Change: So this is mainly due to a planned one-month shutdown of ONAPCO, which has now restarted and actually restarted above expectations.
Speaker Change: So, this drop that you have seen in Q2 is just a very small and close period, actually. We are now to the last depopulation of about 19,000 microbarrels of polypropylene equivalent as of the 11th of August, which will be about the first half. Therefore,
Speaker Change: We've maintained our existing production guidance, and we are confident that we will at least have a chance to improve in the nine months and four-year period for 2024.
Speaker Change: I will now hand over to Roger.
Roger Tucker: Thank you very much, Pascal, and thank you all very much for joining this webcast.
Roger Tucker: What I'm trying to do with this slide is just to demonstrate to you that we have been extremely active in pursuing a strategy of trying to consolidate and concentrate our efforts in particular assets.
Roger Tucker: At a gross level, the value of the transactions that we've done in the last six months well exceeds over a billion dollars of value.
Roger Tucker: The, the, every single one of them was designed to get us into the position that we could then do the big consolidation, which was the prime consolidation with, with, with BTG.
Roger Tucker: So we have negotiated the farm down
Toto: and full carry in Venus with Total.
Toto: We've done the Block 3B-4B farm down with a carried expiration with Total and managed to maintain a significant equity position in that and we've, as I mentioned, now in the process of attempting to consolidate via an amalgamation agreement.
Toto: the Nigerian producing assets. And the whole process of this has been designed to really simplify the way that the company is valued at the end of the day. However, as it points out at the bottom,
Toto: We have managed to maintain, at zero cost to us, very significant
Toto: drilling catalysts on the Venus block 2913B.
Toto: and Block 3B, 4B in the Orange Basin, where we are targeting multi-billion barrel growth prospects.
Toto: by the end of 2025. And those are, if you like, trips to the casino where we're going to be fully covered on the chips. And they're very, very significant drilling targets preserved in the portfolio, but still carried.
Toto: Next slide, please.
Oliver Quinn: And over to you, Oliver, to take us through that, and I'll come back later. Yeah, thanks, Roger. So what we wanted to do here was just show you, really, how do we think about value proposition in the company?
Oliver Quinn: on the back of the transactions that Roger's talked about and secondly then you know what is the shape of the business kind of going forward long term because I think you know on the back of the transactions we have much better visibility on that than in prior years.
Speaker Change: So in terms of value, ultimately we see a very compelling value proposition for the company today. If you see on the chart, on the slide here, we carry a very disciplined core NAV, a view of core NAV. So,
Speaker Change: You know, we have Nigeria flowing barrels production, we have cash and we take off, you know, kind of G&A corporate adjustments next few years.
Speaker Change: and we see that again this is in view of core NAV at just under 800 million US and that's versus of course a market cap today of about 700 and no debt at the AOC level.
Speaker Change: So compelling on that Titus Linnicorn NAV
Speaker Change: We then moved to say, well look, the other big components of the business obviously are holding an impact in Namibia.
Speaker Change: and of course we put a public valuation out on that in March when we made an offer to some minority shareholders and that's what you see reflected here. Of course the project's matured since then and you know we obviously think it's worth more than that because we were a buyer at that price.
Roger Tucker: But again, discipline view of value on it here. And then the second component really is the carrier that Roger talked about, South Africa 3B4B. And here we're showing the capital value of the carrier. We're not showing a risk desperation view, it's simply a disciplined
Speaker Change: outline of how much value we'll receive in that carrying in spend. So again a tangible NAV which we think is very disciplined 1.1 billion US and again trading today at 700 about a 36% discount for that.
Speaker Change: so again significant discount and fundamentally you know from our view no real value in the share price, no significant value for that at our own basic position
Speaker Change: Particularly given, again as Roger outlined, we anticipate a series of carried activities potentially in the next 12-18 months to test more barrels. Potential, as stated by the operator, planned decision on an FID for Venus.
Speaker Change: So lots of things coming down the line and not in these numbers. So overall value proposition, I think if you put in the
Speaker Change: the closed proforma prime Nigeria consolidation. You can see, of course, in here that our proforma NAB jumps up with a doubling of Nigeria to just under about $1.8 billion US, so a significant step up.
Speaker Change: Maybe go to the next slide, Shahin.
Shahin Amini: So in the next slide here, what we wanted to do again was show you something of the benefits of the pro forma Prime Nigeria consolidation. As Pascal mentioned, once the deal completes, we'll consolidate 100% of those assets.
Shahin Amini: And so actually what we're able to do is kind of look at the forward shape of the business in a much more regular way than we've been able to. So what you're seeing on this plot here is our view, our best anticipated view, if you like, of the next kind of 10 years. So very, very long-term shape of the business.
Shahin Amini: The headline is it's of course a very strong cash-generative business and whilst we have some natural decline in Nigeria
Shahin Amini: Next few years that is offset by the soil from the Creole we tie back That's a a significant project that gross is essential for 65,000 miles a day
Shahin Amini: You know, that's kind of 11,000 barrels to the AOC Proforma And then that's complemented by, you know, the potential for first oil in Venus in 2029 and then that's followed by, you know, potential for the Venus or the Orange Basin in development phases, so
Shahin Amini: You know, I think for a company like ours, it's a very strong long-term profile. You know, what you see in terms of the cash generation is critical here as well on the lower two plots.
Shahin Amini: is that we have a very, you know, relatively consistent generation of operating cash flow in this model. So somewhere, you know, plus or minus 400 million U.S. over this long-term period.
Shahin Amini: Um
Shahin Amini: And of course, that's generating a lot of free cash for the business, because we've done the transactions to take the majority of CapEx out of the system. We have some short-term, short-cycle Nigeria CapEx under 200 million a year, including the Priori development through to 2028.
Shahin Amini: You know, Namibia Venus, no Capex contribution to first oil. And then there's first oil in Namibia, you know, if that comes on in 29, then we will contribute to any residual ongoing development there. But again.
Shahin Amini: You know the point to take here is that a very consistent and significant operating cash flow very Controlled and minimized capex and so resulting in a significantly cash liquid business
Shahin Amini: and again, to take you back to what we announced.
Shahin Amini: on the back of the prime transaction, which is that we've put in place at completion a new dividend policy with $100 million annual base. And so again, you can see what these numbers demonstrate, the ability and strength of the business to deliver that dividend over a consistent period.
Shahin Amini: So I'll come back to you Roger at this point.
Roger Tucker: Thank you very much Oliver and I know that you've seen this slide before but what I tried to walk you through is that we are executing and delivering the strategy that I put out probably eight or ten months ago.
Roger Tucker: that we are very, very focused on the key core assets that we hold, and they are genuinely world-class assets.
Roger Tucker: These are in deep water Nigeria, offshore equatorial Guinea, Namibia and the extension of that basin into South Africa.
Roger Tucker: We're associated uniquely, I think, only with Tier 1 operators, Chevron and Total Energies.
Roger Tucker: In Nigeria, where we are doubling our production and reserve base in assets that we know extremely well with the Prime transaction,
Roger Tucker: that we're in three of the top five fields in Nigeria with a production profile way out into the 2040s with those assets.
Roger Tucker: In Venus, again, we're in an asset with a spectacular operator in a discovery which has got the potential to add very significant reserves and production.
Roger Tucker: and also has significant additional running room in it as a result of the new 3D seismic and drilling activity around the block which I'm sure that you've seen by third parties as that basin evolves.
Roger Tucker: and along with Pre-B, 4B, which we have just farmed out to total whilst retaining a 17% equity position in that block.
Roger Tucker: We have a very material
Roger Tucker: exploration Opportunity that is we hope that will get drilled sometime in 2025
Roger Tucker: In Equatorial Guinea, we've actually just increased the size of the...
Roger Tucker: the block slightly to the north and we are still
Roger Tucker: and analyzing exactly what we've got.
Roger Tucker: Now that we've increased that acreage a little bit and we will be
Roger Tucker: continuing with the farm out activity on what we consider to be an extremely attractive block. So the question here is that we've delivered, we've focused the organization and we've put ourselves in to a position
Roger Tucker: with the prime transaction to be a very material entity in this West Africa region.
Roger Tucker: And so the next slide, please, Shahin.
Roger Tucker: and so what do we what do we become when the prime transaction goes goes through we think that we will be very differentiated independent EMP investment case
Roger Tucker: via the relationships with the majors via the scale of the opportunities that we we are in and we have a very clearly identified and enumerated to you capital allocation program
Speaker Change: The business is made up of very high net back production from the world class offshore assets.
Speaker Change: We've got funded organic growth opportunities in the exploration carries and the development carry in Namibia. We have a robust balance sheet with a very low debt level and material liquidity headroom.
Speaker Change: and we have
Speaker Change: that
Speaker Change: explained with the merger with or the amalgamation with a prime that we're putting forward a very transparent and committed shareholder returns policy.
Speaker Change: We have demonstrated over the last 6-8 months
Speaker Change: and a little more.
Speaker Change: that we are returning significant amounts of money to shareholders as you saw on one of the earlier slides that Pascal showed. So this is something that we are done. And so what we're trying to position ourselves to be is we're positioning to be the leading player
Speaker Change: in the consolidation of the independent E&P space whilst maintaining
Speaker Change: Key capital allocation
Speaker Change: I think that I will conclude and then open up to Q&A which I'll be more than willing with the team to answer any questions that you have. So over to you, Shahin.
Shahin Amini: Thank you, Roger, and I'll hand it over to Shahin. Please see if there are any questions on the conference call facility.
Shahin Amini: Thank you. To ask a question you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 and 1 again. If you wish to ask a question via the webcast please type it into the box and click submit.
Speaker Change: We will now go to our first question.
Speaker Change: One moment, please.
Speaker Change: And your first question comes from the line of Theodore Sven Nielsen from SB1M. Please go ahead.
Speaker Change: Good afternoon, guys, and thanks for taking my questions. I have four questions, actually.
Speaker Change: First one, on the capital allocation, you talked about both dividends and buybacks, and of course carrying out both dividends and buybacks. I just wonder, going forward, how do you think around the split between dividends and buybacks, and how sensitive would that split be to the share price?
Speaker Change: Second question, when do you expect the prime deal to close? I think you said sometime during 2025 when you announced the deal, is that still the case?
Speaker Change: Third question, what's the outlook for the upstream dividends from crime in the second half of the year?
Speaker Change: this year, i.e. how much dividend do you expect to receive in second half?
Speaker Change: And my fourth and final question that is on slide 11 on the proforma outlook you showed.
Speaker Change: Could you just clarify the capex curve for Venus, how is that included on those, the capex indication there? Thanks.
Speaker Change: Thank you. So let's start with the fourth question first, which was slide 11. On that note, let's go to Oliver, who can clarify the Venus trapeze.
Oliver Quinn: Yes, so basically what we've modelled here is, of course, in a transaction with Total, all the CapEx is covered by Total. It's effectively an interest-free loan to Impact.
Speaker Change: Operating cash, free cash, if you like, that Impact received. It's a portion of it that repays the loan, which is why you see here in a net AOC perspective that it's operating cash flow from First Oil. So I think that's important in the structure.
Speaker Change: In terms of, you know, this is a model, it's our best kind of view today, obviously, a few years in advance of the timing of first oil. But this envisages, you know, kind of 2FPSO phase development on Namibia. So, of course, the first one is...
Speaker Change: and it's fully paid for if you like the total transaction
Speaker Change: pre-29 and then starts producing in 29. And then we kind of see a second FPSO potentially, I mean again it's just a model here, but potentially coming on later in the decade. So what that means is that some of the early spend on that second phase, if it goes ahead,
Speaker Change: would be pre-2029, therefore equally covered in the in the total
Dia: Dia, July the 7th.
Dia: You know, whatever is spent on the block, pre-first oil, is covered in that total transactions, whether that's exploration, appraisal, development, any scale of development. And then the inflection point is at first oil, and then it might start paying its respective share for its revenues in the block, etc.
Oliver Quinn: Does that answer your question? Do you have a follow-up on that before we go to the next question? Well, yeah, I think it broadens my question. Okay. Well, actually, Oliver, if you could stay on and answer the second question that Ciaro asked, which is, what is the expectation on the time balance to close in the prime period?
Oliver Quinn: Yeah, it's a good question. I mean, again, as you said, Theodore, we guided in an announcement of the deal at the end of June that it would be Q2, Q3 2025 for completion.
Speaker Change: The key steps for that are a shareholder vote, which we anticipate to not be a critical path, that should come much earlier.
Speaker Change: and then what is driving that critical path on timeline is government approval in Nigeria, which of course any transaction in Nigeria is required standard.
Speaker Change: I think it's fair to say that we are, you know, Africa Oil and Prime and BTG together pushing very hard and working very hard with the Nigerian government.
Speaker Change: we've got a series of engagements planned so it's going well so far but I think we stick with that guidance but of course we are all moving as hard as we can to try and do it as early as possible so frankly we can move on with the reform of business and all the other things we want to do.
Pascal Nicodeme: Okay, let's put the next two questions to Pascal. So Pascal, the other two questions asked is, 1. Is it absolutely comparable for Africa Oil to receive prime dividends in the second half of this year?
Pascal Nicodeme: Yeah, if we look at the budget, there is room for another dividend before the end of the year. So magnitude is still to be discussed and I'm sure as in the previous year, we will wait until December.
Speaker Change: to cite exactly the evidence and as you see there is no shortage of cash either on the bank sheet or on the central bank sheet so it stays within the crime or it's moved to the legal in terms of making differences changing the view of the financial situation that we are still considering and I think the last element I would like to mention is that
Speaker Change: before completing the deal, the amalgamation with BTG to make sure that under the true-up mechanism.
Speaker Change: Okay
Speaker Change: And the other question was on capital allocation. Oliver, Roger, you may want to pitch in here as well because that sort of dividends versus buybacks.
Speaker Change: Willie
Speaker Change: The
Speaker Change: I actually couldn't hear the first question, so can you actually repeat exactly what it was, Shahin, so I answer it correctly?
Shahin Amini: The question was, in terms of capital allocation, what are the sensitivities around dividends versus buybacks?
Speaker Change: This question obviously needs to also consider the output for the private accommodation where the new base dividend policy will probably kick in.
Speaker Change: We are committing to pay a $100 million per annum dividend.
Speaker Change: But there is also a line in there, which I've shown on previous slides.
Speaker Change: that we will also distribute 50% of any excess free cash flow to shareholders as well.
Speaker Change: and it is that excess pre-cash flow that we could consider going back into paying, doing share buybacks.
Speaker Change: But at the moment, it is not optimal for us to re-initiate the Shared Biobank program because of course what will be happening until the consolidation is effectively the position of BTG would be...
Speaker Change: in terms of equity would be growing, but we have the flexibility in the strategy that we have put together and the financial planning that we have done post the amalgamation to consider share buybacks again.
Speaker Change: Does that answer the question?
Speaker Change: Yes, it does. Thank you.
Speaker Change: Thank you to you as well.
Speaker Change: Thank you.
Speaker Change: We will now take the next question. And the question comes from the line of Sander Nielsen from Fernley Securities. Please go ahead.
Sander Nielsen: Thank you.
Sander Nielsen: So, my first question, I was just wondering if you could tell us what is your take on the fact that Total Energy is leaving Block 11B, 12B in South Africa, and I was wondering if this would maybe have an impact for Block 3B, 4B.
Speaker Change: So that's the first question.
Speaker Change: And then I was wondering if it's possible to say something on the capital structure post-completion with Prime. On my numbers, it seems like you have a lot of capacity there to maybe take on more leverage. I was wondering, do you have a maximum leverage target in mind?
Speaker Change: And then maybe a third question, if you could just comment on, you mentioned the over-lift that impacted a financial subprime in 2Q. What is the expectations there in maybe 3Q or 4Q or the second half of the year?
Speaker Change: And then finally, the fourth question is on Equatorial Guinea. You mentioned that it is, or seems to be, an extremely attractive block. Maybe in terms of volume or what you are seeing there, it would be nice if you could elaborate a bit on that, please. Thank you.
Speaker Change: How do you want to distribute that? Well actually, Roger, sorry before that, can you just repeat your first question please?
Speaker Change: Yeah, that was probably on the overlift in prime. I was just wondering, are you currently in an overlift or an unlift position, not in prime? What should we expect in 3Q, 4Q?
Speaker Change: Thank you for that. So, shall we tackle that in order then? So, the first question was what does Africa oil take on total energy leaving 11B, 12B in South Africa and are there any implications for upload 3B, 4B?
Speaker Change: So over to you, Roger, to have a first start on that question.
Speaker Change: and others.
Roger Tucker: Firstly, there is no indication at all that Total are not going to continue with 3B, 4B.
Roger Tucker: And the 11B, 12B situation is basically a long-term issue.
Roger Tucker: Because it's it's gas in marketing gas into South Africa
Speaker Change: and that is a different game than dealing with hopefully oil in the Orange Basin.
Speaker Change: Now, we are actively looking and revisiting that asset to see if we see any additional value in it. But to answer the specific question,
Speaker Change: There is no relationship between Total's decision to exit 11B-12B and our relationship with them in 3B-4B. But as I say, we are reviewing the situation with 11B-12B as we speak.
Speaker Change: Thank you.
Speaker Change: Thank you.
Pascal Nicodeme: Perhaps the next question can be put to Pascal first and that is the enlarged Africa oil capital structure
Pascal Nicodeme: post Farm Consolidation.
Speaker Change: There's obviously a lot of scope and that's in large balance sheets and will be in control of capital. Pascal, any views on the potential for management of the capital structure there and leverage targets that you envisage?
Pascal Nicodeme: Yes, of course. Of course the consolidation of Prime into Africa is going to allow us to streamline our existing debt facilities.
Pascal Nicodeme: At the moment, we have one RBL facility drawn at $750 million at the prime level.
Speaker Change: We have a corporate facility at the Africa level, which by the way has been reduced to 65 million dollars in the second quarter And extended for three years It's clear that when we consolidate the two assets
Speaker Change: We are probably going to keep the and extend again the RBL facility at the prime level because this is today
Speaker Change: our most cost-effective way to borrow.
Speaker Change: So that is going to stay. The question we are...
Speaker Change: asking at the moment is whether we need 750 million dollars or less, probably less given the
Speaker Change: the cash that we managed to accumulate.
Speaker Change: It's a fact that the debt capacity at the prime level
Speaker Change: will continue to be significant and probably much larger than the 750.
Speaker Change: but if we want to borrow more than the 750 we need a use for it and so either we continue to grow organically in Nigeria and then we would have potential uses.
Speaker Change: for that.
Speaker Change: the first one. I'm going to give a short answer . To answer in short, I think that the first one is that the second one is the third one. So the third one is the
Speaker Change: we will keep the RBL facility in place continue to
Speaker Change: roll it over maybe at a smaller amount. We could potentially consider alternative financing sources on top of the RBI, second ranking potentially like bonds maybe at the prime level or also at the Africa oil level.
Speaker Change: And the corporate facility is not designed to stay in place after completion of the existing deal with BTG. I mean, clearly that facility was a liquidity buffer.
Speaker Change: just to plan for delays in dividends from Prime but since we are going to consolidate the cash flows and put a single
Speaker Change: cash flow pooling mechanism for prime and Africa, there is no.
Speaker Change: no intention to keep that facility in place. So, I mean, I've given a few hints here, but I think that's the framework around which we are thinking at the moment. But the thing to say as well is that you're absolutely right. There is significant
Hedru: Hedru should we require to increase leverage for any reason you're absolutely right and in certain models you get we become under leveraged in the as we as we model that model out but you are right
Hedru: There is significant, the significant effort.
Speaker Change: Just one final point, just to emphasise that under a consolidated prime E-Large Africa oil tax allocation framework, there will be a target net debt to EBITDA of one times.
Speaker Change: That would be the general rule. So actually let's go to the fourth question from Sandra, and that was on Equatorial Guinea. Do you want to share your views on the prospectivity on the two blocks, Roger, because they're obviously two very different blocks.
Roger Tucker: in terms of pride and potential that... The one that's highest on our focus.
Roger Tucker: is EG31, which is the infrastructure-led block, which is adjacent to the LNG facility, which has got significant ullage.
Roger Tucker: in it and we do see some significance
Speaker Change: Thank you very much.
Speaker Change: and as I mentioned to you
Speaker Change: We just have agreed with the government to extend the block.
Speaker Change: slightly to the to the north and we've taken an extra tranche of acreage in that in that area.
Speaker Change: because one of the significant prospects we identified does cross what was the block boundary.
Speaker Change: and I felt it was the best interest of the company to actually get the whole of the feature, the structure in there, do the work on that.
Speaker Change: and then do the full farm out, because what you don't want to do is get into a unitisation issue if you can avoid it. And that work is ongoing at the moment, we have all of the seismic over that.
Speaker Change: and what we're looking at, should they be successful, is prospects.
Speaker Change: which are in the north of 1 TCF size is what we would be focusing on and we believe they are in that block. Now I will say the geology is not the most simple in there and this is taking us
Speaker Change: A bit of very careful work to get this right.
Speaker Change: So as I say, we've extended the block a little bit to the north, we've acquired, not acquired, but we've got existing seismic and are reprocessing all of that and are very focused in that particular area on a very particular feature which looks very interesting to us.
Speaker Change: Thank you. Thank you.
Speaker Change: and Sandra, I just wonder, of the answers received so far, do you require any further clarification or is it also useless?
Speaker Change: Sorry Shahin, the line broke up a bit. Can you repeat? Just wanted to double check with you that the answers received so far answer your questions. You don't have any further...
Sandra: No, absolutely. No, it was fine. Thank you for that.
Speaker Change: Ludwig van Beethoven
Speaker Change: Thank you. Thank you.
Sandra: Oh, okay.
Speaker Change: Sorry, we just had a bit of a technical issue. It sounds like we lost Pascal's line on that. No, I think I'm on. Can you hear me? Yes, we can hear you. So Pascal, can you...
Pascal Nicodeme: Yeah, yeah, I will tackle that question on the underlift, overlift. Well, I mean, in terms of barrels, I mean, this overlift, underlift position...
Pascal Nicodeme: is meant to average out over the quarters, as you can imagine.
Pascal Nicodeme: We have a...
Pascal Nicodeme: the specific net entitlement to barrels that is...
Pascal Nicodeme: predefined on a quarterly basis. And of course, every quarter we.
Pascal Nicodeme: We just have a right to a fixed number of cargos, so therefore...
Pascal Nicodeme: Oh
Pascal Nicodeme: On some quarters we are going to lift more than on entitlement, on some quarters we are going to lift less.
Pascal Nicodeme: So the sort of balance of this underlift or overlift position is going to fluctuate between a positive and a negative on a quarterly basis. So it's difficult to predict exactly how this is going to happen because it depends first on our entitlement.
Pascal Nicodeme: and second it depends on the cargo schedule.
Pascal Nicodeme: So it's very difficult to give a prediction, and on top of that, the overlift and the lift position is a barrel position, it's a position in barrel, while we account for it on the books in a dollar value, so each time we multiply by an average.
Pascal Nicodeme: sell price, which induces additional variations in terms of the over-lift and under-lift balance.
Pascal Nicodeme: So, I would say that as a proxy...
Pascal Nicodeme: You can expect this underlift balance or overlift balance to converge towards zero at some point, but...
Speaker Change: I mean, the nature of our business is that on a quarter-to-quarter basis there will be fluctuation simply because our net entitlement is going to be different than the actual barrels we are lifting on a quarterly basis.
Speaker Change: All right, thank you.
Speaker Change: Thank you.
Speaker Change: We will now go to the next question.
Speaker Change: And your next question comes from the line of Kevin Fisk from Scotiabank. Please go ahead.
Kevin Fisk: Thanks. Can you give us an update on Africa Oil's M&A strategy? If there's any ideas or details on what kind of assets you're looking at, that would be helpful. Thanks.
Oliver Quinn: Oliver, do you want to have a go at that? It would be good to hear from Roger. Yeah, sure. Thanks for the question. Yeah, there's a couple of different ways to think about this. One is obviously we've got
Oliver Quinn: You know, the transactions that we've announced to close, so there's a lot of things there, but Brian...
Speaker Change: As we talked about earlier, they're very focused on getting that done. But importantly, in parallel, we are still very active in an M&A sense in terms of looking at opportunities, looking for things that can add to inorganic growth to the company.
Speaker Change: We're not stopping and waiting is the message for that deal to close, right? We're not going to focus on that, but equally continue in a parallel. So again, I think then, in terms of what are we looking for,
Speaker Change: It's a big question, but clearly we've got at the moment a portfolio of very low unit costs, low carbon, high quality assets, those are large scale assets of which we own.
Speaker Change: Yeah, relatively small shares, but we're very happy with that small shares of kind of world-class assets. So so look I'll paraphrase Roger here, but you know, we start ROXA, so we're very technically driven in the sense of asset quality
Roger Tucker: And then we layer on to that, you know, what is the value and the other considerations. So, again...
Speaker Change: We're trying to achieve a portfolio that has low unit costs, is robust to the world price cycle, and ultimately is high quality assets in the shape that we like.
Speaker Change: I think we see several things out there that tick that box. I think we've been open in our, you know, we announced the Prime Consolidation, bringing BTG into the cornerstone shareholder that
Speaker Change: We'll widen the lens a little bit there, so lots of opportunity in Africa, but equally there's opportunity around the Atlantic margins and different places that we will take into consideration. But I think as a one-liner, what I would give you is asset quality, right? That's our key focus when we start politicals.
Speaker Change: Okay, thanks. And maybe as a second question, is there a date or a requirement at some point to disclose the reserves associated with Venus now that there's been a few wells drilled?
Speaker Change: All the best, you're on air.
Speaker Change: Yeah, I kind of did. It's not the first time I've had the question, so I'm not surprised. Look, I think, again, I mean, most people know this, but of course the ownership structure here is what drives a lot of this, in terms of what data we get indirectly, that's important.
Speaker Change: Of course, our exposure is to our ownership of impact. Impact itself is a private company that is the...
Speaker Change: Licensed swap partner, joint operating agreement partner to Total. So, you know, we're kind of one step removed there, which is, you know, a slightly unusual situation for these things. And that's what kind of drives the disclosure that we get as an investor, if you like, rather than a direct license owner.
Speaker Change: But I think, look, that said, as the project matures and more data comes, and particularly I think in the next period, as Tatal said publicly, they're moving to an FID decision.
Speaker Change: in 2025, then naturally, I think there'll be more kind of disclosure around the project, around its scale of resources, particularly around the phasing and size of developments as they go forward, right? And I think
Speaker Change: You know, with all wells drilled on Venus, well tests done, I've given Total probably sufficient information in our view to take a clear review on it, and that work's ongoing, so as that work matures to support their FID decision, again, we'd expect more information to flow through the system.
Speaker Change: Excellent. Thanks. That's it for me.
Kevin Fisk: Thanks, Kevin.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Hanan Tao from Pareto Securities, please go ahead.
Hanan Tao: Hi, thank you. I have a question first on production. I guess it's the production coming up this much after the quarter, but could you help us with thinking on production and especially decline rates into next year and if we should expect some differences in oil gas with next year compared to this year?
Speaker Change: and then also with 40 million roughly on cap expense so far this year. How does that compare to your initial expectations and should you expect that to possibly end in the lower range of the guided 100 to 130?
Speaker Change: That's what you want.
Speaker Change: Thank you for having me.
Speaker Change: Thank you, Helen.
Speaker Change: Actually, I'll tackle the second question on the CAPEX relative to guidance.
Speaker Change: As you've seen that the semi-annual cap expense so far in the first half of this year, if you were to extrapolate that for the year, there is for crops to come on the lower end of that range.
Speaker Change: Obviously, there's a lot of activities going on, including drilling on Act 4, as you know, is ongoing. The re-contract, yeah.
Speaker Change: Hello.
Speaker Change: being renewed to October and can be renewed again so there's still a lot of activity on those fields and we'll take a view on on the topics in the third quarter and see where we stand in relation to the all-year guidance.
Speaker Change: Now, going to your first question, Herman, which was on production post-quarter and decline rates. I don't know if Pascal, Roger and Oliver have a view on that.
Speaker Change: Again, I can't have it first go.
Speaker Change: and that is that we did have a statement in our press release and MDMA that in the post-quarter, second quarter of 2024, if you look at the last monthly average production rates
Speaker Change: The working interest is approximately 18,000 barrels of wool equivalent per day.
Speaker Change: That compares to a second quarter working interest production of around 15,600. So it seems to be currently on higher and that really just reflects that during the second quarter we were obviously still had the impact of the plant shutdown from the actual field and the ramp-up and that is now out of the way.
Speaker Change: And looking further out, obviously the initial drilling is aimed at minimising the decline rates.
Speaker Change: and ultimately I think from an investment case you need to look at the pro way development project that is what is really going to give us material incremental production
Speaker Change: and you would have seen that from Oliver's performance on slide 11. In terms of your oil and gas ratio, it is...
Speaker Change: We expect that before a probate comes in, to be 80-20%.
Speaker Change: So 80% liquids, approximately 80% liquids, 20% gas, but with pro-weight coming on, we expect that to move in favour of liquids, i.e. it could go back to 85% liquids and 50% gas. Does that answer your question, Selman?
Selman: Yes, excellent. Thank you so much. Thank you.
Speaker Change: Thank you. We will now take the next question.
Speaker Change: And the question comes from the line of David Round from Stiefel, please go ahead.
David Round: Thanks and afternoon guys. A couple for me please. Firstly just looking at your your guidance there's still a reasonable range of production outcomes so are you able to just talk about the assumptions that underpin the top or the bottom of that range please?
Speaker Change #101: The second question refers to the Nuasa Akpo.
Speaker Change #101: And just similar, I mean, are you able to say anything about the extent to which those wells have exceeded expectations? Were they drilled on new seismic and is there any read across to future wells or future reserve bookings, please?
Speaker Change #101: I'll have a crack at this, Shahin. You're absolutely right, David. The wells were drilled on the base.
Speaker Change #101: The basis of 4D seismic
Speaker Change #102: in there and the 4D seismic program is working. We can identify or the operator can identify locations effectively and indeed processing is just finished.
Speaker Change #103: on the last 4D seismic program that we have acquired and the results of that was that we haven't had...
Speaker Change #104: Transcribed by http://otter.ai
Speaker Change #104: they're over the peak and they will decline but they are declining at industry standard rates and still have in excess of a billion barrels to produce and so
Speaker Change #104: We've been absolutely clear in the production forecast we've given that there will be ultimately a decline, as all these giant fields do. But the 4D seismic does seem to now be...
Speaker Change #104: working very effectively on identifying the locations and indeed migration of fluids within the reservoir.
Speaker Change #105: Okay, I understand what you're saying about expectations for decline. Would it be fair to say you perhaps have some more optimism about your ability to perhaps arrest that decline rate given the results you've seen to date?
Speaker Change #106: I think that the results of the current 4D that is now being interpreted need to get under our belt.
Speaker Change #106: to come back and revisit what the infill drilling program is going to look like. And that is just coming out of the interpretation phase as we...
Speaker Change #107: All I can say is it does work in here and so we obviously want to, you know,
Speaker Change #107: minimize the decline rates as best we possibly can and also we're going to start to have to look at reducing costs etc etc as you do and as these fields get older but the other thing the critical element here is there's still over a billion barrels to produce from these fields
Speaker Change #108: Yeah, understood. Thanks.
Speaker Change #108: Thank you. There are currently no further phone questions. I will hand back to Shahin for webcast questions.
Shahin Amini: Thank you, Sharon. There was a question from David Mirza, one of our analysts, and the question is, can you discuss how the operational capacity of Africa Oil will change with the prime acquisition?
Speaker Change #109: and what could this add in terms of personal.
Shahin Amini: Oliver
Oliver Quinn: Do you want to go? Yeah, sure. Thanks, Shahin. Yeah, good question. So I think, obviously, today, Prime, as a standalone company, if you like, is the owner of the assets, and they have a strong team in the Netherlands that are acting as non-operator in managing the assets.
Speaker Change #110: Equally, in Africa Oil, I think we've got a very strong team across the technical and commercial space.
Speaker Change #111: and so of course we'll be bringing the two organizations together and what that will do from our perspective is AfroGrowth of course will move one step closer to the assets from a management perspective which is very positive.
Speaker Change #111: in terms of visibility, in terms of kind of influence on the operators.
Speaker Change #111: And equally with Brian , we'll bring in asset knowledge and several years of day-to-day, if you like, on the asset. So the combination is very powerful.
Speaker Change #112: I think, you know, from Africa Oil, what do we end up looking like? Much more like a conventional E&D company. I think as individuals.
Speaker Change #113: That experience is strong in the business, but in bringing the organisations and the assets together, that will fill out the capacity if you like.
Speaker Change #113: in terms of running Nigeria, but what it will also do of course is expand our
Speaker Change #114: And that's kind of bandwidth if you like in terms of the M&A things that we're looking at, the assets we're looking at as well. So it's a very positive part of the transaction.
Speaker Change #114: Thank you Oliver. We've only got a couple of minutes left. Roger, I've been getting a number of questions...
Roger Tucker: over the email and also through the webcast, and that is...
Roger Tucker: In Africa, we're all effectively on standby in terms of new growth opportunities until the prime consolidation is closed, but trans-hopping gets done sooner. Are you able to comment on that?
Roger Tucker: Well the first thing is when is it going to close and personally I hope it is going to be well before the date that we've given as the long stop.
Speaker Change #115: Thank you.
Speaker Change #115: The
Speaker Change #115: To a certain extent, we are a little bit hidebound by the fact that we're closing this transaction. However...
Speaker Change #116: We are actively working on with our colleagues at BTG, and we have exactly the same strategy, actively reviewing opportunities. And if the right one comes along,
Speaker Change #116: We are formulating ways in which we can do it before this deal completes.
Speaker Change #116: And so we are, you know, it isn't the simplest way of participating, but for the right deal.
Speaker Change #116: rocks up, then we could structure something that could be done.
Speaker Change #116: prior to completion. But the critical element in this is that both BTG and
Speaker Change #116: Africa Oil have a very very clear view on what would be what would be an appropriate asset or
Speaker Change #116: Let's deal with. And so we are actively reviewing right now all of that. And as I say, the the the the key here.
Speaker Change #116: is that you mustn't leap into the wrong thing and so it's important to look exactly what is out there. Do we like it? Does it fit? And that screening process is actually going on right now.
Speaker Change #116: Thank you very much. Unfortunately we've run out of time. Roger, do you have any final comments?
Roger Tucker: I don't think so. I think that was very useful. Thank you very much.
Speaker Change #117: And thank you and all the way to the operator for the final comment.
Speaker Change #118: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change #118: i