Valeura Energy Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2024

There are 3 speakers on the call.

Operator

Hi, everyone. Welcome to the Valeura Energy Q2 twenty twenty four results webcast. I'm Robin Martin, Vice President, Investor Relations and Communications. Joining me on the call today are Sean Guest, President and CEO and Yacine Ben Mariam, CFO. We're recording the event today, August 9, 2024, and we'll post a replay to our website when available in the next day or so.

Operator

So running order for today. In a moment, I'm going to hand over to Sean and Yacine, who will go through some prepared remarks in conjunction with the slides that should be shown on your screen. Thereafter, we'll go onto a Q and A session. With that, all of the lines are going to remain in a listen only mode for the call. And with that, I will ask Sean to go ahead and unmute your line.

Operator

And it's the floor is yours.

Speaker 1

Thank you very much, Robin, and thank you for everyone joining us here today. Robin, if you could just go forward to the first slide, please. Yes. And again, I'm not going to go into the slide in detail. It's really more of summary reminder for people.

Speaker 1

I expect that most of the people who are on the call here today are familiar with the story and have been in the story for a while. The key thing, Dimsize, is we have had very good returns to shareholders in the past couple of years. And in fact, even for this year, we still remain in the top quartile performance for our peer group. But the real focus of the company is creating a highly cash generative portfolio of opportunities. And I think with what we'll show here today, we are seeing that, but we're also seeing that that's not only for today, but we still have much more life in these assets as we move forward.

Speaker 1

So we can move on, Robin. So the 3 key points we'd like people to take away from today is 1, the strong financials. Now I'll hand over to Yassine in a minute, who will go through that in detail. But the main point for me is that given that we're looking at about 21,000 barrels a day for the quarter, we're looking at cash flow from operations of $66,000,000 which is up 37% from Q1. We have still have a cash stockpile about 147,000,000 dollars and a final reminder that we have no debt.

Speaker 1

But when we look at production, production for the first half of the year was between 21,000 to 20 1,000 barrels a day depending on the quarter. And that was even with some outages we had planned on the facilities as you have to do regular maintenance. But as we look at this and moving forward, what we want people to really focus on is that while Wassa was out for July, Wassana is now fully back on and delivering about 5,000 barrels a day of production. But importantly, the Nonya facility is now really ready to go and should come on and ramp up during August. And with those two facilities now back producing, that should yield about 9,000 barrels a day more once we get to September relative to what you just saw last month in July.

Speaker 1

And that will really look at looking at September through the year end, you can be looking at production of about 25,000 barrels a day. So just given with the production, the cash flow we've seen from that 21,000 barrels a day, we're quite optimistic about getting that production up and being around 25 1,000 barrels a day for the remainder of the year. The other point for people to take away and that's reserves. And this has been a challenge for us since we did the takeover of the Mubadala assets in the Gulf of Thailand. People have generally pointed to the short reserve life index, but we keep extending this more and more.

Speaker 1

So we saw last year we had more than 200% reserve replacement ratio. And now it's quite exciting that with the work that we're seeing going on to date. Wasson, I'll talk about in more detail, but a whole redevelopment there that should take the reserves from that up above the 13,000,000 barrels that we saw at the end of last year. Non Yossi was in our reserves. However, while drilling the wells, we did additional appraisal.

Speaker 1

We added an extra development well in there. And we see that those that's now a producing asset and that will come into reserves at the end of the year, including drilling a couple of extra wells at Nongyao, which while those were designed for production, actually they did find some new oil that we expect to be a target for future drilling. Then you add on to that, that Jasmine is still performing extremely well and Menorah, which was again a field that was due to be abandoned a few years ago, We're now going into a new drilling campaign there, which we expect to start later this year. So all of these elements are building into reserves that we expect at year end. And additionally, we went and drilled 3 exploration wells this year, all successful and we expect those to come in largely as probably contingent resource at year end.

Speaker 1

But we're still seeing that we're able to increase the reserves on these fields and kind of get away from that myth of the short reserve life index. And just as noted at the bottom there is again the focus still remains on safety, operational excellence. And that was one of the reasons why we had to look at that short shutdown on the Wassana field to assure that that facility was still in good order. So that's really the key points that we're trying to get you to take away from today's presentation. And with that, I'll hand over to Yassine just to give a bit of an update on the Q2 financials.

Speaker 1

Yassine?

Speaker 2

Thanks, Sean. Greetings, everyone, and good evening from Singapore. I'd like to start by highlighting some key achievements for what we describe as being a solid quarter in Q2. As you can see, our revenue in Q2 came in at $160,000,000 $64,000,000 which was 10% higher than Q1. This was on the back of higher lifting during the period and also improved realized prices, both in terms of underlying benchmark, but most important from our perspective is also the premium that we receive for our crude.

Speaker 2

Production on the other hand came slightly lower than the last quarter, though still slightly above our initial expectation for this quarter, thanks to better performance from Wassana and also the drilling of the infill well in Maniao A to counter some delay in Maniao C. It's good to remind everyone or the audience in general that it's quite common for us or indeed even other offshore producers to have a slight mismatch between production and sales since all of our crude is stored, is produced and then thereafter stored on a vessel, be it in FSO or in FPSO before it is sold, I. E, lifting. It's just part of how offshore operators work, the industry works. With cost and capital expenditure staying steady, we saw our EBITDAX for the quarter rise at €200,000,000 which was 12% above the last quarter.

Speaker 2

I think the standout takeaway from these figures is really our pretax cash flow from operation and our tax reform operations, which reached €87,000,000 €66,000,000 as you can see in front of you, respectively, from Q2, reflecting an impressive 20% 37% increase versus Q1. And I will elaborate further on this in a moment. As for the balance sheet, we have recorded an increase in book value and so did our working capital surpluses. Importantly, as Sean mentioned, we ended up the quarter with $147,000,000 which, again, I will elaborate further in a moment. Robin, next slide please.

Speaker 2

Now, let's break down our cash flow from operation in Q2. Our revenue of 164,000,000 during the quarter, we also recorded a royalty of 18,000,000. Dollars Royalties on a percentage basis were 11% versus our guidance for the full years of 'thirteen. This is due to lower production from Jasmine, which again, to remind everyone, has a higher royalty tariff on it. OpEx came in at €54,000,000 consistent with what we projected internally and just slightly higher than the $52,000,000 we recorded in Q1.

Speaker 2

On a per barrel basis, that comes out at $28.3 per producing barrels, a bit higher than the previous track in Q1, but not surprising given the dip in production and the level of activities during the quarter. Our SG and A are in line with our run rate of just €5,000,000 dollars which ends up with our pre tax cash flow from operations of $87,000,000 For petroleum income tax or PITA, we accrued $21,000,000 in this quarter. And just to clarify, this is an accrual amount and cash payment is a separate topic. There was no special remuneration benefits or SRB during the quarter because of the drilling we've done, which ultimately resulted in a strong $66,000,000 in adjusted cash flow from operation, which again, as Sean mentioned, it's a notable 37% increase compared to Q1. Now, Sean sorry, Robin, can you move to next slide, please?

Speaker 2

Thank you. Now moving on to our cash balance. I think you all know that we are focused on maintaining strong and robust balance sheet to facilitate both growth and also value accretive opportunities that comes our way and also to enhance shareholder. First, let's look at our cash balance on a pro form a basis compared to Q1, and then we can talk a little bit more about some one off cash payment done during this quarter. During the quarter, we had our cash flow from operation adjusted cash flow from operation of $66,000,000 We spent CapEx of €31,000,000 We also spent €5,000,000 during this quarter on exploration, cash flow operations.

Speaker 2

We also during this quarter had EUR 72,000,000 cash payment in May, which obviously impacted our cash position. But just as a reminder to the audience, in Thailand, taxes are paid, PTA and SAB are paid in May August. So we will see more tax payment in Q3, but it's not going to be as big as this that you see in front of you now. With the adjustment of working capital, our cash balance would have been €177,000,000,000 this quarter. However, as I mentioned, we had some nonrecurring outflows during this quarter.

Speaker 2

We've made an $11,300,000 tax payment related to reassessment for taxes for PETA taxes for the year 2018 2019, which was actually during the previous ownership of the asset. We are now actively working with the counterparty to see if we can recover this amount. And we obviously will keep the market updated on this in the next quarter. During the quarter, we also closed the transaction for the acquisition of the 9YAW FSO for $19,000,000 and made the final contingent payment of $7,000,000 related to the Crysviger acquisitions. As a reminder for the audience as well, out of that €7,000,000 we also received €5,000,000 from us selling the Rosicom field as well.

Speaker 2

So that's just an offset payment. So at the end of the quarter, we're looking at a solid cash position of SEK 147,000,000 and most importantly, with no debt. Our priority is, as Sean mentioned, our priority is to keep the balance sheet strong, which position us well for the future. And I'll take this with that and hand it back to Sean.

Speaker 1

Thanks, Yousseen. Okay. I'm looking at Wassana. Obviously we had the issue there where we had to shut down the field temporarily at the end of last quarter. It's back up and running now.

Speaker 1

But one of the key things we're seeing and that's on the chart on the left is the blue line is really showing our planned production that we had from the facility. And you can see the green line with the drilling that we did in Q1, we're getting better performance from the field, which is averaging around 5,000 barrels a day. So we're getting that good solid production, obviously very happy to have that back on considering we're 100% interest in this field. Now the one thing to kind of discuss is that we had the inspection part of a regular inspection that identified a crack in one of the welds in the legs right down to the seabed, which caused us to do a temporary shut in while we analyze that crack in detail and determine that it really was confined within the weld. It was not as have effect structural integrity at all.

Speaker 1

And we've been able to start that back up. But it does point out one of the things that we want to note to people is that the majority of our facilities are from platforms, which were obviously much longer life, much more serious solid structures. We have 2 MOPUs within our portfolio. The one of them is the Ingenium at Wassana where we have had the problem and the other one is actually the new one that's just been installed, just come out of the yard and been certified, which is brand new, which is the one on Nong Yase. Now we recognize that the one on Wassana has been around, it's coming up near the end of really its planned life.

Speaker 1

And with what we've seen with our appraisal drilling on Wassana, that's really one of the reasons that we're now focused on a redevelopment of this field. It's a recognition that this facility that we have does not have the size, the processing capacity, nor the life to be able to fully reap the rewards from the Wassana field. And that's the reason we're going into the redevelopment now is to replace this with a much more solid facility that can take production not from mid-twenty 5 mid sorry, from the mid-20s, 2025 or 2017, but we want to see this field producing out to 2,035. So that appraisal work was done last year, again demonstrating that we have this upside potential. We're in the engineering work right now on that and that will lead to procurement probably in Q4 of this year and a final investment decision for that as expected.

Speaker 1

We're seeing now early 2025 just after the New Year, I'm saying that it will be around the end of the year, while it's highly unlikely any decisions are getting made in the latter half of December. So we see that as really extending now into early 'twenty five to make that decision. But again, bringing it back to focus on reserves, the first reserve report that we put out in Wassana when we took it over in 2022 was for 4,000,000 barrels of recoverable oil and that would yield about a 3 year reserve life for that amount of oil. At the end of 2023, we'd increase that to pretty well 13,000,000 barrels and we're talking of reserve life now producing out into I think at the time for that reserves was 2,032. And with this final investment decision, we see that we should be able to extend that life further out and add some more reserves when we get that done in early 2025.

Speaker 1

And that's even before we start talking about the exploration we did, which shows more oil to the north or we already know there's more oil to the south. So it's really pointing to this is that we're not just extending these fields by a year or 2, but we're looking at extending the life of these things by around a decade. Next slide. So Nong Yaoci, Nong Yaoci was really our growth project for the year. The Greater Nongyao field already had 2 platforms on it, A and B and C was the 3rd development area of the field.

Speaker 1

Now remember in Q1, we installed the facility out there. And then since that time, the drilling has really been focused on drilling all of the development wells, water injection wells that were required here. Now while the plan was originally for 6 horizontal development production wells, in the end we are able to use rig time, we drilled 1 more appraisal well into a zone which was successful. The team have actually now converted that over to a development well, which will be brought on as we go forward here and ramp up the production from the field. So all of those wells are now currently drilled and really ready to go into the facility.

Speaker 1

The other point to note, I mentioned the one well that was dedicated appraisal and now converted to development. But 2, the horizontal wells were also deepened at the end to test deeper targets. Both of those were successful and we expect those to form further infill drilling for this area as we go forward in the future. So again, while a lot of the reserves were captured in this, we're now going to bring the production on and we've had several appraisal objectives that are successful. They would expect to build on the recoverable oil volumes in this area.

Speaker 1

Next slide. So as I noted, the facility was installed. The wells have now been all drilled. All of the work on the facility is done to tie in the wells to get it all completed, all the fabrication work that was required. And the only thing that we're actually waiting for now is the final inspections and the certification to allow you to flow hydrocarbons through the facility.

Speaker 1

And in that way, we've been guiding the market that we would have first oil here in Q3. I now see that we're going to have first oil from this facility in August. And what's quite exciting is the volume of oil we're talking about here is 4,000 barrels a day plus net to us from this. And it's quite interesting to hear the team talking about the Greater Nonyeau facility really being related to the now the amount of oil that you can flow from the main production facility over to the storage vessel, which is limited to 13,000 barrels a day gross. So this is really where we see a lot of the production coming from and really looking at Valeura having about 25,000 barrels a day from September through December.

Speaker 1

When we look at the drilling performance, it's also important to note that actually the cost for Nongyao Se came in about 25% under budget on the drilling. Now some of this was related to the change in scope where we took out a couple of water injection wells and actually drilled these appraisal wells in that extra well. But we also saw drilling efficiencies here that were about 13% less than our plan. And what this means is that even though our drilling budget for the year is remaining largely fixed at just over $120,000,000 total for all of our 2024 drilling, we're now starting to get more wells drilled than were planned. And for that reason, we're seeing that Menorah campaign, which was planned for 2025 is now we see that we expect that to actually get drilling in late Q4 and to get some extra drilling coming from that well over there.

Speaker 1

So as we look forward to the rest of the year, the Nongyaosy drilling is completed. We expect the rig to be demobilizing from the site shortly. It will go up to Jasmine and do some infill drilling at Jasmine to look to bring the production up there. And then once that's done, it will head over to Menorah to start that 5 well campaign that we're looking at over there. So a good full program coming up, again getting back to more jasmine and Menorah where we're looking just and really manage the slow decline of production on these fields.

Speaker 1

Next slide. So that just leaves us really as a reminder of where we're at on our guidance and a mid year update relative to what we put out at the beginning of the year. So in the production with a mid case around 23,000 barrels a day for the full year, we still see that we can maintain that. While the production in Q1 and Q2 is planned was in that 21,000 to 22,000 range, if you start to look at 25,000 barrels a day out to year end, we're able to support that mid range case and we're kind of then narrowing the range. Prices, we're sticking to a price realization of approximately Brent.

Speaker 1

Now again in the first half of the year, we were achieving a premium, but a lot of this is due to a change where we're starting to see the Dubai oil price that we And all of our fields are getting a premium to that. So, we're and all of our fields are getting a premium to that. So while that could if that continues, we will get a big bump a bit of a bump in the latter half of the year. But again, the guidance wise is really sticking towards Brent. OpEx wise, we're maintaining the same guidance.

Speaker 1

Now we have had some cost increases, recognize that these Woosana subsea review work actually all comes into your OpEx budget. And the other thing we're seeing is because of the high oil prices, we use a significant amount of diesel and those costs were increased. But these have been offset by really the acquisition of the Nongyao FSO. So we're maintaining that guidance for now. And then finally, the CapEx we talked about the majority of that CapEx is drilling related and you've pretty well got an equal run rate from the first half to the second half of the year.

Speaker 1

But we are starting to look at some of these brownfield projects that take place out in the facilities. Some of those occurring later in the year, but we still are guiding towards the lower end of that number. So we've brought the top end down. And exploration is really largely on budget as to what we had planned. Next slide.

Speaker 1

So really, as we started the presentation here, bringing it back to this point of we see getting Nong Yaoci back getting Nong Yaoci on, Wusana is on good production numbers for the remainder of the year. Woosana, that redevelopment field still remains a target for us and we're looking at that final investment decision just into Q1 and that's looking to then have a facility out there that we can have higher production than we currently have on Lozana and again maintaining that higher production well out into the 2030s. Exploration, we've done the 3 exploration wells, all of which were successful. Rattri prospect, which is one we've talked about, we expect that now to slip into 2025 and that's just both for a reason that we're focusing on production wells right now as we go towards the end of the year, but also there are some commercial reasons that that well around Jasmine maybe better to do in 2025. The balance sheet, Yassine talked about that good strong cash flow for the remainder of the year.

Speaker 1

But I know a lot of the questions that people have is really related to the corporate consolidation that we are looking at, which give tax benefits. What we can say at this time is that all of the work is done at that, all of the reviews are done at that and we are really just waiting for a signature on that. But again, we'll have to just wait and see when that signature comes as to whether it's next week, next month or next quarter. And finally on M and A, and really where we're at on there is similar to where I can say we were in 2022. We are active on deals.

Speaker 1

We are in discussions with people. We are working on a number of opportunities. But again, we don't make any announcement there until it we actually have something that we have signed and that we can actually release the details on. So all in all, we see production up that should yield better cash flows as we go in later in the year and some exciting opportunities like Wassana that are coming up there and potentially looking at further M and A in the latter half of the year. So at that point, I'll hand it back to Robin and we'll take questions.

Speaker 1

Thank you.

Operator

Thanks, Sean. Thanks, Yassine. Sean, I'll let you rest your voice for a moment and ask some other questions about tax so that Yacine can speak here. Now Sean, you've already mentioned the state of affairs we're at with the tax consolidation. So I won't ask the I won't voice the many questions we've had along those lines.

Operator

On the CAD11 million tax payment that we had, simple question, can you explain what this is all about?

Speaker 2

I think as I mentioned earlier on, it's related to a reassessment of taxes during that year. The Tax Office in Thailand has the right to audit. And as part of an initial discussion with the audit with the tax office in Thailand, it transpired that the previous owners might have made a small might have needed to do a small adjustment to that tax filing. Now just to kind of like deal with it on our side, obviously, in collaboration with the previous owner, we have chosen to our filing and that has led to a tax 11% $11,000,000 increase in taxes. So we submitted that.

Speaker 2

But as I mentioned, look, we are in discussion with the previous owners to as per our SPA with them to try to recover this amount from them.

Operator

Okay. Thanks for that. And just by point of clarification, there's another question along these lines as well saying what options are available to recover the $11,000,000 taxes in that CrysEnergy was acquired out of receivership? And just to clarify, we're talking about the producing assets that came from the other acquisition that we did. It had nothing to do with KrisEnergy, unless there's something else that you want to contribute there.

Speaker 2

No, no, that's absolutely correct, Robin.

Operator

Okay. Moving on then. A couple of questions on shareholder returns. And in particular, has there been any advancement around putting in place an NCIB? And if so, could that possibly be a 2024 event?

Speaker 1

We do get this question a lot. And what I will say is that our messaging for the past 9 plus months has been very similar on this, is that this would this is an item that we take and discuss with the Board at every quarterly meeting. We said the appropriate time for us to have a significant look on this was the mid-twenty four meeting, which is about now. And obviously, it's related to what we see coming in a deal space, because our priority does remain on growth and having the cash to underpin that growth, given the problems in raising capital for oil and gas right now. But this is something that we are reviewing and that could potentially be a 2024 event.

Speaker 1

But we'll just we need to go through a final decision review with the Board on that.

Operator

Okay. I think that's clear. Switching to an operations question, specifically on Nongyao Si. The question is how many barrels per day do you expect individual wells that were drilled for the Nongyao Si development are going to be capable of doing?

Speaker 1

Yes, the total initial production we expect from that is when we talk gross numbers is let's talk about approximately 4,500, 5000 barrels a day gross from that and you're getting that from the plan was to get that from 6 wells. Obviously, we'll have to see what we get more now that we have a 7th well on there. But the other thing is we just have to make sure to the we're at some point we're going to hit facilities constraint on the number of barrels we can push through the system. So that's kind of the numbers we're looking at for there is that 4,500, 5,000 gross.

Speaker 2

Okay.

Operator

Maybe back to Yacine just for a moment before we leave taxes. A question sort of in response to the responses before. Is it possible that there'll be any other tax reassessments? Or is there a statute of limitation that prevents the tax authorities from going back further than they already have with this reassessment?

Speaker 2

Correct. So for the period to the tax office has a period of 5 years up to 5 years to revisit, to audit. So effectively, anything from 5 years back, the tax office will have the right to audit.

Operator

Okay. And just a reminder to the audience, if you do have a question to ask, please do so using the Q and A feature in Teams Or if you're feeling shy to have it voiced on air, feel free to email us after the fact. You can use irvaluraenergy.com. In the meantime, just one more question in the queue here and that is on M and A. Can you comment on your timeline to reach the target number of 100,000 barrels a day that you previously mentioned?

Operator

And what sort of debt and share price dilution would you be willing to accept to get there?

Speaker 1

Well, the first one is, if we look at deals coming in the near term, let's say, in the next 18 months, We've mentioned that we are looking at some relatively significant deals there. All of the work that we tend to do really looks at funding these from cash or from debt. We just think it's extremely hard to look at funding these that sort of deal from new equity placements, given where the markets are at, even if we have a good story. So that doesn't work into our base case assumption. We're always looking at how much debt we can access, still relative to the size of the deal that we're trying to do and the cash amount that we'd be able to put into the deal.

Speaker 1

So that definitely is not a priority for us to go out and issue new shares to be able to go through and raise the money for a new deal. But we're still looking the message we've said is our target is to try and get to that number by the end of 'twenty 6.

Operator

Okay. Let me just see. I think we've had one more question come in just in the last moment here. Any early steer on 2025 CapEx?

Speaker 1

Yes, we're just really into the business planning cycle on that now and we are looking at a number of scenarios. And as I mentioned, if you're looking at 85%, 87% of your CapEx coming from drilling, obviously, that's where the majority of the spend is. So the scenarios we're running now are really what level of drilling do we need in 2025 to maintain that production level. Again, as we've said to people, we target to keep it between 200,000 and 25,000 barrels a day. So it's really looking at the amount of drilling that we actually need to keep this at a reasonable level.

Speaker 1

And that's given that now all the opportunities the team have, drilling opportunities, we're reviewing that and doing the portfolio modeling on that right now. So there is a potential for it to drop. But again, we are looking at a Wassana project coming up and this is a redevelopment up there and that expenditure would start in 2025. So that would be in addition to what we're kind of talking about as our base numbers.

Operator

Okay. Thanks for that. We have no further questions at this time. So over to you to wrap up, Sean.

Speaker 1

Yes. Maybe just one thing I'll say, the first question we had Robin and the question that you get, I know a lot on the IR website is, have you had approval of the corporate restructuring? Right now, just I will mention to people that that's a significant event. When we get approval of that, it will be announced. So just kind of expect that if you haven't heard from it, it hasn't we haven't received that approval.

Speaker 1

It's a material event that we would announce immediately. And with that, so I'll just say, to me, it's really exciting as we look at through going into September here and getting really that production up, getting the new facility ramped up and operating smoothly at Nong Yaoci. It's a real exciting focus for the remainder of the year to see the production numbers up that high of 25,000 barrels a day or even higher than that for the remainder of the year. So that's what's gotten very much focused on that. And then heading into a Wassaonah decision at year end.

Speaker 1

So with that, I'll thank everyone for their support and for attending today.

Operator

Thanks, everyone. That ends the call. We'll make the replay available within the next day.

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Key Takeaways

  • Q2 production averaged around 21,000 bbl/d with adjusted cash flow from operations of $66 million (37% higher than Q1), ending the quarter with $147 million in cash and zero debt.
  • The Wassana field is back online at about 5,000 bbl/d and the Nong Yao FPSO is slated for first oil in August, contributing an additional ~4,500–5,000 bbl/d and boosting total output to ~25,000 bbl/d by September.
  • Reserve replacement exceeded 200% in 2023, with further upside from Wassana redevelopment, the new Nong Yao wells, ongoing performance at Jasmine and Menorah, plus three successful exploration wells, extending field life into the 2030s.
  • Engineering work is underway for a major Wassana field redevelopment, targeting a final investment decision in early 2025 to install a larger facility and extend production capacity through 2035.
  • 2024 guidance remains unchanged with mid-case production of ~23,000 bbl/d, Brent‐linked pricing, OpEx around $28/bbl, ~$120 million of drilling CapEx, and Board review of potential share buybacks and M&A opportunities.
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Earnings Conference Call
Valeura Energy Q2 2024
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