Afentra (LSE:AET) — Investor Presentation

0:01 Good morning, and welcome to the AFENTRA PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted anytime by the Q and A tab situated in the right corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. Have the company will review all the questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll.

0:26 I'd now like to hand you over to Paul McDade, CEO. Good morning, sir. Thank you, and and good morning, everyone, and thank you for joining this brief webcast. The intent is to update you on the recent admission document and and the next steps. My plan this morning is to highlight some of the content from that document from a value perspective, and I'll also update you on the recent performance of the assets and then kinda what's next next as we we head towards year end. The disclaimer slide to read at your leisure. So it's a little over two years since the launch of AFENTRA. And in that time, we feel like we've we've turned AFENTRA into a well recognized brand in West Africa across our industry and also in the capital markets.

1:20 We've we've reviewed numerous deals but being very selective about which ones we take beyond an initial screening phase. And what that does is it means that our cash burn is is modest relative to the number of things that we're looking at. We stayed focused on the key principles of the company. We we lay out the founding principles there, but our focus, where we stayed focused on Africa as we said we would. We stayed focused on targeting, producing mature assets that have upside potential where we can deploy our skills to enhance those assets. Also interested in nearby and and some development assets, and we're open to operated and nonoperated opportunities.

2:06 And finally and importantly, we are always seeking ways when we look at assets, we're we're looking at the asset through, an energy transition lens as well as a value creation lens and looking at how can we positively impact the emissions on on those mature assets. So given two years of hard work by a relatively small team, we're we're pleased to consider that by year end, when we close these second and third deals, we will have transformed what was a cash shell with less than $40,000,000 into a cash generative oil and gas business. So let let me walk through some of those metrics and how the company will look, as we complete those deals, towards year end.

2:51 So by year end, we we should have completed the second and third deal, the amended Sonae Gold deal and the Azuli deal. And our whole strategy looking at these assets was to somehow find a way by knitting together a number of deals to acquire a material interest not only in block three zero five, which we did in the initial deals, but also in three zero five e, and it'll become a partner as I go through this why we were also interested in three zero five a. So by year end, we'll have 30% in block three zero five and twenty one percent in block three zero five a. That translates into production of just less than 6,000 barrels a day, reserves and resources of over 50,000,000 barrels. However, one of the main attractions is the potentials to sustain and grow both the production and the reserves in in those assets.

3:46 I think the first half, we obviously did another CPR report for the admission document, which we've just published. It's in in the admission document. We had done one for year end as we always do. And what you've seen is in the first half of this year, reserves replacement is a 150%, and I think that gives a hint to what's possible with these assets. If we look at it through a value lens, the assets were acquired for around about $3.4 per barrel. And importantly, given the cash generation, we'll have a short payback, period. The effective dates, are really important, the Senegal effective date of April 22 and the Zulie effective date of October 22, it means that the cash generation from the asset is accruing to AFENTRA as we walk towards completion, and therefore, we'll reduce the headline consideration at or the the the payment at completion.

4:48 So instead of a headline consideration of a $104,000,000 for both deals, we've guided in the admission document that it's likely to be as low as 56,000,000 or or even less. And I think what that demonstrates clearly is the cash generation ability of these assets. And we feel that when we have our 30% block three zero five and the contribution at the moment from three zero five a, we should be generating net cash flow of around about $50,000,000 per annum and potentially more at the currently in higher oil oil prices. So so pretty positive when you look at the acquisitions that we're doing and the payments that we'll make. And, again, another example of that is obviously the recently completed in a deal, we laid out the completion statement that very clearly and transparently showed that we paid $27,000,000 for that 4%.

5:49 And as you would have seen in our interims, we just sold the cargo or the the stock oil stock that we inherited plus the subsequent production over the last number of months for about $26,400,000. So I think that, again, shows the ability to pay back the these acquisitions in a relatively short short period. But it's very important to remember that we have a license which has been extended out to 2040, and we've also agreed, enhanced fiscal terms, which unfortunately going through the process of formal government approval. They are agreed. We we clearly understand what they are. But until they're published by the government, we can't share those with you, but we will as soon as, they're published by the government, we we will report those and share those with the shareholders, but they certainly will further enhance the the value and the cash generation from these assets.

6:46 So let me look at the, assets themselves and recent performance. So as you probably know by now, you know, three zero five is eight fields, basically, with containing about 3,000,000,000 barrels or over 3,000,000,000 barrels of oil in place, and there's been, a kind of modest recovery factor to date. This last year, we've been, doing a number of light workover activities. The production was, towards the end of last year, early this year, kinda seventeen, eighteen thousand barrels a day, on average. And and this last month, we were producing over 20,000 barrels a day. So you can start to see the impact of these very low CapEx, activities that that we're doing.

7:34 We'll continue to do them as we go through the second half. We've got another 30 such interventions planned for the second half of twenty three flowing into '24. And these are just very simple replacing gas lift, basically, acid washing, all all very simple low cost activities. And beyond that, with regard to the wells, we'll be looking at trying to further reinstate some of the wells that are not being utilized at the moment. And, also, we've just, initiated a study on ESPs. ESPs are electrical submersible pumps. They what they do is if you decide to install them, is they replace the gas lift, and what they can do is very significantly enhance liquid production and therefore oil production. So that's something that we're just studying and underway, and we hope to be able to implement in the coming years.

8:23 And and in addition to the wells, we're also being continually working to improve the performance of the power systems and the water injection systems on the assets, get the reliabilities of those systems up. And that has been working. Power reliability has been much better than it was. Water injection systems doubled year on year, but they're not as high as we want them to be, and we continue to work that looking to further enhance, particularly the water injection as we go through the second half of the year and into 2024. As I said, emissions are a very important core of what we do and what we look at. These assets have got great potential to reduce emissions, and it's something that we stated we wanted to work on. The great thing is our influence on the partnership is starting to show.

9:09 We recently had a gas management workshop where the whole partnership is starting to get much more focused on what are the opportunities to reduce emissions on the assets. And what you can see on this slide up in the top left corner, I think we've highlighted it before, is a red export pipeline. That is the gas pipeline that goes to Angola LNG. So one of the options we're looking at as we start to develop the Punjab development is can we tie into that export pipeline, and therefore, future developments do not have flaring. And, also, if we achieve that, it means that the current levels of emissions can be reduced substantially, in in conjunction with that development. So, decarbonization of the asset is is a key focus as much as increasing production and increasing reserves and and cash flow.

10:00 Block three zero five, which really we've now increased our equity to a level that's much more material than where it was. We actually have one well in block three zero five, which is producing, producing just over 1,400 barrels a day. So the great news is that contributes on top of the three zero five production in terms of revenue. But more importantly, it's providing us with valuable data as we look at how do we very efficiently in a low capital way develop Coca Cola and Punja. And we have some good ideas about that, and and studies are underway. These are very important. There's about 300,000,000 barrels in place across these discoveries. They're fully appraised. So it's really just looking at how do you optimally develop these and where we bring some of our experience of doing similar sorts of low cost shallow water developments in the North Sea to the partnership to see how we can we can assist in the implementation of those developments. You know, these these developments could add anything up to 10,000 barrels a day to the overall production from these facilities.

11:08 So in summary, it's early days of our involvement, but the asset itself and the performance is heading in the right direction. So to wrap up, I think, you know, over the last two years, I think we've established a new, well regarded independent oil and gas company in West Africa. We believe, in this region, strong and positive relationships are critical, and that certainly served us very well in Angola and continues to serve as well. We believe that the numbers I've just presented show that we've done some smart deals, accretive deals that are very value enhancing for for our shareholders. And and the work that our finance team have done in the debt market has shown that our ability to procure the debt we require is there.

11:54 And and the strong financial management of the company is gonna leave us in a very good place as we exit this year having acquired the these assets. So in terms of next steps, we'll we'll be seeking shareholder support by voting for the deals on the October 5. We'll then, basically be seeking formal governmental support, their approval for the two deals. I was in Angola last week and spoke to the minister, and he's very clear on, our desire to get that government support soon after our shareholder support is given. And then we'll basically work our way through the novocation process to complete both deals, by year end. And then I think as we enter 2024, we can look forward to both organic growth in these assets and further inorganic growth through our continued efforts in the business development space.

12:51 So I'll pause there, and, happy to move on and answer any questions. Paul, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab, which is situated on the top right hand corner of your screen. But just while the company take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. As you can see, we received a number of questions both pre submitted and throughout today's live presentation. And, Ben, at this point, if I could just hand over to you just to run through those, that'd be great, and I'll pick up from you at the end. Absolutely. Thank you. So I'm going to combine a couple of questions here because they're on a similar theme, Paul. So the first one is for your next acquisition. What's the net production profile and 2P you're targeting? For example, is it a 5,000 or a 10,000 barrel a day acquisition? And and in five years, where do you see AFENTRA's net production and and two p profile?

13:50 I I think there's no specific production target for any particular deal. I think the way we look at these deals is we're looking at many deals. We're looking at deals that would would double our production or or more, and we're looking at some deals that would, you know, increase our production by a 7%. So there's a wide range of deals that we have looked at and will continue to look at as as they come onto the market, and we're proactively seeking them. So the no. You know, we look at deals of many sizes. It's about what we

14:21 look at is what's the value of what's the quality of the asset? What do we think we can acquire this deal for, and what value would that create for our shareholders? And how would we finance the deal, both from a debt and an equity point of view? Because that's an important aspect on the value creation for shareholders. So looking at a a wide range. And in terms of where we'd like to be in five years, I think my view is, and I said from the very beginning, that, you know, we want to build a company that has a portfolio of assets in West Africa. And we'd like to see the scale not in single digits of thousands of barrels, but in tens of thousands of barrels. But in saying that, you know, scale is not our key focus. Value creation is our key focus. And, you know, if that happens quickly, that's great as long as we can create value. If it takes us longer, then we will be patient. And, you know, we've turned down and looked away from many deals over the last two years just because we didn't feel like they were right for us.

15:26 Great. Another question. In in the medium term, are you looking to conduct share buybacks before the issuance of dividends?

15:34 You know, I I think it again, at the beginning of the inception of the company, we said we wanted to build a portfolio. We're certainly in growth mode at the moment, so dividends and buybacks are not really central to our current focus, but they're certainly considered because what we want to do is get to that place eventually. So therefore, as we acquire assets, we have to make sure that the cash flow generation ability of those assets can build a portfolio that can ultimately kinda redistribute to shareholders in the most appropriate manner when when we get to that time. Right. Given given prior lengthy delays, how confident are you of closing these deals within q four as stated, and as an acknowledgment that the previous delays were attributable to the license extension?

16:23 Yeah. Look. As I mentioned, we I was down in Angola last week. We were very close to closing and getting government approval for the Sonogol deal in July. We've explained, and we explained in the July 19 why we chose not to do that and amend because now we have the equity in both blocks and the balance of equity that we wanted, and and we have Sonogol in a comfortable place as well in terms of their equity in both blocks. So I think, when I spoke with the minister last week, we we expressed that that we've chosen to you know, draw back to gain their support to buy the Azuli and and and complete the Sonogol deal. So I'm very hopeful that we'll certainly get governmental approval

17:10 soon after the shareholder vote, we'll certainly be seeking that. And then we have a innovation process, and innovation process is just administrative. It's lots of documents passing between lots of parties to sign off. The parties don't they can't block the deal, but they do have to sign off these documents. And and, really, that's about chasing paper. So that's why we're being a bit cautious in just saying we'll we'll we'll get these done by year end, but we're we're certainly highly confident that both will be done by year end. Okay. And I had a question just to clarify. I mean, they are one and the same. But when you say year end, do you mean calendar or fiscal?

17:45 Calendar. So we're we're focused on getting these done kinda by by December. Okay. You just touched on the the sort of confidence in in closing out the, the the deals. There's another question regarding the publication of the new fiscal terms of the of the license extension. When can we expect that in a in a rough time frame? Well, again, it's it's kinda down to government. It's all agreed where where, you know, we we've had confirmation of the terms, so we we know the terms that are going to be applied. They'll be applied for the extension period and actually a little bit retrospectively as well. It's just the the the procedure is that the government, basically, when they've approved, they publish them in, I think, called the Diario Republica, which is the gazette, the government gazette.

18:35 And and when they're published there, that's the signal that we can then publicize to our stakeholders, what the terms are. So highly confident that those terms will be delivered in the near future and approved. And as soon as they're published by the government, we'll be communicating that with to shareholders, and we'll be able to then articulate the positive impact of those new fiscal terms. Great. Got a question here, which I know you you touched on in the in the presentation. Given oil pricing has moved materially higher as a result of OPEC's support, where do you see net debt at the end of the year and the effects of that on funding another accretive acquisition through nondilutive means? Yeah. It's important. I mean, we're doing three quite complicated deals, one done and two to do, and and there's a lot of moving parts, and there's a lot of numbers around the deals. But, kind of, I tried to summarize, you know, these effective dates will effectively bring the the the completion payments to kind of 56,000,000, as we said in the admission document, as a as a guide or or less.

19:39 When you put that together with the with the the the borrowings which we've published around the Inna deal, that would probably leave us in a net debt position of kind of $5,060,000,000 towards year end, which, you know, we we feel pretty good about. It's got a strong position to be in when we've just transacted three fairly significant deals, and we've got that net cash flow coming out as over 24 and and beyond. Right. Why did the shares have to be suspended? Is there trading now and, you know, you're still in the same position, I. Pending completion of the deals? Yeah. I I mean, this is regulatory. So when when we announced the amendment to the Sonogol deal, because my understanding is that shareholders had voted on a a deal for with Sonogol, but the amendment was significant enough that that meant we aim required us to go back to shareholders.

20:39 And because we hadn't completed the Sonogol deal, that made the Azuli deal an RTO. So both items caused us to have to go through this admission process.

20:48 And and as people, I'm sure, that are familiar with them know, as as soon as we're we're ident it's identified that it's a significant change or an or an RTO, we then immediately have to suspend the shares until such time as we can publish the admission document. I think what we were pleased about is when we went into it, we told shareholders we'll really work hard to get this admission document out by early q four so that we're we minimize the the time that the shares are suspended. And, actually, in the end game, we we kind of beat our target by about two or three weeks, and we got it out on on Monday. So that was a lot of hard work by the team, but pleasing to get it out there and get the shares trading again. Are you are you able to comment on directors', ability to purchase shares in the market at present?

21:37 I think, you know, the the the director's ability to, you know, purchase shares is about the closed period rooms with under AIM. And we can't publicly say whether we're in a closed period and an open period. It would be inappropriate for me to see that at the moment kind of under the AIM AIM guidance. But I think what what I would say is that, you know, of course, when directors do make any dealings,

22:03 they are they are we we put out an RNS immediately, and and that information is passed on into the market and to the shareholders. Those purchases would only occur out outside the closed period, so we would have to be in an open period. And and, you know, the directors currently have about 4% of their votes of of the company, and the executive team are, in terms of their incentivization, are very aligned with shareholder value growth. Great. Got a a question here about the decommissioning on on 03/2005. Just asking if you can expand on it a bit more beyond what was included within the admission doc. Yeah. So so the partnership has an estimate for, the decommissioning cost, and that aligns pretty well with the funds that were set aside by the joint venture partners prior to a a venture coming on the license. So we generally make the statement that the abandonment costs are well provisioned for.

23:07 So that that's really the message we tell you know, we're telling people there there is an estimate in the partnership agreed by all the partners, and the provisions that have been made by the joint venture partners into an escrow account, basically pretty much align. The shortfall is de minimis. However, what happens is, you know, every couple of years, what one will do is make a re estimate of that decommissioning cost. And, obviously, what happens is that fluctuates, you know, in my last fifteen years in the business looking at decommissioning estimates. You know, if we're in a bit of a boom period and rig rates are high and contractor costs are high, the decommissioning cost provision estimate goes up. And then we see a quiet period in the market where contractors rates are lower and rig rates are lower and, you know, we we make the estimate that that period comes down. So what one should expect in in a kind of an accountancy way is for that number to oscillate over time depending on the kind of buoyancy of the contractor market.

24:08 But in summary, the asset is well provisioned for, the decommissioning. Great. Got a question here. It's probably one for you, Anastasia. You mentioned $50,000,000 net cash flow per annum. What oil price and volume assumptions have you based that cash flow figure on?

24:28 Yes. So when we mentioned $50,000,000 a year cash flow number, you should think of it in the context of current production. So 18,000 to 20,000 barrels production level is what we're anticipating over the next two to three years at least. And oil price, when we think about oil price and what's the prevalent oil price, obviously, we had some very material movements recently. 50,000,000 is really more around normalized 75, 85 oil price. Again, that number will change subject to the cost oil, profit oil, and other very complicated calculations in the production sharing contract. But, again, think of it as a normalized '75, 80 5, and the 18,000 to 20,000 production.

25:17 Great. And another one for you, Anastasia. On the Sonangol and Azul assets for effective date barrels, does the company get cash credit or inventory only? So that is on a case by case basis. As we discussed in the past, Sonangol typically sells barrels to their own refinery at worldwide prices. There is no specific price that Sonangol has to adhere to. We sell it at Brent pricing, typically on a monthly basis, but that does not necessarily mean that they'll continue with that same program between now and completion. To the extent that barrels are not sold, we will accrue them on stock at completion. And then what you will see is a similar dynamic to what we had with the INA barrels, where we will monetize them in aggregate at the next opportunity that we have.

26:10 Okay. And what's AFENTRA's current view of hedging some element of production, if not already required? We have a hedging policy that has been approved by our Board. We will enter discussions with our Board shortly with regards to our hedging plans for the upcoming completions. We're not going to enter into any deal contingent hedges at this point in time. When we complete both Sonangol and Azul acquisitions, we will formulate and put in place an appropriate policy at that time and appropriate volumes at that time. Great. Paul, got a question here. When could we expect the next lifting, the one for Azul, and and how many barrels would it be comprised of?

26:57 Yeah. I mean, we we don't have that information at the moment. So there there is a lifting schedule that is held, and and that would be in confidence within the partnership. And each party, when they accrue a certain amount of barrels, will basically reach the top of the list and and have their opportunity to lift. So it's uncertain at the moment exactly when a Jolie will lift. I mean, they they may have a lifting before we complete, in which case, to to respect to the previous question, that means that that oil would be returned to us in cash. If it turned out that the lifting schedule, you know, we complete a bit earlier and the lifting schedule has them lifting after completion, then we just inherit a much larger stock of oil. And as Anastasia said, we would then look to monetize that at the earliest opportunity.

27:51 Right. Got a question here on the m and a side. Essentially asking, is is Egypt a a market for for AFENTRA? I mean, I think what we've said is our our kinda geographical focus is Africa, and then it's production development, and it's operated, nonoperated. Now that you'd see geographically that does include Egypt, but our main focus at the moment is really on West Africa. I mean, most of the deals we're looking at and considering are up and down the West African margin. Okay. I think you already alluded to this. But when the Angola acquisitions are finally approved by the Angolan government, do you have any idea what the accrued backdated earnings will be?

28:38 Again, it's back to what we discussed previously. These deals are highly complex. There is a lot of moving parts. Obviously, effective dates are very different from both transactions. There are different dynamics in terms of accrued sales. Sonogle sells regularly. Azul does not sell regularly subject to, as Paul just described, the timing of the zoo lifting, we will either get a deduction to our completion price or will accrue barrels. And I think a really good kind of guidance is what we mentioned, 50,000,000 a year cash flow plus minus is not a bad estimate when you think about the three deals combined. And when we complete those transactions, we will publish detailed information with regards to completion payments and also the way how we finance them at time of completion.

29:35 Great. Bit of a high level one here for for you guys. What learnings have you had from your from your time at Tullow that will ensure AFENTRA is an even stronger success? That's an interesting question. I mean, you know, my my personal time at Tullow spanned almost twenty years, from a starting point that, you know, had us build TOLO UK from an even smaller team than we have here at AFENTRA. We initially were were less than the team size of the team at AFENTRA, and we obviously grew it through various phases. First of all, North Sea, then Africa and South America exploration focused and then on to development and production. So I think, you know, when when when you go through these periods, you have ups and downs.

30:26 And I'm always a great believer that you learn some things on the ups, but you learn a heck of a lot more on the downs. So, you know, I think both I'm sure Anastasia would agree in her short time over the last three years previously at at Tullow. You know, there's a lot because the journey was from small to large, and and we went through all the growth, you know, opportunities and pains, there's an awful lot of things that, personally, I learned over those nineteen years that are really quite applicable to the journey that we're heading off on with regard to AFENTRA. Great. Thank you. Anastasia, got a got a follow-up question on on what you inherit, in fact, dated to the effective dates of those transactions. Are you able to just touch on what the percentage will be between inventory and cash credit?

31:15 Again, we don't know. And the big unknown, as Paul described just now, is how Azul barrels will ultimately be treated. We are accruing barrels with Azul going back to 10/01/2022. So it's coming up on twelve months of production. So all that production accrual will come to us either as stock or as cash. And subject to whether it's cash or barrels, we will deal with it when we complete the transaction through either providing an additional funding for it at the time of completion or or not. Great. And that actually linked linked to that follow on question is are are there any central bank controls on extracting funds from Angola?

32:03 There are no controls. We mentioned in our interims just last week that we have monetized our first INA production in August. We will be paid into an international bank the proceeds of that offtake in the next two weeks. And government of Angola is not a participant to that process. That's great. Well, I answered all the questions that we can. And so I'll just hand back to you, Alessandra. Perfect. Paul, Anastasia, Ben, thank you very much for that. As mentioned, I think you addressed all those questions from investors. And, of course, the company will review all the questions submitted today, and we'll publish those responses out on the investment company platform.

32:50 But just before redirecting investors to provide you with their feedback, which is particularly important to the company, Paul, could I just ask you for a few closing comments? Yeah. Thank you, Alejandro. I'd I'd I'd just like to say, gentlemen, thank thank you for your time this morning. The endeavor was really just to we've published quite a large document, and the admission document was really takes extract some of the highlights from that document and make sure they're well communicated to make sure investors are clear on the value potential, that we are creating, the performance of the assets, and also what are the next steps to get to completion, ahead of year end. So thanks for your time this morning. Perfect. And thanks once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, but I'm sure it be greatly valued by the company. On behalf of the management team for AFENTRA PLC, we'd like to thank you for attending today's presentation, and good morning to you all.