Beacon Energy (LSE:BCE) — Investor Presentation

0:00 Good morning, and welcome to the BEACON ENERGY PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the q and a tab situated on the right hand corner of your screen. 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. However, the company can review all questions submitted today and publish responses where appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Stuart McDonald, CEO. Good morning, sir. Good morning. Thank you very much for joining the call, and then thank you to Lily at Investor Meat Company for hosting. Over the page, please note the disclaimer. So

0:48 my name is Stuart McDonald. I'm the CEO of BEACON ENERGY. In terms of my background, I have over twenty years of experience in the oil and gas, energy, and investment banking sectors. I spent the first twelve years of my career with Rothschild advising clients in the energy sector on a range of mergers and acquisitions and debt and equity financings. I then spent the next eight years of my career as the CFO at Rockhopper Exploration, the Falklands focused AIM listed e and p company. In terms of the other directors, we've got a pretty heavyweight board given the size of the company. The the the team have a real mix of large cap and smaller comp smaller independent company experience across the range of technical, operational, commercial, legal, and financial roles. And just by way of example, Mark Rollins, our chairman, he spent a huge part of his career with the likes of Shell and BG in very senior roles.

1:58 He was the chief executive of the Ukrainian national oil company. And then more recently, he has spent his time with a range of smaller entrepreneurial companies and was a founding shareholder of Tenaz Energy, the Canadian listed E and P company. We also have, not on the board, but Francesco De Luca. He is the managing director of LN Energy. LNG is Italian operating company. He has a lot of experience in the sector. He's a senior executive at Itau Fluid, and and Itau Fluid, who are the main contractors to the project, have been involved in Colosanto since 2022.

2:50 So very experienced team. Over the page, just to set the scene, set the context, we signed a transaction with in October of last year as part of a relaunch of the company. Through that deal, BEACON is acquiring a 48% shareholding in LNG Limited, a private UK company, which holds a 90% working interest and operatorship of the Colisanto gas field in Italy. And Colisanto is one of the largest undeveloped gas fields onshore Europe. The field is fully appraised with independently audited 2P reserves of 73 BCF, just over 12,000,000 barrels on an oil equivalent basis.

3:39 The project is development ready subject to final permitting. There are two wells already drilled and completed, so no further drilling is required in order to achieve first gas. And the project received its full EIA environmental approval from the Italian ministry in January of this year, which we believe is an absolute game changer for the project. The only outstanding significant regulatory approval now is the production concession award. In terms of the funding discussions for the project, they are well advanced. We're looking at a gross funding requirement of just over €75,000,000. Of that, we have a letter of intent in place with Itau Fluid, the main contractor for the project, covering just over 50,000,000.

4:30 And effectively, that defers that 50,000,000 out of 75,000,000 such that it is paid out of production and cash flow. The balancing 25,000,000 is to be funded by a combination of third party debt, prepay for offtake, and we have advised that this project is highly likely to be eligible for grant funding in Italy given its low carbon credentials. In terms of the forward plan, we're looking to progress the project to FID in the middle of twenty twenty six, which requires funding to be secured and the production concession award. We've then got an eighteen month construction period, which would see first gas at the very end of twenty twenty seven, at which point the project is generating significant free cash flow.

5:23 Over the page, in terms of the transaction with Reagold, BEACON is to acquire a 48% shareholding in LNG, half of that on completion, which took place about two weeks ago, and the balance once the production concession has been awarded. The consideration to RiaBold is in two parts. Firstly, RiaBold has received a 22% shareholding in BEACON. Some of those shares relate to consideration for the acquisition, and the balance relate to RiaBold's participation in our recent fundraise. And then secondly, RiaBold had to receive an earnout calculated as a 11.55% of the future post tax, post financing cash flows of LN Energy, subject to a cap of €16,000,000,000.

6:16 Now that equates to less than a million euros per annum in the early years of production. Now everything I've talked about so far is in relation to buying REOBOL's 48% shareholding in LNG. But on top of that, to the extent that LNG needs additional capital prior to FID, BEACON could fund that through new equity. And while some of the other share, LNG shareholders might stand their corner, historically, of them haven't. So we it's not unreasonable to expect that our shareholding in LNG may increase over the next six months or so. In terms of the transaction metrics, we we believe they are compelling. There is no upfront cash consideration.

7:03 All of the cash that we've raised is being invested to progress the project. We see very material MPVs and free cash flows. The CPR articulates a gross €62,000,000 MPV based on the assumptions at the time, which we'll talk about in further detail. And that really does look very attractive compared to our current £5,000,000 market cap.

7:36 Just to set the scene, we set out on Slide six some background to the E and P landscape in Italy. It's not widely known, but Italy is the third largest producer of oil and gas in Europe behind The UK and Norway, yet is nonetheless hugely dependent on imports, particularly for gas, to meet around about 95% of its gas demand. We've seen a step change in government support for a domestic oil and gas industry in Italy, post Ukraine, which is evidenced in a number of ways. Firstly, you know, the this project, Colosanto, has made material progress in recent months. We received the the via approval positive opinion in August of last year. And then in just January of this year, we've received the full EIA approval.

8:32 But I think it's also important to look at what else is going in on in the Italian landscape. So we've seen a number of new gas projects come into production in Italy in recent years. And then potentially, even more compelling is that we've seen Italy grant or award over 30 new oil and gas exploration licenses in the last twelve months or so. And that is a complete step change from what we've seen in the previous decade where they were close, if not zero, new licenses issued. So we've seen that step change, and I think current events in The Middle East will only further accelerate that support. In terms of gas prices in Italy, the marker price for gas is called PSV, and that very much tracks the European gas prices TTF.

9:29 When we finalized and and published the CPR for this transaction late last year, European gas prices at the time were around 9 or $10 per MMBtu, And that is the price that's it's used for the CPR and all of the analysis that we've present here today. When we went to do the fundraise in January, February, European gas prices have jumped from 10 to $12 per MMBtu. Since the outbreak of the current Middle East conflict, prices have now doubled. I mean, they're they're around about $20 per MMBtu. So the transaction is very timely, not just economically because of the materially increased level of free cash flow that might be expected, but also there is a real increase in focus on energy security, particularly in Europe.

10:31 And, you know, that has to be a helpful background as we seek to go through the process of that production concession award. In terms of the fiscal terms, in Italy, they're very attractive. There's a 10% royalty, 28% corporation tax, and there there are various tax incentives available for energy transition projects such as this, which push out the point at which the project becomes tax paying. There is, as I mentioned earlier, also the potential for grant funding, which is also hugely beneficial in terms of enhancing the project's returns. Looking at the asset in a bit more detail, the field is located in the Abruzzo region, some 35 kilometers inland from the Adriatic Coast.

11:24 It's a material and well understood gas resource with two p reserves of over 73 BCF. Importantly, over 80% of those reserves sit in the proven category. The field has been extensively appraised since its discovery, eight well penetrations, seven of which produced gas to surface. And of those eight wells, two were completed and suspended in 2007, and they will be used as the future producers. The development concept, which as I said earlier, received its full EIA approval in January earlier this year, outlines a small scale LNG solution.

12:11 The gas needs minimal processing, but it is liquefied to convert it to LNG on-site, and that LNG is then trucked to local end users. And the LNG, just for context, is used as a transportation fuel. It's therefore displacing higher carbon alternatives such as diesel or, marine bunker fuel. Consumer grade c o two, can also be extracted as part of the process, and that will be sold, producing an additional relatively modest revenue stream. But in addition to that, the gas contains about point 11% helium. So not commercial on a stand alone basis, but as part of this scheme with some small incremental investment, the helium could be separated out and sold, generating an additional 1 to €2,000,000 per annum of free cash flow. That's not included at any of our cash flow analysis or our valuation.

13:12 And the development concept is very similar to the sound energy micro LNG project in Morocco, which was commissioned and entered production earlier this year.

13:29 In terms of the development timeline, the transaction completed less than two weeks ago, but we are very focused on achieving FID in the next six months. That FID will require a number of things. Firstly, completion of the final technical work, including well integrity test and completion of the FEED, which is already at an advanced stage. Now we expect those two things to be completed during the course of of April and May of this year. Second of all, we're looking to secure that final regulatory approval in the production concession award. And then finally, we're looking to finalize what are already advanced financing discussions. Once FID has taken place, we're then looking at an eighteen month construction period.

14:19 Civil works would commence in the second half of this year, and we would expect first gas at the very, very end of twenty twenty seven.

14:33 Itau Fluid is the main contractor for the project. They are a very highly regarded Italian based international EPC and oil field services provider in the oil and gas sector. They've been around for nearly fifty years, supporting a wide range of clients from small caps through to oil majors. They provide the full spectrum of services not just related to well activities, but all the way through to facilities design, engineering, construction, and operations and maintenance. For Colosanto, they've been involved in the project since 2022. They are heavily invested in this project and its success.

15:19 And going forward, they will be leading the finalization of the FEED, the well services and integrity testing through to the EPC contract itself for FID, and then they will manage the whole build and and operation. They're also providing, importantly, that contractor financing, €50,000,000 of contractor financing, which I talked about earlier. And and it's also important to note that Itau Fluid are the same people, elite contractor, supporting Sound Energy on that micro LNG project in Morocco. So they are hugely experienced in this area. Over the page to funding. So just to be clear, I see two phases of the project as it relates to funding.

16:09 Firstly, you've got that period from transaction closed two weeks ago through to FID, which we're targeting in the middle of twenty twenty six. The project needs in the order of £2,000,000, and and BEACON is fully funded for for that.

16:27 You've gotten it then got the second period, which is the construction period from FID through to First Gas, which needs in the order of €75,000,000. Now through the letter of intent with Itau Fluid, €50,000,000 of the €75,000,000 is effectively deferred and paid out of production. So we just need, in the order of 25,000,000 to take FID. Now with the EIA approval in January, we've had a number of inbound approaches from industrial players looking to get involved in the project. Now those discussions range from pure offtake discussions through to offtake plus provision of financing, even all the way through to taking equity in the operating subsidiary.

17:14 So there are lots of discussions going on at the moment, lots of moving parts. But if you step back and think about what you need to make a project like this financeable, you need a low risk asset. Colosanto is fully appraised. It's got a significant proportion of its reserves in the proven category. And because it's onshore, it's got low operating costs. You need good credit quality off takers, offering funding support, and we tick that box. We need a high quality, contractor with direct experience in these sorts of projects, which is exactly what we have in Itau Fluid. And then on on top of that, you've got that potential grant funding, which enhances your project returns. So if you if you think about it, we've got all of the ingredients that you need, and I'm therefore very confident that this project will get financed.

18:09 Over the page, what we set out here is the economics for the project, for the Kolesanto project, as defined by the RPS CPR, which was published which was finalized late last year and published earlier this year. The orange bars on the left hand side represent a 100% of the project MPVs. The blue bars represent BEACON at a 48% shareholding in LN ENERGY, which owns 90% of the project. The dashed areas represent the potential uplift in value depending on the extent that we are able to increase our shareholding in LN ENERGY over time. On the right hand side, we set out the cash flow profile.

18:59 Now the project generates in the order of €4,000,000 per annum in the first few years, and that's because we, in those early years, are servicing the contractor financing and the debt slash the prepay. Once those liabilities have been satisfied, the free cash flow then jumps to round about 80 from round about €4,000,000 to round about €18,000,000 per year, of which at least 48% is for the benefit of BEACON. And as I said previously, all of these numbers are based on $10 per MMBtu, which was the projected forward gas price at the time. Since then, we've seen prices gas prices in Europe double, and that should that would increase. If you believe that those prices are gonna stay in the long term, that would more than triple both the free cash flow generation and the net present value of the project debt to BEACON.

20:00 In terms of the upside, we haven't really talked about it, but there is a 10% defaulting party in at the asset level. Now they are very likely to be bought out in the next six months or so. And in that scenario, LN ENERGY moves from a 90% working interest to a 100% working interest, which would then have a a knock on effect to the value of our 48% shareholding. And then the the other upside is the helium, which I talked about earlier. As I said, the gas contains point 11% helium, uncommercial as a stand alone project, but given we're producing the gas anyway for a relatively small incremental investment, which would be funded out of cash flow, we we could see the free cash flow generation increasing by a further 1 to €2,000,000 per year.

20:57 So in in summary, Colos Santos is one of the largest undeveloped gas fields onshore Western Europe. It's fully appraised. It's got proven reserves, which account for about 80% of the two p. 73 BCF gross, over 12,000,000 barrels on an oil equivalent basis. There are two wells already drilled and completed, and they are they will be used as the future producers, so there's no additional drilling required. The EIA for the development was approved in January 2026, and we think that that's a really important step as we move forward seeking that final production concession award. Itau Fluid, our main contractor, as are widely regarded as a top tier technical partner, and we have arrangements in place to to progress our financing and offtake.

21:56 We're targeting FID in the middle of twenty twenty six. In terms of the transaction itself, we're acquiring 48% shareholding in LNG from Reobold. There's potential for that shareholding to increase over time as new capital is inject injected. In terms of the transaction metrics, no upfront cash consideration. All of the cash that we have raised is being invested directly into the project to progress it. The MPV 10, based on those conservative CPR assumptions, outline a gross €62,000,000 MPV and a cumulative free cash flow of €225,000,000 And as I say, given current gas prices, we would expect those numbers to more than triple.

22:43 And then just sort of stepping back and thinking about the BEACON corporate strategy, the initial focus is very much on progressing Kolosanto to FID, but we do see significant opportunity to grow this business. So we will continue to look for value accretive m and a focused on building a self funding upstream oil and gas business. The emphasis is on discovered resources with a clear pathway to cash flow and production. We're geographically agnostic, but given our existing position in Italy, the initial focus will be in and around Europe and potentially North Africa. So that concludes the presentation. Very happy now to move on to q and a.

23:32 That's great. 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 situated on the right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via investor dashboard. Stuart, as you can see, we have received a number of questions throughout today's presentation. Could I please ask you to read out the questions and give responses where appropriate to do so? And I'll pick up from you at the end. Thanks very much, Lily. So we have got a number of questions here. I'll try and group them into sort of themes or questions that cover more than one. First one is what are the key catalysts investors should look out for over the next twelve months? So I think we've got a

24:17 really exciting forward program at Kolesanto, very much focused on progressing the project to final investment decision. In terms of those key catalysts, we've got the completion of the final technical work, which is already at an advanced stage, and the FEED, which is the front end engineering design. So we expect the well test in the in to take place in April or May of this year. Second of all, we've got the securing of the production concession award, which is that final regulatory approval. And then I think, thirdly, it's the maturation and the finalization of the financing arrangements. So I think once FID occurs, we we're then looking at that eighteen month construction period before first gas is achieved. So it's a really exciting program, particularly over the next six months or so.

25:18 Second question is, what is the regulatory environment in what does the regulatory environment in Italy look like for a project of this nature? As I said in the presentation, I think we've seen a step change in government support for a domestic oil and gas industry in Italy, especially since Ukraine. But it but more recently, I think it's very clear that with the Middle East conflict, with that really material increase in European gas prices, there is gonna be a forensic focus on energy security, particularly in Europe. I think that's a really helpful backdrop as the Kolesanto goes through its final regulatory approval process.

26:12 You know, we've we we talked previously about, you know, the the progress that's already been made at the project on the regulatory side, and that EIA approval earlier this year was critical. We've already talked about the 30 plus new oil and gas licenses, which have been issued in Italy over the last twelve months. So it's you know, it really is, I think, a conducive environment for oil and gas projects such as Kolesanto. We've got another question here. How does the earn out to rebold work? So the earn out entitled Reibold to 11.55% of the post tax, post financing free cash flow of LNG, and that's capped at €12,000,000 in total.

27:07 Based on the CPR and the conservative assumptions in the CPR, that equates to under €1,000,000 per year payable to Reibold over the next five years. Now given that we expect free cash flow at the project level in the order of €10,000,000 per annum, you can see that there is significant scope to pay that earn out. It's very affordable. It's a nondilutive mechanism, but it's one that provides good commercial alignment between BEACON and RYOVOLD. Next question is what is the impact of the current Middle Eastern crisis and the significant increase in gas prices on the project? So look, as I say, I think it's twofold.

27:58 On the one hand, I think it's a conducive background as we progress or as LNG progresses, Colosanto through its regulatory approval process with that increasing focus on energy security. On the other hand, obviously, it has a material impact on the project economics. And so with gas prices having doubled from $10 per MMBtu to round about $20 per MMBtu, we expect that to flow through to a near tripling of the, not just the NPV of the project, but also the free cash flow generation. So NPV goes from €62,000,000 gross to around about a €180,000,000 gross, and then that free cash flow generation on a prefinancing basis from €10,000,000 per year to north of €30,000,000 a year. So it's it is an absolute game changer for the project.

29:06 What is BEACON's strategy beyond Kolesanto? So as I sort of said in the concluding slide, the immediate focus is very much on supporting LNG as it progresses Kolesanto to FID. Beyond that, we are actively looking at organic and inorganic growth opportunities to build value and to build scale. We're very much focused on those opportunities which provide production or discovered resources with a clear pathway to production, geographically agnostic, but I think it does make sense for us to focus in countries and areas that we know. So initially, we'll look to to Europe, and potentially that expands out to North Africa. But we will take a a very opportunistic approach to growth opportunities.

30:07 We've got got some additional questions which have come in. So why was the asset available? What had the previous owners got wrong? So, I mean, I don't I'm not sure the previous owners did anything wrong, but I think it's I think the context is important here. So Colosanto Gas Field has been around for quite some time. Previously previous owners were looking to develop it as a pipeline gas project. So you'd you'd you'd build a pipeline and connect into the grid. Now that the Colos Santos site currently sits sits about 20 kilometers away from a suitable trunk line.

30:59 And, you know, given the given the location of the field, there was that was deemed you know, which is deemed environmentally sensitive was was a key issue and a real reason why the project wasn't able to be taken forward historically. I think what we've seen today is is couple of things have changed. I mean, so first of all, technology has moved on. That's why we're very much focused on the mini LNG concept. The gas is produced on-site. It's then liquefied. It's then trucked to the end users, and those end users are effectively using it for transportation fuel, but it's significantly lower carbon content compared to diesel or marine bunker fuel, which is is currently being brewed. And there is a there is a highway that runs just alongside.

31:51 So the environmental impact from going down this small scale LNG development concept is is is materially reduced. And I think that's why one of the reasons why this project was able to get its EIA approval in a way that it it wasn't able to under previous development schemes. I also think, you know, the broader political environment and the Maloney government much more supportive for domestic oil and gas industry also made a material difference. Next question. How quickly could the asset move into production once approvals are secured? So as I say, we are looking at a roundabout an eighteen month construction period. Civil works would start within a few months of FID taking place, and then we will be looking at first gas around about eighteen months after that FID point.

32:52 Conscious that we are running out of time, but we've got one or two further questions. Why only the existing two wells for production? If this is an undeveloped field, that looks to be more productive. So I I guess the point is there are two wells which are already drilled, and the development concept, which has already got that EIA approval, just relies on those two existing wells being produced from. So actually, I think from a sort of a risk and a capital standpoint, the fact that we don't need to drill any further wells is hugely positive. And then probably the final question, with FID targeted for midyear, what key markers should we look around strategy and funding? So we've sort of covered this.

33:45 I mean, the key catalysts through that process to FID really around regulatory approvals, funding in place, and that technic finalization of that technical work, including the FEED and the well integrity test, which we expect to progress in in the coming weeks and months. I think that's all. So thank you very much. That's great. Thank you for answering all those questions you can from investors. And, of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, I please just ask you for a few closing comments?

34:32 Yeah. I mean, I think we've we we sort of covered it. I mean, we we are really excited to have closed this transaction. It is a relaunch of BEACON. We think we've we've found a really attractive opportunity in Colosanto. It's material. It's low risk, and there is that clear pathway through to cash flow and and production over the next eighteen months or so. Stuart, thank you for updating investors today. Now please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This may take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation, and good morning to you all.