BW Energy (Oslo:BWE) Q3 2026 Earnings Call

0:00 Welcome to the BW Energy Q2 presentation. My name is Alan and I'll be your coordinator for today's event. Please note this call is being recorded and for the duration your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone keypad. If you require assistance at any time, please press star 0 and you'll be connected to an operator. I will now hand you over to your host, Carl Arnet, CEO, to begin today's conference. Thank you.

0:33 Good afternoon and welcome to this BW Energy third quarter presentation. This presentation will, as usual, be hosted by our Chief Operating Officer, Brice Morlot, and our Chief Financial Officer, Thomas Young, and myself, Carl Arnet. Before we talk about the quarter, I want to talk about the recent incident As you are aware, on the 24th of October, the Prospect 5 rig sank during preloading just outside our Mabomo facility. 115 people were on board, with 110 of them rescued and safely brought to Port Shanti. Our thoughts are with the families, friends, and colleagues of those affected.

1:20 This is a tragedy, and it puts everything else in the past. We talk about today into perspective, of course. I want to thank particularly the crews and rescue teams who brought the 110 people safely to shore. And thank you also to the country of Gabon, President Nigema, his administration, to Boar Drilling, and to our neighbors Valko and Perenko. All came to help without hesitation. This is really the industry at its best. Our priority remains to support the search, the people affected, and then analyze what happened. On the business side, briefly, production was already shut down as a precaution before the rig arrived, and there is no damage to our facilities.

2:13 That has been ascertained with video surveillance. There was a known volume of diesel on board the drilling rig and we are working to minimize any environmental impacts. As you understand, we are still in an early phase and the main focus has so far been on the search and rescue efforts. This will impact our DUSIFU timeline and Brice will provide some further comments on that. I'm sure there are many questions and we will do our best to answer what we can today based on what we know today. Beyond the incident, the third quarter brought real progress to the corner of Hibiscus, Maine. We made a strategic entry into Angola, and this will be commented further.

3:00 The Kudu farm down has drawn strong interest, and we will provide some comments on that too. And we extended key financial agreements. Production was 21,500 barrels per day. and Brice will cover in more detail how that was achieved. Financial results reflected the timing of liftings, which Thomas will explain in detail. We have, as you know, five projects in execution, which we expect to add 222 million barrels of 2P reserves. Malbomo Phase 2 is the one affected by the incident. The other projects we are pleased to report are on track, and that is why we maintain our target of more than 100,000 barrels per day in 2028.

3:58 The appraisal results were strong, but of course, first oil from Mabomo will have to be rescheduled to a later date than the planned first quarter of next year. Maromba is our largest project and it is on track. The FPSO topside modules have been delivered to site at Dalian and we are working towards the sale away of the FPSO in the second quarter next year. The well-oiled platform will go to Brazil by heavy lift in January. Subsea equipment and drilling are all on schedule. We are on track for first oil late 2027. The next key step in the Maromba project is getting the wellhead platform from Dubai to Brazil.

4:51 The tow through the Strait of Hormuz is planned for December and a transfer to heavy lift in January and then to Brazil. We are constantly reviewing the security situation, and we are in constant dialogue with the tow operators. When we get to Brazil, the unit will have to pass several regulatory approvals from AMP, IBAMA, Navy, and obviously also Customs. And we work closely, proactively with all of them, and all these processes are in line with the schedule. We have also in the quarter been pleased to announce our strategic entry into one of Africa's most important oil basins.

5:43 Together with E2 as operator and our partner Chariot, we have gained exposure to producing assets. Our share is expected to be around 8,000 barrels per day from the first quarter of 27 when we expect closing. The terms are attractive, around $6 per barrel of 2p reserves after interim cash flows, with payback in under two years, and last but not least, a fully funded abandonment fund. Just as important, there are more than 500 million barrels of identified upsides. Some of those resources are already being targeted and brought forward from the nearby PKBV field, which should add further production in the coming years.

6:33 Last but not least, the Kudu farm down. The CARAS 1A results are now fully integrated, and they showed three plays with both oil and gas potential. This summer, we launched a farm down, Interest is strong. We are in dialogue with around 50 companies with about 20 NDAs signed so far. We expect to complete the farm down including government approvals in the second half of 27. In parallel we continue our dialogue with the government on gas to power and with that I hand over to Brice for the operational update.

7:15 Thank you Carl and good afternoon everyone. Before discussing the quarter, I want to acknowledge the tragic incident of Saturday, leaving five people missing. Our thoughts are with the families and colleagues affected, and I want to sincerely thank the rescue team, Gabonese Authority and the oil and gas company operating in Gabon for their exemplary support. For the quarter, the net production was 21.5 thousand barrels per day, or 2 million barrels, down to 25.3 in Q2. The facility performed well. The decline came from two well-specific issues, one at each asset.

8:01 At Golfino, production was 4.7 thousand barrels per day, with 58% production availability. This reflects a pump failure in one well, which will be replaced later this year and continued downtime on the gas lift compressor. That is exactly the constraints GOLFINO BOOST will remove from the next year. At DUSAFU, net production was 16.8 thousand barrels per day with 99% production availability on the FPSO at the low. The loss came from one album well where the electrical submersible pump failed in July after nearly two years in operation. The well has been shut in since then, waiting for a workover.

8:49 The workover was planned with the drilling rig and is therefore delayed. However, it can be done with a hydraulic workover unit, so bringing the well back does not depend on a new rig and we are working on mobilizing a unit in the coming months. In the fourth quarter, we moved the planned two-week maintenance at Dusafu to October to coincide with the ESP workover. By the time of the rig incident, the maintenance was complete and Mabomo had been shut in as a standard pre-mobilization procedure while BWA Dolo FPSO continued to produce. Mabomo has been confirmed safe to operate and production has resumed.

9:34 We expect the full year guidance of approximately 23,000 barrels per day as announced in our operational update to hold, including the impact of the incident. Moving to cost, Unitopex was $27 per barrel in the quarter, up from $24 in Q2. This is a volume effect. Absolute production costs were 55 million, flat on the previous quarter. So the same cost base was spread over a lower production. By asset, Dusafu came in at $19 per barrel and Golfino 58. Golfino is also affected by the cost of gas for power generation, which follows the oil price.

10:24 For the first nine months, Unit OPEX averaged 24.5 per barrel and the full year OPEX guidance is maintained at 22 to 26 per barrel. Turning to Mabomo Phase 2, before the incident, the campaign had delivered a strong result, both appraisal wells in the northwest pond oil that brings our track record at Dusafu to 13 successful wells out of 14. The first well formed a 30 m oil column in the Gambas reservoir with a good reservoir quality. We estimate around 17 million barrels of oil in place and about 6 million barrels of incremental recovery from dislocation.

11:10 And the second well formed 16 m of oil column in a separate accumulation confirming as well movable oil. Together, the two wells support around 8 to 9 barrels of recoverable volume and two additional production wells. It is too early to say exactly when we will be able to drill, but we are already working to find solutions to continue the drilling program. This slide shows the depths of Dusafu portfolio and the options it gives us. Mabumo Phase 2 will add up to 20,000 barrels per day gross from 5 new producers once drilling can proceed. Bourdon Phase 1 is planned for first soil in the first quarter of 2028, adding up to around 15,000 barrels per day from the Akum Wellhead platform, which is being converted in Dubai right now.

12:09 Before that, beyond that, we have an infield well on Tortue, Bourdon phase 2 in 29, and wet treatment appraisal drilling planned in 2028. With the Prospector 5 due to come off contract in 2027, before the incident, we had already started sourcing a rig for the Bourdon development. We are now looking at how best to fit Mabomo Phase 2 wells alongside that program and we will come back with our 2027 production outlook once the plan is filmed up. On the long-term picture, it hasn't changed. Dusafu can sustain 30 to 45 thousand barrels per day gross and we remain confident in reaching more than 100 thousand barrels per day for the company in 2028.

13:03 With that, I hand over to Thomas for the financials.

13:07 Thank you, Brice. And hello, everyone. I'd like to start by echoing what Carl and Brice have said. Our thoughts are with everyone affected by the incident. On the financial side, it happened after quarter end, so it doesn't affect the third quarter figures. But it will, of course, delay it first of all from our BOMO phase two. And I'll come back to that under the guidance section. Turning to the quarter itself, I think the easiest way to look at Q3 is as a mirror image of Q2. In the second quarter, we sold more than we produced, and in the third, we sold less. We produced around 2 million barrels, but sold only about a million, mainly because our golfino cargo slipped from late September into October at the back of bad weather in Brazil.

13:52 So we ended the quarter with around a million barrels in inventory, and that timing really runs through most of the numbers you'll see here today. EVDA came in at 47 million, and after a tax charge of 22 million, we report a small net loss of 0.7 million. The tax charge is mainly the profitable taxing a bond, which, unlike OPEX and depreciation, follows production rather than the sales method, so it stays fairly stable from quarter to quarter. We closed the quarter with $200 million in cash. On the financing side, it was a fairly productive quarter. We signed a $208 million long-term lease for the Bodon World Health Platform, which means the full infrastructure cost is financed long-term at an attractive cost of capital and without us having to put in any upfront equity.

14:44 We also extended our $250 million revolving credit facility by 18 months to August 2028. So all in all, a good step in strengthening our liquidity ahead of Morin Barthel's talk. Now, let me take you through what's behind the numbers. Starting with production and sales on the left, net production was 21,500 barrels per day, or 2 million barrels, down from 25,300 barrels per day in the second quarter, which really reflects the well issues at Dusafu and Gorfinio that Brice just took you through. Sales were 1.1 million barrels, that's against 3.2 million in the second quarter, of which 950,000 barrels was our one Dusafu cargo and the rest state profit all.

15:35 So close to a million barrels went into inventory, roughly 0.4 million at Dusafu and 0.6 million at Corfinio. In the middle, our realized price before hedges came in at $83 per barrel, down from 103.5 in the second quarter. The deuce of Foo Cargo was lifted at the end of August and priced on the August average. And with Brent climbing quite sharply through September, August ended up well below the average for the quarter. On the right hand, total revenues and other income were 73 million, which includes a realized hedging loss of 22 million. And just as a reminder, we hedge two years ahead. as a requirement under our reserve-based lending facility and a significant part of what's rolling off now was put into place prior to the war.

16:24 Now that hedging loss probably looks large relative to our sales and the reason is really our golfino cargo. We had a cargo scheduled for the 22nd of September and that cargo is priced on September along with our hedges, but the weather in Brazil pushed that lifting into October. So the... The hedge settled in the third quarter, while revenue on those roughly half a million barrels will be booked in the fourth quarter at September pricing.

16:52 Which brings me to cash.

16:54 We started the quarter with $254 million. Operating cash flow before working capital was $26 million, which is low, but again, that's mostly the low sales volumes in the quarter. Working capital took out another 45 million, mainly the inventory build, and part of that is already coming back with the Gofinio cargo lifted in early October. It also includes paying out the second quarter hedging loss as I flagged on the last call. Investing activities were 157 million, mainly Maromba, Mobomo Phase 2, and Gofinio Boost as the investment program steps up in the second half, which is very much as planned. Financing brought in net 122 million, mainly drawings on the revolver and the various project facilities that we have.

17:46 So we closed the quarter with 200 million in cash and 385 million of total liquidity, including undrawn facilities. And on top of that, our major developments had their own project financing in place. The Maromba FBSO Facility, the Maromba B Wellhead Platform Financing, and now the Bourdon Lease, which draw down as those projects progress. Moving to the balance sheet. If you remember, we said last quarter that leverage would go up in the second half as CapEx ramps up ahead of Maromba first off. And that's pretty much what you see here. Net interest bearing debt went up. around 210 million to 910 million, which is roughly 160 million of additional debt to fund developments and around 50 million less cash.

18:34 Net debt to EBITDA moved to 2.7 times from 1.8. That said, part of that is simply lower EBITDA rather than higher debt. The last 12 months now carry both this quarter's timing effect and the fourth quarter in 2025. which had the weakest oil price over the last two years and where we also ended the quarter with close to a million barrels in inventory. That quarter drops out next time and as these barrels are sold and new production comes on, we'd expect the ratio to come down again. Although the Marboma phase two delay will of course affect timing somewhat. Book equity was a billion and 77 million down 65 million in the quarter. that's mainly the value of our hedges which fell as all prices went up and on the hedge accounting that change goes directly to our equity.

19:29 It's unrealized and the flip side is that higher prices benefit the majority of our barrels which are unhedged. Together with a larger Our balance sheet as we invest, that took the equity ratio to 35%, which is still well above the 25% that applies up until Marombach Low Store. Turning to guidance, on production, if you remember, in July, we said we expect to land at the lower end of our 24,000 to 27,000 barrels per day range. With the third quarter operational update, we revised that to run 23,000, reflecting the well downtime at Dusafu and Gofinio. We had planned to do the ESP workover together with the maintenance at Dusafu in October. The maintenance is done, but the workover has been delayed following the incident.

20:17 So that will remain shut in for now, which affects the fourth quarter volumes. Looking into 2027, Marboma Phase 2 was planned to start contributing early in the year and that will now be delayed. The resources are still there and we plan to bring those wells on stream and we'll come back with an updated 2027 outlook together with our full EA guidance at the fourth quarter results. On operating costs, we keep the guidance at 22 to 26 dollars per barrel. The nine month average is 24.5. and worth noting our absolute production cost has been broadly stable in each of the two last quarters. So the move in the per barrel number is really just due to the low volumes. On CapEx, we've suspended the guidance while we reschedule the deuce drilling program and we'd expect to come in below the 600 to 650 million we guided previously.

21:16 DNA guidance is unchanged at 12 to 14. So to wrap up, I think the investment case is unchanged and still rests on four points. More than 600 million barrels of reserves and resources as the foundation for organic growth, a plan in execution to take production above 100,000 barrels per day by 2028, a portfolio returning above 30% IRR at $60 per barrel Brent, and lastly, Two to four billion of free cash flow between 26 and 2030 against an enterprise value today of around 2.7 billion. Overall, the third quarter numbers are shaped by timing of liftings and some temporary well downtime, but the underlying case is intact.

22:03 The Marbomo phase two barrels are delayed rather than lost, and we keep adding efficient financing to deliver the program. And with that, that ends the prepared presentation. So I'll hand back to the operator and we can then open for questions. Thank you. Thank you. If you'd like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. You will be advised when to ask your question. We'll pause for a quick moment to allow everyone an opportunity to signal for questions. There are no questions on the phone, so I will now hand you back to your host for written questions.

22:52 Thank you, operator. Just before we start, Brice is in Gabon, so he had to leave us for another meeting. So Carl and I will try to cover any related questions, and we can follow up after the call if we need more details. So with that, I'll jump into the first question here. This one is for Carl. We have a few questions on punch fruit. So I'm just going to cover this one. In Bohr Drilling's initial press release, they stated that the preliminary information indicated a punch through. Is this still considered the cause of the incident?

23:35 I would say a short answer to that is no. First of all, we have a long history of rigs standing next to Mabomo in the exact location where Prospector 5 was standing and there's been no indications of punch through or any problems with soil previously. Secondly, in the extensive video or surveys done by ROV and video, there has been no indications of a punch-through observed. So, we today regard this as highly unlikely.

24:25 Of course, any collapse of a leg would appear as a punch-through. So we think that there are probably other causes of this collapse than a punch through. But this is still work in progress. But we think this is the most unlikely scenario at this point.

24:54 Thanks, Carl. We have another question here. When do you expect Mobomo back in operation. And the answer to that is that Marbomo is producing at the moment.

25:12 Yes, we're ramping up production as we speak.

25:19 Next question is which rig is going to drill at Maromba?

25:27 Well, on Maromba, we will drill with Maromba B. It is an integrated wellhead platform and drilling.

25:40 What will be the financial impact of low production wells to reduce capex while waiting for the situation to normalize in Gabon? The production from existing wells is ramping up and coming back online. Capex will be When can you provide guidance for new guidance for Marbomo ramp up? I think it's a bit too early to say exactly.

26:32 We'll have to work through the current incident and then we will come back with a new plan, hopefully by the next quarter, if not before.

26:42 Thomas, I just want to add that, as Brice stated, we are already in quite advanced discussions with rig operators for the Berdon drilling campaign. and our indications today is that the availability of a replacement rig is there in the market and we expect to have clarity on rig availability sooner rather than later. So we're actually quite optimistic on a replacement rig What remains then to start a campaign is that we obviously need to be absolutely sure that we have no interference from the wreckage in bringing a rig in to drill on the well bay of the Mabumo facility. And that is still a work in progress.

27:53 But we do not expect that to take a lot of time. We think it will take some time. So we actually expect to come back to the market and present a new program in the not too distant future.

28:09 Thanks, Carl. Looking at what remains to be done on Maromba, which single milestone do you see as the most critical to keeping First Oil on schedule and why?

28:22 Well, the most critical milestone in our mind has always been the regulatory approval in Brazil. That comes last and it is a process that although you can prepare extensively, which we have done and are doing, you are starting that process when in reality, when you arrive in Brazil. So that is and remains one of the biggest, I would say, timing risks of Maromba. We are, of course, preparing in a way that we believe will take us to a position where we have minimal risk of delay, but this is something we cannot preclude.

29:14 So this is, in our perception, still the biggest risk. The other risk is the transit through Hormuz that may or may not cause delay. We are constantly reviewing the situation and we will of course apply the ALARP principle as low as reasonably possible. to our decision making on transiting the strait. And we again, we're doing everything we can to prepare and also prepare ourselves to ascertain the security situation. But we are well placed to Get out and get going on our dry tow in January as we have presented.

30:08 Thank you, Carl. Next question, Carl. Who is responsible for the inventory of pipes and equipment that was being carried at Prospector 5? Also, when do you think you could receive another jack-up drilling rig to continue work at Malboma Phase 2, which I think is the second one you've covered?

30:31 I think we've covered the second one. We are, as we speak, sifting through all the company-provided equipment that was on the unit, and we are going to, of course, replace that very soon. We're not concerned because we have the necessary kit for a number of wells, so we do not expect this to affect our program at all.

31:07 Thank you, Carl. Next question. Lifting from Doosafu, does each partner do their own liftings or do you lift together? The answer to that is we do our own liftings. Next question was, was the prospect of Fibreg under BOR's supervision or had it been handed over to BDB when the incident happened?

31:34 It is always under BOR's responsibility. Of course, as the operator, we are responsible vis-a-vis the government. We are the license holder and we are the responsible operator. BOR is responsible vis-a-vis us under a contract. That is the, let's say, the flow down of responsibility.

32:02 Thank you, Carl. A couple of questions on liftings. So we had a lifting in October and then we have another planned in December on Dusafu. Do you have insurance coverage? And if needed, how will any potential costs be shared among the producers?

32:31 We have comprehensive insurance coverage on our facilities, but as our facilities have not been affected by this incident, we do not expect to have a significant problem or issue with insurance or any insurance claim or significant insurance claim. Otherwise, I think this is something that obviously will take some time to tally up all costs and how they will be apportioned and covered by the policies.

33:16 We understand more is also comprehensively covered, although we don't have the details, or at least I don't have the details right now as we speak.

33:30 Okay, that is the end of questions online. Thank you very much and thank you for joining today. If you have any follow-up questions, then please reach out to me or to the IR team.

33:48 Yeah, can I just add that we appreciate that you have participated. I'm sure you appreciate that this is Difficult times for us. We are focusing on what is most important right now which is the people involved in the accident and making sure that they are well taken care of. That is our primary concern. We also will of course try to find all The five people missing so far three has been identified as or there's three bodies that have been discovered but two still missing and we hope that the board will bring news about this very shortly but we will we have already started production and we again maintain that or we say again that the Aboma facility has not been affected by this incident.

35:09 So we will shortly give you an update as to our program. Thank you.