Pharos Energy (LSE:PHAR) — Preliminary Results 2021

0:01 Good afternoon, and welcome to the PHAROS ENERGY PLC Preliminary Results twenty twenty one 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 in the right hand corner of your screen. Simply click Q and A, scroll to the bottom, type your question and press send. The company may not be in a position to answer every question received during the meeting itself. However, company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll.

0:29 I'd now like to hand you over to Mohammed Saeed Ahmed, group head of technical Sue Rivet, CFO and Jan Brown, CEO. Good afternoon. Thanks very much, and, good afternoon, everyone. Thanks for joining us. 2021 was a year where we absolutely hit the ground running and did not stop all year. It was a year of resetting the dial on a number of different fronts for the company. On the operations side, we met production guidance. We had the most extensive drilling campaign in Vietnam since 2017, which has maintained our production levels. And oh, sorry. I forgot. I'm the one that's supposed to be doing the slides. Apologies. There we go. We had the most extensive drilling campaign in Vietnam.

1:16 It supported the production levels there and also provides the backdrop for a license extension that Moe will talk to you about in his section. In Egypt, we had encouraging results from the development drilling that started at the back ends of the year, with two wells completed into 2022. Again, Moe will talk you through these. And on North Penny Swift, which is our exploration block in Egypt, we have identified low risk drillable prospects. Finally, on the operations front, block one two five in Vietnam, we've shot the seismic. The processing is underway, and we'll be looking for a pharma partner for the well, which is a commitment to be drilled before November 2023.

2:07 Probably the most important area of focus for us last year was on the value front. And first off, we, negotiated improved fiscal terms for the Alpha Young concession. Sue will walk you through the detail of these in her section, but fundamentally, this means 20% higher revenues coming to the contractor, on every barrel sold. And then probably most important, we signed the PHARMOUNT transaction with IPR. That deal provides the funding to monetize the 2P resources reserves. Our 45% share of field cost is carried through 2022 and beyond, and all the while, we will receive our full 45% share of revenues.

2:56 Again, Sue will walk you through all the detail on these really important value enhancements. On the corporate side, last January, it seems a long time ago, we raised a small placing, and carried on adding to the liquidity that had been so challenged throughout the downturn in 2020 by refinancing our RBL over the assets in Vietnam. We reorganized our staffing base in The UK. We're now a leaner and more focused organization with cost reductions coming through there as well. And, as a result of the completion of the IPR deal announced last week, the board is being slimmed down, and, of course, the operations in Cairo will also be slimmed down.

3:47 So it sets us up for a far more positive, 2022, a year where we return to free cash flow generation, and I will pass to Sue to tell you all about the cash side of things.

4:03 Thanks, Jan. Uh-huh. So just to to let you know. So Sue River. I'm a chief financial officer. I took over, in July of last year. I've been with the company for, about six years, so I have a little bit of history with that. I've also been in the industry about forty years. That gives you my age, I think. So I'll move on to the 2021 financial results starting really with the production as that drives most things as you're well aware. So just under 8,000 barrels of oil equivalent per day there, down on the prior year, largely a function of the Egypt production falling off there. As as you know, we curtailed all of our drilling activity following the price crash in March 2020.

4:56 So Vietnam, stable and in guidance, but Egypt coming off there as a factor of no firm investment. In terms of the revenue numbers, about GBP 164,000,000 versus GBP 118,000,000. That's prior to any hedging losses and gains. I don't propose to go through all of these, but just to mention a couple more. So the cash OpEx, as you'd expect, up on a per barrel basis, driven mainly from the increase sorry, the decrease production numbers there. The absolute numbers are up slightly, so 48.3 to 52. That's really a function mainly of the FPSO where we share the throughput with Tang Long, and our throughput was higher than than theirs for the the period.

5:52 In terms of the balance sheet, so roughly the assets valuing there at just over 300,000,000. And, of course, as we sit here today, as as you're aware, the book the the market recognizes only about half of that. And moving on. Okay. In terms of the 21 cash flows, so we started the year with 25,000,000, finishing with 27. There's a number of things obviously rolling in there and out. So operating cash flow, 10,800,000, and I'll pick up on that in the next slide. In terms of the investment program last year, just under 42,000,000 So Vietnam, we had we went back to a drilling campaign, so four wells on TGT there and on blocks one or block one two five, as Jan mentioned, the commitment three d seismic being shot.

6:48 In Egypt, it was very much that going back to some kind of program, so the water flood and then onto a three well program that we'd signed up for. Also, things to note in the slide there is the financing activities. So coming in and out, that's the RBL renegotiation and National Bank of Egypt where we have a a small facility there to to to help our facility. And also just mentioning that the placing 10.9, that's after after costs. And if I move to the next slide. So net debt in focus, really, so 32.6 versus finishing at fifty seven point five.

7:37 Just picking up on that operating cash flow of 10,860,000 coming in from operations there unfortunately, some government taxes being paid there. The rest is the working capital mainly focusing on that element. So that's, yeah, that's probably enough on that slide, and I'll move swiftly on. So, really, the balance sheet everything was about strengthening the balance sheet for for last year, very much picking up on the themes that Jan mentioned. So the equity placing, those improvement in the fiscal terms in Egypt, which were really important to us, so 20% increase in revenue take.

8:24 The RBL being refinanced in midyear and that pushing the tenor of that out to July 2025, very important in our liquidity position. Also, the National Bank of Egypt, we have facility there of up to 20,000,000. It's based on up to 60% of the Egyptian revenue invoices can be pulled upon. And that gives us, you know, a little bit of protectional there, political protection there should EGPC not pay in accordance with terms. And also, of course, resetting the dials, the overhead reduction. So about a 50% reduction in the London head office, a board restructure, and also the Egyptian team will now in the process of restructuring that following the completion of the farm done.

9:22 And if I could pick up on hedging, always an important subject. So we hedge for two reason. One is because of the RBL. So we're required to submit 35% of our Vietnam volumes on under the RBL facility. That's the RBL is only over Vietnam assets, so Egypt free free floats. On the table on the left hand side there, you'll see the green swathe, and that's getting wider. And, basically, what that means is that we can float further with the price, whatever the price is doing. We've we've hedged probably higher than we would like to in the first half of twenty two,

10:09 mainly a function of stress testing in very low commodity prices. So we tend to stress test down to sort of $35.40 dollar basis, and, obviously, that will force you into sometimes taking a position there. But as we move forward, that that gets wider and and should enable us to take a float with the market. And if I could concentrate on Egypt, so so very important elements. So Jan mentioned the fiscal terms, so that improvement for roughly 20% of that, very important to us, but also to IPR, our new partner, as as they come in. The deal itself, a small cash consideration, 5,000,000. 2,000,000 was received last year with 3,000,000 to come in any day.

11:00 In terms of the carry, this really was the price. So it means that we can get back to to an an investment program and get after more production in that area. So it's it's not only a carry on CapEx, but it also includes OpEx costs and g and a, so 33,500,000. Also an adjustment period between the effective date, which is 07/01/2020 and indeed just the other day. So there'll be a a catch up, which will also be added to the carry. So as you can see, you know, we will be funded fully through 2022 and into '23. Also, a feature of the deal is the contingent consideration. So anything above $62 up to $90.5 a barrel means that we could earn up to 20,000,000 over a four year period. Obviously, as we sit here today, we would expect to recover the full full amount.

12:02 So just to give you an illustration for the rest of 2022,

12:08 effectively, that that table there just showing you the revenues that we would get in based on last year's production. We haven't given any guidance this year on the Egypt production until we see the impact from IPR coming in, and I believe we're able to do that at the AGM. So full money in there, but no costs going out. So as we move forward, 1,200,000 of our own operating costs per annum and some exceptional restructuring costs there. And And then then I'll just move on for just for for me to wrap up. In terms of twenty twenty two cash CapEx, we would have forecast around the 50,000,000, but we will be carried from now on through the rest of the period. So that brings that CapEx spend down to 28,000,000, which effectively is the two well program in TGT in Vietnam, one well in CMV, and very much the long lead items for the well that Jan mentioned, commitment well on 01/25 next year. So key considerations, revenue inflow, modest costs ourselves.

13:24 There is a catch up on the royalty payment and some deal fees, obviously. Vietnam, very much low breakevens at $25 a barrel, and very much reduced base office costs right the way through the organization. So that will get us back to capital allocation and particularly in these high prices, you know, where we spend the money and whether there's any thoughts of returns to shareholder returns. So I will hand over to, Jan. Great. Thanks, Sue. We've got a couple of slides on ESG, which I'll flip over relatively quickly, and then Moe will talk you through the assets.

14:11 I seem to have gone over two slides. Yep. So this first one shows our overall philosophy, on ESG. Whole thing, obviously, underpinned by, an exemplary safety record in Vietnam, sixteen years of operations without an LTI, also strengthened governance, and we're committed to transparent reporting in line with TCFD requirements. We have not as yet come out with a timetable, and a plan for net zero, but that, doesn't mean that we're not doing a lot of work on it behind the scenes. We are we've got a study ongoing particularly in Vietnam and targeting emissions reductions, projects that could be brought in, field efficiencies, fuel efficiencies, reductions in flaring and venting, but all of these need to be, in line with the status of the kits that we've got, particularly the FPSO, and they need to be cost effective. So during the year, we'll be firming up on those plans and coming back to the market with more detail.

15:17 This slide just shows the 2021, reported numbers across the ESG framework. The, emissions numbers, the absolute numbers are down on last year, but the intensity is up slightly. We captured for the first time, the full scope of the venting that was happening in Egypt, and that's pushed the per barrel number up slightly. Just like to draw your attention to this middle section business. A 100% of the oil last year was sold domestically. And in Vietnam, that's particularly important because they're still quite dependent on coal in their power generation systems. Since COP twenty six in Glasgow at the back end of last year, they've pledged to remove coal from the power generation systems by 2040.

16:13 And in doing so, they've reforecast the petroleum use in country, and it's set to double by 2050. So our assets in Vietnam are particularly well placed to help the Vietnamese government move away from coal into more petroleum. That's all I'll highlight on ESG, and I will hand over to Moe on the assets. Thank you, Jen. I'm Mohammed Syed, the group head of technical for PHAROS. I've been in the company for two years. Before that, two years with the private equity and the Merlin who owned the Egyptian asset. And before that, fourteen years with BP, different locations, US, seven years, London for four, and then Egypt for four.

16:59 Gonna go through, the slides relatively quickly, just to allow you more time for q and a. But like Jan said, 2021 was indeed a busy year. In TGT, if I were, to point you to the plot in the middle, the top right plot, you can see there is four wells. The four wells incremental production was about 5,000 barrel, and that just happened before the compressor issue happened on the FBSO. The compressor issue highlighted here in yellow, you can see it was recovered relatively quickly. It went down in November. It came back up in January. It's exceptional time by the operations team.

17:45 When the four wells were all on production, as you can see here on the top chart, the green one, we almost had 17,000. So this in contribution from the new wells, importantly, also to see on the map on the right, if you can see my cursor, there are four well locations highlighted in yellow. They're all in different parts of the field, and all of the four wells have contributing meaningful to production. In 2022 for TGT, we have two wells highlighted on this map, one in orange, in this part of the field and the other one, here also highlighted in orange. There are nine contingent wells, which are important. I'll pick up on the next slide the importance of those nine contingent wells, and I think a link to one of the question in the q and a.

18:34 It's always nice to say Vietnam came in in guidance within the guidance range been provided. So TGT is, like I said, four wells compressor issue impacted the production a little bit, but was recovered in in January. And right now, we're fine tuning and improving production.

18:53 In CNV, the second asset we have in Vietnam is pretty steady year. No drilling in CNV. It focused on routine maintenance and well optimization, so several gas level optimization, pressure maintenance, etcetera. The third component of Vietnam is the block one twenty five, one twenty six, which is under exploration right now. 2021, we have done seismic survey, three d seismic survey offshore that was done on budget and on time. The results of the three d seismic survey that we've seen right now as we continue to process the data are coming out with some interesting geological feature that we're currently evaluating. Going into the next slide to talk about 2022, I'll start from, the pie charts. Can I give you an orientation? The one, this pie chart here, it shows the two peak component of the reserves is split between, TGT, which is the light green, and CMV is the dark green. It's about 15,000,000 barrel of, reserves net to us.

19:59 The nine wells I've mentioned in the previous slide is important because they make them a part of the contingent resources, which you see in the second bar chart. Again, TGT in light green, CNV in dark green. So with, without the new wells, those nine contingent wells, we are currently seeking two years of additional license extension. So the current reserves include a customary five years extension, which takes us, right now, we are

20:29 2026, plus the five years will take us to 2031. So which means an additional two years of reserve extension. The two years will allow will give us about 2,000,000 barrel net reserves to us assuming no Mars drilling. Maybe just to clarify, the license were to expire in 2024 in TGT, for example, we have been already awarded two years, which takes us to 2026. That's the current

20:57 approval. And then we're seeking this additional five years, which takes us to 2031. So there are again, one of the q and a was about the life of the field. Without any drilling, except the last two wells, which we drill in 2022 that you've you've seen in the previous slide in orange, we will get an additional 2,000,000 barrel of net reserves to us by this additional two years extension. And that is about 1.3 coming from TJT and point seven coming from CNV.

21:28 If you were to include the nine additional, contingent wells in the previous slide, you can monetize a lot of, these two c resources here. You can see a bigger size of the price. The price here is is still fairly large to go after. The 2020, two guidance for Vietnam is five to six, which concludes, the second slide on Vietnam. Happy to pick up on the questions later. And now I'm moving on to the Egypt section.

21:59 On Egypt, it was also a busy year. Different. We haven't drilled as many as Vietnam. But in Egypt, we have been focused quite extensively on restoring wells on production. As you know, during the hiatus, we've shut down, pretty much stopped all activities. And with stopping, the activities, we had the backlog of maintenance. Once we restarted the activity program, we went after it. We brought wells back on production. We have been busy with the waterflood phase one b program of which we've raised some of the money for plus drilling activities. If I were to orient you to the middle top plot, it's one of the two wells we put on production, recently as part of this campaign. You can see the well tested at a thousand barrel.

22:46 The second well below is, Narsila D 16, which was the first well on the drilling

22:51 campaign. And, again, it tested at 600 barrel. Both of these wells currently on production, and they produce about 750 between the two of them, and they have extra capacity. Right now, we're curtailing the capacity to manage how quickly they decline and provide the pressure support. So, in summary, for, which is the current field, current concession on development, we have restored wells back on production after, restarting activities of implemented, waterflood program, and we've, implemented those new tools trailing.

23:27 There are a few more things I'll mention in the next slide, but we're really going after three different component to increase production cheaply and more efficiently. The second component of the Egypt story is an exploration block North Beniswif, which we're excited about, similarly like the 01/25,126. The MBS came in with a pretty good quality seismic survey. We inherited from Apache. This asset used to be with Apache. We've worked it for the last two years, and we were able to identify low cost, low risk, drillable prospects. These prospects have been identified by us, and now our partners IPR see the same potential.

24:11 Gonna go to the next slide. I gave you the quick update on 2022, MBS and FIUM, and also talk a little bit about the integration with IPR. Starting with, our plan now, the deal has effectively happened. We've announced it, this week. So we're going after ramping up. So IPR, we had the first meeting within the JV. The I IPR people went in. They're ready and excited to ramp up activity. In the current drilling program, we raised money to drill three wells. So we drilled two, and the third one is currently ongoing. So we finished this one, and we have about 10 wells targeted by, IPR to drill. We still have a significant, contribution from work over well intervention program, which is split into two components.

25:00 The first component is a recompletion by adding a zone that's not on production to productions, like almost a brand new zone. The second part is through well injection optimization, whether we shut off a zone that has more water or we add in a new zone that has water sorry, that has oil, or we convert a high low value well into injectors so you can see the value on the offset producers. The key for delivering the Egypt program and is really access to rigs. Right right now, the rig market in Egypt is tight, and that's in a way part of the advantages and disadvantages of the onshore assets. When you see onshore assets, it's easy to ramp up and easy to ramp down relatively quickly in reaction to the oil price. So as we are trying to ramp up activities to show the field potential and also capture the high commodity price, other operators are doing the same. So we see tight rig market in Egypt. Also, Egypt is in a unique position where they sent rig equipment and talent to the Gulf area, which is also trying to expand. So for us, the key component, around delivering Egypt is the access to rig and also any supply chain interruption because, obviously, COVID and, and the current conflict going on in Ukraine, Russia.

26:24 On on North Benzweig, we have two planned commitment wells. Again, it's in areas we've seen the potential. We think we can see extension of other operator field where they produce from into our concession. We also see some deeper prospect potential. So we have two commitment, while small seismic survey to run, all of which have been identified, most of them on a three d seismic, which we inherited, and, they consider low risk, low cost prospects. The reserves in Egypt is quite significant. That's the second bar chart. You can see around, 38,000,000, call it, 38,000,000 of 2P reserves. The dark green is the 2C, which is a is, again, it's a pretty significant component. In the 2C, the amount of wells you need to drill is roughly 60 wells.

27:16 And then to get to the component of the two c, you don't really need license extension like you you need in Vietnam. It's an additional drilling. So you continue doing we basically reduce the spacing, and you implement the water flood, which will help monetize the two c. So for us, in terms of technical resources and the operations, we see a clear pathway for monetizing two c's to two p to money in the bank. We've also been running a safe and efficient operation. We ramp up drilling four walls

27:46 back to back safely efficiently. And when the compressor issue happened, we were able to restore it very quickly. And in Egypt, we've just been going after an extensive maintenance program, restoring wells on production, implementing water flood, and very, very encouraging results of the two new wells. By the way, the payout on the Vietnamese wells between six to nine months and the payout on the Egyptian wells is quite phenomenal because

28:12 it's $2,000,000 a well. And right now, you've seen the production contribution from the two wells is about 750 barrels, and $2,000,000 each. So quite phenomenal payout in all the new wells. This is my last slide on Egypt, and I'll hand over back to Jen for a final wrap up slide, and we're happy to take your questions.

28:34 Thanks, Moe. So we've started 2022 in a much stronger position than we were in this time last year. We have a clear road map to generating cash and creating value. The oil price is undoubtedly helping, but it's all the actions that we've taken ourselves last year in adding liquidity, changing the terms of the Egyptian license, bringing in IPR as a partner that are really putting us in a position. We've got this solid pipeline, which is underpinned by their bus production, high netback in Vietnam, which, has got significantly more to play for with license extensions, as Smoo talked about.

29:21 We've got near term upside cash generation from the production growth in Egypt set to start now that IPR is really in the driving seat. And, of course, we've got the full carry, and the enhanced license terms to add to that. And we've got a nice mix of exploration types across the portfolio. All of these are setting us up for the return to positive free cash flow generation, So we're in a much leaner, more focused, stronger position, and looking forward to having returns to shareholders back in our sights sometime this year or early next.

30:05 And with that, I will stop and hand over back to Paul. Dan, thank you very much indeed, thank you to the rest of the team as well for your presentation. Ladies and gentlemen, do please continue to submit your questions using the q and a tab situated in the right hand corner of your screen. But just while the team take a few moments to review those questions submitted already, I'd like to remind you the recording of the presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard. Perhaps before we go on some of the live question, we did receive a number of questions pre submitted by investors, and the company very kindly grouped those into certain themes. So if I may just start with the first one, which is Egypt. First question reads, can you clarify exactly what has been achieved in terms of tangible results with the $11,000,000 that was hastily raised from shareholders last year significant discount?

30:52 Can I start with that? Moe Moe will answer the technical side of it, but it's a when did you stop beating your wife question because it it, by no means, was a hasty move. You know, we were ten months into the downturn, and it was something that we had been considering since probably the previous summer. If we could have avoided it, we would have because raising equity is not something that anybody likes to do. And the point about being at significant discount, yes, to the share price where it is just now, but maybe the share price wouldn't have got to these levels if we hadn't actually done it. So, Mo, the technical answer. Right. As Jen said, the technical answer is straightforward. We raised the money to drill three wells.

31:38 We drilled two, and you've seen the results of the two. We have, implemented water flood in the Northeast, is also a new area. We have six new wells brought back on not new wells, but six wells brought back on in on production in the areas of the water flood. We had one well conversion to start, water injection and basically some survey surveillance monitoring. So this is the exact number of the different component of that, waterflood program. The the the fact that we started that waterflood program and the restoration of production, the drilling, these key activities, I would say, had a very positive, outcome on the on the PHARMO process. So it the the the again, the potential of what we've done so far is proven to IPR and other people we were talking to through the formal process, the significant potential in.

32:38 Fantastic. Thank you, Moe. Thank you, Jan. Next one we have here is how much sensitivity analysis at lower prices did PHAROS do on the Egypt acquisition? How prepared were you for the low oil prices? Was there a plan b if oil prices dropped below the $45 per barrel breakeven price? So I'll pick that one up. The $45 breakeven was a much later breakeven. If you look back to the slide deck from October 2019 and six months even after we had acquired the, the assets in Egypt, the life of field breakeven at that point was still calculated at NPV 10 at $34. It's slide 77 if you want to go back and check.

33:24 And at that stage, it seemed, ridiculous to go below that level to have a plan b. It's it's one of the reasons why breakevens are useful, but they're not the only metric that should ever be used in evaluating any project. And particularly when you're right in the beginning stage of a development, so many factors can change the cost base, the production levels, the discount rate to impact on the breakeven, that, other metrics were were used as well. But at the time that we acquired the asset, we were nowhere near the $45, and so didn't think that plan b was needed. Clearly, was. Hindsight's a great thing, but that's the way it was at the time.

34:10 Fantastic. Thank you, Jan. Next question we've got is, does the company regret shutting down drilling operations in Egypt since 2020, or should PHAROS have continued drilling in Egypt even with one rig to prevent oil production rate falling off the inevitable cliff? I'll pick this one up. I think the the basically, the COVID was very unpredicted situation. We haven't seen this one before. We have rundown activities. Ideally, yeah, you would have a rig, one drilling rig, maybe one workover rig or just one of them, but you wanna have something going on. That would be the ideal situation. But because it was unpredicted and seen most of us have seen oil going into negative and much lower oil price, and we wanted to preserve cash and being able to sustain the company future, other operators in the area have done the same thing. So in an ideal scenario, yes, you keep a keep a drilling rig and a workover rig, I would say, not just one drilling rig, one and one at least.

35:08 But but the situation was far from ideal. However, what this situation allowed us, it just give give us that ability to negotiate the commercial terms with EGPC, which helped on improving the overall life of, the field economics. So maybe we have lost something on the short term, but we've gained something bigger on the longer term. So that's one the last point I want to raise is this asset, and most onshore for that reason. They they go through stop start stop start, and and the company that owned the asset before have done something very similar during the Egyptian revolution when they had to shut down all activities, and the production drop was inevitable. But we were able after that to bring the production back up.

35:56 And several cycles, if you go back and review the asset history, you'll see that it goes up and down. And and, again, part of the format and part of what we wanted to do all along is to continue that ramp up of activities. And if you look at PHAROS production in the quarter one of twenty twenty when we had three rigs drilling, which is exactly the plan we wanted to do, month on month, we were adding two to 300 barrels, and our production was on steep upward projection. We hit 7,000. If we had not stopped at COVID, we could have be at we could have been now at a much different production levels just by implementing consistent drilling program. So the asset potential is function of the investment. That's what, why we brought IPR. They believe in the same thing.

36:46 And, yes, like I said, the short answer, ideally, yes, you keep one drilling rig, one workover rig, but we've managed through the situation like all other operators in the area. And now we're into a period where we see the production potential increase again from the asset as we implement the drilling program. Right. Thank you very much indeed. Next cluster of questions around Vietnam. The first one reads as follows. With regard to the TGT field in Vietnam, the contract for the FPSO charter ends in November 2024. Given the four additional wells drilled in 2021 and two more in 2022, are the Vietnam partners seeking to extend the FPSO contract? Do you want me to pick that one up? So, absolutely, there's conversations ongoing with the FPSO owner, and, contractually, we're in a really strong position.

37:37 The deadline for the owners, renewing the contract is April 2024, and they have no rights not to renew that. We need to ensure that all the right safety considerations are taken to into account as we do that. Fantastic. Thank you, Jan. Next one we have here is what is the remaining life of the T G TTT field as seen as presently? Yeah. I can pick this up. Like, what we I've tried to answer this in in the slide section. So we have now until block sixteen one TGT until 2026 and CNV until 2027 with the five years extension takes it to 2031 and 2032 as we see it now.

38:26 Thank you, Matt. And the final question we have is why is the company only drilling two TGT wells and only one CNV well this year? Isn't now the time to be more ambitious and aggressive with the drill bit if we can't drill more than two to three wells per year when the oil is a $120 a barrel? I can, again. It's a good question, and yes. But the budget is set up a year like, in autumn, and we have there is long lead item. There are things that you need to plan for. And if you follow the industry, for example, subsea or wellheads are very, very hot commodity right now, difficult to acquire. So the planning part takes time. So we budget in the autumn of last year. We've managed to drill or we will be able to drill the two wells before the end of the year, which will conclude the six wells already approved on the fulfilled development plan, the current version. And then what we've been doing in parallel is to accelerate the fulfilled, the next version of the fulfilled development plan update, which is, nearly done. And and that would allow us with based on the results of the previous drilling, the extension, extending the license, and it requires that updated fulfilled development plan, which in that you can see the way to monetize those nine contingent wells.

39:48 So some of those wells will be part of that revised fulfilled development plan to go after drilling. So, really, drilling, as you know, it requires front end loading planning. You're drilling offshore in a time where commodity prices are up. So there there are competition, not just simply put money on the drill bit. That's great. Thank you, Moe. Next question has got us around share price. Why do you think our share price performance has significantly lagged our London listed oil peers year after year since 2016? Are there any reasons you can pinpoint, and is there anything the company can do about it? K. So I'll pick this one up. I mean, if you look at our price to nest net asset value, we're in sort of mid sixties, percent. There are companies with a lot lower.

40:33 There are companies with a lot higher. So, you know, we're not a complete outlier. I'm gonna answer the question in three parts. The first is we have got quite a different register to most of the smaller end E and Ps. We've got a number of significant holders in the high net worth categories of eight to 10%, And that flows through into a lack of liquidity in the stock, and that's what we cited as an issue, but it is, but it's also a strength. And for example, those high net worth individuals came through really strongly in providing support for the policing last year. So that's the first part. The second part is I don't believe that you should run a business purely with one eye on the share price the whole time. You run a business for fundamentals, and if you get them right, then, other results should follow.

41:27 It's one of the reasons why we've changed our management incentives, which were previously very, solely focused on, share price. We've now included a number of business fundamental measures in their return on capital, cash generation, to add to the share price. And the third part of the answer, would say that, this picks up on another question that's come through, as we've been on air, and that's to put back a clear policy on returns to shareholders. We have had no capital to allocate in the past couple of years as we move into free cash flow generation. Allocating that capital and the role that returns to shareholders has in that return, in that capital allocation is going to be really important.

42:17 The more visibility we can get that, the better, and, you know, you should expect to see something, about that this year. Now the the the question, that's come through is what metrics will we use to guide the amounts return? Is it gonna be regular to dividends, one off dividend, share buybacks? And this is something that the board is looking really carefully at at the moment. All I can see at this stage is it is definitely going to be a more regular pattern rather than one off dividends. But we can see merits in both, dividends and buybacks, particularly when you look at the PNAV that we just talked about. So we'll be looking at that really carefully before we come out with any, definitive statements.

43:04 That's great. Thank you, Jan. Quick next question is around M and A. Are the company currently interested in acquisitions in Southeast Asia? Is m and a something in the short to medium term on the agenda? So, again, we've hopefully demonstrated in the presentation that we see we've got a really good balance right now between organic growth potential in the portfolio and the funding that we have available to make the the investments to bring up potential out. So that's the short term. In the medium term, let's see how things go particularly in terms of where the oil price sits this year, next, what the cash flow generations look like, and and we'll come back to that if we need to. Thanks, Jen. The the next question we have on here is, around Merlon.

43:51 Kind of two questions that that encapsulate each other, I guess, but I'll read both of them, and we can bring them together. On a scale of one to ten, one being we have no regrets and 10 being we deeply regret, how much does the company regret buying Merlon? And just in a follow on to that, in a recent video, Ed Story, outgoing president and CEO, said he'd learned two lessons from the Merlon acquisition. One, things take a very long time in Egypt, and two, never buy anything from private equity. Does Jan Brown agree with him on the above, or does she have differing opinion? Do you think other lessons, perhaps different lessons, have been learned from the Egypt acquisition? Sorry. Quite a lot to throw there in in three parts, but So on the first part, with Edith, no regrets. They're not helpful to anyone. Let's stay constructive. It was the right decision at the time.

44:37 And if the oil price in 2020 had been where it sits right now, we would be in a very different position. So moving on, Ed's two comments, things take time in Egypt. Well, they they do, but I've never known a jurisdiction where they don't take time. I mean, in The UK, you want to do a shareholder circular to get approval for something, and it'll take you six to nine months. So, you know, Egypt is not unique in that. That's part of our job to manage, the business while we're we're waiting for approvals. On the private equity side, look, I completely understand why Ed said this because, fundamentally, we, saw a level of production, when we signed the deal with Merlon to acquire the assets.

45:29 And between the time that we signed it and the time that we bought it, investment stopped. And so the production levels when we actually completed were significantly lower. But if you look at we had already walked away from another deal, which was not private equity owned for exactly that reason where we could see that the the governance structures in place gave no guarantees that the business that we would acquire at completion was going to be in the same state that we were looking at before signing up. So I don't think it's a it's a private equity feature, and private equity is not a monolith, and and equally, are a whole range of ownership structures which which give that.

46:16 And that's the protection of being in a premium listed environment because the disclosures that are required of us, mean that we're constantly, having to be public about what we're what we're doing. So the lessons learned, I've said no regrets, absolutely, but you've gotta learn lessons from from what, went on. And, fundamentally, PHAROS went from being a company way back 2017 with quite a lot of cash and absolutely no, investment, opportunities. Vietnam, even Vietnam was closed off at that point in time. It went from that to having no cash and a wealth of investment opportunity in in 2020 after the crack crash.

47:02 So what we've got now, as I said earlier, is a balance. We've got the opportunity. We've got the funding. So let's move on, bring them together and see what we can create. That's fantastic. Thank you all. That does conclude the presubmitted questions. Manana, if I may just ask you to step in, please, just for the live q and a. And where appropriate to do so, if I could ask you just to read out the question, even who it's from, and just direct it to the team, and we'll pick up from you at the end. Thank you. Great. Thank you, Paul. I'm gonna go through the q and a the questions that were submitted in the q and a tab. There are quite a few number of questions, and I'm aware we don't have that much time. So I do apologize if we are unable to go through every single one of them today. And, also, quite a few of them were already addressed in the previous q and a session or already been addressed during the presentation, so I'm just gonna skip them.

47:51 The first is from Matthew r. Can you expand on your cash operating cost, and where do you see this going forward? Yeah. I can pick that up. Thank you, Mina. Yeah. So our cash operating costs, last year, 52,000,000 for, Egypt and, Vietnam. We we paid a wee bit more in Vietnam because of the FPSO, which I explained earlier, because we had more throughput than Tong Long who we share the facility with. They have actually drilled a well and is expected to come out and clean up, etcetera. So we we don't have full visibility of of that yet. But, you know, as being a conservative person, person, I would stick with the costs that we had in '21 as being a reasonable position go forward.

48:48 Great. Thank you. A question from Keith P. You referred to some interesting structures on 01/25. Are you able to indicate any more details? One for Moo, I think. Okay. So the interesting structures, I think the key there are several of them have been identified. Okay? And if you I don't know how much you know about, 125, but there has an a shallow water element and has a little bit deeper water element. So several, diff different types things of things that you can drill on one twenty five, 126. The reason I identified them as several interesting geological feature is the three D hasn't fully finished yet.

49:39 And if you know a little bit about the subsurface, you do the three d, you identify the prospects, and then you probably drill a well, which we plan to drill a well on in 2023. Okay? And until we get the second layer of the final three d interpretation and better understanding of the different geological features and where we where we recommend to drill the well, I will leave it at an interesting geological feature, but something that we've seen similar in different places and we think that has a pretty decent potential. Thank you, Moe. The next question is from Mark l. Given the current structure of the business and CapEx commitments, what is your view of the right amount of hedging to have in place over the next one to two years? Is it 25, 50%, or higher of annual production? And a similar question to that, Keith p asked, what approach have you taken to hedging during recent price spikes? Have you locked any of the high price in?

50:40 Yeah. No. They're they're all interesting questions, and, obviously, it's a very interesting field. It was the hedging that kept our heartbeat going in 2020. And, obviously, last year, '21, we had sort of the reverse of the payback almost. So as I've mentioned earlier, the RBL requires us to hedge 3535% of our Vietnam production. As I said, the the RBL is only over Vietnam production. So that that probably is the maximum that we really want to to hedge. You know, it's it's sensible, you know, to try and keep some of that free float in there so that we can take advantage of the the prices, etcetera.

51:26 So as I say, we're we're higher hedged at this half this first half twenty two than we'd probably like to be, but that's because we do fairly heavy stress testing on our on on our working capital and going going concern tests, etcetera. So, hopefully, that answers your question. Fantastic. Thank you, Sue. And I think we have time for one last question from Robert R, which who asked, who pushes the company? Who sells the company to new institution and larger investor in this excite exciting time for the business? So Minhan's not read out the whole thing. I'll I'll read out. We have the defenders and goalkeeper. Do we need a center forward?

52:11 And I guess my my answer to that is if you're looking for a a Ronaldo, then, no. I I don't think we do need that. Look. That's one for the nomination committee, not not for the executive directors. It's our job to go out and push it together. We're a team, and so far, so good. But I've only been in the seat for four days. There is another question, that came through in the, presubmitted, and it was about investor me company. So, maybe they've just been, very reticent about mentioning it. And, look, it's our intention to carry on using investor me company. We've reduced our cost base, reshaped our cost quite significantly, and we see this as a really efficient way of reaching the retail part of the register, which is which is about 4%.

53:04 You know, that's, a reasonable chunk of the company. And it's really important for us to be able to provide access to to all our shareholder base, and the intention is that we provide guidance for the, for Egypt in May, round about the time of the AGM. And we would hope to have another session if there's enough interest then because that's the next really important milestone for the company to see how we we pick up and develop out that Egyptian base with IPR as operator. Thanks, Jan, and we very much look forward to hosting you then. And that does conclude all the questions. So thank you very much indeed. Of course, if there are any further questions that are submitted, the team will have the ability to review those questions and with public responses where appropriate to do so on the investor me company platform.

53:52 Jan, just before we redirect investors to provide you with some feedback, which I know is very much important to you and the team, if I should ask you just for a few closing comments, please. Sure. So I've said this earlier in the presentation, but we really are in a very different place in 2022. We have got the organic growth potential in the assets both in the near term developments, but also in low risk, low cost exploration in Egypt and a potent potential basin opener in Vietnam. So there's wide range of exploration as well. We've got the funding to deliver the growth, and we do have the team. We're leaner. We're more focused, and but we're ready to deliver and and get back to free cash flow.

54:37 So we look forward to the next piece of news flow in May, and and that's our story right now. That's fantastic. Thank you very much indeed, Jan, Mo, Sue, Minh, and thank you indeed for updating investors today. Could I please ask investors not to close the session? It should be automatically redirected to provide your feedback in order that the team can better understand your views and expectations. This This will only take a few moments to complete, and I know it's greatly appreciated and valued by the company. On behalf of the management team of PHAROS ENERGY PLC, we'd like to thank you for attending today's presentation. That concludes today's session. Thank you, and good afternoon to you all. Thanks, Scott.