Prospex Energy (LSE:PXEN) — Annual Results

0:00 Good morning, and welcome to the PROSPEX ENERGY PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can 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 it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Mark Ralph, CEO. Good morning, sir. Good morning to everyone, and good morning to the shelves for PROSPEX ENERGY. I'm delighted to be talking to you today about what the company is up to, and I'm going to run through a few slides on investor presentation, which is very much based on the corporate presentation, which you can find on our website.

0:55 So this is a snapshot of the share price year to date taken yesterday. So I I'm Mark Ralph. I'm the CEO your company. I'm a petroleum engineer by background. I found a CH four ENERGY in 2002, and that was sold after four years to another oil company. I was also a founding shareholder in Wargo Energy, and that was sold in two thousand twenty three last February after thirteen years. I'm I'm I was the CEO of Independent Oil and Gas. I was a non exec director of Wargo Energy, and I'm I'm now the CEO of PROSPEX ENERGY. So I have experience in aim listed companies and private companies.

1:47 The headline here is that PROSPEX is now completely debt free, having paid back all the loans that we took out in order to get the silver Malvetsi production concession into production. And we have no warrants in the company, which is a nice place to be for shareholders. So no more dilution coming out. We've got production income from two assets in Spain and in Italy, and that covers our g and a, our general and administrative overheads, and the current working capital commitments for the for for 2024. So the near term catalysts are are that we've got some we've got wells to be drilled in both Spain and Italy, and I can come on to a little more detail as to what's happening there. Now I know a lot of you will be very familiar with the assets, but some of you won't be, and you might be hearing it for the first time.

2:41 So bear with me while I go through. I'm not gonna dwell on each word in the presentation. So we're an amnesty company with assets in Northern Italy and Southern Spain. We are an investment company, so we do not operate the the assets that we own. But we have the Selva Malvetsi production concession in Northern Italy, and we have the El Romero gas to power plant in Southern Spain and the Tesareno exploration permit near the that's very South of Spain in the Cadiz province.

3:21 That's our schedule of activity. We hope to be drilling by the end of this year or early next year subject to permitting. Now I have to stress, it is all subject to permitting. That is not a timeline which is defined. And so we are in the permitting process, but I can't put my hand on my heart and say exactly when it's gonna happen. But we are pushing and pushing to get these wells drilled. So on to Italy's Selvara Malvetsi production concession. We own 37% working interest in the assets, and the operator is Pro Valley Energy, which is an ASX listed company that is on the on this Sydney Stock Exchange in Australia.

4:10 And they own the balance of 63%, and they are the operator. So this is a picture of the the well site and the gas processing plant that was installed in 2023 in order to get our gas into production. So it's it's a small processing plant with dehydration column separators, and, you can see the picture of the wellhead there. Construction, completed in May 23, but due to the permitting process and actually floods at the time where the fire department were dealing with floods in in June 23, we didn't get into production until the July 4. Since then, we've been producing almost continuously with just shutdowns now and then for slip line workover interventions and pressure monitoring.

5:01 So on this concession, we have upside. We have three targets to be drilled at Selva North and Selva South, which are discoveries. So they're contingent resources and are not yet developed, but they're they're contingent resources in the competent person report. And we have ESelva, which is a prospective resource, which is larger. So there's a a picture of the concession. The the red blob in the middle is Selva. That's 13 BCF gas field. That's billion cubic feet. Selva North and Selva South, nine and five BCF respectively, and East Selva, the prospective resource to the east of the concession, which is 35 BCF. These are gross numbers.

5:46 So PROSPEX is 37% of all of these. The important thing is the the green bounded limit of the Selva Malvetsi concession is the area in which Pro Valley and PROSPEX have the absolute right to produce hydrocarbons from this area. All we need to do to drill wells is to permit each individual well and the routes of the pipeline, which is a much shorter process than granting production concession, which took some years as some of our shareholders may remember.

6:25 So on to Spain, we have the El Romero Power Plant and Tesarulo exploration permit. We are 49.9 of the power plant and we earn 15% interest in Tesarulo currently, and we have the rights to move to 49.9% prior to drilling of a well. So El Romero is near a town called Carmona, which is East of Seville. That's a picture of the power plant on the roof of which we have installed solar panels. So we're already a hybrid generating company. The nameplate number here is that the the, power plant has the ability to export and the capacity and the rights to export 8.1 megawatts of power into the grid.

7:19 However, currently, we're only running one of the three gas engines at a time because we can only, we only have enough gas behind pipe to run one engine. So we're at 30% capacity of the power power station. So we export just 2.7 megawatts of power on a daily basis. We've converted the plants twenty four seven operation, and we've got production from two gas wells only. And we are wanting to drill further wells to get the plant up to 100% capacity. And that's why we've submitted permits to drill five extra wells on the concession, which is what I'm going to go on to now. Just briefly on Tesarillo. Tesarillo expiration permit, there's a bit more about that at the end, but PROSPEX has a right to increase to 49.9% prior to drilling the well and on the payment of €1,725,000, and that brings us up to 49.9% on the concession.

8:24 So that's a map of all the prospectivity on the El Romero concessions, Romero one, two, three. There's some large structures in there, maps. These structures are very shallow. It's a it's a tertiary reservoir, it's turbidite, and it's biogenic gas. So that means that the gas is very rich in methane and no impurities. So since 1980 when Chevron drilled the first wells, there hasn't been a well which did not discover gas. They've all discovered gas. We have high graded those prospects, and we have high graded the five most likely to be into production. So you've got Selva 3 East and you have Santa Clara 2, which are drilling structures which have already proven gas in them. Well and while they're small numbers, it is an absolute certainty that we will get gas out of those wells because we're drilling updip of a well which has already produced.

9:27 The other three are PROSPEX. So there's they're prospective resources. So we can't attach any value to those until no one has drilled in them and it's likely to be developed. So that's New Gamma, Santa Rita, and Rommel 2 S. And Rommel 2 S is the largest, as you can see, of the structures. The pipeline length the the red the red line there is the pipelines interfield pipelines connecting to the power plant, which is located at the Serbia 3 Well location on the picture that I showed you before. So we don't have to tie in for very long distances. Longest distances are Rommel two s, which is 4.4 kilometers away from the tie in point. So that's our board of directors. It's a small board four gentlemen at the top, including me.

10:19 We have a small team, head of finance, Grant Gladfield. Carlos is our chief geoscientist, and Lekos, our senior geologist. We don't operate the field, so we can we we monitor what the operators are doing. And, in fact, our technical team are doing a lot of the subsurface technical work on the Tava asset, the Rorail asset. When it came to submitting the permits, it was the PROSPEX technical team that did the bulk of the technical subsurface work because Warriga has down tools on their subsurface team. So this is this is on our aim rule 26 page of our website. It's showing the the major shareholders that we have.

11:09 There's another list of 12 or 15 shareholders who I know, I speak to on occasional, sometimes regular basis. And this is just showing the the number of shares issued and the number of options which PROSPEX ENERGY present management have in order to enjoy growth in the company when it comes. So the investment case here is that we have secured reserves and revenue from two assets in stable European countries. We're still trading to a a massive discount to a target price, which is just this week being changed to 18 p by VSA Capital.

12:03 So there's huge upside because the the net asset value of our assets is a multiple of the market cap of the company, yesterday was trading at £19,000,000. We're focused on growth for shareholders, and we have a diversified portfolio which we hope to expand upon. So not only by drilling, but also if we get the right deal, we could have other prospects and farm ins which we could do, but only if they're going to be accretive for shareholders. And we've passed on a few, as you might have noticed, in the RNSs at the end of last year.

12:51 PROSPEX ENERGY is focused on mature markets, natural gas, onshore Europe. And I believe, and I firmly believe that that geographical and product focus is very important for a company moving forward.

13:07 So we're a highly experienced team of professionals. We know what we're doing. We know the gas industry, and I have a a very strong and supportive independent board who speak to me on a regular basis. And we are looking for opportunities to grow the company from this space, which as I said, is debt free, warrant free. And so any investment we do will be going straight into the assets that we are developing, starting with the three wells in Italy and the five wells in Spain. So that's all that I was gonna say. There's a brief summary here of the Tesarillo license.

13:53 This is suspended. It was suspended during the COVID era. And in May 2021, we applied to convert this exploration permit into a production concession and drill a well. That has fallen foul of the political landscape in Spain, and it we just need to drill the well and twin the well that was drilled in 1957, which produced gas to surface. This is potentially an enormous gas field. The most likely prospective resource is 831 BCF. This is very exciting, but we've got to unlock the permitting process and the concession. So since '21, we've had very little movement from the regulator in Spain, which is highly frustrating.

14:42 But we're gonna concentrate on getting the five wells done on Romero, which, as I say, the ministry has engaged with us on the permitting process.

14:52 So there's a series of the of of the board and management team, and that's all I was going to cover for the time being on on this. So I can now address the the questions that anyone has. I see there's a few popped up, which I shall endeavor to answer now. Mark, thank you very much for the presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab situated on the top 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 your investor dashboard. Mark, as you can see, we have received number of questions throughout today's presentation.

15:38 Can I please ask you to read out the questions and give responses where appropriate? Do so, and I'll pick up from you at the end. Okay. So a question here. What can you say about the timeline to obtaining permits to drill El Romero and what's the potential increase in production and cost to drill? Okay. I didn't cover that, so that's a good question. The timeline I've covered, we're hoping to get the permits by the end of this year. I'm hoping we can be drilling by the end of this year, but more likely, it's gonna be early twenty twenty five. The cost to drill, that was a very relevant question. I thank you for answering it. I admitted to state that in Romero, the structures are all very shallow tertiary turbine reservoirs. They're only about 900 meters deep. So what that means is that the cost to drill a well is about 1 or €1,100,000 gross.

16:33 So PROSPEX is half of that cost. So drilling these wells is very cheap and tying them into the top pipelines, which we own, is also not that expensive because it's a short distance to go. Those pipelines have to be permitted. The routes that join our pipeline network has to be permitted, and the environmental impact assessment has to be agreed by the regulators and the and the authorities. So the production, when it comes, we only need production from two of those wells to come in in order to get to a 100% capacity in the power plant to generate 8.1 megawatts. So if if they all come in, we're gonna have three wells with gas behind pipe, which we can either increase the capacity of the power plant, or what I would like to do in the future is possibly connect that to the local ENERGY PIPELINE, the 26 inch pipeline, which traverses the concessions.

17:40 So that could be an investment in the future, which would give payback extremely quickly because you could connect to the pipeline, and you could sell gas, and you could generate electricity, and you could do that on a daily basis, and you have an arbitrage opportunity between the two products. So the next question I'm going to answer is the, can you extend the agreement with BP past 2024? And the answer is I was in was in Rome for an operating committee meeting last week with the operator, and this is one of the questions we've been addressing. It's gonna go out to tender again as you have to do for large contracts. BP is I understand is keen to renew the contract.

18:26 I introduced BP to the operator, as I know BP gas marketing from previous roles I've had running companies. And I understand they are keen to to renew the to renew the marketing agreement with us. But it will go out to tender, and we'll get we'll get the best deal on offer. Okay. The next question from Joe a. From to go to full production, does the turbine need replacing and at what cost? Yes. The the gas engine, which is multiple, will need refurbishing. The cost of that is in the region of 4 to €500,000 to refurbish.

19:16 There's a project ongoing at the moment as to what best to do with that turbine and with that gas engine, either replace it or or refurbish it. Sorry. I've lost the question. There is there it is. Have any offers been received, in the last twelve months for any assets? And the answer is no. We've not received any offers for the assets in our portfolio in the last twelve months. A question from David m. Can you talk about the current m and a market for similar assets in Europe? What kind of acquisition provides the best synergies portfolio diversification?

20:02 That's quite a broad question. The m and a market in Europe for similar assets is quite active. Some of them are very large, but the trouble is a lot of people are wishing to farm down very high risk exploration opportunities, which, we regard as quite a risky investment. I wouldn't be wishing to risk the company's money or shareholders' funds on risky exploration, but an element of exploration on the existing portfolio is always going to be a good thing. The acquisitions we are looking at have to be of a size that we can manage.

20:48 As I said in in last December in an update on business development, we actually went through due diligence on an asset which was turned out that the drilling costs were going to be so large, it was going to be something that prospects would struggle to fund and keep its shell. It was an exploration asset in in Europe, onshore, offshore. In the end, we turned it down. So that was we didn't we didn't go for it, although it did pass our our technical due diligence.

21:28 As far as diversification, we're looking at as I said, we're concentrating on natural gas, conventional natural gas. So nothing that needs stimulation. So conventional natural gas onshore where wells are cheap and where it's not too deep, that's that's what we're looking to diversify into. We're finding there's a quite large number of opportunities available. We're in the data room at the moment for two or three, and they are onshore Europe. I can't give you any more details at this point. So the next question from a Mark r. Balancing capital allocation, do you have the capital to run the drilling program to its fullest?

22:17 What's the anticipated revenue expect to come from the production? And what's the margin? I'm gonna have to come back to you on the second half of that question. The capital allocation, if we drill all eight wells, I think we will need to build the funds up in order to drill all eight. But depending on the timing of those drilling that drilling and the income that we generate from the assets, we may be able to do it because the costs are low. We may be able to get there without having to raise extra capital for the drilling campaign, but that's not an absolute certainty.

23:02 The timing is all important. We're building catch up this year, and we hope to get the permits in good time so that we can drill. If we can drill earlier, then, yes, we might need to raise funds. But I think we we could make it to the by the end of this year, we should have enough funds to to drill what we need to drill in the time frame. But it's all going to depend on the gas price, which is firming up nicely. It's it's just this week, it's been coming up five or 10%, which is always good news. The anticipated revenue is going to be down to the gas price again, but we know what the revenue is from both assets. In Spain, we're going to when we get two wells drilled, we're going to go from one third capacity to full capacity, so from 30% to a 100%.

23:59 As for the margin, I'd have to get back to you on that number. The the margins is not it's something I'd have to compute and and get the economic model up on whichever prospects have been drilled.

24:17 So I think that's all the questions I've seen so far on q and a. Mark, 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, can I please just ask you for a few closing comments?

24:42 I have another question coming in. Can you please confirm the ongoing viability of project Helios solar farm in Spain and expected implementation timeline? Yes. Project Helios solar farm, we're waiting for environmental and regulatory approval for that. The land adjacent to the the power plant has been leased for twenty five years on a low start rate until we get the project actually sanctioned. We're waiting for a number of things to happen. We have the FEED contractor and the EPC contract is still in negotiation, and we hope to get that implemented in 2024.

25:30 Again, exact timeline is not available.

25:42 One question for you, Lily. Do we need to address the pre submitted questions or are those going to be done after the event? That's totally up to you. If you've written responses, then they'll be available on the investment company platform. Well, okay. Well, what I'll I'll do just to make sure that these questions are addressed, I'll I'll address them quickly here if we've got time, which I think we do. So question one of the pre pre received quests. Have you received any offers for assets in the group and rejected? If so, why? And what are discussions ongoing? I've already addressed this question. We we have not received any offers for the assets in our portfolio. Question about Andrew Hayes and what's his role in the company.

26:28 So Andrew Hayes is an experienced nonexecutive director. He he's got decades of experience in his career in corporate finance, and he's a very valued member of the board. And he's been on board of several listed energy companies. He's the chair of the order committee and is a very valued member of the board of directors. You have to have to note, nonexec directors don't get paid very much, but they have the responsibility of directors of the company. So a lot of regulatory and corporate governance work goes on behind the scenes, which is a requirement of an aim listed company. The next question was when do you think licensing permits will be granted to Spain and Italy?

27:15 Again, I think I've answered that in in the live q and a session. The it has to be said that the the regulatory environment of both Spain and Italy is changing all the time, and there's a lot of political resistance to the development of fossil fuels. But both countries have realized independence of energy supply is very important to them. So they're having to manage that agenda against the backdrop of political resistance. Question four was why has VSA downgraded the share price from 20 to 18? You can see the VSA report on our website.

28:03 This is largely due to the downward pressure on forward curve gas pricing, which is softened in 2023. However, we see the forward curve rising from here. It it's currently it's about $30.32 euros per megawatt hour, that's rising to 35 or more by the end of twenty four and early twenty five. So there's a question here on admin costs. The answer to this is the regulations attached to being listed on AIM require companies to have a nominated adviser and at least one broker. And in addition, you have to audit the accounts twice a year.

28:50 And so we have other costs associated with being listed, company registrars, legal advisers, auditors, accountants, stock exchange costs. It costs each time we put an r and s out. It costs us money to publish that. We have to have insurance, and we have website and IT support. These are base costs for an AIM listing. But importantly, they won't increase significantly on any expansion in the company or the company's portfolio. So we don't have a physical office. We have a small team working virtually, and our salaries are mid quartile in comparison with our peer group. So that's how I'd address that that question.

29:36 Question six was, will the board of directors consider any buyout offers? If an offer is received, which would be of value to shareholders, then, of course, the board of directors will evaluate this and consult the shareholders and recommend if we do get a buyout offer. I'm afraid to say we have not had a buyout offer yet. So that was question seven as well. Has the company had any buyout offers? The answer is no. Question eight, update on the Tesarillo project. I think I covered that in the live session. Taba, the operator of the Taba Energy, the operator of the of Tesarillo and Romero, applied to convert the exploration permit to a production concession in May 2021.

30:27 Since that time, it's been stalled by the political process in Spain, not least because there was no government for some eighteen months in Spain in 2022 and '23 as it was a home parliament. So there was nothing decided during those that time. It's very frustrating. But as I said on the live presentation, the political backdrop is such that both Spain and Italy are realizing the importance of indigenous energy security, which we hope will unlock some progress on the permitings of both Tesarillo and Rommel and so we're now in The last question was administration costs in 2023 are high for a company that has low turnover.

31:16 Refer to question five above. Base costs being listed are unavoidable, but the route to profitability is to get the five new wells drilled in Spain and the three new wells drilled in Italy. So that, I think, addresses all nine of the presubmitted questions, and I'll hand back to you, Lily. Mark, thank you for covering up all those questions. Just before redirecting investors to provide you their feedback, could I please just ask you for a few closing comments?

31:51 Well, I reiterate that PROSPEX ENERGY is debt free, warrant free, and we're poised for growth. So any investments which we attract into the company is gonna go straight into the growth of the company. That's growth of the assets of the concessions we have. And if the right deal comes along, which we which we like and we want to invest in, then any investment will go directly into that asset. It won't be covering g and a. So that puts us in a very strong footing to expand this company into a much larger energy investment company. Mark, thank you for updating investors today. Can I please ask investors not to close this 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?

32:44 This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of PROSPEX ENERGY PLC, we'd like to thank you for attending today's presentation, and good morning to you all.