Prospex Energy (LSE:PXEN) — Investor Presentation

0:00 Good afternoon, and welcome to the PROSPEX ENERGY PLC Investor Presentation. After the 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 in the right hand corner of your screen. Just click Q and A, scroll up 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. Have the company review all questions submitted and published responses where appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Mark Ralph, CEO. Good afternoon, sir.

0:30 Good afternoon, ladies and gentlemen. My name is Mark Ralph. I'm the CEO of PROSPEX ENERGY. I'm going to be running through the corporate presentation, which is being has been updated for this month. I'm not gonna talk to every point on the slide. I'm gonna use it as an aid memoir to remind us where we've all come from and where we're going. And the new corporate presentation will be uploaded to the website at the end of this presentation. The website is being upgraded as well. And in the coming days or weeks, we you're gonna see a new website up and running. So without further ado, I'm going to lead through the presentation. Like I said, I'm not gonna talk to every slide.

1:19 Standard disclaimer. So for those of you that don't know about PROSPEX, PROSPEX is an aim listed company. We are we have operations in onshore in Italy, in the Northern part of Italy, the Po Valley, and we have operations in the Southern part of Spain at the El Romarelle concessions and the power station at Carmona, which is near Seville, and then the exploration permit down in the South called Tesarillo. And the percentage shares are on the screen there, and you can see what ownership we have. We are a nonoperator. We're an investment company. We have operators that operate on our behalf in both Spain and Italy, and we are a very supportive joint venture partner to those operators.

2:08 And we have a highly competent technically led team, they support the operators on the both the technical side and on everything we do in both Spain and Italy. So in Italy, we got gas production happening last week on the July 4, bit before last week And that we've been waiting for for a very long time. It took a while to get the permits for the for the production concession. But first gas in the July 4 was a big milestone for the company. So now we are producing in two companies two countries, sorry, both Italy and Spain. We're producing gas to our power station in El Romero in Spain, and we are producing gas from the Selva field into the national grid operated by SNAR, the network operator in Italy.

3:09 So the recent impacts to our company, obviously, the biggest impact just recently is the is the first production from Italy. Now our gas is being sold indexed to the TTF. The buyer of the gas is BP Gas Marketing, and the the TTF index is, as as most people know, is the natural gas hub in The Netherlands where it's quoted in euros per megawatt hour. Now the price at the moment has softened a bit since the crisis we've seen in in the global crisis with the Ukraine war, and we're seeing now that the prices have come down to around €30 per megawatt hour, which is equivalent to 72p per therm in in The UK.

4:01 Now those prices are high compared to what we've seen in the past. When we when I started the industry, prices were 12p per therm, and they went up to 25, and people thought would that go any further? But it has. Now what we're seeing is in 2024, prices are heading towards €50 per megawatt hour, and that's more like a 125p per ton. So the point is we're cash generative at €30 per megawatt hour. I see the forward curve strengthening from here, and we're gonna be even more cash generative. Now in Spain, we've got the power station continuing to produce electricity from our wells in the Romero concessions, and we have submitted to the Spanish regulator permission to drill five more wells on the production concession.

4:57 And it has to be said, the Spanish regulator is a little slow, and there are some political things happening in Spain with the elections happening in less than ten days now, the July 23, we see elections happening in Spain. So we will see some movement, we think, in the environmental impact assessment process, which has kicked off already. The other thing we're very proud of doing is we have installed solar panels on the roof of the power station, and we've leased the land adjacent to the plant in order to install a solar farm next to the plant, which will be a five megawatt array of solar panels, which we will be able to connect to the grid at our power station where the grid is already the grid connection is already there and has capacity and to accept the further power to be generated from the solar power solar power panels that's being installed.

5:57 So

6:02 we're gonna grow. I'm gonna go into some detail in in in the Italy, the Italian asset. So here you've got a picture of the of the processing plant in Bologna. So this is the Perdere Maillard one wellhead and the processing kit that's been installed next to it. And these pictures show you have a a brand new plant installed, which I visited the well site in April of this year, and we were ready to go in May. Now we were ready for production in May, but we needed sign off from the local fire department for the safety of the of the kit. The fire department were busy rescuing people from the floods in the in the Poe Valley, so that's what delayed us our first gas from May to July.

6:55 But here we are, we're now in production and production is now ramping up. The reserves in Selva is a 13.4 Bcf gross 2P reserve gas field, that's five Bcf net to PROSPEX. And we have prospective resources on the permit, which are drillable in the near future, which we which I'll come on to. So it's a bit small, but you've got a map, a satellite map of where the wellsite is in in conjunction with the tie in point to the SLAM gas grid. It's it's less than 600 meters away line of sight, but we've laid a 985 meter pipeline to connect to the grid. So as I said, that is now producing.

7:42 The production rates are being slowly increased. We've been in production for just over a week now. And when we've got some firm numbers from from the operator, and I'll be able to publish those when the time comes. So there's some history on the the timeline that took us to to get to first gas and silver. As you can see, it's been a fairly long old process. The the well was drilled and suspended in two thousand seventeen, eighteen over Christmas. So it's 2018. It was it was completed. It takes quite a while to get permits and environmental impact assessments and production concessions granted. But as I said before, we're going to be drilling some more wells.

8:30 So here's the here's the position of the new wells. And now the law of the land is that certain areas are observed for special reasons and cannot have cannot have oil and gas activities on them. Those are the purple areas that you can see on this map. So what you've got on the map, you have the Selva Field, which you can see in red in the middle. And just next to that, you have Selva North and Selva South, which are contingent resources ready to be drilled. We just need to permit the wells to get them drilled up. Now the larger exploration prospect on the concession is East Sulzer. It's it's about 35 Bcf of gross resources.

9:16 And we are applying for permits now to get those wells drilled and also talking to the landowners about using the fields in the neighborhood from which to drill these wells. As to be said, the local community is very supportive of the activity here. It creates jobs in the Po Valley and the Italian locals and the Italian local government and national government now see the need for local gas to help with the energy crisis initially. So we have a very supportive local following in Italy, which is always good to know. So, as I said, I'm not gonna dwell on too much detail here, but here's here's the, background of the the assets in in Spain.

10:09 And what we have here is a picture of inside the power plants, outside the power plants, and and an aerial view that you can see the solar panels on the roof. So we've got development opportunities around here. Project Apollo is the roof panels on the roof. Project Helios is we call it is the solar farm adjacent to the to to the plant. And we have infill well drillings coming up from the five wells. And there's a possibility to connect all of this if we have excess gas to a 26 inch pipeline, which traverses the concessions. You can see it there marked on the map. That 26 inch pipeline, we have have charted the route to connect that connect to that from the power station, and that can be done low cost in the future if we have drilled five wells where we will have excess gas.

11:09 We only need two of the five wells to come in at the rate of some 25,000 standard cubic meters a day and we will get up to 100% utilization of the three generators, which you can see in the picture here. Those are the three generators in the plant. We only can use one at a time because we don't have enough gas behind the pipe to run more than one generator at this point. So as soon as we get the wells drilled, can get to 100% capacity on the power station, which brings us from 2.7 megawatts up to 8.1 megawatts. So that would be a big boost to income in the plant.

11:53 So there's potential in the future to use the suspended wells for gas storage. There's a well called Rio Cabones 1 which we worked over in October 21. That is actually watered out and is a prime candidate for future use as a gas storage reservoir, but we need to connect to the Energas pipeline at the same time to inject gas to it. But that's a project for the future. Now this is something my team have been leading is the seismic reprocessing over the concessions. And for those that know about these things, you have the AVO, that's amplitude versus amplitude versus offset reinterpretation of the seismic, which gives you direct hydrocarbon indicators.

12:43 And you can see here, for those who understand these things, you can see the bright spots appearing on the on the reprocessed data, which gives us a much better insight on the chance of success of drilling a hydrocarbon well. More detail there on the on the seismic. This is a snapshot and and a histogram of the of the reserves and resources and prospective resources according to the competent person's report CPR. So this is the public data that we know. We have further analysis done by management to fine tune these numbers.

13:26 Brief update on Tesarillo. Tesarillo is still suspended. This is an exploration permit which was suspended back in 2019. We have applied to have it reinstated and converted to an export exploitation concession. That's an important language difference to the nature of the permit. That was submitted in May 21, and we are still waiting for the permit to be converted and reinstated. It's potentially a very large project. It could be up to the mid case is up to 831 BCF gross reserves in a well that has been drilled in 1956. So we think this is an appraisal project, not an exploration project.

14:15 Some details on there on what could happen at Tessarulo once it's reinstated. And then at the bottom of our presentation, we have a timeline here. This is indicative only. So the drilling is, my team would say, an optimistic view of when we could get drilling. It we could bring it forward if permits

14:39 came quickly, but it it could slip. So we have to come up with a plan, and the plan is in q two twenty four, we could be drilling in both Spain and Italy, those five wells in Spain and and the three wells in Italy. So what we're waiting on there is not any further well planning. It's all down to permitting. We have to wait for the permits to come through. So as I said, we're gonna read every single page. This is just a summary of the proven contingent and the prospective resources net to prospects. And here are the CVs of the management team with the new board director Andrew Hay appointed earlier this year.

15:27 So that's all I was going to run through on the presentation, which will be available on our website after this session. And I can now turn it over from the floor. Thank you. Fantastic, Mark. Thank you very much indeed for the update there. Ladies and gentlemen, do please continue to submit your questions using the Q and A tab situated on the right hand corner of the screen, but just while Mark takes a few moments to review those questions submitted. I'd like to remind you the recording of the presentation, as Mark said, a copy of the slides will be available on the Investor Meet company platform. And Mark, I know you haven't had a great amount of time. We did have your pre submitted questions. You can see we had a number of questions come through throughout today's presentation. I'm sure we'll see a few more come in. If I may just hand back to you just to click on that Q and A tab and where appropriate to do so, you could read out your the question and give your response and I'll pick up from you at the end, please.

16:17 Yes. Okay. I'm just just finding the time. Here it is. Well, firstly, I'll I'll I'll deal with the presubmitted question, which I'll read out. It says here, in general, obviously, confidentiality, what is the contractual structure with the BP gas marketing? For instance, obligations like take or pay, volume nominations, BP service take, and whether take related to volumes or fixed, etcetera. So what I can do here is point shareholders to the 02/14/2023 RNS that was published announcing the BP gas mark marketing agreement to offtake the gas from silver.

17:03 And the highlights say it's an eighteen month gas sales agreement commencing at the April 1. There there is no take or pay or obligations. What we have is a a gas sales contract that will there's an estimated 37,000,000 standard cubic meters of natural gas to be extracted under this. That's a gross number. So that's 12,000,000 standard cubic meters in 2023 and 25,000,000 in 2024. So that's the volume. The gas supply price is linked to the to Italy's Heron PSV day ahead mid price assessment. Now that that is a a privately quoted price of gas, which is linked, very strongly linked, as I said before, to the Dutch TTF, that's a title transfer facility in in Holland.

18:01 The important thing there is that nominations are provided by the operator, per valley operations. They provide nominations monthly, weekly, and daily to BP and it only becomes firm that the binding nomination is required by 2PM on any banking day. So that is the only commitment that we have. Now the wire has been producing, as I said, for for ten days. We're seeing very firm production, very good wellhead pressures. And so we nominate on a day what we're going to sell and BP buy that quantity through the grid at the delivery point. So like I said, there's a lot more detail on the r and s of the February 14 this year.

18:51 So I'm I'm just going to put my glasses on to read the the q and a's now, so just bear with me a second.

19:04 I think I might have already answered Andy c. He he says, our flows from PM one broadly meeting expectations, and the answer is yes. I will be able to publish those those numbers when the operator is ready to do so. As nonoperator, I can't advance anything that they do. Okay. Board shareholding said look aligned with shareholders. Well, yeah, the that's that's a a comment. I mean, that's often the case with the aim listed companies. You have institutions coming in with upwards of up to 29% of shares in a company.

19:58 So it's not unusual that it's not unusual that you have different shareholders than the directors. Not all directors participate at the level that we do. Project Helios decision is late. That is true. There are permitting issues to come through, and we are looking at the viability of the project Helios project. But at the moment, we've we passed through the the tender exercise, and we are evaluating the tenders. But it's still a project which we want to want to do. So excuse me a minute. These q and a's are moving around a bit.

20:57 Okay. The as for directors taking options or increasing their holding, the answer is that the answer is individual to each director. I can't speak for other directors as to what they wanna do or what their personal circumstances are. The options are there. Some options have a three year tenure, others have a five year tenure. And the answer is that most likely, there's no way we'll be losing those options, but most likely we'll be taking up those options. I can't give you the time frame on that, but those options will you you will see some movements on that, I think, in the future. As for movement on the stock market, I can't I I can't really quote on what the stock market is doing. It's very frustrating on AIM. We put out an r and s, which is the best news we've had in in months, and the share price softens on that.

21:55 Shareholders tend to sell into the into the good news and and buy on the prospect of good news. So I'm afraid that's the nature of AIM. I can't predict what AIM is going to do. So I I really can't make a comment as to why the share price is going down. We do have some global factors happening and other other issues not related to the company. All I can do is con continue on doing the best we can developing the projects and growing the company as as best we can.

22:35 Will we be able to self fund the drills between operator and our cash flows? The answer to that is it depends a lot on the timing of the drilling. Now with the drilling, as I predict, happening in in 2024, I think we will have built up a good war chest from both the Spanish and the Italian assets. I can't answer that question for definite because it depends on what gas price we get Because we are related to the forward curve gas price, and that can go up and can go down, the answer is it's looking highly likely and very positive, but there might be a possibility to have to raise money in the future. But we're an aim listed company. There's there's no point in being aim listed if you can't raise money on the market. I know that's not what everyone wants to hear, but I'm being honest with everyone that an aimlessly company needs to turn to its shareholders for for future money if it's a value accretive event.

23:38 Now the board and myself have a desire for the share price to go up, of course.

23:45 So I I would only be recommending that to shareholders if such an acquisition or such a further activity was to ensure that we kept our share of the license and and didn't get diluted in the equity ownership of the asset, but also to ensure that we could continue to grow the company on a value accretive event. A lot of the other questions are to do with what is the share price doing and why it is going down and I can't really comment any further on that

24:29 I have said already. So one question here. What is the monthly value of gas revenues you expect, and what's the net margin you expect? I've already quoted the monthly gas revenues we expect from from Selva, and that's in the region £300,000 per month. The net margin is gonna that's gonna go up and down according to our overheads. Our overheads are very small. We we are a company which is a nonoperator, so it's a fraction of that number that needs to come off to cover overheads. So our cash flow position is going to be quite positive by year end. It's going to be about €300,000 is a conservative number based on the €30 per megawatt hour gas price that I mentioned earlier, which I expect to increase.

25:31 There doesn't look to be too much going on till Q2 twenty twenty four. We have seen 50 decline in share price over the last six months. So I am more concerned. Well, this is again, it's much related to our share price. There is fair bit going on in preparing for the permits for the drilling, and we are looking at business development opportunities. Now this is a question I've been asked by our major shareholders. So business development opportunities, what are you looking at? Over the past eighteen months, I reckon we've been in five data rooms per month. May maybe no. Three three data rooms per month for the last eighteen months.

26:16 And we've looked at a lot of opportunities, and we passed on most of them. We've bid on some and and didn't get there, but it's important not to overbid for assets when you're looking at business development. Now we have some in the pipeline, so, yes, we are looking at some. We've always been looking at that. Now whether or not those will happen and if if we do want to do that, we will ask we will ask the market for some money to do that possibly. But that's not a yes. It's not a no. It's a it's a maybe. And I'm afraid I can't really comment more than that until it actually happens. There's a question here on Hancock Energy.

27:03 Are Hancock an active partner in Spain? The answer is absolutely yes. Hancock Energy is a huge company. They bought Warigo Energy with cash, a lot of cash, they have kept much of the Warigo team in place to manage the Spanish assets for them. So what's been good about that is that as a joint venture partner in TABA ENERGY, which is a Spanish company operating plant in Spain, PROSPEX is roughly fifty fifty joint venture with Wargo, which is now owned by Hancock. And I'm talking to exactly the same people as I was before. We know them well. We get on well, and we are jointly managing all of the assets to increase the value of project Helios, the drilling of the wells, the the unsuspension of the permits, and any further activity which we see. So, yes, they are a very supportive and very good partner to have.

28:11 What caused the shares to jump so much at the end of last year? I'm gonna have to pass on that question. It'd be glib if I was to answer it. Well, people were buying lots of shares, but there was a high expectation that something else was gonna happen. I don't know what that was. The gas price, however, at the end of last year was a lot different to what it was now. Went up to some crazy numbers beyond beyond €70 per megawatt hour, which is you know, so it's 200p per therm. So I think I think that may have been a reason is at the end of last year, we had the Ukraine war affecting gas price quite significantly.

29:02 Now here's a question. If an offer for assets comes as attractive, will you be happy to sell? So I'm I'm a businessman. If somebody offers me 50 p for my asset, the answer is no. If someone offers me 50,000,000 for the asset, the answer would be yes. Now some somewhere in between, there's a number, which is a cutoff point, and that's all gonna depend on what it is. It it's a bit of a glib comment, but anything's for sale. We just need to know what the price is. So, yes, we'd be happy to sell, but it would have to be at a good value to make sure we get returns for our shareholders. Right. I haven't seen any more questions. I think you've actually covered all those questions off, Mark. And if there is anything further, we, of course, can review those, and you can put responses back to the investors post the presentation.

29:59 Perhaps, Mark, just before redirecting investors to provide their feedback, which I know is particularly important to you, just ask you for a few closing comments then on that basis. Okay. Well, thank you for listening to me, and thank you for joining the call. Let's just say, watch this space. PROSPEX, I have a plan to to grow the company, but it's not going to be grow at any cost. It'll be done in order to increase the share price generally. So I think we have a good platform here. I've had a lot of I've had a lot of investors come to me saying, right. You are now a market cap company of some £25,000,000.

30:45 It goes up and down a bit, obviously, with the share price. But we're a significant company in that we're now we have producing assets in two countries which are stable, defined stable, but in a politically stable environment where we we can predict the gas price and the electricity price. So, those are good assets to have. Would we grow? Yes. We would. Our focus is Northwest Europe, and our focus is onshore gas. So watch this space. I've enjoyed the ride. I've been at I've been at PROSPEX for just about two years next week, and it's it's been a good journey. And I've been proud to be leading this company and the team that I have with it.

31:35 So watch this space. That's fantastic. Thank you very much indeed, Mark, for updating investors today. Can I please ask investors not to close the session? It should be automatically redirected to provide your feedback in order that the marketing team can better understand your views and expectations. This will only take a few moments to complete, and that's 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 afternoon to you all.