Seascape Energy Asia (LSE:SEA) — Annual General Meeting

0:01 Good morning, ladies and gentlemen, and welcome to the Longbow Energy PLC Annual General Meeting. Throughout this meeting, attendees will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Please just simply type in your question and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your Investor Meet company dashboard, we'll send you an e mail to notify you when they're ready for your review. I'd also like

0:31 to remind you that this meeting is being recorded. I'd now like to hand over to Graham Stewart, Chairman of Longboat Energy. Good morning, sir. Good morning. Welcome, everybody, to the twenty twenty one Annual General Meeting of Longboat Energy PLC. I'm Graham Stewart, the Chairman of the Board.

0:51 Given the ongoing COVID-nineteen pandemic and the associated UK government measures, including restricted travel and prohibition on public gatherings, the AGM this year is being run as a closed meeting. I'm based in Edinburgh and so have asked my fellow director and chair of the audit committee, Catherine Rowe, to chair the formal part of the meeting where a physical presence is required. Once the formal part of the meeting is over, we will be providing a presentation of the company's recently announced acquisitions and responding to questions lodged by shareholders online. I now hand over to Catherine to take us through the formal part of the meeting. Thank you, Graham, and good morning, everybody. I'm Catherine Rowan. I have been nominated by the Board to act as chair of this year's Longboat AGM.

1:43 I'm joined in person by Nick Ingracia, corporate development director, and Julian Riddick, company secretary, and note that the meeting is now court. We are also joined by video conference by Helga Hammer, our Chief Executive Officer Brent Cheshire, our Executive Director Jonathan Cooper, our Chief Financial Officer and Joren Sietra, Executive Director. I now refer to the formal items of business set out in the notice convening the meeting dated the 06/01/2021. And with your permission, I propose to take the notice as read. Agree. As specified in the notice convening this meeting, all resolutions will take place by way of a poll rather than on a show of hands to ensure an accurate reflection of the views of shareholders and ensure the proxy votes are recognized.

2:34 Accordingly, I now call for each of the resolutions set out in the notice meeting to be decided by a vote of all shareholders through a poll, and I'm pointing Equinor, the company's registrars, to act as scrutineers. The following resolutions, one to 12 inclusive, are proposed as ordinary resolutions and require a simple majority to be passed. The first resolution to be put to the meeting as set out in the notice is to receive and adopt the audited accounts of the company for the financial period ended 12/31/2020, together with the report of the directors and the report of the auditors thereon and the auditor part of the directors' remuneration report.

3:22 The second resolution to be put to the meeting as set out in in the notice is to approve the directors' remuneration report for the financial year ended 12/31/2020. The third resolution to be put to the meeting as set out in the notice is to reappoint BDO LLP as auditors of the company to hold office until the conclusion of the next annual general meeting.

3:49 The fourth resolution to be put to the meeting as set out in the notice is to reappoint Graham Stewart as a director of the company. The sixth resolution to be put to the meeting as set out in the notice is to reappoint Helga Hammer as director of the company. The seventh resolution to be put to the meeting as set out in the notice is to reappoint as a director of the company. The eighth resolution to be put to the meeting as set out in the notice is to reappoint Nick Ingracia as the director of the company. The ninth resolution to be put to the meeting as set out in the notice is to approve the company's investing policy. The tenth resolution to be put to the meeting as set out in the notice is to adopt the rules of the co investment plan.

4:40 The eleventh resolution to be put to the meeting as set out in the notice is to authorize the directors of the company to allot shares in the company and to grant rights to subscribe for or to convert any security into shares in the company in connection with the company's founder's incentive plan to an aggregate nominal amount of 10% of the issued share capital of the company. The twelfth resolution to be put to the meeting as set out in the notice is to authorize the directors of the company to allot shares in the company and to grant rights to subscribe for or to convert any security into shares in the company subject to the maximum aggregate nominal amounts set out in the resolution itself.

5:24 Resolutions 13 to 15 inclusive are proposed as special resolutions and require a majority of not less than 75% to vote in favor of the resolution. The thirteenth resolution to be put to the meeting as set out in the notice is that the directors be empowered to allot equity securities for cash on a non preemptive basis in connection with the company's founder's incentive plan, subject to the conditions set out in the resolution itself. The fourteenth resolution to be put to the meeting as set out in the notice is that directors be empowered to allot equity securities for cash on a non preemptive basis subject to the conditions set out in the resolution itself.

6:10 The fifteenth resolution to be put to the meeting is set out in the notice is to authorize to make market purchases of its own ordinary shares subject to the conditions set out in the resolution itself. I now report the results of the poll conducted by Equiniti, which you will be able to see on your screens. I therefore declare all resolutions carried. That concludes the formal business of the meeting. The results of the meeting, including the number of votes and proxies cast, will be announced through our regulatory information service and posted on our website as as soon as practical. I now hand over to Helgehammer, who will introduce the presentation.

6:59 Thank you. Thank you, Catherine. It's a pleasure to present our first deal with Longboat this morning.

7:14 We are the ex Faro team largely at the management of Longboat and the strategy is to replicate the success of Faro. Faro was sold early in 2019 for $900,000,000

7:33 Before presenting the deals and the new assets, I'd like to remind you that with Longboat, we aim we have an ambition to be an active player in the energy transition. We commit to net zero targets by 2050 on a Scope one and two basis. And being in Norway means that we are in a country that is very forward thinking with respect to decarbonization and is already producing at record low CO2 per barrel levels. With our new assets, we are near infrastructure, we can reduce emissions per barrel produced if we are successful. And we're also in areas where many important decarbonization projects are ongoing in Norway.

8:23 So we believe these deals are a very good start also for delivery on ESG goals.

8:36 Moving on to the transactions themselves. What we have acquired is a unique multi well drilling program in Norway, which is near term and it combines low risk exploration targets with some targets with huge upsides.

8:54 We looked long and hard to find the best possible deal to get started, and we looked at production deals. We looked at auctions, and we found this outstanding new Norwegian drilling portfolio as the most value accretive proposition we could come up with, a very similar characteristic to this program as the best prospect we had in Faroe. Norway has delivered phenomenal exploration results recently with discovery rates higher than 50%. We used our excellent relationships to build this, and we've come up with three transactions that combine into this seven well program.

9:41 The plan for longboat is is unchanged. It's to build a full cycle E and P company and believe this deal is an excellent first step. It's a bespoke seven well drilling program. It's been designed by key members of the Faroe exploration team that is now available to Faroe. Two years ago, Faroe was sold for $900,000,000, and, it had 2P reserves of almost 100,000,000 barrels at the time. With this program alone, we are targeting over a 100,000,000 barrels 104,000,000 barrels, and with substantial upsides beyond that. In recent transactions in Norway, undeveloped discoveries are traded at an average of $4 per barrel, which gives a good indication of the very substantial potential value upside that we are targeting with this program.

10:37 I'll now hand over to Nick to take us through a bit more of the details on the deals.

10:47 Thank you, Helge. If we can move on to the next slide. Let me see if I can do that here. Oh. Okay. I know I'm back there. There we go. Alright. Good morning, everybody. My name is Nick Ingrasi. I'm the corporate development director here at Longboat. Why don't I start with a little bit of background around the transactions or or actually before those transactions? Then we'll get into a little bit more detail of transactions itself, along with the rationale and and and just how how all this stuff came about. So as most of you will be aware, 2020 was a very challenging year for a number of reasons. In terms of the m and a space, all of the conversations that Longboat had been having early on in the year really ground to an immediate halt as the the pandemic took hold across the world. And we saw m and a drop to twenty year lows, especially in the oil space.

11:41 When things got going again towards the end of twenty twenty and into '21, what we found was that everything was going into an auction type situation being marketed by banks or brokers, and in many of those situations, attracting absolutely top dollar. And this was not sort of something we felt was was where we wanted to be chasing transactions. Meanwhile, in Norway, we also had a situation where the tax regime had changed to support the industry during the pandemic, which meant that the discretionary capital was really being directed towards

12:19 towards developments and and moving developments through to the production phase. And what we found was that there was really nobody focused on on the exploration space whatsoever. And this was sort of our moment where we thought, well well, you know, surely this is an opportunity to create value. So what we did, as Helgen said, was we got the Xpero technical team together. And and we started sort of really, you know, combing through every area in Norway. We looked through every well that was forecast to be drilling over the next couple of years, looking at some of our own plays and even some of our own acreage. And out of that came an ability to sort of tailor drilling a portfolio, which had a balanced risk reward profile and that fit under certain selection criteria that we had set out, which I'll come on to momentarily.

13:06 Once we had that, we started knocking on doors and using our relationships that we have across Norway in order to to negotiate three bilateral discussions. And really what those what we mean by bilateral is that those these were not being marketed. This is stuff that we came up with and went directly to to the eventual sellers with. So we're very pleased to be able to to to stitch together these three deals. In terms of the acquisition cost, one of the benefits of doing this transaction in Norway is that whilst the the pretax carries, the amount that we're paying for this, we're paying a portion of the seller's cost on these wells. They're actually eligible for the Norwegian tax refund, which reduces the notional purchase price from $35,000,000 down to just under $8,000,000.

13:55 On a per perspective barrel of oil equivalent, this is only pennies, sort of 7¢ a doll a barrel. And if you look at FARO's historic finding cost around $1 a barrel, you can see that there's a potential for huge value creation in this portfolio. With regards to the deals themselves, the first deal was with Equinor. This really was a cornerstone transaction, which was multi licensed deal. Equinor is one of the most active and successful explorers in the Norwegian Continental Shelf. That transaction has five near term wells and a six well, which will be committed, we believe, later on in the year. Equinor is retaining interest in five out of the six licenses, and we think that is important because we believe this is about capital allocation, not about the attractiveness of the prospects.

14:44 The one where Equinor is exiting is Mugneton, which is down all the way in the South, the way at the bottom of that map there. And this is because they have no infrastructure in that area. So they have no owned infrastructure. And, really, this is a portfolio that is targeting incremental volumes into nearby infrastructure, as Hagar has pointed out, which is not only good from an economic perspective, but also from an ESG perspective. The second transaction was with Spirit, a private entity part owned by Sentrica. And this was quite an interesting situation where one of these licenses we identified as part of deal one with Equinor. Equinor was only willing to give us a small portion of that. We saw multi 100,000,000 barrel upside on that block and decided to use our contacts to secure an additional 20% in that license, which is called Cambezzola, which we'll come back to a little bit later.

15:35 The third transaction is with Idibitsu. This is a license that is is targeting an emerging injectite play. This is a a play that we chased as Pharaoh. We successfully formed into a a well in 2,018, a month before discovery in The UK called Agar. And we think there's an enormous amount of upside potential in that license. In terms of the selection criteria, I I think it's worthwhile picking on a couple of these. Hopefully, this slide is relatively self explanatory. But what we wanted to to point out was that we had a very deliberate selection criteria when we went looking through potential licenses to to get into. And we see one of the most important pieces of that is the is the commitment well part of it. And the way oil companies work is is that, you know, for a well to become committed within a portfolio, it means it's had to go through a a a process internally where it competes for capital against other potential prospects.

16:39 So once it becomes committed, that means that it has already gone through a winnowing process to try and get the best prospects to be drilled. For us getting into only committed wells with the exception of Copernicus, which we think will be committed later on this year, that means that we can effectively go and pick the best of the best prospects and and hopefully increase our our overall chance of success. We've also wanted material working interest in in these assets so that we have the opportunity to swap in and out of them and use them as trading chips. And we also wanted to ensure that the vendors had retained working interest in these as another one of the sort of key criteria on that list. And, again, I'll just go back to the point where we feel that that that that is because this is because of of a capital allocation rather than the attractiveness of the prospects.

17:30 In terms of the diligence that we did on this, one of the reasons why this transaction took so long to announce is that we really did a a very significant deep dive on the technical side of things. So we had access to management presentations, to virtual data rooms. We had access to SEASMIC. We had our own technical team crawling all over it, as well as an independent technical team from ERCE who eventually produced the the CPR that's available in the AIM admission document and who were involved from day one in this. And we really wanted to make sure since this is a very technical acquisition, we wanted to make sure that we were very comfortable with the risks and the volumes that we were pursuing. In terms of the drilling campaign, this slide shows the anticipated order of drilling for these wells. We believe that there's up to four wells of these drilling before the end of the year, giving significant catalysts for value creation the near term. The first well, we believe, will be Egyptian Vulture, followed shortly thereafter by Rut Hatta. And I think Hugo will go through some of these wells in detail. I think one of the important things to pick out of this slide is the fact that that all of the rigs are either for the committed wells are are are either booked or identified.

18:56 And, again, I think that's important to for people to understand that this portfolio is drilling. This is not an exploration portfolio. It is really a a drilling portfolio. So we know this stuff is going to occur, which I think is very, very important. I think it's also important to know that all this is with tier one operators. So these are all, substantial businesses, in Norway, and we want to align ourselves with those substantial businesses. Perhaps back to you, Helga, to go through some of the exploration wells. Thank you. Thank you, Nick. Yeah. So here here's an overview map. I think the point to make here is that these these are all located in areas that we know very well from before. We worked we worked them all during the years.

19:43 They are all independent targets. None of them rely on the result of another. And they are all near field targets. So they all are near infrastructure, which means they can be developed at low cost. We can commercialize them because there are big players in infrastructure that would be interested. And they're also good from an ESG point of view. Let's have a look at the individual and I will talk you through them. The first one is Egyptian Vulture operated by Equinor and spreading in q three. So this one is coming quickly. It's a large target. So just this one has the potential to make a big difference.

20:29 It's in an area where we made multiple discoveries when we were in Faroe, wells like Maria, Vogelberg, Iris Hades are nearby. And here you have something that has become visible on long offset new seismic, a a a channel running through Cretaceous with a high high chance of success. The next one, Roadheta. It's in the Barents Sea, but this is not in the frontier part. Many people think of the Barents Sea as a frontier exploration region, which it is, but it also has infrastructure. This is next to a field called Goliath.

21:17 And in this case, there is a gas cap, gas accumulation which is visible on seismic. And what we're chasing here is the oil rim sitting under the gas cap, which can be connected into Goliath if we find commercial volumes. Again, a prospect that has low exploration risk, high chance of success, operated by Vor Energy, which is the combination of ENI and Hitec Vision. We then have a well called GINI. GINI Hermione. Hermione is a second secondary target.

22:03 This one is also in an area that we worked very hard in Faroe. It's in the Newell and Drogon area in in a similar setting as the Peel discovery that we made. And there is a discovery just next door, which is called Galtvot, which helps to reduce the risk on this target. And this one is expected to spud in the autumn as well. Then we have we're moving on to Kvaische. Kvaische is in a very prolific area in Norway between giant oil fields like Gullfox and has the Troll Gas Field to the South, Gullfox and Stadtfjord to the North.

22:59 And this is very exciting. It has extremely high chance of success. It has a a seismic alarm anomaly on on long offset seismic that is is sorry. The presentation disappeared. Here it is. Came back. Yeah. So that one is operated by Equinor and expected to spud towards the end of the year. Then we have another well, which is also expected to spud towards the end of the year. So all these wells are coming very quickly one after the other. This is called Mugenotin. It's in the Ula area. Also a DHI, strong anomaly.

23:45 Most of the, accumulation in this area are oil filled. This is one of the few undrilled ones and can be connected into Ula field if it's a discovery or to UK fields like J Block or Shear. Yeah. And and and there are several piers, etcetera. And then we have a well called Cambozola, which is not that far from Croatia, but it's a different exploration play. This is, the Cretaceous. Similarly to Egyptian vulture, it's it's offset new high quality seismic, which allows imaging of channels channels and fans in Cretaceous combined with gas chimneys makes it very, very exciting. And also when you look at the potential size here, very substantial.

24:45 And finding these type of volumes just next to platforms can be extremely valuable. And then the last one in the program is called Copernicus. That one is next to Osterhansen, so quite far north in the Norwegian Sea. It's it has a DHI, direct hydrocarbon indicator, which is a term used when you can have strong evidence of hydrocarbons on seismic data. So exciting. This one has not been committed to it's the only one that has not been committed to yet, but commitment decision is expected in early September on this one.

25:33 That that's kind of a a quick look at the individual wells. I'll hand over to to John to take us through a few slides on the financials. Thanks, Helga. Longbow's got a good supportive institutional shareholder base. They were the the the people that backed this management team at FARO, and they were very supportive of of these these transactions. And these transactions will fully fund Longboat through the initial drilling program. So, you know, pleased with the way that the the transactions were received and supported.

26:20 In terms of how does it work in Norway, I'm sure most people are are familiar, but excuse me for repeating. We along with the equity, we signed an exploration finance facility with two banks, SR and ING. An exploration finance facility, as you can see in the diagram, basically, is a facility where the banks lend you to sort of 95% of the government's 78% cash tax rebate. So you spend in year one, you spend a 100, you get 78 back at the end of year two. And the exploration finance facility allows you, as you spend your 100, to call on the banks to to fund that, and their security is they get the cash rebate direct from the Norwegian government or or 95% of it.

27:13 We've put this facility in place. It's yeah. We will draw on it in 2022 and 2023. And as you're aware, there was some very favorable changes to the tax regime in Norway in 2020 and 2021 to support the offshore industry, and we have been using those in 2020. Although we don't own oil and gas assets, we get 78% of our our losses back for 2020 because we've been spending money, diligencing oil and gas deals. And for 2021, we will get, 78% of our losses back in cash and through the negative tax installments. These are the tax installments where you estimate your loss for you the year. You get paid three installments back at the back end of that year to I 2021.

28:01 You put in a your actual numbers at the end of December or after the the year end close, and you then get paid the balance of payments out for 2021 in in the first half of twenty twenty two. So a very supportive regime for the for the oil and gas industry. And, yeah, this slide really sort of sums up the if you like, how how supportive that is. You know, our initial exploration cost approximately £40,000,000 for the for the wells. You've got carriers of 25,000,000. You've got seismic costs you'll need to pay, which will have to be negotiated with seismic contractors come out of the woodwork and and wanna negotiate their their amounts.

28:54 There is a to prequalify, which is the there's an asset holder, which is the remaining CP, which we're on our way to fulfilling. You have to have a team of geologists and geophysicists, And, you know, the government wants you to have the right qualifications and the right health and safety. After all, they are investing effectively alongside you with 78% of their money on on a world by world basis. And as you can see in the in the in the sources, you can see the equity raise, you know, we estimate covers 34% of the sort of the the the the costs and the exploration finance facility and the the the tax rebates that will effectively get the exploration finance facility in the short term and the tax rebates in the long term cover 66% of the cost. So a very effective way to spend exploration money in Norway, and it's why you do still see private equity looking at exploration in Norway where it doesn't look at it any anywhere else. That's not just the financing.

29:55 It's also that the the regime is or or the the the shelf is not as mature in terms of having drilled out its prospects. So that's it on the financing. Back to you, Helga. Thank you. And, yeah, just to summarize, I mean, we're very excited about this first deal for Longboat. I mean, three takeaways. I mean, this is an outstanding portfolio. It's it's it's a drilling program that combines some low risk wells with, with huge upsides, and it's all in the near term. Secondly, we are in Norway, so we're in a in a an industry that is performing very well, where exploration success rates are very, very high.

30:46 The tax regime is favorable and a good place to be to deliver on ESG performance. And finally, I mean, we are replicating Faroe. That's what we set out to do. And I believe this is an excellent first step on that route. So that's and I think we then move on to questions. And I will I think I'll move straight into that. We have received some questions before beforehand. A number of questions that were also posted on Monday's general meetings asking if the exploration farm ins rather than production acquisition represent the change in strategy and if there are still plans to acquire production.

31:42 I I don't plan to repeat the answers. Please note that they are available on the investor meet company platform under the general meeting Q and A tab. Then I'll move on to a question. We have a suggestion from Emily that the introduction of market based salaries for the directors as flagged in the remuneration report and admission document should be deferred and made subject to performance. I'd like to hand over to Catherine to answer that as a member of the Remuneration Committee. Thank you, Helga. Yes, I mean, first, let me confirm that the Remuneration Committee and, actually, all of our directors believe in the importance of including a really strong performance in the executive remuneration packages.

32:33 But having said that, it would be quite unusual to to make base salaries conditional upon performance. We see that much more in the in the other parts of the remuneration packages. But we have considered we did consider as part of this process whether to to defer the increase in salary and concluded that that that salaries are conservative. And secondly, that actually, given the increased responsibilities that are assumed by the executive directors now that the company is operational, it would be fair to honor prior commitments to to increase the base salaries now. Also worth noting that the remuneration committee did seek independent remuneration advice and have performed detailed benchmarking and the output of which are that our salaries are around the mean for both size and sector peer groups that we looked at.

33:27 Thank you, Catherine. We have a question asking why the company raised funds at such a low price which private investors were not happy with. To answer, whilst there are exceptions, typically when a company undertakes a major share placing for cash, you would expect the shares to be issued at the discount to the Dan share price. We have also received a number of questions on the same, namely why we haven't secured a cash generating production asset, if the market is more competitive than we thought in 2019 and if shareholders can expect a production acquisition.

34:14 Whilst we will post answer to these individual questions to avoid repetition, I regrouped them together for this meeting. At the end of twenty nineteen, we were in two processes, which were pulled when the pandemic started and the oil price dropped. After a period with almost no transactions, m and a activity began to pick up, but all through highly competitive auction processes. We participated in several of these during the past year and we'll continue to look at production acquisition opportunities, ideally on a bilateral basis. However, we will only do deals that we believe they are value accretive to our shareholders. While we're not in other process at the present, we have begun to refresh our list of attractive targets and we are very keen to move on to the next transactions.

35:11 If you view these initial acquisition decisions as step one, collectively a value driven opportunistic transaction. We intend to leverage future drilling success and continue to target production and our firm development to build a balanced portfolio, but only on the right terms. We have also received questions on what happens if all the expiration works failed, if there is a backup plan, or is the company now totally dependent on their success. As stated in the admission document, if our exploration activities prove to be consistently unsuccessful, the value of the exploration licenses will be diminished, and it will have a material adverse impact on the company.

36:04 However, it is not management intention to stand still and let the exploration portfolio drill out. As we have stated, it is our aim to build a full cycle company. We will look to acquire production assets independent of exploration success and swaps and are very keen to move on to the next transaction. But any acquisition or production has to be on the right terms. We've also received one question during the meeting from Dominic S. You know when Egyptian voucher is likely to spud roughly which month as we are just about to enter q three.

36:51 And, I can inform you that the expected spread date for Egyptian voucher is currently in the first days of September. But that can move forward and backward because it depends on the rig. Rig is the West Hercules, which is in The UK, and need to complete the drilling operation there before it goes on to Egyptian Vulture. If there are any any further questions, we will we will answer them on the investor meet platform. And I now hand over to Mark to complete That's great. Helga, thank you very much. And indeed, thank you to the rest of the Board from Longboat Energy.

37:43 I'd like to thank investors for attending today's session. Could I please ask you not to close the session as we will now automatically redirect you to the opportunity to provide feedback in order that the company can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly appreciated by the company. On behalf of the Board of Longboat Energy PLC, we'd like to thank you very much for attending this morning's presentation and meeting. That now concludes today's session. Good morning to you all.