Seascape Energy Asia (LSE:SEA) — Interim Results

0:02 Good afternoon, ladies and gentlemen, and welcome to the Longbow Energy PLC Interim Results Investor Presentation. Throughout this presentation, investors 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 received during the meeting itself. However, the company will review questions submitted today and publish responses where it's appropriate to do so. We'll notify you when these are available for your review. I'd also like to remind you that this

0:33 presentation is being recorded. Before we begin, we'd like to submit the following poll. And if you'd be so kind as to give that your attention, we would be most grateful. And I'd now like to hand over to Nick Ingracia, Jonathan Cooper and Helga Hammer from Longbow Energy. Good afternoon to you all. Good afternoon. Thanks a lot for the introduction. We have made big progress with Longboat since we spoke last. Back on June 1, we announced three transactions in parallel. We had done deals with Equinor, Idemitsu and Spirit, and we had used an opportunity to build an exploration program, seven wells, in in a market where we could really pick key key prospects, and we had built a bespoke program of seven wells.

1:34 And and we then went ahead and successfully funded that program in an equity issue, and we combined that with an exploration finance facility. So we're fully funded for that program of seven near field wells, near also in time and combining some low risk targets with some very big and very significant upside potentials.

2:09 And also important observation today, gas weighted portfolio in this market. Since we announced and financed, we have made very good progress, and we have delivered the completion of these deals on the August 31. We have all the credentials, all the approvals from the Norwegian authorities, and we have entered the licenses in as as a fully worthy licensee and an active player. And and also, as as you will have seen, two of the wells have already spud, and a third one is to spud in the next few weeks. So with that, I will hand over to John on a little wrap up on the financial side.

3:04 Thanks, Helga. The I mean, pretty simple set of results for the half year. We had £38,700,000 of cash and no debt. That was following our fund raise where we raised £2,500,000 net, and that was pre the receipt of our first negative tax installment of $5,800,000 from the Norwegian government for the year 2021.

3:30 Operating loss of $1,500,000 We had income net income of or tax income of $600,000 negative tax installments rate related to 2022 that were confirmed in that's rate related to 2020 that were confirmed in 2021. So a loss for the period of $900,000 So if we move on to the next slide, there have been some proposed tax changes in Norway. And it's given that these are playing out in the Norwegian press, it's probably better if you run this through those, Helga, and I'll pick up at the end of this slide. I can provide a bit of background. The like I say, the the the tax system in Norway that we have been running with for a long time was introduced in 2005 where the exploration tax refund was introduced, which has been highly successful. You know, it has opened up for independent players.

4:28 Federal Petroleum was one of the most successful players in that in that tax regime and and drilled a whole lot of exploration wells. And for Norwegian state as well, it has been very successful. A lot of discoveries have been made, and last few years have been fantastic in terms of exploration results. The, the COVID situation, became very dramatic when the oil price also crashed and, became a big worry. And Norwegian authorities responded with a temporary tax relief package, which will maybe and and has been criticized by politician as being too too favorable for the oil industry. The it it involved these negative tax installments, which we benefit from now.

5:18 So we had expected that when the temporary situation was come to an end that we will revert to that system we had. But, unexpectedly, this proposal has been made, and and I think the background is that we, is this criticism that has been. So what we what we get is instead of a 78% tax refund of all exploration funds or exploration spend, we get 71.8% of all costs or losses we make. So it's a it's a smaller refund on a bigger cost basis. So this is actually favorable,

6:07 a little bit less favorable for pure exploration spend, but more favorable for a growing business that also will be involved in developments and production. The couple of things that we are keeping a very close eye on is the pledge. Pledge means you can take security in in the tax refund, which is important for the bank. The authorities have already indicated that they will allow this pledge to be carried into this new system, which has been already in place for the expiration tax refund. The other key factor for us is that we get some sort of transition period here, and and that way there's a consultation period ongoing. We are leading a group of companies in that process, and we'll we'll we'll do our best to make sure this becomes a smooth transition.

7:01 I'll hand over to John for a couple of examples of what this means for us. Okay. So thanks, Hagar. If we look at the the diagram on the on the on the left hand side of the page, if you assumed you had an expenditure of 100 in in any in a in a given year, and that was, say, split up split 90 on exploration, 10 on corporate. Your rebate would be historically would have been on the exploration spend at 78%. So 78% at 90 is 70.

7:34 Historically, you can get some of your corporate costs, your Norwegian corporate costs, particularly if you're an explorer, through as exploration. And that can be as much as 50 or twothree. In this example, the 5% represents twothree of your corporate costs being allowed at 78%, and that gives you a sort of a, under the existing regime, you get 75% back. Under the new regime, you're going get 71.8% back because it's 71.8% of the whole 100 on a broader cost base. So this is you're marginally worse off when you're in the exploration phase.

8:21 We were pretty cautious when we ran our working capital models about how much of the corporate rebate we would be allowed. So actually, in our sort of modeling, it's the result is dampened even further. In terms of the developer, for subsea tieback, you would see on the diagram on the right hand side, you'd see $1 per barrel going from the dark blue at $4.7 up fractionally to sort of 4.8. Yeah. This is this regime is allowing you rather now than having tax losses carried forward and an uplift that you get back over six years, you're now getting 78%. It's moving to a cash based system, so you would get relief on this 71.8%, you know, when you spend it. So it's not these changes are not dramatic, and I think it allows, yeah, it allows to sort of the government to say it's not supporting exploration while actually not kicking it in the teeth either. So I think these will be okay provided they're they're brought in a sensible manner and that the pledge still exists and we manage the timing. And then therefore, we should be able to amend our exploration finance facility in line with the changes.

9:44 So back over to you, Halger. Thank thanks, John. So moving from the tax change, just to remind me, this is a proposal, just so you're aware of that. So it needs it needs to be sanctioned in parliament, to likely to happen in the spring. So until that time, we are we are still in the existing system. The moving on to an update on the the actual program. Here, we're looking at a the map of Norwegian coast and the location of these wells. And I think the the key the key messages here is that these are all kind of independent. You see they are spread from the Barents Sea in the North to the Southern North Sea, Norwegian North Sea.

10:35 They are all independent, and they are all in areas that we have intimate knowledge of. So we all kind of we built a portfolio in areas that we know on well targets that we know, and they're all near field targets, which is really important. They're all opportunities that can be produced into existing infrastructure and existing platforms. It's a very gas weighted portfolio, which we also think is the right thing to do in this current environment, where both from a market point of view and with increased focus on energy transition.

11:23 If we look on this slide here, which shows the drilling schedule, just to give you an update on what has happened since the equity raise, the the the well the wells are all the same. So having entered entered the licenses, we look at the data. We look at the prospects. We look at the drilling locations. Look at the data acquisition. None none of that has has kind of show have have kind of generated any surprises. So the wells are the same wells as we presented in in the fundraise, so they're all they're all looking very good still. The the the two what what does happen what does change is the is the schedule because drilling rigs, arrive. When they arrive, they have to finish what they do, on previous well locations. So Egyptian Vulture, we thought would spud in in July.

12:22 That had some delays on the previous well and, therefore, was delayed, but that has that's all history. So that's that's behind us. The, well has has arrived and has spud, and it's drilling away. Rohde Heta, second one, came almost on time, has also started drilling. And both these wells, Egyptian, Voltur and Rohde, are typically six to eight week wells. And by six to eight week, I mean time from the start until we are likely to present conclusive results and hence can make announcements.

13:08 The next well on the program will be Mugnitind. We thought Mugnetind would be towards end of the year. Mugnetind will spud pretty soon. The rig is jack up rig. It's on Eva Rosen facility, waiting for a weather window. The swell has to come down. Once that has happened, it will it will move to our location and and jack up and then start drilling. So that could be one week away or two weeks away, something like that. Then we have Ginnie, her mine, which where there has been a swap of rig slots. So that one is now looking to spud in December.

13:55 Then we have two wells operated by Equinor in the first half of next year, Crete and Kambosola. They were an they were they didn't have rates when we did the fundraise, but they now have the deep sea Stavanger drilling rig allocated to them. There that rig is with Lundin, and Lundin has some options. So depending on how many of these options they exercise, the rig will arrive currently expected around second second quarter of next year. And the final well, the Copernicus was uncommitted at the time of of of fundraise.

14:45 It has now been committed before this the deadline, which was September 1. And, Polish operator, is currently acquiring a site survey and we'll be looking to take a rig on contract to to drill that well in in the summer of next year. So that's an update on on kind of what what has happened since last. If we just a little reminder now of these three wells that are will be drilling very soon. Redhead, that's a near field target to the Goliath field.

15:31 Is the the operator. Is the what used to be ENI in a com combined with High-tech Vision private equity company. They are the operator of Goliath,

15:45 and they are the operator of Roadhat. And the drilling of Roadhat is is timed to fit with being backfill of of Goliath production. So hopefully that well, if it make we make a discovery, will be developed very quickly as as a satellite to Goliath. What the the target itself is a rotated four block with a gas cap. Look looks like very likely to be a gas cap on seismic, and one of the key or the key driver, the key key objective of the well is to find a a an oil rim under that gas cap.

16:27 The next well, Egyptian vulture, very significant volumes, 100,000,000 at net 15 to us if it comes in on expect on expectation. If it comes in on upside, it's even bigger. 25% chance of success is from the competent person report. I mean, we we believe it's better than that. We with when we were in Faroe, we worked intimately in this area and made many of the discoveries around here. And from what we we the way we evaluated, this is a a good chance of success. It's what we're exploring for is a Cretaceous sands, channel sands sitting in the Grindelgraven, where we expect thicker sands than what you have in the in the West, I mean, to the East.

17:24 This could be blending gas. Key issue for Equinor is that they have too much c o two in the gas for the for the for the marketing.

17:33 And if this comes in, can we can we put into the platform quickly to to support the the branding issue? So, again, I think if we make a discovery, commercialization, it could be it's looking good for for a good commercial solution. And then those are the two that are drilling, and then this one is the one that is supposed to spur. It's the Mugnatin. Mugnatin is in a very prolific area in the Southern Norwegian North Sea. You have a lot of oil fields there like Ula and Gida and Echofisk. And on The UK side, you have a lot of fields, like J Fields and Pearce. And so plenty of tieback opportunities if this is a discovery.

18:19 I mean, even without seismic, there's a good chance of success because most of the deep closures in this area are oil filled. And and this one also has strong seismic anomalies, so so it makes chance of success even better. So over 50% chance of success very high has very low risk well for being exploration. Plenty of commercialization opportunities.

18:51 So another one to to look forward to. A lot of excitement and and interesting times ahead. November will be a key month. I'll hand over to to to Nick to give us a little update on on M and A activity.

19:11 Thank you very much, Helga. So why don't I just run through what's going on in the first half of the year, look forward to the second half of the year and then maybe sort of talk about what that might mean for Longboat. So the first half of the year, we really saw an m and a market that was dominated by private buyers. When I say private buyers, it's primarily private equity. They accounted for a vast majority of the transactions that occurred, and those transactions were primarily in The UK. These are large transactions such as Exxon UK getting sold for for a billion dollars. And there was very, very few production deals done in Norway.

19:51 There was the the lime purchase of Repsol stake in in a field called Braga, and they were, again, a small private business. What we did see interestingly were a number of stalled or failed transactions in the market,

20:07 and those kind of fell into two different categories. The first category is the ultra mature assets or assets that are close to the end of their life, which have significant liabilities ahead of them to decommission and remove infrastructure and to plug wells. And oftentimes, you find it's very difficult for buyers and sellers to agree how those liabilities should be divided and where the risk should sit. So I believe that was a big impediment towards a lot of transactions happening. And at the other end of the spectrum, what we saw were, especially in The UK, a number of potential developments that were looking to be sold or partially sold also stalled, as the regulator in The UK, the OGA, really slowed down its, approval process, for new fields as it tries to to understand some of the political messages being delivered The UK at the moment with regards to the, development of indigenous resource.

21:05 So that caused a lot of uncertainty, and that uncertainty, usually means, you know, deals, end up failing. So as we look forward into the second half of this year, you know, we believe we're gonna see much the same. The market is really being dominated by auctions for large portfolios, a number of which are in the press and and examples are are given there, and that these will be largely pursued and and acquired by, private private equity buyers, oftentimes, using, reasonable amounts of leverage, to make the returns work on these transactions. In terms of sort of mid market deals in the sort of several $100,000,000 space, I think that could be good news as we could see a lot less competition, a lot less people looking at those sorts of transactions.

21:55 And so that could prove an interesting opportunity set depending on on what assets and come up on on what they look like. There are several private equity backed companies. Again, some of them have been in the press recently coming to maturities. These are investments that were made in in sort of two thousand fifteen, sixteen, seventeen.

22:16 And as those come to maturity and and private equity looks to exit, it could be interesting to see how and where that manifests itself either through corporate sales, or through asset sales in different areas. The other thing, as a kind of a potential wildcard, is is how the the Norwegian tax regime could create opportunities along the value chain, to the extent as as John and and Helga have described. The the the tax regime encourages development and makes the financing of developments easier. There could be a real opportunity, to pick up, some of these, assets that are perhaps underappreciated at the moment and and like to benefit from the changes to that tax, regime.

23:03 In terms of what does that mean for for us, well, you know, Longboat has been very successful in building up some great momentum, during the first half of the year. And we have certainly noticed a a major difference in the way, that we are approached and addressed in the market following having done the the three transactions, an equity raise, a debt raise, and then, completing, these acquisitions and becoming a fully qualified company in Norway. And we're already sort of seeing, the benefits from that and how we sort of approach and our approach for for different opportunities. And we'll be looking to continue that momentum and build on it as we drive this towards being a full cycle North Sea E and P company. Back to you, Hug.

23:50 Thanks, Nick. Yeah. So the to summarize,

23:57 so Longboat was created to replicate what Ferro did. Ferro Petroleum was sold back in early twenty nineteen for $900,000,000. It was built very much with exploration and m and a. The way we started Longboat is kind of a big step to what Faroe did. So we are it took Faroe many years to, you know, be in a position to drill seven wells within a short time frame. We are we are there already. So this is a bespoke program. We pick these wells, and and the wells are all gonna be drilling in in in the next eighteen months. This is all in Norway.

24:43 It's all near field. It's all, say, in a good setting from an ESG point of view. So with that, I will finish off this presentation and and open up for for q and a. That's great, Helga, Jonathan, Nick. Thank you very much indeed for updating investors this afternoon. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. But just while the company takes a few moments to submit to review those questions submitted already, 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, will be accessible via your Investor Meet company dashboard, and we'll send you an e mail when it's ready for your review. I'd also like to remind you that your feedback is important to the company. And immediately, when this presentation has ended, we'll redirect you in order that you can provide the company with your views and expectations.

25:36 Helga, Jonathan, Nick, obviously, had the ability to pre submit questions, and we received a number ahead of today's event. A couple of the same nature and a couple are unique in their own right. So perhaps if I could start off with the first one, which really talks about acquisitions. It references the fact that the company intends to capitalize on momentum to continue to pursue the value accretive acquisitions. You mentioned this in the RNS dated the July 26. Has any progress been made on any other opportunities? Or Longboat currently involved in any other processes to acquire more assets? One for you, Nick. Thank you, Olga. Look. We cannot comment on on current processes. What I can say is that we are we are active in the market. We know you know, we all have been involved in the market for a very long time in various guises.

26:30 And so we sort of we keep a very close eye on everything that's going on. If you look at FARO, it was grown, both through a combination of organic, and inorganic growth. So so kind of discoveries and exploration, as well as, through transactions. And indeed, sometimes those two things merged using, discoveries as a currency for for growing the business. So, look, we we remain actively pursuing and looking at, all sorts of different opportunities across the value chain. Transactions invariably take longer than people assume they take. And so, but we will con continue to do that. We are very value driven people. Collectively, the management team is, our big shareholders in the business, and we would only do things that we think are really value accretive to the business.

27:16 And and so, you know, we often take sort of some time to find the right things. And and, you know, we feel that, you know, we managed to do that the first half of the year, finding some assets that that were underappreciated, and we're continuing to seek stuff like that now. That's great. I think I'm under underappreciated as people were not focusing on this this part of the life cycle, for sure. Just turning on to the next question. Longboat seems to have recruited a large number of additional employees in recent months. How much technical input have the Longboat team had in the location of the wells for the seven well exploration program? And were the well locations selected by the operators prior to Longboat's involvement?

28:06 In terms of the first question, I mean, we have a team of 12 staff in Stavanger and four staff in London from October 1 that completes the recruitment for at at least with the current portfolio and the current kind of size of the business. That's a lean setup. It's a highly competent team. Extremely pleased to have recruited some really, really good people, which is absolutely essential to deliver success with Longboat. The in terms of impact, I mean, these three wells that we're drilling at the moment, they were planned before we enter the license.

28:55 So we haven't had much impact on location or or or the plans for those wells. But but that said, we also don't have any disagreement with those well. Though those wells are are drilled in in in good spots and have good a good justification, good also good plans for data acquisition and and and follow-up contingencies. So they they they all we're we're all in agreement with those. On the next wells, we do actually have already a very active role in those. It's not so much about the size of the company and the size of your equity position.

29:46 It's a lot more to do with having done your homework, having a competent view on on on issues, and and we do. So we we we do have a some geologists and geophysicists that are extremely experienced. So so we are already kind of very actively in dialogue with the operators and the partners about optimizing well locations and and follow-up plans and what have you. And I think the only thing to add is we didn't just suddenly it wasn't the finance director choosing where to put these wells. It was we were, you know, it wasn't we were using technical staff that we'd worked with previously who were working as consultants for us prior to, you know, securing people into permanent positions.

30:35 That's right. And and and and just so that's understood, I mean, the the need to have permanent positions and a permanent is is our choice because it's a good way, and it's a good way to be organized, but it's also a requirement in a Norwegian petroleum legislation to have a certain technical competence in house. Thank you very much indeed, guys. Coming to the kind of final presubmitted question, it's actually more of a, I guess, more of a statement for your comment, really. And it really relates to the promotion of the company to the market. It says Longboat is a highly underpromoted stock. It goes on to really reference the fact that if you're not promoting, what impact does that have on, I guess, liquidity and overall confidence.

31:21 The submitter of the question goes on to say that I've stayed on the sidelines, and I'm not actually a shareholder as a result. However, and others I know would love to invest if we knew the concerns over lack of promotion are going to be addressed. So I think it's really about engagement, how you see that moving forward, particularly with the market at this particular end. Yeah. I I okay. I I I hear what is what is said, but, I mean, we we we announce when we have announcements to make. We we are a publicly listed company. We we can't kind of overpromote anything. We we have to we when we drill when we drill these wells and the drilling results will will come, we will we will announce them. And and, you know, value will come through.

32:17 So whether we I think a bit social Yeah. Think I don't know if you guys have any comments. I think a bit of this a bit of it is, you know, with MiFID two, it's the lack of access for to the extent there are any analysts still covering the oil and gas sector and the number has dwindled a lot. But I think one of the real downsides that the government didn't think about with MiFID II was access to research. And I think, you know, one of the things that we could do is, you know, potentially get some paid for research that then we can circulate. But, you know, the the problem with doing that is it's, you know, we have paid for the research. So, you know, once we have a last time dependent, you pay for it. But, you know, it's something we could do to get some more information out there on on the way to value it and and to look at it. But, know, there's plenty of upside here, but, you know, we're a public company. We have to be responsible, and we have to, you know, group as as I hope it says, when we when we have news, we announce it. I I think I think just just to say that we share we share the frustration. You know? We share the frustration of of of not having a higher share price, obviously.

33:22 But it is what it is. I mean, we can we all we can do is continue to build a good business and do the right things and tell the world every time we do. But but, you know, people say hydrogen are windmills, and they get all excited about it. The the the thing is it it will a real value always come through in the end. So I think all we can say is I think what we're doing is extremely value accretive activities that will play out. So hold your breath, and and and things will happen. And and to pick up on what Helga says, you know, we are supportive. You know, we're not We're not worried about the energy transition. After all these resources decline every year, once they're on production, they are finite.

34:10 We support the energy transition, but we are targeting with this portfolio that we've built. We're targeting predominantly targeting gas. It is the it's going to drive and support the transition. It's cleaner than many of the hydrocarbons. And while we work out how to deal with the intermittency of wind turbines and how to store it and the feasibilities of hydrogen. Hydrogen will play a role in things going forward, but it won't play as many roles as some of our ministers think it will. We need some gas for twenty or thirty years to fuel to help us fuel the transitions. The reality is we need a lot of energy from a lot of different places. And this, maybe part of the drag is that being a traditional energy supplier isn't that popular. But we've seen some movements in gas price recently, which have got people's attention. I think we'll see some developments on the grid this winter that will get people's attention, and that won't be for good reasons.

35:16 Most of The U. K. Imported gas comes from Norway. It's very, very important for the next twenty years, thirty years. And that's what we're aiming to help with that and play our role in the transition, albeit from a traditional perspective. Thanks very much, guys. Okay. So that deals with really the pre submitted questions, and I did take the liberty of merging a couple just given the length of them. So thank you to those investors that took the time to submit those questions ahead of today's event. We've had a couple of questions submitted during the live event, one of which Nick kindly answered, which was how much of the company do management own, which was four percent, around 4%. And I think there's just one further question in there. I don't know if you guys can access that on the Q and A tab. And if indeed it's appropriate to answer, I'll hand back to you before, obviously, we look to wrap up and then direct investors to provide you some feedback.

36:06 Yeah. Yeah. There's a question here. Do you foresee the need for further funding in the short term? I think, John, you're best placed to answer that one. I think it depends on how on, yeah, Nick's working hard on digging. Yeah. If the wells come in on if the wells are drilled on budget with success, we are funded, we believe, for that. Now look, if there are if every well comes in and every well suddenly decides it needs an appraisal well, then we will need additional funding. We need to also deal with these tax changes and secure our working capital facility and amend our working capital facility. But yes, I think the big question is, are you going to the big question we're all asking is, you coming back with a production acquisition anytime soon? But I think that they we've seen very little really this year in terms of things our size print that we would want to be involved with. We're working very hard. We're trying not to participate or win auctions because that's a bit of a curse, so we're looking at those.

37:14 Nick's working very hard. If he comes up with something, then of course, we will take it to our shareholders to see what they think of it as well as if it's got the capacity to be debt financed, put debt financing in it. So I think it's it very much depends on our M and A success. Jonathan, thank you so much indeed and to both Helga and to Nick. It looks like you've taken pretty much the work. You have taken every single question that's been thrown at us this afternoon. So there aren't any further questions at this point. So it might be an opportune time perhaps for me, Helga, to hand back to you for a few closing comments. I'll then redirect investors to provide you with their feedback. Thank you. Yes. No, I think just to close off, I mean, we are very much on track with our plans and our strategy here and looking very much forward to the next few months these wells.

38:13 And then hope to come back to you with some really positive results. And and then next step would be from a from a better position and a higher price. We just keep our fingers crossed and see what happens. That's great. Helga, Jonathan, Nick, thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of Longbow Energy PLC, we'd like to thank you very much for attending today's presentation. That now concludes today's session. Good afternoon to you all. Thank you once again.

39:01 Thank you.