Afentra (LSE:AET) — Investor Presentation

0:01 Good morning, and welcome to the AFENTRA PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be reached at any time by the q and a tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it received during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Paul McDade, CEO. Good morning to you, sir.

0:33 Thank you. Good morning, everyone. And firstly, thanks for taking the time to join us on this audio cast. We're very pleased to have announced this morning the resumption in trading of AFENTRA shares with the publication of the admission document. My my main aim during this presentation is gonna be to try and achieve three things, kinda reflect on the basis in which we sell AFENTRA just over a year ago and the progress we've made, provide you with an overview of the transactions and our financing and the steps to get to completion, and then briefly touch upon our optimism for the future of AFENTRA. I will leave you to read the disclaimer at your leisure. So setting up AFENTRA. We we set up AFENTRA on the basis of some very simple principles, which we set out in around about May last year.

1:25 One, the global energy transition will take time and hydrocarbons will be a critical element. We need therefore, need to ensure that what is produced will be done in a responsible manner. We need to balance the social impact of the transition, not just the climate impact. And we saw the opportunity to start AFENTRA based on these principles to create value for our shareholders. I think you hopefully agree with me that as we look at these principles again, the global energy situation makes them more relevant today than they were a year ago. At the time, we clearly set out what we saw as the opportunity in Africa as an industrial transition.

2:12 As we see in the Gulf Of Mexico a long time ago and more recently in the North Sea, as assets mature and they get transferred from the larger companies to smaller independents, we we saw that happening as we move forward over the coming decade or two within Africa. So that was one part of the opportunity. And and really how important those assets are for the countries in Africa and to their economy. In terms of AFENTRA's kind of proposition to take on that opportunity, our backgrounds were a very strong well, provided us with a very strong network in the region. We have a deep network in our industry.

2:59 We know the region well, and we're we're familiar with the region. And most importantly for me, we we sit with very strong values and especially in respect of ESG. So we consider that through AFENTRA, we could deliver value for all of our stakeholders, not not just our shareholders, but all stakeholders involved in in these assets. So what we've done? So in just over a year, we've delivered a firm foundation based on an experienced team and a very robust governance framework. I think the very clear strategic focus and discipline that we set out with has allowed a small team. We are we are only nine people at the moment to very efficiently identify and review many opportunities in in the region.

3:48 And this has resulted in us being here today to talk about us successfully identifying, securing, and financing our first acquisitions in in Angola. And as I will state later, you know, in parallel, we continue to identify and pursue further opportunities. So let let me move on to the acquisitions themselves and and first talk about Angola. So Angola, as you would have expected, given our strategy and our focus was our key target country for us. It's one of Africa's largest producers. So we're actually very pleased that that is the location of our first deal. The opportunity set in Angola is extensive, and we consider many assets unlikely to change hands over the coming years.

4:38 But what I'd say most importantly is that Angola company has a government, a regulator and a national company that sees the need for smaller investors to fill the gap as IOCs gradually divest their assets. And again, I repeat that. It's something that those of you who are familiar with the North Sea have seen over the last I was involved in the late nineties, you know, twenty, twenty five years. Those smaller independents have come in and and in some ways rejuvenated the North Sea and maximized the recovery of reserves and resources for the nation as well as for investors and old stakeholders. And I think if you look at the numbers at the bottom of this slide, you see the scale of the opportunity in Angola alone. So we previously provided an extensive overview of the assets, so I don't intend go through that again today. However, we have included that detail in the appendix for easy easy reference.

5:37 I do want to emphasize why we like these fields though. They provide a portfolio. It's eight fields, not one. The production is from a significant number of wells, so there's some good portfolio management in there in terms of where that production comes from. The infrastructure is extensive, and it's and that combined with the shallow water means that incremental opportunities can be delivered through that existing infrastructure base at low CapEx. We consider that the upside potential is considerable, and even the two c that you see quoted in our numbers combining three zero five and three zero five a of 75,000,000 barrels, we don't feel fully represents the upside within within the asset.

6:23 So we look forward to working with Sonigold, the operator, and our joint venture partner to deliver the full potential of what is an area that contains over 3,000,000,000 barrels of oil in place and only about 42% or 3% actually has been extracted so far. So that's the assets we required, and as I said, there's more detail in the appendix. What what did we pay? What was the deal? Well, again, we we set out previously the deal. We tried to combine it and lay out here in a very clear manner. Don't plan to go through, but, you know, there was two deals. They are different in terms of structures and quantum in terms of the the way we've constructed.

7:08 Obviously, we were negotiating with two different sellers. But I would say that what we're paying, you know, percentage equity point is similar for for both deals, and and we find it very attractive for both deals.

7:24 One of the things in the construct is we thought it was very important to ensure that the base consideration was robust through the oil price cycle. We are enjoying high oil prices at the moment, but any of you who have been in the industry as long as I have been have been through the ups and downs before, and we'll see many in the future. However, we also were willing to share some of the upside with sellers through the contingent payment structures. And then given the positive cash flow from these assets, as I'll talk later, the effective dates of September 21 and April 22 means that the final firm payments at completion will be less than the headline from payments that are on this chart. So I'll provide an overview of the assets, the amounts we're paying for the assets.

8:16 So let let's talk a little bit about what what are we getting within these assets from a a value and production perspective. The top chart is based on the new CPR. The CPR report that was done for the submission document and our financing. We had previously stated as a management estimate a 100,000,000 barrels for two p. That independent assessment

8:41 has increased that value to a 115 for two p, and actually, the the two c numbers and three c numbers of the independent assessment are are higher than our values as well. So it shows that we were appropriately prudent as we put those estimates together. But when you look at the top chart, what you see there is the CPR two case production profile in the the darker color.

9:09 The asset is currently producing circa 20,000 miles a day. And then we see some of we've presented here some of our investment ideas in the AFENTRA investment case and the upside scenario. And what you see is that this asset, I think, has a very long life. Out to 2040, it's still producing significant volumes of oil. It has significant upside in the short term. And I think putting that together, there's even more volume can be created if we can work together with Sonogol, the operator, and JV partners to bring more of that later oil forward into this decade and and into the twenty thirties. In terms of volume, we've shown a scenario or a range of values there.

9:56 If we take the two p only that's being given by the CPR independent assessment and their price deck, we have a core values. We'd see it of a $185,000,000. But what you can see from the graphic is when we start to look at the investment case and some of the upside, there's substantial value beyond that that can be procured from from this asset.

10:24 So then the newer information today was how how are we going to finance those assets is the final piece in the jigsaw. The main component of the financing is an RBL that we've agreed with traffic bureau who will be dealing with our off take. The RBL has a quantum of a $110,000,000, of which $75,000,000 is available for these two transactions, and it has a tenor of 8% plus software. The these assets, the the oil is exported by lifting it, and we have liftings a number of liftings over a certain period. It's not it's not monthly cash flow. So the cash flow can be a little bit lumpy. And what we have put together with Trafigura is a working capital facility of up to 30,000,000 to smooth out our cash position, and you can see the tenor for that is 4.75.

11:20 And that has great flexibility, and what will happen is we move towards the lifting. We if we need to, we can draw that down, and then we repay it as we get to the the listing. When you look at sources uses, I'll go through the sources, the equity. We estimate this is estimating a completion date of the October 1, which we think is probably the earliest we will be able to complete these deals due to the ongoing election in Angola. When we look at that date, we'd expect to put down about $20,000,000 of equity that will come from AFENTRA's existing cash balances. The debt of about $60,000,000 will come from the traffic route at RBL.

12:06 And, obviously, as I said earlier, there's a positive cash flow from these assets that accrued to AFENTRA from the effective dates of circa $25,000,000. So that's really the construct of how we expect to finance the these assets. Very importantly, as we were looking at these assets, and if you look at our website and what we built, AFFCON, you know, AFENTRA on, we've got a lot of focus on As I said, one of the founding principles was we need to reduce oil and gas, but we need to do it in a very responsible manner. As part of our due diligence, we had a very comprehensive ESG review. And when I say ESG, it was not just emissions. It was across full environment, environmental performance beyond emissions, social, and governance.

12:56 And we had that done. And the aim of that review was obviously to flag up any ESG risks that you do with due diligence, but it was really to understand the overall ESG performance of the asset, and there are more details included in the appendix. And then importantly, what it does is it provides for us a baseline of the asset on its environmental performance, the safety performance, and the asset integrity management. And once we are on the asset, our intention is to share this comprehensive report with Sonegal, the operator, and the partners and work together on continuing to improve and build upon the good job that Sonogol has been doing to transactions, the key dates really are obviously today.

13:52 We've published the admission document and gone back to trading. We have a general meeting where we'll ask shareholders to vote on these transactions on the the August 30 as we published today. We will then look forward to complete finishing off the various pieces of paper and seeking the government approvals in respect of the INA deal completion and also the license extension in respect of 03/2005. And as we state here, with the ongoing election, which is taking place in the next couple of weeks, we expect us to continue to do the administrative work with our counterparts within Angola, but then the minister will have to be back on seat to make these approvals, and we expect that to occur early in the the fourth quarter.

14:47 So then looking beyond these transactions and the ambition of the large group, you know, the LACURA completion, you know, we are we are, as you can see, very excited about the assets in Angola. But we we set about to build AFENTRA, to build a material West African independent, and and I would say this is the first step in that that journey. So we built the foundation. The foundation is Angola. As I mentioned before, Angola is a great location to build upon that foundation. There are extensive opportunities that will come up in the coming years within Angola, and we will pursue them. But beyond Angola, we see a pipeline of opportunities over the coming years across the whole region. And the opportunity set in Africa is significant when you look at some of the numbers on these charts.

15:37 So we consider that, you know, we're underway. We've delivered what we said we would deliver so far, but we feel we've got a lot more to deliver, and and we are focused on doing that while we've been busy completing or or getting ready for today. In the background. We are looking at other opportunities within the region, and we'll continue to look at opportunities. And I'm absolutely confident we will secure more opportunities within the region. So with that, I'd like to hand back and so that we can move on to q and a. Paul, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just using the q and a tab situated in the right hand corner of your screen. I just want the company to take a few minutes to review those questions submitted today.

16:24 I'd like to remind you the recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. As you can see, we received a number of questions throughout today's presentation. I'd like to thank all the investors for submitting those. Ben, could I just ask you to read out those questions and pose them to the team where it's appropriate to do so, and then I'll pick up from you at the end. Absolutely. Got a two parter here from from Alex. Do you expect any further deals this year, and are you in negotiations for any other assets at this point? Thanks. Well, obviously, we have to get and maintain confidentiality and anything else that is going on at the moment. I think what I would say, and as I said in the presentation, we're very active looking at a lot of things, and we have been, you know, over the period we're a small team, but we are efficient. And as well as doing this complex transaction, we have been looking at other opportunities, so we'll pursue them. What I would say, though, is in Africa, you need patience.

17:23 You know, you'll recall, and and those of you that have been shareholders and have been patient since the suspension last October, you know, the we believe it was worth being patient in pursuing these assets, but it has taken kind of almost eight months to get to this point. So I think it's very difficult to see when the timing of the next deal will be done. I think all I can say is we are looking at other opportunities, and we are confident that as we move forward, we will transact on other opportunities in the region. Great. And this is one for Anastasia. Can you repay the debt from Trafigura at no additional cost or fee? Yes. The answer is yes. We can. There is no penalty for for. Thank you.

18:10 Question from Mark. Is there any current political risk with upcoming election of potential changes in energy policy? The upcoming election in Angola, we understand, is is progressing smoothly. I I was down there just over a month ago, and, obviously, the the election process had started. So we're we're very confident that this election process will run its course at the right time. I I understand it's at some point in September, the new president will be inaugurated, and then his new cabinet will be put in place. So we are not concerned. I think when you then look to the industry, the industry is a key part of Angola's economy. And what we've seen in Angola is actually them as I said earlier, they they they are welcoming new investors, and they are showing a level of understanding that says we need to attract these investors, and and we've seen improvements in fiscal terms.

19:11 So I I I don't there's always risks, and there's always unknown risks, but I'm I'm feeling very confident as we move forward in Angola, we'll see the same stability in the future as we've seen in the past. Okay. Great. Question from Robert here. Congratulations on the deal. Can $35,000,000 of the traffic growth facility be used for other acquisitions? Yeah. We've got some flexibility. Obviously, the fact that the headline, you saw the numbers are presented 75 available for these two transactions, and that other 35,000,000 is obviously there should we need to call upon it for certain other things. But our focus at the moment is on the 75, and as you saw, our estimate earliest completion point is a requirement for about 60, so there's plenty of capacity within the 75 we have available.

20:08 Right. I've got a a a question from Matt here, which is in various bits, which I'll I'll break up for you to pull it in. Firstly, what what are the reasons for the increase in 2P reserves in the latest CPR? Sure. Yeah. Mean, so there's probably two elements to it. So if you recall that when we went out in April, our AFENTRA review was based on the initial work that we've been doing from June last year, so that that was quite a limited dataset. And post the signing of the the SPA in April and as part of the CPR and the due diligence, further information was provided, to the company and also to ERC from Sonneville. And, that gave ERC further confidence to, of their separate work to us to to come up with their their value, which raised it to just over £1,115,000,000.

21:04 Right. The second part of the question is that as the project to restore water injection to all fields be priced is 34% for 2p. This looks pretty key. Can you talk through the timeline of main hurdles to achieving this? The I mean, the water injection is key, as as you say, and and that's potentially if if we can get reliable water injection, opens up a huge prize with this type of reservoir. I mean, in terms of the background on this, COVID disrupted the water injection. It went down in about twenty sixteen, seventeen, and since then, post COVID, it's been up intermittently and now more full time. Also, there was a separate platform that was returned.

21:49 So we we've had consistent water injection with for the last few months, and that's going to be key going forward. The operator is very, very focused on getting that water injection up since by getting it up, we can get the flaring down and also stable production. And you mentioned the operator being in line with the project. Are the JV partners all aligned with the project? I I I think what I'd say with the GB partners, we we know one or two of them, and I think they see the same potential in the asset. So I believe with the right activity program, you know, and and focused on the the right order of play, I think we'll see a very supportive JV partnership.

22:44 Right. Got a question here. What what average recovery factors do you think could be achieved in block three zero five? I mean, look, what we've done today is we've identified that production to date is 43%. Our two p is 46, and we've we've got from a for for 03/2005 up to 47%, just so just another percentage point. There is, I mean, further upside, but it's all dependent on getting the water injection, getting the workovers in, the infill drilling, remembering that there hasn't been any infill drilling here for fifteen years. So there's there's a plethora of opportunities, and we'll just have to take it step by step.

23:34 Yes. Maybe if I can add one point to that is that I think one of the things I always think about in this asset is 1% increase in recovery factor of the 3,000,000,000 barrels in place is 30,000,000 barrels. And so for every 1% you can increase the recovery factor, that's a 30% increase more or less in the overall 2P reserves. So I think what you see with this field is a very strong reserve replacement profile over the coming years. We we gotta get up and running, but I think with time, there's lots of opportunities that can have that can make sure that this field get or these fields give strong reserve replacement statistics. And just to actually probably add on, for a production profile, if you look at the profile, there's not many fields that we're looking at where out in 2040, you're producing in excess of 15,000 barrels a day. So this has got long, stable production, and the question is now what can we do to boost that?

24:36 Final piece of the question from Max. What future acquisitions would your preference be to increase your foothold in Angola or diversify other jurisdictions? Well, I I think we can all wish for what we want, but, actually, what you gotta deal with is what's in front of you. So but whilst we we are reacting to opportunities that are out there, we're also being proactive in trying to create opportunities. And I think both of the above, you know, we see Angola as a great jurisdiction to build the company, and we are absolutely focused on that and and looking at opportunities there, and we'll be we'll pursue further opportunities in Angola. But we will also, as we said at the very start, you know, over a year ago, we're focused on the region. So we're we're pursuing both.

25:24 Great. Thanks, Paul. Got a a question around hedging here. What what percentage of production are you looking to hedge? We will hedge material percentage of production, but we're not going to hedge the entire production. We will come back to specific decisions on hedging at completion, at the time when we are ready to complete the transaction, we'll put the hedges in place. Great. Got a question here from Derek. Is it possible, in simple terms, what is the forecasted annual profitability of the deal, say, dollars a barrel or another price benchmark? And what would be the additional profit profitability at extra $5 a barrel?

26:14 I I I think maybe the way we think about these deals is, you know, one way to look at the deal is what's the overall value. So we've given that perspective relative to what you're paying for and what can the value grow. And then the other perspective we look at is on cash flow. You know, I I think we're we're very conscious. Current investors are looking at what are the cash flow of these assets and and assess value sometimes on on those actual cash flows. So that that's the way we look at it, and I I think we've given some statistics in this presentation and previous presentations about the cash flow generation for this asset. Great. Thank you. Got another question following on on the hedging. Will you want to wait for the price to be above a $100 with hedges in place?

27:06 Look. We're not looking this at this as a speculation on oil price. We're not going to second guess the market. I mentioned before, when we get to completion, we'll put hedges in place. And, again, we're not going to wait for oil price to reach certain levels to secure our positions. I I I think one thing in my experience over the last kind of couple of decades, I've always taken the view, you know, our role here is to create value from producing oil and gas fields and some of the creativity and ideas that Ian talked about. And I I endorse completely what Anastasia is saying. We're not here to speculate in the oil price. We're we're here to create value for shareholders through our development and and through our production and what we're doing from our broad experience.

27:55 What we use the hedging market is as as a tool is to make sure we have stability in our financing. Great. Got a question from Ian here. What is the oil pricing from $30.05? Is it a discount or premium to Brent? It's basically Brent price plus minus a dollar. It's called Polanco Blends for those who are familiar with rates, and it trades just about Brent. And another question for me. Can you explain the lifting arrangements? Does AFENTRA get a percentage of all listings or one lifting in full? So in in very simple terms, there are six different partners in a block with various percentages.

28:43 And as oil is being produced, it's getting accrued to each one of its partners. Ultimately, the partner that gets the highest number of barrels reserved into his name is the one who will get the next lifting. In practical terms, as we look at having 24% stake in in the block three zero five, we're probably looking at one to two liftings a year. We can't predict specifically as to when those liftings will occur, but that will be the schedule at the moment that we see it.

29:26 K. Thank you very much, Ashley. This looks to be the the last question, so it's quite a good one to sign off on. Paul, what what are the three main reasons to invest in AFENTRA PLC? Well, it's a good question, actually. And earlier on, I was talking to some folks, and I I thought, what what are the three key messages I wanted to kinda get across today? And I I think what is, you know, we set out a very clear strategy just over a year ago, and we've delivered against it. So I think that's very important, and we'll continue to articulate that strategy and deliver against it. We have just secured through, I think, lots of hard work from a very small team and lots of industry knowledge and use of our experience of working in the region to very attractive deals across three assets that I believe will create huge value for our shareholders and more broadly for our stakeholders.

30:33 And three, this is the start of a journey. It's not the end of a journey. This is the very first rung in the ladder for AFENTRA. And personally, I've been in this journey before, starting twenty years ago, and that journey went a long way, and I expect this journey to go a long way as well. Great. Thank you, Paul. I I hope we've addressed the questions submitted. If if there's any that weren't answered, please put them through to the IR email on website, and we'll do our best to answer them

31:03 in due course. I'll hand back to the IMC team. Thank you very much for that. I think you have managed to address those questions you can from investors. And of course, the company will review all questions submitted today and will publish those responses on the investor me company platform. But just before redirecting investors provide you with their feedback, which you know is particularly important to the company, Paul, could I just ask you for a few closing comments? Yeah. Thank you. And thanks for hosting us today. So really, all all I want to say is just thanks, first of all, to our investors who've been very patient over the last eight months or so as during the suspension. We know that that's not the the the best place to be for investors, so we really appreciate that support. And, hopefully, you you've seen today that we think that that period has been worthwhile.

31:51 I thank everybody else for taking the time this morning to kinda listen to our story and and what we're doing, And I look forward to having an active dialogue with our our shareholders and those that are looking to consider investing in AFENTRA. Thank you very much. Cool. Thank you very much, and thank you very much for updating investors today. Could 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? 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 of AFENTRA PLC, we'd like to thank you for attending today's presentation, and good morning to you all.