Beacon Energy (LSE:BCE) — Investor Presentation

0:02 Good morning, ladies and gentlemen, and welcome to the BEACON ENERGY PLC Investor Presentation. Just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I would like to submit

0:33 the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand you over to CEO, Larry Bottomley. Good morning, sir. Thank you, Jake. Welcome everybody to the Beacon Rhein Petroleum acquisition presentation. Thank you for taking the time to to listen to this description. And, also, I'd like to thank investor, Meat Company, for organizing the session. The presentation itself is, also on our website, and that can be found at www.beaconenergyplc.com, and that's in the, media tab in presentations. We've also, recently published, the competent person's report that describes the Rhein Petroleum portfolio, and that's also on the beaconenergyplc.com website.

1:26 And that's in investor relations, corporate documents, and it's the last document in there. That's the the CPR. And then we'll also put a link to this presentation on the website once that's prepared. So to start off with, what I'd like to do is to introduce myself, and I'll I'll have Stuart McDonald introduce himself. Many of you will know me. I've been the interim CEO, firstly, for Advance and then now for BEACON ENERGY since January 2022. And I've been the I've been I was interim CEO, and I've become the CEO on the signing of the, share purchase agreement

2:04 on the December 15 at the back end of last year. I have over forty years of experience in, oil and gas exploration and production operations. The first quarter of that was at BP where I had a a number of subsurface technical roles and then technical leadership roles, and that was, based in The UK, in Colombia, and in The US. The middle half of my career was at large independence where I had technical and commercial,

2:34 leadership roles. And then the last, quarter of my career has been on AIM, both as a a nonexecutive director and most recently as the CEO for Chariot Oil and Gas, as it was then. So my experience is in building, e and p businesses on the international stage, and that's what we're looking to do now with BEACON. So I'll pass over to Stuart to describe himself. Thank you, Larry. Good morning, everyone. My name is Stuart McDonald, and I'm the proposed CFO of Beacon Energy. In terms of my background, I have twenty years of energy industry and investment banking experience. I spent the first twelve years of my career with Rothschild advising clients in the energy, oil and gas, and natural resources sector on a range of mergers and acquisitions and debt and equity financing transactions.

3:28 And then I spent the next eight years as CFO of Rockhofer Exploration, an AIM listed upstream oil and gas company with interests in the Falklands? Thank you, Stuart. Stuart's very well known and respected throughout the industry. We've worked together very well over the last six months, and that's been both on the acquisition of Ryan Petroleum and the the reverse takeover process that we're now now undertaking. And certainly with his m and a experience and his broader experience, he'll be a great complement to the skills that we have on the board. So moving on to the the next slide. This slide sets the context for what we'll be subsequently covering in this presentation.

4:20 This slide, slide three, summarizes the acquisition of Rhein Petroleum within BEACON's strategic framework, which set out during the course of the year. And the goal of the strategic framework is to build a self funding platform for growth, and that's what we believe this offers, offers us. Our target within the strategy is the acquisition, of mainly operated production, development, appraisal, and exploration assets in onshore Germany. And this portfolio gives us three things. Firstly, it gives us current cash generative production and a clear path, to additional production during the course of, of this year and next year.

5:05 Secondly, it gives us material development opportunities, and these are simple developments from discovered resources that sit within the portfolio that we look to fund from the production that we'll be generating. And thirdly, it gives us potentially transformational exploration upside, exploration opportunities that we can, test during the course of the overall program, and, that'll funded from, from production. So the self funding goal for us, the aim is to use development drilling to drive the production. That increase in production gives us free cash flow, and that free cash flow can then be reinvested back into the portfolio.

5:52 So the self this is the self funding goal. And, specifically, the Airfelt and Stockstadt MITT development, which you can see in the graph in the center of the bottom of this

6:05 of this slide, this is the production profile that's been described from the competent person's report that I referred to earlier. This production profile over over the life of field generates, in in excess of a $100,000,000. And the aim is that this $100,000,000, that's the that will allow us to fund the development, appraisal, and expiration of the Rhine portfolio. In the Rhine portfolio, the licenses, fields, discoveries, and the prospects, they're described on the map on the on the right hand side of the slide. So in terms of the context of the of the combination, the formerly ADVANCED ENERGY company.

6:55 During the course of the last year, we have created a clean cash shell from from what was formerly Advanced Energy. With that, what we have done is targeted assets that fall within that specific strategic framework of discovered resources, cash generative production, high margin assets in attractive fiscal regimes, and that strategic framework has been driven by our desire to build a self funding platform for growth. In terms of Rye Petroleum, Rye Petroleum is a private company. It's principally owned by Tulip Oil, which has a stable of cope of companies within a fund. Some of you may have seen that Tulip sold Tulip Oil Netherlands to Kistos in 2021.

7:46 That was in the region of a €220,000,000 sale with with additional contingent payments. And Rhine Petroleum for them is part of that process. Rhine Petroleum has a a portfolio of mainly operated assets onshore Germany. And importantly, it also has an excellent in country operating team with a proven operating capability and expertise that we'll be using during the course of the development of that portfolio. So the combination of formerly advanced energy and Rhein Petroleum brings three things together. It brings the experienced BEACON board. It also brings the portfolio that Rhein Petroleum have built. And very importantly, it brings the operating capability within the team that sits within Rhine Petroleum.

8:39 So within that portfolio, there's current production. Those are from the Laban field and from the, the Airfelden, Schwarzbach main field. There's also, growth potential in, simple high margin, developments. Those are additional developments within Airfelden,

8:59 but also other discoveries that sit within the portfolio, Graben and Stig, and there's material indeed transformational upside potential in exploration in the Vinhane prospect and in Steig Deep. There's also growth potential in Germany, and this is through consolidation and portfolio rationalization of companies that are there, but also the application of current technology in the Upper Rhine Graben, which is an old basin. And as part of these growth opportunities, Rhine Petroleum are currently in discussions to secure an additional development asset, which also has near term production growth. So that with that as a as a as an introduction, what I'll like to do now is to pass over to Stuart, who will go through the transaction details, e and p context within Germany, and Rhine Petroleum's operating capability.

9:58 Thanks, Larry. So under the proposed transaction, BEACON will acquire the entire issued share capital of Rhine Petroleum from Tulip Oil, which is a private equity backed vehicle, and Deutsche Rostov, a German listed oil and gas company with operations in The United States. Consideration for the transaction is broadly split into two parts. Firstly, BEACON will issue new shares to Tulip and Drag such that they will hold a combined 33% shareholding in the enlarged BEACON. And secondly, Tulip and Drag will receive contingent consideration in the form of an earn out equivalent to 10% of future production from existing discoveries in the Rhine portfolio.

10:45 As part of the transaction, BEACON will undertake a £6,000,000 net of cost equity raise, has fund the drilling of Schwarzbach 2 well and bringing it into production. Importantly, will cornerstone that equity raise. But beyond completion, they will hold around 47% of BEACON with drag holding a further 3%. We see the terms of the transaction as highly attractive. No upfront consideration and all of the capital being raised being reinvested into the ground. We're acquiring a portfolio of reserves, contingent resources, and material exploration upside, so plenty of running room for future growth.

11:32 The valuation metrics are, we believe, attractive with an NPV 10 of $55,000,000 and cumulative free cash flow of around a $100,000,000 over the life of the project. And from an operational standpoint, we are requiring simple but economically robust, low cost and operations with OpEx of less than $10 a barrel and netbacks of more than $55 per barrel.

12:05 In terms of the business climate in Germany, I think it is I think it is fair to say that Germany has been generally overlooked in terms of its oil and gas credentials. I would make a few highlights. So there's been material oil production in Germany since the nineteen fifties. There are a number of well known operators who have been active in the country for decades, including ExxonMobil, Wintershall Dea, and Neptune. Given the industry dynamics as we see them, we see the potential for consolidation and portfolio rationalization, a key source of growth and deal flow for smaller companies such as BEACON. And finally, I would highlight the low political risk environment with a well established and supportive operating and fiscal regime, stable and predictable permitting processes, unlike many other places onshore The UK and elsewhere in in Europe, and an increasing need for domestic energy security given the current world events.

13:17 Turning now to slide seven. I think it's important to highlight that we're not only acquiring an attractive portfolio of oil and gas assets, but we're also but also a fully formed and highly experienced operating team. Rhine Petroleum have been have been active in the country for over a decade with a strong and proven operating and HSE track record, having delivered multiple discoveries and developments during that time. In a country like Germany, ESG is fundamental to Rhine's license to operate. So the company will, quite rightly, continue to focus on reducing the carbon footprint of its operations.

14:03 And with that, I'll now pass back over to Larry to go through the details of the assets. Thank you, Stuart. So moving on to slide eight. What we'll be covering here are the net near term growth catalysts, the first of which are within the course of this year. So the map on the right hand side of this slide shows the produced reserves, and that's in that pale green color, and current production and the proven undeveloped reserves and resources, which are in the darker green within the within the Airflelden High. So in terms of in terms of the

14:43 accumulations on on that map, Stockstadt Field in the Southeast, that light green color, that produced between 1952 and 1994. When it was discovered, it was the largest field in the Upper Rhine Graben Basin in terms of reserves production, and that field is now no longer producing. That that field is is connected to and extends over to the airfield and high, which is that blue dashed line that shows the focus of our forward development. The Airfelden High is made up of a number of structural compartments or segments. In the West is the Kufkov segment, and that produced between 1956 and 1985 and was operated by Exxon.

15:37 And then there's the currently producing Schwarzbach main section, which is in the northern part of that airfelt and high. And that's been producing since 2016, so there's some six years production from that segment within the Airfelten High. The development targets that we are looking at are in the south of that Airfelten High. There's the Stockstadt MITT segment, and that was discovered by the Exxon s m one well in, 1985. And then there's the Schwarzbach South segment. In terms of the Ehrfelden Stockstadt Mit segment, that's the focus of the development program, and indeed, much of the CPR is given over to the description of that development.

16:31 The, the 2p reserves of that segment, 3,800,000 barrels. And from the CPR, that generates the production profile from the graph at the on the left hand side at the bottom of that slide in dark green. So it has the capacity to to produce up to 900 barrels a day during the course of the of the field life. The also, what that graph shows is the the free cash flow that's generated from that stock stat net segment in excess of a $100,000,000 of free cash flow from its production. And part of that free cash flow will be used to fund the appraisal and development of the Schwarzbach South segment.

17:22 That's the light green part of that graph. And that, and that segment has a, a 2C contingent resource of an additional 2,400,000 barrels, which is described in more detail on the next slide.

17:44 So on this slide, it describes our plans for the progression of those near term growth catalysts within the airfield and segments. As part of the acquisition, we aim to raise £6,000,000, and that's to fund the Schwartzback 2 development well this year. Production from that well funds Schwartzback three production well, and that's targeted for late twenty three, early twenty four, and then the Schwartzback four water injector, which we are targeting in, 2024. The graph on the bottom right hand show side shows the evolution in the dark green of the production from the airfield and stocks at MIG MIG segment.

18:30 And the free cash flow, is the which is the blue line, shows the cash that will be generated, from that segment during during that period. So over a two and a half year period, it should generate free cash flow in the region of 20 to $25,000,000. This investment primes the, that will be that we'll be raising, primes the production, and then and the production then underpins the drilling of the Schwartzback South well, which is targeted in early twenty twenty five,

19:03 and with its potential production profile shown in light green on that curve. So in summary, we've got a portfolio of catalysts for shareholders over the next couple of years in BEACON's journey. And and those, the funds that are generated from that can, fund the development appraisal and exploration of the remainder of the Rhine Petroleum portfolio, which is described in the next three slides. So moving on to slide 10. This is the first of the medium term growth catalysts. So the aim is for the free cash flow from Airfield And Substadt Mitt Compartment to fund the development appraisal and exploration of the remainder of the of the portfolio.

19:50 And following on from the airfield and development, our focus will be on the discovered resources of which the Stig Field is one. Rhine Petroleum discovered this field in '20,

20:03 '19, and it tested 60 barrels a day from the Meletta and a 160 barrels a day from the PBS two two reservoirs. In terms of the the Meletta, that's a two c resource that's in 1,600,000 barrels. And in the PBS, the deeper reservoir, that's a 17,000,000 barrel 2C net contingent resource that sits within that. So we envisage a two a two phase development, within this, field. The first is to, is to develop the Meletta, the shallower reservoir at some 600 meters below ground level while appraising the deeper PBS and then following that appraisal of the PBS, then developing, developing, the resource associated with that.

21:00 The development of the reservoirs and particularly of the of the PBS will require a water supply well to be drilled, and that will be drilled by drilling down into the Bunta, which is a structure that sits below the Meletta and the PBS. And and in and of itself is also a prospect. So the Stijk Deep prospect has prospective resources, two u prospective resources of 16,000,000 barrels, sits below that that feature, and we'll be testing that for free as we go about the development of the PBS. So moving on to slide 11 with the next medium term growth catalyst.

21:50 And again, the aim is for the free cash flow from airfieldandstocks.net to to fund the appraisal and development of this asset. The Graben oilfield produced between 1959 and 1963, and this was from two wells, and it was based on two d seismic data. Subsequent three d seismic data that that has been acquired over these fields over this field after the production ceased demonstrates a significant updip attic oil component to to the production from those wells. And also modern petrophysical software demonstrates a material amount of pay that was bypassed, that wasn't produced from those wells that were drilled back in the in the late fifties and early sixties.

22:42 Next to, to Rhine Petroleum, there's some 5,000,000 barrels of very low risk contingent resources that sit within this asset. So moving on to the next slide, which is now focusing on to the longer term growth catalysts. And, again, the aim is for the free cash flow from the stocks that met segment in the field to fund the expert to to fund, the exploration of the remainder of the portfolio. And and this is regardless of the outcome of what happens in Schwartzback South or Stig, all the Graben programs. So this is the funding that comes just from the, the stock start mix segment.

23:29 What I'd like to do is just to highlight two of the more material prospects. Firstly, Stig D, this two u prospective resource of 16,000,000 barrels tested for free during the development of the Steag field, which I described on the earlier slide. And also the Vinheim prospect, it has, prospective resources of a 180,000,000 barrels in the two UKs that, that we aim to target as soon as the funding that's generated from from the program allows us to do that. So moving on to the next slide, we see we also see significant growth potential in Germany. The acquisition, that we are making delivers a ready made portfolio of production development appraisal exploration opportunities.

24:19 But it's important to note that the Upper

24:21 Rhine Graben has been developed without the benefit much of the Upper Rhine Graben has been developed without the benefit of three d modern three d seismic data, petrophysical software, or indeed completion technology. And we see potential from a number of, elements within the basin. Firstly, the consolidation and portfolio rationalization, that, companies will be that companies are undertaking within the basin, and it's within that context that Rhein Petroleum are currently negotiating a development asset in in the basin. And also from the application of new thinking and the application of new technology, I just point to the Romerberg Field.

25:10 That's the largest field that's been discovered in the basin, and it was discovered by serendipity. This was in 2003 during the drilling of a geothermal well that went through into the into the Bunter. And and this discovery, the largest discovery in the basin, was made fifty years after the discovery of the Stockstadt Old Field, which is immediately adjacent to Erfalden. So with that as a as a top level review of the growth catalysts, I'll now pass back to Stuart for a commercial overview to look at our next steps and to and as a summary. Thank you. Thank you, Larry. So as part of the transaction, earlier this week, we published a competent person's report or CPR, which provides an independent review of the subsurface reserves and resources and where appropriate, the economics of of the the portfolio being acquired.

26:07 We were pleased that the CPR validates our internal views on the attractive and robust nature of the asset base with strong near term cash flow, NPV accretion, low operating costs, and quick invest back. Importantly, all the economics shown on this slide are just for the existing two p reserves, Loudoun and Schwarzbach, and include none of the upsides from development or exploration that Larry spoke to a moment ago. Turning now to slide 15. The transaction remains subject to a number of conditions, including a successful equity raise, the publication of an admission document, and approval from the BEACON ENERGY shareholders.

26:59 Based on where we sit today, we expect to publish the admission document in late January with a general meeting a few weeks thereafter, and that would allow us to close the transaction in the second half of February. I should also say we've had a number of inbound inquiries from retail shareholders and others asking they they will have opportunity to participate in the equity raise. And we will please confirm earlier this week that we intend to engage primary bid to ensure that all retail investors get that opportunity. And we will provide more details near the time. So in summary, as a board, we're delighted to have reached agreement on the proposed transaction, which we see as transformational for BEACON and potentially hugely value accretive for our shareholders.

27:59 The Rhine portfolio has the potential over time to deliver multiple catalysts and material growth up to 4,000 barrels per day from the existing reserve and resource base. We believe the transaction metrics are highly attractive with no upfront cash consideration and all funding invested directly into low risk value enhancing drilling. In Germany, we see an attractive and supportive operating and fiscal environment with scope for material value creation. And outside of Germany, we believe the Rhine portfolio provides a strong platform to pursue further new ventures and and transformational growth.

28:47 Thank you for listening, and we're now very happy to open up for questions. Stuart, Larry, that's great. And thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Larry, Stuart, as you can see, we have received a number of questions throughout your presentation today. And thank you to all of those on the call for taking the time to submit their questions. And, Stuart, Larry, if I could just hand back to you to address those questions where it's appropriate to do so, and then I'll pick up from you at the end. Thank you.

29:34 Okay. Thank you, and thanks, for sending the questions through. The first one, that I'll cover comes from Glyn who asks whether we could simply say what the current production is of Rhine Petroleum today. Currently, are there are two assets that producing assets that Rhine are in. There's the Schwartzback main operated license, which is a 100% owned by Rhine Petroleum, and that's currently producing 15 barrels of oil per day. And Rhine Petroleum are a non operated 50% equity partner in, the Laban field and the net production from that, to Rhine Petroleum is 25 barrels a day in the region of 25 barrels a day.

30:22 So currently, the the company's, has 50 barrels of oil per day production that's that's coming in. I think the the important thing about that production, particularly on Air Felden, is that the additional development opportunities that sit within there are proven immediately adjacent to that production and can benefit from the the production facilities that are in place that are that are currently managing that Schwartzback main production. There's a a sort of a couple of questions that have that have come in in terms of the fundraise and the and when the shares will resume, which I'll cover. The first one is from is from Andrew B.

31:12 And his question is, what does the fundraise mean to current shareholders, particularly those that are unable to participate, in the raise? And then it gives an example of the number of shares that he has and how many he'll end up with and what the price, of the fundraise will will will be. And then there's a question on when the company shares will resume trading. What I'll do is I'll I'll pass both of those questions to to Stuart. Thanks, Larry. So in terms of the the fundraise, so as we outlined, we will be giving retail shareholders the opportunity to participate through the primary bid platform. For those shareholders who are unable to to participate, Obviously, there will be dilution as part of the transaction, but but in our minds and when we looked at this as a board, we see the huge value accretion from the transaction will more than offset that dilution. So you if you're a shareholder and you decide not to participate in the raise, your shareholding will reduce, but obviously, you will have a shareholding in in a company which post transaction will be much larger and much more more valuable.

32:34 In terms of the details of the the pricing of the equity raise, I mean, that will be determined by, you know, market, the appropriate time. We set out a timetable, so we're aiming to publish the admission document in in late in late January. Assuming that shareholders approve the transaction and all the other conditions are satisfied, we'd be aiming to complete in the second half of February and that is the point at which the company's shares would resume trading. Okay. Thanks, Stuart. There's also same question that you've just answered that came in from Samuel B about the equity price, which you've addressed.

33:19 There's a question that's come in from Sam E. And what do we see as the greatest risk to the execution of the of the strategy. Well, I think it the overall risk profile of the acquisition is very low. So at this process, in terms of the acquisition itself, there are still some, remaining elements that are required. The we need to undertake the the equity fundraise, and we need, shareholder approval. With those two elements, we can then get resubmitted back onto the market for trading. So so we need to go through the through those those two pieces. In terms of the the the execution of the development strategy, we are in a a very, you know, low risk political region with with Germany.

34:17 The great thing is that the the processes and systems in Germany are very well known, very well trodden, so we can go through the development programs in a in a predictable and and and managed way. And what we're intending to do in the early part of the strategy is to focus on the discovered resources. So stocks that met has been demonstrated. So the the reserve the there's a well that goes through that has hydrocarbons that sit within them. Similarly, with, with Graben, and similarly with Stig, these are wells that have been drilled that have produced hydrocarbons. So we know that the technical risks associated with with those are very low.

35:05 Clearly, the risk profile will increase as we work through the portfolio, particularly as we become exposed to the exploration components. Steep deep, as I described, that well will need to be drilled to supply water to the development of the PBS. So that's that's essentially a free roll of the the dice. And then with with Vinhaim, it is a significant material project, and we'll we'll look at how we go about managing the risk of that as we as we progress the program. So so I think the the the the principal risks are completing through in terms of the RTO and the and the acquisition.

35:53 Thereafter, the the execution strategy, it'll just be down to normal oilfield operating risks that sit within those within those assets. ENERGY Okay. There's some additional questions that have come through. The first one is from Andrew Will PLC. The board be participating in the race personally? Andrew, yes, that's the intention that that some of us will be participating. Will the Samuel B, will the company be looking at other projects in different areas for newer acquisitions? I think the the principal focus for us in the immediate term is to close on on what we're doing. And then, during the course of this year, it will be to deliver the development program on Air Felden.

36:52 We have, an excellent operating team in country. Leo Koot is a prospective director who'll be joining the company. He has, direct experience both with Rhine Petroleum and in Germany, and he has a drilling background. So that will be important for us to make sure that we that we deliver on building the the cash flow and the fund base that we'll need to grow the business. But we will also be looking to grow the business. So there's this current asset that's under negotiation in Germany. There will be a number of of additional leads that will come from that. But and during the course of this year, we have been exposed to a significant deal flow, the deal pipeline from which we've selected Rhine Petroleum.

37:47 So once we are absolutely certain that the German operation is working and delivering what it needs to deliver, the intention is to continue to grow the the company, and that won't be restricted to to Germany. It will be in Germany, but also it will be outside of Germany. Larry, Stuart, if I may just jump back in there. And and thank you very much indeed for addressing all of those questions that came in from investors this morning. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation's ended for you to review to then add any additional responses, of course, where it's appropriate to do so, and we'll publish those out to everyone on the platform. Larry, perhaps before redirecting, those on the call to provide you their feedback, which I know is particularly important to yourself and the company, If I could please just ask you for a few closing comments to wrap up with, that'd be great.

38:42 Okay. Thanks, Jake. In terms of a a a summary, we see this as a as a material and value accretive acquisition. This has followed an extensive screening process during the course of the, course of the year from our conveyor belt of opportunities. What we're doing is we're accessing discovered resources. We're focusing on cash generative production. These are high margin assets in an area, in a country, which has got very attractive, fiscal regime and a and a very low political risk. We really importantly secure an operating team that has extensive in country network. It's got a proven operating track record and an excellent and focused ESG agenda.

39:35 The acquisition itself, no consideration is being paid for the acquisition. The money's raised is to fund drilling activity, and that that drilling activity we see as being the the value trigger and the value value creation. What this does is it sets BEACON on a journey to become a self funding, cash generative, profitable a and p company. And what it does do is it gives us a portfolio of catalysts, and it gives our shareholders a portfolio of cat catalysts over the next couple of years to share in that journey. So thank you very much for your time, and we look forward to your feedback. Thank you. Larry, that's great. And, Stuart, as well, thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations.

40:33 This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of BEACON ENERGY PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.