Capricorn Energy (LSE:CNE) — Interim Results

0:00 Good afternoon, and welcome to the CAPRICORN ENERGY PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time by the q and a tab situated on the right hand corner of your screen. 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 can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And then I'd like to hand you over to Randy Neely, CEO. Good afternoon,

0:31 sir. Good afternoon, and thank you for attending our midyear twenty twenty five retail investor call. I'm joined today by Eddie Oak, our CFO, who'll walk through the financial and operations highlights, as well as Jeff Probert, our COO, who will provide a review of ongoing operations and provide more detail on the progress made to improve our production sharing contracts in Egypt.

0:59 CAPRICORN ENERGY has a storied history of a giant patrolling discoveries in Rajasthan and Senegal and large shareholder returns, but also spectacular exploration disappointments and poor diversification execution. The current version of CAPRICORN is a completely different company than the one you may have been familiar with in the past. The executive and management team now running CAPRICORN is fit for purpose. We have all gained significant experience running small, entrepreneurial, low cost oil and gas companies that put shareholder value as their top priority. We will work to get the most from the assets held and achieve the best possible outcome we can from our shareholders.

1:45 Egypt presents a compelling investment case due to its century long energy industry, proven basins, and established infrastructure. Despite a growing population of around a 110,000,000 people. The country increasingly relies on imports to meet energy demand, highlighting opportunities for domestic production growth. Importantly, Egypt has a strong record of honoring payment obligations, which adds to investment confidence. Egypt finances have had to adjust to major disruptions to their economy over the past few years with COVID followed by inflation, the Russia Ukraine Crisis, and most recently, Israeli Gaza crisis. All of these events have impacted the economy significantly at different times, tourism remittances, and the Suez Canal.

2:46 Since myself and the new management team, Jeff, Eddie, and Nathan, and our entire board joined the company beginning in 2023, we've made it clear that what our goals were. We intended to improve upon the base business in Egypt, reduce overhead and scale down or eliminate all nonviable activities of the company. To do that, we set out with our JV partner in Egypt, Chiron, to negotiate a new consolidated production sharing contract for the eight fifty fifty jointly held contracts. That has been a major under attack undertaking, and we have achieved a major milestone earlier this year when the government approved those terms. Jeff will provide more detail on this process and outcome shortly. For those of you that perhaps have not been paying attention to our journey over the past two years, I remind you that we have exited all noncore activities, and we reduced our g and a burden by approximately 80%, including our staffing contingent.

3:45 We've effectively rightsized the organization. As well, the company returned over 600,000,000 to investors through dividends and share buybacks. Operationally, we've worked very hard to achieve technical alignment with our partner in Egypt, and we are very pleased with how that has progressed. Today, I can con confidently state that CAPRICORN and CHYRON are working synergistically to improve the technical and financial results of the joint venture. When this team joined, we all recognized that the company needed to instill financial discipline, which included a measured approach to funding investment activities in Egypt, effectively applying a self funding model. Although with the improved fiscal terms and payment schedules, this approach may not appear as relevant today as it was two years ago, we do not intend to deviate from this mindset.

4:37 With our initial goals now principally achieved, we are turning our attention to increasing value for our shareholders. Our intent is to do that through three principal activities. First, realizing on the improvement of the base business in Egypt, improvements to fiscal terms and lengthening the contract life will open up significant new resources for the joint venture to pursue and exploit. Effectively, the amended contractual terms will allow the joint venture to pursue a very large existing resource base to add both reserves and production. Second, we will continue to search opportunities in The UK North Sea to realize on our historic position there. We have a strict set of criteria we measure every North Sea opportunity against. And although we have been deep into several processes, we have been unable to successfully conclude them, either due to being outbid or the seller electing to retain the asset.

5:31 Our third activity is that we will look for a synergistic asset or business to add to our portfolios.

5:38 All of these will ultimately lead the company to returning value to the shareholders. Over the past two years, the new board, myself, and the rest of the management team have made a major effort to transform the culture, priorities, and focus of CAP This wheel is meant to capture very simply how we're approaching our business. We focus on small details. We finance the business and any new ventures conservatively. We approach every project with technical rigor and apply strict cap capital discipline, and we demand the same of our partners. We approach the business strictly through a self funding business model, and any new ventures initiated will require the application of a prudent approach to risk management.

6:26 I'll now turn it over to Jeff. Thanks, Randy, and good morning, everyone. You can see on the graphic that we're on the last step of our journey to completing the consolidation of our eight fifty fifty concession agreements into a single extended and improved agreement. As Randy noted, the improvements in concession longevity and fiscal terms are a catalyst to increase CAPRICORN's reserves and production with value and cash flow enhanced through increased investment, all self funded from Egypt. For each PC, this increased and more importantly sustained investment shows greater production over the longer term for Egypt, having the potential to be a true win win for all stakeholders. We continue to expect customary ratification in the near future, commencing investment consistent with the new terms in the second half of twenty twenty five and expecting the new terms and commitments to apply to that investment.

7:24 Back to you, Randy.

7:26 With many of our primary objectives now having been achieved, our our current focus for the whole team is to get investors to recognize this value improvement. On the back of an envelope, we have we have a base Egypt business that fully supports our market value. Note that our debt in Egypt has been paid down materially over this year and will continue to be paid down in the coming year. On top of that, we have the cash in the parent company, the value improvement that we realized upon ratification, and followed by investment in the Egyptian assets, and a value that can be realized by further investment into The UK North Sea. All of these combined leave us with a near term potential of doubling our share value, and that's before we expand our operations either in Egypt or elsewhere.

8:19 I'll now turn it over to Eddie to provide a review of our financial and operating highlights of the first half of twenty twenty five. Thanks, Randy, and good afternoon all. Production through the half was in line with projections, and we continue to guide towards the midpoint of our published range of 17 to 21,000 BOE per day. Our focus on higher margin drilling continues to perform as liquids remain slightly above forecast at 43% of production. OpEx continues to trend upwards as the currency devaluation impact from late last year works its way through our cost structure. This is being exacerbated by declining production against a large fixed cost base, but we continue to work with the operator to ensure that costs are being controlled to the greatest extent possible.

9:08 We've slightly reduced our capital guidance as scheduling is gonna push some current year activity into the following year, but we remain on track to deliver the bulk of our development drilling in the second half. As can be seen from our cash waterfall, the contingent consideration collected in the half has has offset the slow pace of collections from EGPC. In the second half to date, collections have improved. And based upon assurances from EGPC, we anticipate collecting about $90,000,000, which will help offset scheduled repayments of our outstanding debt. Up next, Jeff is gonna take you through an operational overview of the remainder of the year. Thanks, Eddie.

9:54 As Eddie says, I plan to just very briefly highlight our first half twenty twenty five focus, provide a snapshot of where we expect to invest in 2026, and look at how reserves and resources are trending.

10:10 This map shows our focus on liquids development and production, particularly in the Bed ARG Reservoir area in the first half of twenty twenty five. While the new agreements were being finalized, we drilled three wells to fulfill our legacy commitments on the three pure exploration concessions acquired as part of the Egypt acquisition in 2021. These commitments are now satisfied with a minor underspend of $750,000 on NUM. Joint venture has elected to further evaluate the commercial out of two of these wells with results expected later this month. You can see on the map the hatched areas indicating the concessions that we expect to form the new consolidated agreement. And if you look closely, you should also be able to see the prime contiguous lands that have been added, extending our existing development fairway for further development and exploration.

11:07 This slide illustrates our expected four rig development drilling schedule. Four rigs reflect improved terms that encourage us to invest in a longer list of economic wells. Alongside optimization of the development well sequence, we continue to work with our JV partner to also prioritize nonrig production generation, reinstating shut in wells and identifying additional perforation opportunities on bypass pay. This last slide in the operations section is on reserves and resources, and it encapsulates the rationale behind CAPRICORN negotiating an extended and improved integrated concession agreement on our fifty fifty concessions. We expect our ability to replace reserves and extend the life to be materially improved by the extended concession periods and improved concession economic terms.

11:57 We also expect the concession improvement will impact our risk appetite to chase near field exploration potential on our extended lands and to mature and develop our portfolio of resources.

12:08 With this in mind, CAPRICORN has been working the opportunity hopper on the fifty fifty new concession acreage, not just near term development options, but also contingent and prospective resources. We expect this work will help to underpin future reserve and resource bookings and also direct and prioritize productive drilling activity. You can see here that internally, we have identified a working interest approximately 350,000,000 barrels oil equivalent unrisked best estimate contingent resource. That's all discovered. Near term license extensions resulting from an improved integrated concession potentially support the early conversion up to a working interest of approximately 20,000,000 barrels oil equivalent to reserves with further reclassifications anticipated, all underpinned by five year investment plans.

12:56 Once approved, we expect to rapidly move to drill wells to exploit these reserves additions. As an aside, we also expect to shortly commence negotiations with the EGPC to align the AESW concession where CAPRICORN holds a 20% working interest with improved fiscal and commercial structure already approved, for the fifty fifty merged concessions. Thanks for your time and attention. Now I'm passing back to Randy to wrap up. Thanks, Jeff. I trust that those of you who've been following the CAPRICORN story since this team took over will agree that we have a strong record of delivering on company objectives. To summarize, we set out to improve the Egyptian business by making it both long term sustainable and a platform for growth.

13:44 We are very near the consummation of that objective with the ratification of those eight fifty fifty concessions in the near future. The new PSC will provide a catalyst for increases in reserves through investment and value improvements. Additionally, we are seeing and hearing reasons to be optimistic about the future reduction of our outstanding receivables and more stable and consistent payment profile from EGPC. And while we have been slower than we'd hoped to be able to deliver or realize an embedded value for us to reinvest in The UK North Sea, we remain steadfast in our goal to achieve this objective. Beyond our current operations in Egypt and our new near term goal of expansion in The UK North Sea, we are actively looking for synergistic opportunities in the areas where we have both capabilities and credibility.

14:38 Well, this is it for the formal presentation. Thank you very much for dialing in, and we'll now turn it over to questions. Guys, that's great. Thank you very much for your presentation this afternoon. And if I may just bring back up your cameras. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab situated on the top right hand corner of the screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a, can be accessed via investor dashboard. As you can see, we received a number of questions throughout today's presentation. Diana, could I please hand over to you to chair the q and a of the team, and I'll pick up from you at the end? Of course. And thank you. Thanks, Randy as well, and good afternoon, everyone.

15:24 Thank you for joining, the call. I'm Diana Milford, CAPRICORN's corporate affairs and investor relations manager. We've had a number of questions come in, so I'll try and keep, try and keep it focused and go for the

15:40 questions that most of you, I think, have voted as a priority. First question, if I can throw this to the group, how is CAPRICORN mitigating cost inflation risks in drilling and services given the step up in activity? I'll grab that. This is Jeff here. So interesting question. There are cost inflation risks. Randy sometimes notes and correctly notes that the issue at the moment is more to do with the devaluation that happened last year. And as inflation pressures come through the Egyptian market around the EGP to the US dollar exchange rate. Not a lot we can do about that. We anticipate that continuing to to to grow as an issue. But generally speaking, across the the asset bases and across the operating companies in Egypt, the inflation risks are

16:33 not as severe as you might expect, certainly in US dollar terms. So there is a lot of work, a lot of activity in country, but there's a a good pool of rigs available both from EGPC, so EGC rigs and and other providers, and across service company suppliers as well, including, for example, ESPs and and other materials and cost basis that we attract attention on. So we're not seeing a significant issue there, but we do keep an eye on it. The biggest thing we can do is to maintain and nudge up our production through the next couple of years to try and reduce our unit costs. Thanks, Jeff. We've got another question in, just on, m and a and our shareholders. So, would you prioritize m and a over returning capital to shareholders, or is there room to pursue both simultaneously given the current balance sheet strength?

17:29 Yeah. It's Randy here. We would we would look to try to pursue both. I mean, in the near term, yes, we have we have a we have we have a healthy balance sheet, but we also still have debt outstanding. As we look out, you know, into the sort of new year, post ratification, there's gonna be a focus on investment. They'll they'll also be always, of course, looking at the, you know, the alternatives to investment, which is, you know, share buybacks and that sort of thing. But everything that we've looked at so far, know, particularly in The UK North Sea, would not require us to, you know, outlay a significant amount of our existing capital, to do that. So it wouldn't change sort of the medium term outlook for returning, capital to shareholders.

18:25 Thanks, Randy. We have a question on cash collections. So we've been asked, how does cash collection moving forward play out to ensure a significant buffer and no cash crunch? We've always operated under the understanding or certainly this management team has where the Egypt asset needs to stand on its own two feet. And so capital activity, operational activity, spend within the country has to be funded from, internal operations. And so going forward with the new concession agreement and with the comfort level of payments coming in from EGPC with some regularity, we would be adapting and and remain flexible around our activity levels as a as a result of that.

19:24 And as always in that jurisdiction, we do see the need to maintain a buffer of cash and working capital within the business in order to support the the business unit. That's great. Thanks, Eddie. And we have just one final question at the moment. I am asking why you haven't repurchased shares. Well, we have, repurchased shares. I think we've repurchased something in the neighborhood of 25,000,000, dollars worth of shares over the past, two years. We we would look to examine repurchasing shares again in the New Year to see whether it fits the you know, our objectives vis a vis other investment opportunities.

20:20 But, certainly, with our balance sheet strengthening and the expectation that, Egypt will, improve on the payment cycle, that certainly will come to, the forefront once again. And that's that's it from the questions that have been submitted. Thanks. Guys, thank you for answering all those questions you can from investors. And, of course, the company can review all questions submitted today, and we'll publish those responses on the investor meet company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Randy, could I please just ask you for a few closing comments? Yeah. Thank you. Well, first, thanks everyone for for for for logging in to to this medium to for us to tell us tell you their current updated story.

21:10 I think the story right now is at a bit of a interesting point in time. You know, two years ago, the entity was, bloated with g and a, a lot of excess, cash going out the door for for exploration, commitments, and, and not focused on the assets that they had, which were which were Egypt and and the potential of The UK North Sea. We we've we've changed all that. We've enhanced the business. We're really on the on the eve of significant improvements to the overall company standing. And I think as time plays out over the next few months, we'll have the ratification complete at some stage, and and it'll all become much clearer as to the potential of the of the base business. And so it's a good if you haven't been looking at the company in a long time, you come back to look at it, probably the best time it's been over the past couple years.

22:10 So thanks very much for, listening in, and we hope to talk to you soon in in the near future. That's great. Thank you all for updating investors today. Can I please ask investors not to close this session? It shall now be automatically redirected to provide your feedback in order that the management team could better understand your views and expectations. This may only take a few moments to complete, and I'm sure it'll be greatly valued by the company. On behalf of the management team of CAPRICORN ENERGY PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.