Star Energy Group (LSE:STAR) — 2025 AGM Trading Update

0:02 Good morning, and welcome to the STAR ENERGY GROUP PLC twenty twenty five AGM trading update. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time using 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 received during the meeting itself. However, the company can view your questions submitted today and publish responses, which is appropriate to do so. Before we begin, I would like to submit the following poll. And I would now like

0:32 to hand you over to CEO, Ross Glover. Good morning to you. Good morning, everybody. Thank you for joining us today for our AGM trading update. So I'm Ross Glover, company's CEO, joined by Francis Ward, our CFO. So today's update is relatively brief. It's as follows from the last trading update, which was three months ago, and our annual results two months ago. But it's a pleasure to be here today to discuss the progress we've made and the growth story that we're building.

1:10 So STAR ENERGY, our strategy is clear and focused. We are maximizing the value from our onshore oil and gas assets with a real focus on profitability and making that business more resilient to commodity prices. We're building our geothermal businesses. But in building those geothermal businesses, we're flexible as to how and when in the project development cycles we realize that value. And we firmly believe that pursuing this strategy will, in the medium term, build sustainable shareholder value.

1:51 So I've been in the role for a year now. At the AGM in 2024, I committed to a number of actions. The first was to rightsize the business. We've conducted an internal audit of all material costs in the business. And through implementing a cost rationalization program, you can see we've made significant cost savings on our G and A. So over the last couple of years, G and A was running at about $7,000,000 a year or just over $7,000,000 a year with forecast at 4,500,000 this year. And that is

2:28 a long term step change in our G and A. It's not a one off. So the second sort of commitment was to simplify our business. That, in some cases, meant giving up some optionality that we'd we'd been preserving at fairly high price. So we relinquished our Northwest Shale acreage and some wheeled exploration acreage, But it also meant monetizing assets that we no longer used within the business and were surplus to requirements. We have, however, retained some strategic exploration acreage in the East Midlands. And the third commitment was to bring in some cost discipline around our spend across the business.

3:21 When we look to geothermal, we continue to invest in our geothermal business. It is our growth engine. We invest with line of sight to value, and we've established some very important strategic relationships with the likes of BRING ENERGY and Veolia. And so we feel in this last year, what we've developed is a solid foundation for growth. It is our clear focus now on delivering shareholder value, and that that that that's through pursuing our strategy of of that that I've described. So I'll hand over to Francis now with our operational update. Good morning, everyone.

4:06 So just a little update on on our hedging strategy. We are required under our finance facility to hedge 20% of production. We do this on a basis throughout the year, but we also took some the opportunity, given the recent volatility, to put some additional hedges in place. And in terms of our hedging strategy, it is about protecting the downside and but still keeping some upside optionality there. In terms of our net debt, we had net debt of 1,900,000 at the end of May, and our cash balances were 10.5. And we're on track to repay facility a of our under the facility by the end of June.

4:55 Our CapEx spend remains at 10,000,000 for the year. That largest part of that is 5,800,000 that we're spending on our Singleton Gas to our project. Production remains in line with guidance at 2,000 barrels per day. So everything going well on that side of things. And, know, Ross talked about not holding on to some of our noncore acreage. What we have held on to is is the exploration acreage in the Gainsborough Trough, which is which has shale exploration value, but it's held at a very low cost.

5:35 K. Let's just move on to sort of where we are, excuse me, with geothermal. No. We're obviously leveraging our our subsurface, well engineering, surface development skills that we developed in our in our oil and gas business, and and we've had for many years in our oil and gas business, leveraging those into geothermal exploration and development in both Croatia and and The UK. In The UK, we have first mover advantage in a very, very large market. I was at a a government meeting yesterday. There's an open acknowledgment now, certainly within civil servants, that the decarbonization of heat is a pretty important part of the decarbonization agenda in this country.

6:29 There are very few decarbonization options for large heat users, and geothermal is clear solution to that. We are seeing increased demand, significant demand actually from existing heat network customers. They are demanding not only decarbonized heat, but they want long term price stability. And that's where a lot of the demand comes from, and we can offer that through geothermal energy. Our pipeline grows, continues to grow. We are particularly focused on maturing that pipeline, and sort of importantly, in that is establishing relationships with existing heat network operators.

7:19 It's a it's a an easier route to market for us. So we have an MOU with BRING ENERGY to decarbonize and extend the existing Southampton District heat network that actually has a geothermal well feeding a small amount of heat into it. So it is seen as proven. It's it's that is a a good project for us, and we'll we are looking to mature that rapidly. And, obviously, a relationship with Veolia who approached us looking for decarbonized heat solutions for their 100 plus networks and energy supply contracts. That's at fairly early stage, but it is a we hope will be a very fruitful partnership.

8:06 In Croatia, we've we've sort of said it before, very strong government support, increasing investor interest, and actually very positive results. The the the Croatian government has actually drilled four or is in the process of drilling four exploration wells around the country to acquire more data. They actually well tested one of the new wells they drilled over the last couple of days, and the results are extremely positive

8:38 from from we understand they're extremely positive from the the the media position. So again, more positive news from other industry players in in Croatia. We have a very strong license position right in the center of the Drowned Depression, which is where the geothermal hotspot is in Croatia.

9:02 So, you know, very, very positive about our small but growing geothermal businesses. So really just turning to, you know, what what what is our focus.

9:18 The first is maximizing the cash flow from our existing business. We are targeting self funded geothermal businesses through through grants and farm downs. Now the the they are that is work in progress. We do access fairly significant grant monies within The UK, which helps with that self funding. But, really, the target is to have self funded geothermal businesses in the in the medium term. In terms of the investment in those businesses, we are very much we look at projects on a case by case bay basis.

10:07 We have differing partners in different projects who wish to in some of them wish to invest in those projects themselves. Others are looking to coinvest with us,

10:23 all of which means that there's a fairly flexible monetization strategy for those. We are very clear that there are certain value inflection points in these projects, and we're very clear that we need to recycle capital within the business. We are certainly a geothermal developer. We have all the skills to operate. Ownership of those projects, we are much more flexible around.

10:54 And I think as a business, you know, we are reducing the optionality, within the business, but we we do retain some key, strategic optionality. That's principally around some of the exploration acreage that we have in East Midlands in and around where Springs Road well was drilled in 2019. And we obviously have a significant tax loss position, which we in a in a more certain environment, even though geopolitically, it's less certain, we will look to see how how we can monetize some of that.

11:36 And really, that all hangs around disciplined execution. We need to be very, very clear around our capital allocation priorities. And where we do commit capital, we need to to know that there is value at the end of that.

11:52 And so really, in terms of how we build shareholder value, we believe we have significant growth opportunity in geothermal. It's underpinned by those oil and gas cash flows, which we continue to work on.

12:08 But we have strong cash flows from that business. We have a finance facility that supports the company's diversification. We have our very deep expertise both in the subsurface and surface development, and that sits both in The UK and in Croatia where we have local representation or local expertise.

12:31 And that gives us the the the the platform to build a power generation business in Croatia, where we have a very strong government support, and it allows us to continue developing our our heat production business in The UK where the recent results of the spending review point to a doubling down of the government's decarbonization plans. So I think this gives us a resilient, focused and forward looking business. We're very confident that our strategy will deliver shareholder value.

13:19 So thank you for your support, look forward to your questions.

13:28 To submit your questions using the Q and A tab situated on the top right corner of your screen. While the company take a few moments to review those questions submitted today, I would 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. Ross Francis, as you can see, we have received a number of questions throughout today's presentation. And Ross, if I may not hand back to you and kindly ask you to read out the questions where appropriate to do so, and I'll pick up from you at the end. Thank you. Okay. Thank you. Let's move to some of the the the presubmitted presubmitted questions. So for STAR ENERGY, what is the breakeven level for Brent price and UK gas price? Suppose that's around our cost buildup. Francis, do you wanna take that? Sure. So in in terms of cost, you know, we are an onshore operator with relatively mature fields. So our OpEx is high.

14:24 It's about $42 per barrel. G and A is about $8 per barrel, and our routine sort of ongoing CapEx is is is, again, about another 7 to $8 per barrel. So that takes us to about $57 per barrel before we we look at investment CapEx, investment into our geothermal assets, tax and interest, and and and those, of course, are variable depending on capital allocation and and oil price.

14:57 Okay. It's a question. Are any other asset sales underway similar to the recent land parcel sale?

15:06 So relatively easy to answer that. You know, nothing currently, nothing else is underway. You know, as you know, last year, we sold our Hollyborne facility and and some other nonmaterial landholdings. We do own a number of freehold properties on which our operating facilities are located. And in the future, they could well be monetized. But right now, you know, there are obviously operations on those. K. And next question. Are any serious discussions underway to farm into The UK hydrocarbon projects within the STAR pipeline?

15:51 So I think we've obviously got three hydrocarbon projects which have all sort of various consents on them and and and and up relatively our shovel ready. So the change in government and tax regime in 2024 farm stalled any sort of farm out process and actually stopped any farm out process from happening. We're now faced with sort of wider geopolitical uncertainty and very unpredictable commodity prices, which means that there's very much sort of a wait and see attitude amongst buyers. We do, however, have all the rights and consents that we need to execute those projects.

16:45 K. Next question. When does the Singleton Gas to Wire project expect is expect to start? Could you refresh us to pay back an IRR? Okay. So the project expects to come online in late q four twenty twenty five, and that's pending the finalization of of necessary grid upgrades by the DNO. Payback period for the project is actually seven to eight years. It's it's very dependent on power pricing. I think it's really important to note that project at Singleton, which is, you know, it's our highest producing site, one of our lowest OpEx sites. It's very important to us. It's sort of heavily influenced by regulatory requirements, but it does future proof the operation of that site. So it's a it's a very key project for us.

17:47 Right. Next. Sorry. Why is the cost cutting goal so low, and why can't more be done sooner? Francis, do you wanna take that? Well, I think we have significant savings in our g and a cutting from about 7,500,000 to 4.5 going forward, and and we should be able to maintain that lower level of of g and a cost. On OpEx, it's it's much more difficult, you know, again, because of the nature of our fields, and they are geographically dispersed and they are mature assets. And so limited opportunities for cost saving. However, we have made some and we'll continue to look for some. But on a it it really is us trying to offset any inflationary increases.

18:35 In order to to sort of make most significant savings on OpEx, it would require some abandonment of of some of our fields, and that would have to be full field abandonment rather than just individual wells. And so that comes down to capital allocation in terms of timing of of abandonment and and where we invest our capital. But it's something we we continually have under review. Okay. Has STAR considered selling its oil and gas assets and becoming a pure play geothermal firm as this is where CEO management expertise appear to be? So I think look. They we're not actively working on the sale of our oil and gas business.

19:23 But as with all of these things, if an offer was received that would deliver value to the shareholders, then we would have to consider it, and we would consider it. Just on on sort of the expertise side of things, you know, both sort of management and operational staff is absolutely an oil and gas exploration, development, and and and operation. You know, we're we're leveraging those skills into something that's directly sort of relevant and applicable, which is geothermal development as a growth strategy. We have relatively limited growth opportunities within our UK oil and gas assets.

20:15 And so and, frankly, we have a fairly negative government stance on oil and gas. I think that's that's no secret. We are looking to leverage those skills into an area where there is a growth opportunity. There is very positive government support. But, you know, our expertise is founded in oil and gas. Right. Questions on Croatia now. At what stage would you consider farming out your Croatian assets? And, actually, I think Francis can take this one. And the next one, which is what what is the ongoing cost of the Croatian business?

21:05 Two questions. Okay. So so in terms of of farming down our our Croatian business, I think we would look for an investor to come in in the sort of exploration appraisal stage. That would be our goal. In terms of cost, our cost for for 2025 or for Croatia is about the 500,000 mark. That includes all the sort of salaries and costs of our operation office, but also g and g geological and geophysical work that we're doing to to further derisk those assets. Okay. Q. Right. Sorry. Getting lost in questions here.

21:51 Have any new institutional investors joined the STAR share register? Francis, do you want take that one, Joel? No. The answer to that is no. We haven't had any new institutional investors. However, we do keep in close contact with our existing investors, and we do they are very supportive of our strategy and what management are doing. Okay. K. Back to Croatia. What are the license commitments in Croatia? Well, as you know, in Croatia, we've got three licenses, two in their exploration phase, and they do have license commitments on them. So the Setsha license requires three wells to be drilled, three exploration appraisal wells to be drilled.

22:38 The Celic sorry. I beg your pardon. The Celic license requires four wells to be drilled. The CELICH license requires three wells to be drilled. They would need to be drilled by h two twenty twenty eight. The license commitment on the license had been satisfied, was satisfied during the course of last year, and the license is in the process of being converted into an exploitation or production moment. K. Let's keep going. Right. Is the management or board evaluating a reboot as the hydrocarbon and geothermal barbell strategy has not excited the market and is not appealing to pure play investors in either sector?

23:38 Okay. I think, look, we're not happy with the share price performance. However, if you look across the our peer group in the pure play hydrocarbon sector, there's exactly the same issue there. We're on AIM, which is is unloved, particularly for smaller oil and gas companies. We believe that our diversification will deliver growth and a share price rerating. We and that's that's the strategy that that that the company has been pursuing for a while now. It will continue to pursue that, obviously, in a very focused manner.

24:28 Yeah. So so, you know, no. The we're not considering a reboot. The reboot as it was, I think, has been over the last year where we've become a lot more focused and disciplined around things. Okay. Right. Couple of questions. Questions. We talked to that. Right. Perhaps, Frances, you can take this one. Are you, excuse me, are you lobbying for any EPL relief for transition companies? The answer to that is Oh, well, yes. We did when when the EPL first came out. We did lobby, you know, trying to get some relief for that the the fact that we're transitioning into a decarbonization type company.

25:23 We weren't successful, but we continue to lobby, and we work with people in the industry to try and and get some some help with that. There there's not a lot of we're not getting a lot of attention right now for that or a lot of support from the government or HMRC. Yeah. Interest just to add to that, it's interesting, and this is been browsed a few recently is that there is a there is surprise from people within the Department of Energy Security at net zero around the tax position that we face. Obviously, they're not the decision makers, but it it it does sort of show you that there's not much of a read across in government sometime sometimes.

26:11 Okay. I think on the questions, we will probably and I'm conscious of time. I think if I can hand back Yes, Ross. That's great. Ross Francis, thank you for addressing those questions for investors. And of course, the company can review your questions submitted today, and we'll publish those responses on the investment company platform. But Ross, before redirecting investors to provide you with their feedback, which I know is particularly important to the company, could I please just ask you for a few closing comments? Yes, sure. Okay. Well, thank you all for attending today. We appreciate your time and your continued support. As you've heard, we've got a clear and disciplined strategy.

26:59 We've made some some strong progress in making our business more resilient, more focused. We're now clear that our focus is on value creation, where we're leveraging our onshore operational expertise to open up high value geothermal opportunities supported by a growing pipeline and some pretty strong policy tailwinds. We acknowledge the share price does not yet reflect the value that we're building, but we're confident that delivering our plan will unlock that value. So thank you for your continued support of STAR ENERGY. Ross Francis, thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the Board can better understand your views and expectations?

27:46 This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of STAR ENERGY GROUP PLC, we'd like to thank you for attending today's presentation, and good morning to you all.