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Maha Energy AB
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[Foreign Language] Hello, guys. How are you today?
Good, Kaarlo. Thank you very much. How are you doing?
I'm fine. I'm fine. It's nice to see you again. Jonas, Maha delivered a strong result in numbers and as well in quality, I would argue. Could you walk us through the presentation, please?
Thanks, Kaarlo, and thanks, everyone, for turning in and watching this webcast. Yes, Kaarlo, we did deliver a strong quarterly report despite the continuing effects of COVID, it is still impacting our operations in Brazil. But I would say that -- this is not our strongest report, but it's certainly in the top 3. So solid earnings and solid net result. But my friend, Andrés Modarelli, will go through that in a minute.If you have any questions, as usual, you can put that in the YouTube comment field or send it directly to victoria@mahaenergy.ca, and we'll do our best to address as many questions as we can at the end.So without further ado, I'm going to hand it over to my colleague here on my left, Andrés Modarelli, who will walk us through the figures.
Thank you, Jonas. Thanks, Kaarlo, for having us today. And hello, everyone, and welcome to our new quarterly webcast. I'm pleased to present to you our Q1 results today.Jumping right to it, if I can direct your attention to Slide 4 where we present a summary of our financial highlights with the current quarter and how it compared to the past 4 quarters. From a quick glance, you can see each quarter's improving results from the increased production and commodity prices recovery. Specifically, revenue of $15.8 million this quarter was up 41% versus the comparable quarter a year ago and 83% versus the most recent quarter in Q4. EBITDA was also one of our highest, $10.2 million. That's up 59% versus the comparable quarter 1 year ago and almost threefold versus the most recent quarter in Q4. These results or these -- revenue and EBITDA also translated into a high net result of $5.5 million, 74% higher than the result in the comparable period 1 year ago, and in line with Q4 after excluding the onetime impairment charge.The main drivers here were the record production of 3,742 BOEPD. That was up 14% versus the comparable period 1 year ago and up 37% from Q4 2020. Also, the continuing recovery in oil prices improved our realized prices to for $48.46 for the quarter. That's up 22% from the comparable period 1 year ago and 35% from Q4 2020. All this contributed to a higher operating netback that we define as the return on every barrel we sell after deducting royalties and operating expenses. But that was up 21% versus the comparable period 1 year ago and 93% from Q4 2020. Net result was $5.5 million, which represented $0.05 per share in the quarter.Coming to the next slide where we highlight certain balance sheet items in the table that follows. You can see that our balance sheet remains strong and conservatively leveraged. Our cash was $5.7 million at the end of the quarter, and our working capital continue to improve to $8.4 million in this quarter, following high-capital activity between Q4 2020 and Q1 2021. Our total assets, slightly lower. This is just the effect of a slight devaluation of the Brazilian real when translating the financial statements.Our bond -- or our past bond of SEK 300 million in accrued interest were redeemed early in May, following the BTG financing transaction that the company disclosed earlier. The remainder 2 warrants expire at the end of May, so a reminder for everyone. And lastly, no expected dividends as the company remains in [ volatility ].Diving into the key drivers for the Q1 results. In Slide 6, you will see our quarterly production has increased over the quarters and this quarter being a record quarter of 3,742. Also, we can see the steady recovery in oil prices in the top right chart, approaching pre-pandemic levels and basically a 38% recovery from Q4 2020. So between the record production and the increased oil prices, these are the main contributors to a good Q1 and a good start of 2021 as well.Following on the next slide, there's some key metrics that we like to keep track of. And as referred to earlier, our netbacks increased about $16 from the most recent quarter. The main 2 the drivers of this was the higher realized prices of close to $13 per BOE and also the lower operating expenses by almost $5 per BOE this quarter. And as you can see on the lower left chart, the OpEx has now -- is back to the range -- the normal range, between $7 and $8, per BOE, following some onetime items in Q4. And lastly, obviously, we keep driving our cash and levels remain in line with Q4, following intensive capital activity during the last 6 months.And lastly, let's take a look at how our net result has behaved over the most recent quarters. We can see this is the effect of all the positive drivers this quarter, in our high results for the quarter, mainly driven by the higher production again and the lower cost in the quarter.So with that, I conclude my part, and I'll hand it back to you, Jonas.
Thank you very much, Andrés. I just wanted to stress again, I mean we are very pleased with the financial outcome of this quarter. It was better than what we had anticipated in this asset. Not only were we able to work out our production problems from the last quarter but also the oil price worked in our favor. But I think you mentioned that we are back to -- oil price is back to the pre-pandemic level. And it's almost a mirror effect of Q1 of 2020. So if you recall, at the beginning of 2020, the first 2 months, oil prices were at these levels and then the bottom dropped out sort of in March. So very pleased with the development of the oil price, and it seems to be hanging in there, between $65 and $70 per barrel.So without further ado, the Tie field, let's talk a little bit about the Tie field, and I'll start with an announcement on our ESG side. We published our first sustainability report in the 19th of April. We're very happy with that. This is something that has sort of manifested itself, work that we've been doing for the past 3, 4 years already. And it's accumulated in this report. And this is obviously something that will be going on, on an annual basis. On the ESG front, in association with this financing we concluded with the Brazilian Bank BTG Pactual, we had an independent audit done on our fields in Brazil. And they spent 3 days going through all our processes and the like. And I'm pleased to say that we came out with more than a pass, and we are now implementing some of those recommendations that came out of that audit. So we're very pleased with how we're progressing on the ESG side. COVID continues to impact our operations in Brazil. If anything, it's getting harder to do certain work in Brazil. Communication/logistics is becoming -- international travel is a real problem for us at the moment. And hopefully, with the rollout of the vaccinations across the globe, that should ease. Right now, in Brazil, 50 million people have been vaccinated. But their caseload is still very high, about 75,000 cases per day on a moving average basis. And the deaths are down to just under 2,000 deaths per day at the moment. So there's still, obviously, a severe impact in Brazil that we have to navigate.Company specific, I'm pleased to say that -- we did have a COVID outbreak in our company at the beginning of the year. That has thankfully been resolved. No major implications with respect to our personnel. We delivered a record production volume for the quarter in the Tie field. Just under 270,000 barrels of oil were delivered. We also drilled the Tie-3 well where we discovered a new reservoir, and I'll touch upon that a little bit. the Tie-3 well was drilled on the western flank of the field, sort of to the left on the map. And it was important for 2 reasons. One, obviously, to provide an injection point for our water drive that we need to implement and also to delineate and define the structure on the western side. So the well came in exactly as per prognosis. And I really want to commend our geological team for picking those depths in that spot. It's not easy to pick a horizon from seismic and even more so difficult to pick oil water contact 2.5 kilometers under the ground. So a job really well done.But what was really pleasant with this was that we drilled through a new reservoir called the Itaparica and it's situated right above the Sergi. And it can be confused perhaps with the Sergi reservoir. But we found out that not only were the characteristics different of the sand but the pressure regime was also virgin pressure, which means that it was completely untapped. So there's about 800 psi difference between the reservoir pressures in those reservoirs. So that led us to want to investigate that a little bit further. So we spent, I think, almost 3 weeks to try to get Itaparica to flow and take the relevant and required pressure measurements downhole so that we can start to ascertain some sort of continuity and volume of this new reservoir.The well did flow to surface. It flowed just under 140 barrels per day of 42-degree API, which is a higher quality than what we currently produce in the other 2 reservoirs. But we did have trouble maintaining that flow. So we are investigating, and we are analyzing the information. And preliminary suggestions are that it is somewhat tight, meaning that compared to the Agua Grande and the Sergi, the oil will flow a little bit more difficult for the oil to flow to the wellbore. We are ascertaining sort of continuity across the field. This is a reservoir that we don't see on the eastern side of the field but we see on the western side. So it really is an exciting component for us. We don't know what the size of this reservoir is. And we also need to do further work on stimulation to bring up the productivity of that sandstone. And that can be done in many, many different ways. So watch that space, a very, very interesting development.That meant, in turn, that we could not turn on Tie-3 on production as per schedule. So that got delayed a little bit. But we took that as a conscious decision in order to obtain this information whilst we could. On Tie-1, we've had some trouble on the short stream on Agua Grande. That stopped flowing naturally a few months ago, and we put a jet pump on it. And there's been some mechanical issues here. Those have been resolved. And Tie-1 should be back on production full from both streams at the end of this week here. The other positive news I can also convey is that the discount we received for the crude that we sold to Petrobras was renegotiated in March, April. And that reduced in a -- reduction in our discount, which means that we get paid more for our crude that we deliver to Petrobras. So that will reflect positively in our cash flows.Last, but not least, I want to mention Tie-4. Tie-4 is really a landmark well for us coming up. We have been waiting on environmental clearances. We received final environmental clearance for that well beginning of this week. So now the race is on to put the rig back on Tie-4 and drill that first horizontal well in the Tie field. And that really is a backbone producer of the field that would allow us to reach our plateau and maintain it for the next few years. So that is something that we're pushing hard to get done as soon as possible.If we move over to Tartaruga. Tartaruga has been less of a shining star for the quarter, I can say, in the sense that the testing of MAHA-1, or Tartaruga-3, as we call it, took some time and it also impacted production from the existing 2 wells. So Q1 for Tartaruga was not a stellar performance. We have more or less completed the test of Maha-1. And unfortunately, that we are still scratching our heads. We still don't understand where this water is coming from, and that is something that we will have to continue to analyze.With respect to the divestment process that Petrobras was running for the remaining 25%, as you recall, we have 75% working interest there, we were not successful in the bid. The bid has been concluded. And we understand, although we have not been informed yet that -- the new company that will come in will be presented to us in short order.Right, just making sure we're on the right slide here. So on LAK Ranch, we were shut in. We've been shut in, in LAK Ranch in Wyoming since March of last year. We are now starting to look at avenues of restarting production there. Last week, we obtained fluid levels across the field so that we can gather the influx of pressure support that we would expect over the last year.Illinois Basin, that has produced pretty much exactly as we predicted it. The average production for the quarter was just over 200 barrels per day. And we have just started a new drilling program in Illinois Basin. We will drill a total of 4 wells during the summer and add that to production.I will be remiss -- I want to talk a little bit about upcoming events. Of course, we have our AGM tomorrow. Unfortunately, we cannot hold that in person. So that is something that we've communicated that you have to mail in your ballots. We have a Company Day presentation on the 3rd of June. I encourage you to tune into Penser. Next quarterly report will be presented on the 23rd of August. And then we have some events sort of after the summer with actual portfolio. And then we have our own company event in early October.So with that, Kaarlo, I hope I haven't taken too much time, and we can turn it over back to you.
Well, thank you so much. And as always, there is a lot of questions kicking in here. And many of them are referring to questions on the different fields. But I also received some questions ahead of this. And I will personally kick off with a question of my own, and that is to ask you about the composition of the strong result. Because surely, there is more to it than just a strong rebound in the oil price. I believe there were some cost reductions as well as production increase. Would you care to elaborate on this, please?
Yes, sure, Kaarlo. I appreciate that. And of course, one of the drivers in our business is oil price. And that's, of course, something that we have no control over. As somebody used to say, you can't change the wind, you can just adjust your sail. And the way we adjust our sails is, obviously, we have many levers to pull on that. Production is one, of course, but also costs is another. We can increase or decrease our speed, which means we can reduce our cost as well. Now something that's worked in our favor during the quarter is the Brazilian real has been devalued against the U.S. dollar. The U.S. dollar has been quite -- continues to be quite strong. And that has impacted us positively because most of our expenses on the operating side are in local currency, and we get paid in U.S. dollars, so where it's pegged to the U.S. dollar. So that has a very positive effect to us.The other thing I would say is we had a pretty tough quarter last year, if you recall, Q4 was not pretty for us. We had a lot of key wells go down. And we had a lot of issues. That has been resolved. And really now we are trying to catch up on our drilling program. Tie-3, the last well, which was -- it's actually a water injector, but we will produce that until the water drive increases. So that helped add production to our portfolio. So there's lots of things that go into the quarterly results, as you said.
Well, thank you for that. I also received some questions regarding the reporting structure where previously, reported monthly and now it's quarterly. Care to elaborate on that, please?
No. I mean we made a decision. When we uplisted, it became very arduous for us to continue the monthly reporting, corporate governance issues. And there are no plans to go back to monthly reporting. We will continue along the same lines. And this is very much in line with what most oil companies do. So there's no plans to go back to monthly reporting.
And another question here, referring to your new ESG team and the audit. And you referred to coming out with flying colors on the audit. And also, if I'm not mistaken, you refer that in combination with the financial transaction with the Brazilian bank. What's the mechanic behind this?
Well, there's more and more focus as we see on environmental matters, and I think that's good. That's something that we have always taken to heart from day 1. So for example, you will not see Maha dispose of water, all our produced water is treated and reinjected. Only at Tartaruga is it not reinjected. It's trucked. And we have been, and we are looking at, moving that water over to Tie field where we can reinject it there. That way, there's no wastage. And there's we use our resources fully. On the gas side, for example, we don't flare. There's no flaring. We consume all gas. And any gas that we don't consume, we have the ability to reinject that, and I'm referring to the Tie field. So this is something that has already been in works for a long time.Now the time is right for Maha to start to advertise and move our ESG into more focus. We are becoming larger and larger. We're migrating up in the junior oil chain. So at the end of last year, we have a full-time ESG employee that looks after all our ESG issues and also all our environmental issues, so she has a dual function. And I encourage you to go in and check our sustainability report. It's very colorful. It's very elaborate. And we will be expanding on this as we go along to start to -- there are different grading within the ESG community, and we will be starting to fill those report cards out as we grow.With respect to the audit, this was an independent audit, not commissioned by Maha, not paid by Maha in any way, and it was commissioned by the lender to ensure that we ran a good ship. And they had a third-party consultant come in, a handful of people. Spent 3 days in the deal. They went through all our processes and documentation and also made, obviously, physical visits and measurements on our site. And I'm pleased to say that we passed. But like always, there are always -- you can always improve. And I was very pleased to see that we have a very detailed list of recommendations that came out of that audit, and we are implementing those as we speak. They were primarily on the process side, so on the paperwork side. So they were not physical in nature with respect to monitoring of emissions or monitoring of noise and monitoring of affluence to that nature. It was more with respect to the process of recording and disseminating information across the organization. So I'm very happy with that, Kaarlo.
Excellent. So basically, ESG or social responsibility here, it pays to be good. That's good to hear. We have some questions regarding the Tie fields here, and I will walk through the questions according to field here. And there's a lot of questions regarding Tie-4. And you have mentioned that, of course. But if I summarize it here, would the rig be ready to drill? So are you waiting for a go-ahead? Or is there any technical problems as well or some technical issues that you need to fix beforehand?
No. So the story on the Tie-4 is that it's our first horizontal well. You need an environmental permit. The environmental permit application went in a long time ago. And through many, many reasons, it just took time. And I know people are, I guess, sick and tired of talking about COVID, but that definitely has an impact. People are working from home, et cetera, et cetera. So when we finished Tie-3, we did not have the license in hand. So we plan then was to do some much-needed rig maintenance. We have used this rig now for well over 6 months. And I think we've sort of shaken the bugs out of it. And we had a list of items that needed to be maintained. And at the moment, we are finishing that maintenance program off, and we will move the rig on to Tie-4 as soon as we can. And it's imminent, I would say, probably in the next 2 to 3 weeks.
Well, thank you for that. And we have some questions regarding estimates or prognosis from the Tie fields here. Would you be able to give us any volume numbers in total for the production as regards per barrel per day?
No. I mean, look, our production is fairly steady. Now there are obviously -- for example, I think 2.5 weeks ago, there was a major storm that went through the area that knocked out the power of the local electricity grids. That affected the entire Tie station. And we have to shut wells in because there was no electricity. So I mean I think it's pointless to sort of speculate on a day-to-day basis. The fact is we are on prognosis. We are on plan. And we're staying within our range of 4,000 to 5,000 BOEs per day for the entire year.
Well, thank you for that. I think that's clear enough here. We have some questions regarding the Oman field here. Would you care to elaborate on that as well?
Yes. Again, Oman, we're, of course, extremely excited about that. We are progressing that. But I got to tell you it's difficult. Oman had shut their borders. We were able to make a brief sort of visit back in early February, I think it was, or late January. We can't get people on the ground, but we are progressing that. We are obtaining long-lead items. And the plan is to get going in Oman, drilling wells early 2022.
And I believe that you have made some orders regarding equipment. Is that correct? So I mean, basically, you're waiting for the go-ahead.
No, we haven't placed orders. We have to tender these things. There's an elaborate procurement system, and we have to follow that. And so that's -- we're working very hard to -- we've already identified the amount and the type of equipment we need. We've done the engineering. And now we got to go out and get prices and get delivery. So that's what's happening.
You know what you want, but you haven't really ordered it yet. Okay.
Not yet.
When are you planning to start to LAK Ranch? Is that connected to an oil price level or you need anything else?
It is certainly connected to an oil price. And like I said during my presentation, we are looking at these oil prices. We are looking at it. We're going to dedicate some time and effort to see if we can get that going. But it's not only an oil price. We need to obviously have a stable forecast for the oil price where, if it remains at these levels, I think we'll be fine. But if it goes down then, obviously, it's going to be an issue. So we need to get some comfort around that. But we are starting to look at restarting LAK.
And I have a question here regarding your acquisition approach, and I would just read it through. If Maha had an aggressive acquisition investment approach during the oil price drop last year, how are your investment strategy going forward with an expected higher and higher oil price? And I know for a fact when we had this discussion regarding the acquisition that you tended to be a rather cautious general and buying on the cheap, so to speak. So how would you like to comment on that?
Yes. I mean there's 2 components to that. One is that with this energy transition that we're seeing, a lot of the supermajors are divesting a lot of their assets, so there's good quality assets coming on the market. So I mean that's very positive. On the other hand, the second point is, we're a small company and we have constrained resources in terms of people. So right now, the focus is 100% squarely on production. We have amassed our 3 core areas during the past 2 years. We have our assets. I think we've got about 72 million barrels of 2P reserves in our books. So the race is really on to explore those. Now that's not to say that -- if a good opportunity comes up then, obviously, we will certainly look at it. But for the time being, we're concentrating in the areas that we operate.
And in connection with that question, we had a question early on referring to the announcement of securing of the loan financing and equity investment from -- as I understand, that was the Brazilian bank. Why now? And what's the mechanic behind that?
Sorry, you'll have to repeat that question. I didn't quite understand.
Yes. You had some -- you mentioned in the letter to the investors that there was a secured loan financing, an equity investment that was introduced in this quarter. Is that connected to increasing the war chest?
Not really. I mean we didn't do that for acquisition purposes. Like I mentioned, we have about 70 million barrels of BOEs of 2P reserves on our books in 3 jurisdictions. And really, what we want to do to accelerate that production. So for example, in the Illinois Basin, I think we got about 60 drill locations already mapped out that we can drill and add value, especially at these oil price levels. Anything above $60, $65 WTI in a Illinois Basin, it throws off a fair bit of cash, right? So the purpose was really to ensure that we have sufficient funds here now to accelerate our growth profile, not for acquisition.
Yes. And I got a question here, which I think that you have at least partly answered on, and that was the remaining 25%. We don't know who your partner will be, just that you will work with the partner.
Yes, that's correct. We don't know.
No. And you have mentioned the Itaparica reservoir, and it appears to have low ability. What would that really mean for a layman? Would we be able to add this to earnings per share?
Well, I think it's too early to put any earnings per share. I mean there's 2 components to that. You got the productivity, which we have proven. The oil flows to surface. We don't have to pump it out. It has sufficient power and energy to flow to surface on its own. It's of high quality. It's 42-degree API, which is a very light oil. In order to get some earnings per share on that, I think we'll have to define the size and, obviously, have a reduction. Now with respect to permeability, we're not 100% sure. I mean you measure these things with special equipment. And at the best of times, those are not super accurate, but you get an indication. There are many components that go into that. But permeability means really is the resistance to flow. So if a reservoir is tight, if the sandstone is very tight, it's going to take more energy to push it through the surface. And in this case, compared to their neighbors, Agua Grande and Sergi, it's a tighter sandstone, but it's still close to surface.Now there are many things we have in our toolbox to improve that characteristic of the reservoir. So that's where stimulation technology comes in. And we've applied that very, very successfully, for example, in the Tartaruga field. So this sand displays very similar characteristics to that in Tartaruga. So we think that we will be able to apply those technologies in the Itaparica. But this is a step-wise process. Other things that we can do is we can apply downhole pumps to increase the difference in pressure across the sand base. There's many, many things we can do.But this is going to take a little bit of time. We're going to have to probably drill some more wells. Like I mentioned, we do see the Itaparica on the western side of the field. We have no idea how far this sand will go. Westward, northward, southward, we don't know. But it's very exciting. It's actually a very exciting development for the field because, if you're a geologist, then there's basically 2 [ tracking ] mechanisms. And the sort of the Holy Grail has a stratigraphic element to it. And that's what it appears to be today. But we don't know. And so it will be very premature for us to speculate on volumes. So I can't give you a per share number on the Itaparica, except that it was a very, very pleasant, unexpected surprise when we drilled through it.
Well, I think we can conclude that you deserve that after last year's events with the COVID and the oil price and stuff like that. And just to conclude there with Itaparica, the best is yet to come, I take it.Now if there is any further questions, where should the investor turn to, go to your web page or are there any -- you mentioned a timetable where presentations and so on will be forthcoming. Any particular, well, milestones that we should look at for the coming quarter?
Well, I think we have a company presentation with Penser here on the 3rd of June. And then we start back up in the fall. And as always, we also have an in-person -- I hope we can do the in-person presentation in Stockholm in early October where we invite shareholders and investors to come and listen to the whole Board, it's generally there at the same time, so you can pose questions to our Board members. So apart from that, I think you can always send your questions to Victoria, victoria@mahaenergy.ca, and she would be pleased to answer. Anything that she can't answer, of course, then she'll pass that on to me.
And then I would just take the liberty here of throwing in another question here, which I think could be of interest because, apparently, there seems to be a discrepancy between barrels per day from a Brazilian government website from your own estimates. And I must admit I wasn't aware that the Brazilian government had information on barrels per day as far as you're concerned. Can you comment? Is there something you would like to comment on?
Well, I can comment. Definitely -- I mean it's public knowledge. But those numbers are not the same numbers that we present. I mean to begin with, we present sales numbers, what we actually get paid for. And then there are inventory effects. For example, at Tartaruga, the crude oil gets produced, and then it can be lifted at a later date. So it can give you a skewed view of our monthly production. So I would encourage everyone, by all means, you can follow it there. There's nothing wrong with that. But at the end of the day, the numbers that we deliver at the end of every quarter is what needs to be [ looked at ].
Excellent. And so basically, you had very strong results, and it's a combination, obviously, of a rebound in oil price but also the efficiency measures that you have taken. And you're fairly well dressed for continuing exploring the oil fields, which you have in this case. And we will be looking forward for the next quarter. Would I be right in summarizing in that way?
I think so. And I want to take this opportunity really to thank all our steadfast shareholders who have been with us. I know it's been a roller-coaster at times. COVID was a blast one event that nobody could have foreseen, and it's really thrown a monkey wrench in the works. But really, we do appreciate the steadfast shareholder support that we get. And also, all our guys are working their butts up on a daily basis. And I know that a lot of people pull long hours for us also. That's great. And lastly, let's just have a great summer. Hopefully, we can get out and about and start to socialize again, which will be a nice change.
Well, I think that was probably the best note to end this presentation. Well, thank you, guys. Very informative. And as always, if there is any more questions, and I'm sure there's a lot of questions and they are often referred to the production, you are pleased to forward those to the company directly.[Foreign Language]