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Maha Energy AB
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Hello, guys. How are we today?
Well, from Oman, we're doing very well. Thank you.
Excellent. Jonas, you delivered a record quarter as far as revenues are concerned, please take us through the presentation, the quarter and the future outlook, if I may.
Thank you, Karl. Yes, indeed, we did have a great quarter. Of course, we're not super happy about everything that's transpired during the quarter. We did have a lot of problems on one of our horizontal wells, which we'll get into during the presentations. But I do want to underscore before I hand over to my colleague here Andres Modarelli, who will walk us through the financials that this is our 16th straight profitable quarter. We were very close on beating our previous net result record, and that is largely due to strong production and very good and solid oil prices, which we are enjoying. And just before I hand over to Andres, like you said, you can always also send your questions. If you have questions during this webcast, direct it to Victoria at mahaenergy.ca. We have already received a lot of questions. There's a lot of interest in the company, which we appreciate. We have had, like I said, some setbacks during the quarter, which we'll get into. But I'll let Andres walk us through these sterling figures. Andres?
Thanks Jonas , and thank you, Kaarlo, for having us once again. Good day, everyone, and welcome to another quarterly webcast. So to start off, let's jump right into Slide #4, where we show certain financial highlights that we like to go through. And we present them for the last 4 most recent quarters. This time, the Q3 was subject to a limited review by the auditors following our uplisting last year. This is a requirement. So as you can see, this was a strong quarter, very strong quarter. We had record revenues of $19.5 million. That was up 28% from the most recent quarter and up 74% from the quarter a year ago. Also record EBITDA this quarter of 12.9%. That was up 44% versus the most recent quarter and 134% or more than doubling versus the quarter a year ago. This was mainly as a result of our production. This quarter was 3,610 barrels of oil equivalent, which was 1% higher versus the quarter a year ago and 16% higher than the most recent quarter. Also, a big contributor of these results was Brent Price. Per barrel, the average was $73.47. For this quarter, that's up 71% from the quarter a year ago and 7% versus the most recent quarter. This, in turn, generated also some very healthy netbacks of 41.17 BOEs, and that's up 95% versus the comparable period a year ago and 16% the most recent quarter. This, in turn, generated a very strong net result close to some of our record net result, which was up 134% versus the most recent quarter or 230% or more than tripling than a year ago. This 6.1 million restock translated into $0.05 per share for the quarter.On the next slide, we also present certain balance sheet items. As you can see, our balance sheet remains strong. We have cash of almost $32 million at the end of the quarter and working capital surplus of $30 million following the refinancing earlier this year and after high capital activity during this year still remaining in net working capital surplus. Our net debt was approximately $23 million at the end of Q3. And the company has presently no dividend policy.On the next slide, we will go through some production charts and pricing. You can see here how our Q3 increased 16% versus Q2, which has suffered certain well interventions. But this quarter, production was back to 3,600 barrels of oil equivalent. That, combined with a steady oil price recovery that we've been seeing from the last year, 71% since Q3 of last year and 7% since the most recent quarter. Both of these factors were the strong contributors to the record revenues and the record EBITDA this quarter.On the next slide, these are some metrics that we keep -- we like to keep track of. First, netbacks, which is what remains after each barrel is sold after paying royalties and operating expenses, which for the quarter was $41.17 per barrel. That was a 95% increase versus a year ago and a 16% increase versus the most recent quarter. This -- in this present quarter in the current quarter, it was a combination of the higher oil price and the lower operating costs.With that, please lead to the chart on the bottom left, where we can see that the OpEx this quarter was $10.1 per barrel. That is a decrease of about 22% versus the most recent quarter. This is still higher than a year ago as this quarter did experience certain onetime items or costs such as repair and maintenance and also higher electricity generation costs than expected.Last, we also keep close track of our cash, which, this quarter, we ended at $31.8 million. And this is after a quarter of high capital activity and interest payments as well, which explains the decrease versus the the past quarter. Last and not least, we have our net result, which was close to being a record this quarter, EUR 6.1 million. It's been the highest so far in this year, and it was the combination of -- as we went through of the higher revenues and the lower operating expenses this quarter. It would make it the -- this would be the 16th profitable quarter if we exclude impairments.So with this, I conclude my part. Jonas I hand it over to you.
Thanks. I'm sure there might be some questions on these numbers here as -- when we go into the questions-and-answer session. So thanks, Andres. If we skip to the next slide, I'll run through the operational activities on the different assets, and we'll start -- before we start with that, I just want to comment a few things on the figures actually. You mentioned that oil price was up 71% compared to this time last year, which we've seen a steady robustness of the on market through the year, and we continue to believe that the oil price will remain very, very buoyant and very robust going forward. This is a result as we're coming out of COVID. And COVID still affects us to a lesser degree, across all our operations, we have had a quite significant impact in terms of -- particularly on our personnel during the quarter, where we've had quite a lot of individuals in our workforce that have had to stay at home for COVID-related reasons. But hopefully, we can put this behind us in the near fuse. Brazil, for example, has a very high vaccination rate, and we are seeing steady decline in cases in Brazil. You did mention that we do have a very healthy debt -- net to debt ratio. I think it was the $21 million you said to that effect. For a company our size with the load that we carry, I believe, it's very good. If you can skip forward one slide to that you feel there you go. Thank you. And also, something that people underestimate is our netbacks. Right now, our netbacks are over $40 per barrel. That means for every barrel we produce, there's $40 to pay for capital expenditures and G&A and further expansion. So you just have to multiply that by the number of barrels per day, and you can see the kind of cash that we're throwing off. So we're very happy with that on a going-forward basis. And I do believe if you compare that to our peers, particularly in Sweden, we will rank among the top companies there.Going straight into the tea field. In terms of production, it was not a record quarter. It was close to it. You can see, for example, our 257 or 0.25 million barrels delivered. Our gas is increasing as we decreased the reservoir pressure, our gas is coming up. We are moving to relieve that in terms of water injection, and we'll touch upon that a little bit later. And of course, that's not a -- we want to keep the gas to the minimum as we can. During the quarter, we did spud the Tie 4 horizontal [Audio gap] now twice, we are currently on our third sidetrack and currently drilling 8.5 inch production hole. As of this morning, we were just at 1,900 meters. And , things are going well there. And I believe there are quite a lot of questions regarding this in the Q&A session. So I'll leave that for the time being. During the quarter, we've also stimulated the Tier-3 well. If you recall, Tier-3 was the western most hybrid water injector production well. That came on at -- we tested that, I think, just under 600 barrels per day. Once you put that on production through the system, there's more back pressure, which explains the lower production numbers. We did assetize that section. We stimulated it, and we got almost a threefold increase in production from that. So that was a very successful stimulation. We will keep this well on production. It's not a huge contributor to our field, but it does every barrel counts, as to say. We will turn that into water injector in the beginning of next year so that we can start maintaining pressure and increase ultimate recovery. We did do some more covers. Tie- 3, mentioned already. Tie-2 was down for a period of time. We were attempting to put that on jet pump. We did have some problems on that. So we put that back on production. I think it was down for a total of 8 days during the quarter. And Tie-2 is one of our major contributors. And last but not least, Tartaruga-1 developed a tubing leak very close to the wellhead on the 12th of August, and that has been down for the entire quarter because it needed a workover rig, which was eventually located and mobilized in October, and that well is now back on production, being dewatered for stimulation and workover fluids. One very positive news I want to share with everybody is that due to the COVID situation in Brazil, the government of Brazil decided to review the royalties that we pay to the state. And we classify for a reduction in royalties. Current royalty is about 10%. And it is likely that we will see a reduction of that in, what, 90 days thereabouts there are early next year by 2.5%. So a total of 7.5% royalties. So that will definitely make a good impact on our bottom line because it is gross royalties was taken right off the top. On the negative side, I've mentioned, we did have a lot of -- and we still continue to have delays on the Tie-4 horizontal. That well was originally scheduled to be on production to the end of September. It is still being drilled. And the last update I have is that it will come on production towards the end of this year. And like I said, we are currently drilling our third sidetrack on that.Let's go over to Tartaruga on the next slide, please. Relatively benign quarter, we did see impact of Tartaruga-1 going down because of this tubing leak. We have to close the well in and repair that for safety reasons. And Petrobras divestment, we've received some questions on that. That is still ongoing. Last update we received for Petrobras was that they were in final negotiations with the buyer, and we would be notified as and when that would close. And again, royalty will be reduced on Tartaruga as well, which again, will impact us positively on the bottom line.If we then go to the next slide, we can talk a little bit about LAK Ranch and the Illinois Basin. So LAK Ranch, nothing new has happened. That is still shut in. We did have to do some minor work during the fall to be in compliance with regulatory requirements in testing. I think it was about 10 wells, integrity testing that was carried out and performed. If we skip our Illinois Basin, we had a very, very busy quarter. We drilled and stimulate a total of 12 wells there. And at the end of the quarter, 3 -- 5 wells had started showing oil and sixth one was just turning from water to oil and the other ones are being dewatered. All wells are now being dewatered. The remaining wells are being dewatered and all are hooked up on pumps. And we would expect to see all those 12 wells contributing to our bottom line and towards the end of the year. The process there is we drill the wells, we stimulate them, and then we put them on production. And the first thing you have to produce back is the stimulation fluids that we pump into the wellbore, which could be in the thousands of barrels, so it takes about a month for these wells to produce just water essentially until it breaks 2 to oil. I haven't included Oman on this presentation, but I can give you an update there. All on the items for next year's drilling program have been purchased, bar, the downhole pumps. Downhole pumps are available here in the country. We do not expect any problems of obtaining those. And right now, we are staffing up here in Oman. The country opened up on the 1st of September for foreign travel into the country. So we currently have, I think, about 4 or 5, 5 people in the country, getting ready for drilling next year. And a big -- the next big thing for us is to contract the drilling rig. And from there, we can then work backwards for schedule.Go to the next slide, please. Just a few things upcoming events, not really much here happening over the next 5, 6 weeks as Christmas and the holidays season set in on us. We do have a Q4 report at the end of February. We aim to release our reserves at the end of January, and we have a SparBank1 annual presentation also on the second of March.And that concludes the presentation. If we go to the last slide. If you have any questions, please write them in the comments field, and I'm sure Kaarlo will do his best to include as many questions as possible. But I know that we received over 23 questions ahead of this Q&A session. So I'll hand it over to you and leave you to ask the questions that we have been post.
Thank you. Excellent. Yes, thank you. And as you said, there is a lot of questions, and we're happy to throw in questions during this presentation, and you can write them down in Swedish or in English, and then we try to translate as the best of our ability. My first question is regarding earnings before interest, tax and depreciation or depreciations, rather. So I will make a short translation here. There are a different concept about writing off or depreciation of oil assets, are they different? Or is every country the same other rules the same? What kind of methods do you use? And is there any scope for flexibility? And if so, how would you use that?
So we use -- well, I appreciate the question and the viewers are thinking about ways to improve our bottom line. But we follow the unit of depletion rate, which is basically -- or the most commonly used oil and gas depletion method. And we're pretty much bound by the accounting rules, i.e. IFRS. And basically, very roughly, the calculation is, takes all of your booked fixed assets plus your future development capital, and you divide that over your total reserves, your total 2 key reserves. And that's what gives you this unit of depletion rate, which you apply to your production over the year. And that's what determines our depletion. But if the viewer has any thoughts or ideas, please feel free to e-mail me.
But it is the same across all countries?
Yes, yes. It's the same over -- across each cash-generating unit, which is effectively each jurisdiction where we operate.
Well, thank you for that. And then I will bake in 3 different questions regarding -- well, the downwards revision during the year of the production targets and certain communications and stuff like that. And is basically, how do you handle an extreme volatility in the oil price and in comparison to last year, which was , as you could say, with the COVID, walk us through the different components there. Is it time to change any way of communicate to the market?
No. I think -- I mean, you posted a very good question. And I know that we're just as frustrated as all our shareholders with respect to a downward revision. Like you say, the past 18 months have been tough. So to begin with you, have the volatility of the oil price, right? So that affects us directly. But we can do nothing about that. We have to just so you can change the and we can adjust our sales, and that's what we try to do. The other, of course, is scheduling. And that's been -- we've been hit very hard on scheduling. When we make these estimations about future production, we sit down with the information we have in hand. And we do our utmost to -- obviously, to calculate and communicate what we believe to be a reasonable estimate at that point in time. This year's downward revision is very unfortunate because, obviously, we -- the oil price increased pretty much in line with how we should have increased our production on Tie. But that is purely driven by the whole problems that we have on Tie-4 that has affected the production start-up of that well. In fact, when we analyze the other production of wells, those wells are actually producing slightly above what we predicted. So it is very frustrating for us. And of course, it's -- I understand it's frustrating for all our shareholders as well. But we're doing our best, and we're acting on information that we have at the time when we make those prognosis.
So basically, you will stick to the guns, and you will give the updates accordingly, as you had done in the previous year, is that the way to interpret it?
Yes. I mean, we report quarterly, and that we will continue to do so.
Yes. And just one follow-up question here, which was a recent press release or a later press release, it was communicated that Maha was producing 4,000 barrels per day, a statement that may have caused some confusing amount in the market. Could you walk us through that?
Yes. That was a press release that we released on the 15th of September, where we essentially flagged that we were having delays on Tie-4. Tie-4 was scheduled to be in production at the end of September. And on the 15th of September, well, a day before, I would say or 2 days before, we got stuck. And on the 15th, we realized that we were not going to be able to get unstuck. And therefore, we also realized at that point that we were not going to be able to keep to our schedule. And of course, we immediately then communicated that to the market. And on that particular day, our production was 4,000, I think, 150 barrels per day. So perhaps that might have cost confusion. We understand that. We do get a lot of questions about our production because people want to find out where we are, and how we are doing. And so we take those opportunities to update our shareholders what's going on. But in this case, you have to be very careful because what we communicate, and we will have to take a look at this on a going-forward basis. Our production estimations are based on an annual average, okay? And what we communicated on the 15th was a snapshot on the 14th of September, production from the 14th of September. So it's not that we communicated false information. You have to read very carefully what we write. And I think we will take that criticism onboard, and I think we will revise on how we communicate our production because it is a continuing area of concern for not only our shareholders, but also for ourselves.
Well, thank you for that. Brazil being one of the countries hardest hit by COVID and its restrictions and also could be worthwhile pointing out that as a Swede, we're probably not really fully up to speed on how the restriction has worked. Could you give us an update?
Like I said, Brazil suffered very hard for the -- well, up till about June, July this year, they had very high numbers. And particularly, the hospitals were overwhelmed. And so as the COVID situation unfolded, there were major travel restrictions in the beginning. In fact, people were not allowed to leave different municipalities. Certain cities even shut their borders, did not allow their citizens to . So that had a direct impact, of course, on our operations there. But Brazil has been very efficient in rolling out their vaccines. However, they have used non WHO or some of their vaccinations have been non WHO accredited vaccines. So that has limited travel as well. And of course, as a foreigner going into Brazil, it has been very tough because essentially, there have been very limited flights. Getting into Brazil hasn't necessarily been that difficult, but getting out of Brazil is the hard part. And therefore many months, for example, if you were a European, you might not be able to travel back to Europe on, say, Lufthansa or Kalam because they would only take their own nationals. It was a very fluid situation and made planning and logistics is very difficult for us. Never mind the logistical backlog that we now see due to COVID around the world where ships are not being offloaded, et cetera, et cetera.
And just a follow-up question there. As you have activities, well, if not in the whole world, but in various parts of the world, how do you secure that you're updated on what's going on in the fields? And how are you keeping -- well, control of the activity and the development?
Right. So I mean we have line managers that are in charge of various operations of drilling, production operations and project implementation. We have weekly management meetings with all the assets in Brazil, United States and Oman. And then on a lower level, our operational guys have daily meetings and daily contact with all the line managers of all our assets. So there is very, very good communication between all the levels across the company. We are a small organization. So there's a lot of lateral communication as well. And I got to say, I mean, obviously, Zoom and teams have been a godsend during these times when we're not able to directly participate in person.
Well, thank you for that. This being an extremely difficult year. What, if any, milestones or achievements are you proud of?
Yes. I mean, it was a very good question that came in. And I got to say I am very proud what we have achieved during this pandemic. Let's not forget, just 18 months ago, the oil price actually the 20th of April last year, oil prices were negative. So we've had to react to a lot of different externalities that affects our business. But probably, the biggest thing I'm the most proud of is our refinancing that we did at the beginning of the year. That was a major threat to the company. We started that process already in 2019, just before the COVID pandemic hit. And we also, what happened to the markets. I mean, the markets were essentially noncontactable for better part of 12 months, and we were running up against the deadline of the 27th of May 2021. So we pulled out all stops to get this refinanced. And in -- at the end of the day, we actually had 2 options to go for. And they may not be the most cost effective, but at least they were competitive. We had 2 different options to go with, and we went with the cheapest option. And the fact that we were able to refinance the existing bond and also fund future growth for the company is extraordinary in this environment. So I think that's probably the proudest thing that we can look back on for 2021. Having said that, we fully understand and realize that, and are just as frustrated with the schedule slip that we see on Tie-4. Tie-4 is a major, major well for us. It is a horizontal. It's 600 meter horizontal in Agua Grande . The Agua Grande is by far the best reservoir that we have. We're expecting great things from that horizontal. And again, it is the first horizontal that we drilled in the Tie Field. So when that comes on production, we can expect that we move up to the next level, and it's just extremely unfortunate that we've ended up in such schedule that which cause of all problems.
And I'll jump into a couple of technical questions here, and we will start with -- well, Tie-4, which is a good segue here. What specific new actions are you taking on the third attempt of the drilling? And what's your confidence level to succeed on the third attempt?
Yes. So let me take a step back first. First, identify what the problem is, right? I mean I think Einstein was quoted once saying, if I have 1 hour to save the world, I'll spend 55 minutes defining the problem and then the last 5 solving it. So let's define what the problem is. So we are drilling horizontal well using 5 inch drill pipe. And someone wants to kinds -- if you take a strand of hair and hang it from the ceiling, and you go horizontal at the floor, that's the dimensions in reality of what you're doing. So it is somewhat complicated. Having said that, we do this every day around the world. I've drilled probably close to 100 horizontal wells in my career. I mean, my background is drilling. So there really should not be any reason for these hiccups. The core issue here, there are two things that's going on here. First is that the downhole formation a formation that overlies the reservoir. It is a shale. Shale is known to be very troublesome when you're drilling. So in this case, we have to use a very special drilling fluid. And there's no way around it. We have to drill through this formation. We have -- tangibly, we have changed our casing setting procedure. So we are now drilling a shorter section. We're casing off, so we don't have a long open hole section. And we have also spent a lot of time and a lot of effort on our mud system because really that is the way you combat these problems. Shale was deposited many, many -- 50 million, 60 million years ago. All the water has been squeezed out. It's been cooked. It's very, very thirsty. At the first site of any water, they drink it and it swells, and it becomes a major problem. So we spend a lot of time and effort on our mud system. So those are 2 tangible things that we've done to combat this. This formation is known in the area as a very troublesome formation. So we're not alone in having these troubles. That doesn't give us much comfort. Obviously, we have to get this done. We've had similar problems on all other so we've drilled in the field, and we have persevered, and we have always done our -- got to our objective. So there's no doubt in my mind that we will get there. The schedule slip has meant that we've deferred production that those barrels are not lost, they will be produced later. The other main issue that we face is equipment-related problems, which directly impacts our scandal. So for example, the drilling rig generators have been a continuous problem for us. And now recently, the blowout preventers that is on top of the well. We had real trouble testing those because the rubbers that are in those were coming apart. So a BOP test, I should have taken 36 hours ended up taking us 14 days because a lot of things had to be repaired. Now that has a direct impact on our schedule, even though we don't necessarily have to pay the drilling rig during that downtime, but it does affect us in deferred production. So those are the 2 main reasons, Kaarlo.
And Tie-4 here delayed 2 to 3x the estimated time, if I understand it correctly, would that be 2 to 3x more expensive on the CapEx side?
Unfortunately, yes. The drilling rig is a day rate. So there's a direct correlation with time and money there.
And I have a question here on CapEx. You have already reached around million -- USD 35 million in CapEx. And your last 2021 capital plan guided for EUR 36.8 million for the full year. Do you expect a larger CapEx sum for the full year?
Andres, I'm going to hand that over to you. I would expect so, given the problems that we've had on Tie-4, but I don't have those figures right in front of me. Can you comment?
Yes. And the other thing to bear in mind is this year's actual CapEx includes some rollover or carryforward capital from last year. So it's not such a direct comparison, right?
Well, fair enough. And I have a question here regarding earlier -- the earlier investment plan is Tie- 5 still according to plan during Q4? Or will it be on the line after Tie-5 that is? Is that according to plan, that is Q4? Or will it come after Tie-4 and thus we delayed 2022.
Yes. No, that's a good question. And so this is a great opportunity for us to sort of also say what we are -- we have a lot of levers that we can pull to try and obviously maximize production and maximize profitability. And so what we've done Tie-5 was originally scheduled to be drilled, obviously, right after Tie-4. Now Tie 4 is delayed. It is anticipated that Tie-4 will be on production at the end of this year. So therefore, Tie-5, of course, will be delayed into beginning of 2022. But what we've also done is Tie-5 was originally going to be a water injector. I've mentioned that we need water generation in the Field. But what we've done is we have changed the order of Tie-5 and Tie-6 so that we drill the surgery horizontal, the deeper horizontal right after the Agua Grande. That way, we increase our redundancy of production so that we're not so dependent on all our wells in TA. So we have spare capacity, and then we go and drill the water injector. So that's just a slight small change, but it will have a direct impact on cash flow come 2022.
And just skip continent here and we'll move up to the Illinois Basin here. As a result of the high oil price, would you be having -- would you be adding even more in Illinois? Any plans or writing up lock as a resume and resume production.
So the first question is Illinois Basin. We will see what happens there, all the wells are coming on production. And of course, before we make any major commitments to go forward there is we want to see how they produce compared to what we expect them to produce. But definitely, with a higher oil price in the Illinois Basin is a place where we want to be. And I expect that we will continue to develop IV next year. With respect to LAK, I think it's too early to say. We are looking into what it will cost and what actions we need to take to restart LAK in 2022.
And then I'm conscious of time, I will move on here with a little bit a couple of forward-looking questions. What will Maha do different in the future to secure a higher production that's a very easy question to ask, but I'm not so sure whether it's easy to answer. But Jonas do you want to be my guest.
Well, I think we've outlined that already. Obviously, Tie-4, Tie-5, which are horizontal wells in Tie are essential to us. I mean, both of those wells have the capacity of producing very strong numbers for us and take us to our plateau. But really, the significant growth for the company, and that's why it was so important for us to diversify out of Brazil will come out of Oman and Mafraq, which we are working hard now to get that going. Like I mentioned, that we are looking to contract the rig. I'm hopeful that we can do that before the end of the year, if not early next year. And that will set the schedule, and that really will catapult the company to the next level. So those 2 actions there.
And I will just ask you one question here about the third-party research here, Eric Pences has a report out with a target of 20 SEK per share, obviously, it will be tricky for you to comment on the share price, but perhaps a little bit about the methodology, he's finding this result on back of some of the part where he uses a WACC, which is a weighted average cost of capital, which is different for Tie and Tartaruga, 12%, 15% from Mafraq and 10% for Illinois. Would you be happy with that cost of capital?
I think so. I think Eric Pencer have done a very good job on this last research report. I think that the valuation that they have presented are fair. Of course, that is in terms of the share price, I'm not going to comment. I would suggest, however, we do have some very good analysts that follow us. And I think they all are in the same ballpark with respect on how they value our company on a going-forward basis. So I think I'll leave it at that.
Yes. Excellent. Thank you so much. And I know there are a couple of questions here. There are still -- well, more or less, well answered by the presentation, but perhaps needed a more granular reply. And in that case, you are always willing to reply in writing. And you have the -- well, the viewers have the presentation to look at, and there's also different reports. And your next, if you could just remind your next highlight will be on the 28th of February. Was that correct?
That's the reporting date for Q4.Exactly.
Yes, thank you. All right. Well, with that, I'll thank you, gentlemen, for a very vivid and interesting presentation in a very volatile area. So thank you, and good luck.