Earnings call transcript: Petronor E&P Q2 2025 highlights production growth

Petronor E&P Ltd reported its Q2 2025 earnings, showcasing a steady performance with an emphasis on production growth and operational efficiency. The company maintained stable production levels and outlined plans for increased output in the coming year. Despite a slight dip in stock price, the company remains focused on maximizing shareholder value through strategic initiatives.

Key Takeaways

• Stable production at 4,300 barrels per day in the first half of 2025.
• Revenue reached $27.6 million, primarily from gross tax and royalties.
• Operating costs were reduced to $800,000, approximately $11 per barrel.
• Significant capital repayment to shareholders amounting to $55.8 million.
• Projected production increase with new wells expected online in September.

Company Performance

Petronor E&P has maintained stable production levels at 4,300 barrels per day, benefiting from improved infrastructure and well uptime. The company is actively pursuing a five-well drilling program at the Chubbula East field, which is expected to boost production to between 4,400 and 4,700 barrels per day by the end of 2025. With a focus on lean operations and strong cash generation, Petronor continues to prioritize shareholder returns.

Financial Highlights

• Revenue: $27.6 million, primarily from gross tax and royalties.
• Operating costs: $800,000, approximately $11 per barrel.
• Admin costs: Reduced to $5.4 million from $7.9 million last year.
• Capital repayment to shareholders: $55.8 million.
• Total shareholder return over 12 months: Over 50%.

Outlook & Guidance

Looking ahead, Petronor expects production in 2026 to surpass 2025 levels, with the first wells from the current drilling program expected to come online in September. The company’s stock has shown remarkable stability with a beta of -0.11, indicating counter-market movement patterns that could provide portfolio diversification benefits. Additionally, the company is exploring partnership opportunities in Gambia and continuing predevelopment studies for the Aje field in Nigeria. A potential additional capital distribution is anticipated at the May 2026 AGM.

Get deeper insights into Petronor’s investment potential with InvestingPro, which offers exclusive access to 8 additional ProTips and comprehensive financial analysis through the Pro Research Report, available for over 1,400 top stocks.

Executive Commentary

CEO Jens Pates emphasized the company’s commitment to maximizing portfolio value and returning cash to shareholders. He stated, "We are focused on maximizing the value of the portfolio and returning cash to shareholders," highlighting a predictable dividend policy centered around shareholder value.

Risks and Challenges

• Market volatility and fluctuating oil prices could impact revenue.
• Operational risks related to the drilling program and infrastructure upgrades.
• Potential regulatory changes in the regions where the company operates.
• Dependency on successful partnerships for the development of new fields.

Petronor E&P is positioning itself for future growth with a clear focus on increasing production and shareholder returns. While challenges remain, the company’s strategic initiatives and operational efficiencies provide a solid foundation for continued success.

Full transcript - Petronor E&P Ltd (PNOR) Q2 2025:

Jens Pates, CEO, Echinoy A and P: Good morning. My name is Jens Pates. I’m the CEO of Echinoy A and P, and it’s good to be back to discuss the company’s quarterly report, which was put out this morning. I’m going to be using a few slides to review the first half of the year and to give some guidance as to what we expect to happen in the second half. Those of you who are familiar with the will see that this is a a fairly standardized format that we’ve been using.

But my main objective here is to allow you to ask questions, and I’ll do my best to answer those at the end. So, please do send them through in the in the normal way, and, and we’ll we’ll get to them. So my first slide here is a disclaimer, which I will leave you to read at your leisure. This is an outline of what I plan to, to to go through today, and there’ll be a a brief operational updates to look at the first half of the year. And then we’ll dig into financial performance and our focus on shareholder value in the next section.

There’ll be a a a brief portfolio overview to remind you of, of the geography and, and the activity sets we have across the the portfolio. I’ll give a brief update on the, the investigation that has been a factor for the companies for, for a number of years now and then summarize, the high as tough the year. So please do send in your questions, and, we’ll get to, to them as soon as we can. So first first up is, is the production over the first half of the year. And as you can see, it’s been stable and at about 4,300 barrels for the last two quarters.

And this this is is accommodating a slight normal reservoir decline that we see with with a greater efficiency of the infrastructure and well uptime that is is kind of worked against that. So we’ve seen flat production for the first half of the year. I think the main thing I want to emphasize here that is in June, the Axima rig arrived in country from Gabon and has started a drilling program of five wells, on the Chubbula East field. And we expect production from those, wells to start to, to have an impact from September through to the fourth quarter. So if if we look at the the full year for 02/2025, we expect it’ll be, you know, somewhere between 4,400, 4,700 barrels a day on average, and an exit rate of over 5,000 barrels a which gets us back to the kind of production that we were seeing over a year ago.

And so we’re we’re looking looking forward to seeing the benefit of that that program. During the first half of the year, we’ve distributed, 4.2 NOK per share to, to shareholders as as a capital repayment. And, that this creates a a total shareholder return over the last twelve months of over 50%. So we’re we’re quite pleased with that, and we’re committed to to to keeping focused on that metric as we as we go forward. Looking at the financial metrics, cash in the bank as of the June 30 is just over $60,000,000.

And, you know, this this we’ve we’ve got revenue of 27.6, which is which is really only the grossed up tax and royalties that that we pay in oil to to this the Congolese state. So it we haven’t had any any cash any sales of of oil and any cash input for the first half of the year. And to to explain that a little bit more, the the the bottom graph shows the state of our oil inventory in green and our liftings and sales in in blue. And you can see that oil inventories can be negative as well as positive, and we had record liftings and sales of oil in 02/2024. And as a result, we we started the we had an overlift situation in in December, and we started the year with about 500,000 barrels of of of overlift to to pay back through the first half of this year, which we’ve done.

And we’re now starting to build inventory again at a rate of about 90 to a 100,000 barrels a month. So by the the end of of the year, we’ll be at over 600,000 barrels, and we expect this this will support a lifting in the fourth quarter as it did last year. So, you know, we’re we’re focused on on getting that that that cash injection late in the year, pretty much like we did in in the in last December. So if I look at the the cash waterfall, you can see we we started the the the set with the year with just under $80,000,000 of cash in the bank. You know, looking at the various flying bricks here, I’ve discussed the assignment of tax oil and royalties as as as a revenue, but but it’s it’s we we backed that out in in some of the other columns here.

It’s So not really a a a real revenue to the company, but it is it is, for accounting purposes, a a it’s treated as revenue. Our OpEx costs 20 are 800,000.0, and this is the field operating costs, which is about half that. This is this is a a high margin field. Our operating costs are about $11 a barrel. And so the the other parts of OpEx is is the royalty payment.

So it it might look a little high, but but but this is this is a a high margin field. Admin costs of 5,400,000.0. Working capital movements as a result of of the the the cash input in January that was related to production from and sale of oil from the previous year means we’ve had a working capital balance that we’ve had to work through over the last couple of quarters, and and so that this is the residual of that. CapEx investments in the, infill drilling program of 5,400,000.0, and then the big flying brick there is a $55,800,000 that was repaid to shareholders in two tranches in early in the year and and and then in May through the the annual cycle. This we we we also have paid a dividend to minority shareholders in The Congo.

This leaves us with a a cash in the bank of of just over $60,000,000 as at the June. We look at at shareholder value. We have this discussion every time whether whether we we I should be showing a a a chart of the share price. And and there’ll there’ll be a day that that perhaps I won’t want to, but perhaps, you know, that that hasn’t arrived yet. So if you look over the last twelve months, we’ve had a growth in the share price of about 10%.

And you can also see the effects of of the two capital distributions that we made to shareholders in the the beginning of the year and and then again in May, as as reflected in those big spikes in the share price. So, you know, it’s a continued operational delivery that has allowed us to to to do this, but we we have a very focused strategy of running the company very lean so that we can produce excess cash that will will support these shareholder distributions. The total shareholder return over the last twelve months has has been over over 50% if you take into account the the growth in the share price and the and the distributions. Quick overview of the portfolio. Production comes from Congo Brazzaville in the PNGF Sud license, which is operated by Perenco.

Current field production on a gross basis is just over 25,000 barrels of oil per day. Our working interest of 16.83% means that that we we we have a a a net production of 3,000 four four thousand three hundred barrels a day at the moment. We have a redevelopment project in Nigeria, offshore Lagos in the Ajei field. Our focus there has been in consolidating the license partnership. I will give you a little bit of an update on that.

The redevelopment plan would, would be mainly focused on on gas as well as liquids, and and there’s a there’s a a big market for, for gas in the region. And, so gas is considered a transitional fuel for for for Africa. And then we have an exploration portfolio with a license in in The Gambia, the a four license, which is in a proven basin with some attractive prospects that are analogous to to to nearby production. At our current production level, you know, we have two p reserves of 17,000,000 barrels in in ten years, or over ten years of of production at at the current levels, but we also have two c resources of, that that would allow us to to to double that in The Congo as well as the two c associated with, with the Aje field. Dive into The Congo a little bit.

So it’s a of fields and with 2,300,000,000 barrels of rich of oil originally in place and and only 500,000 barrels sorry. 500,000,000 barrels recovered to date. So a a an opportunity to improve that recovery factor to something closer to 50% from the the 25 that that that that is currently being produced. And we’re doing this by, by keeping the existing stock up and running with, with with a work of program, but, also drilling infill wells on targeted, fields that we see an opportunity to, to to add production and in reserves, with with, with additional wells. So the current focus is on the Tubela Eastfield, and we have a five well program that started in June there.

The the approach that’s being taken is to to do what we call batch drilling, which means that we we drill each section of the well in in in sequence rather than a complete well at this at at in in once. So we’ve we’ve done all the top holes of these five wells, and we’re we’re currently working through sequentially into the the the next casing point. This means that, the the the the production will will kind of come on quite quickly once we we we start completing these wells, And the first of these will be expected online in in September. As well as the workover program, we we have a we’ve we’ve acquired new three d seismic over this area, which is is giving us some some insights as to the the the remaining exploration potential in the area and and particularly, you know, the the the potential for follow on in PNGF BISS, which is a license that that we have had awarded to us, but we have yet to sign the production sharing agreement. Going to Nigeria now and the the Aje field.

It has been produced as an oil field in the past, but we see the potential for it to be a gas condensate field with about half a TCF of gas and 17,000,000 barrel condensate. And then, you know, an underlying oil leg, which, which has been focused on in the past, which would also contribute to future production. It’s a a license that has exploration upside in the license area and also nearby discoveries that that are waiting infrastructure. And and and so our plan for development is to, is to renew the FPSO with, with with one that has gas processing capacity, drill four or five wells, and and, bring gas to shore via a 30 kilometer pipeline where of new age’s interest, which would give us a a over a working interest of over 51% in in the, in the in the licensed partnership. And, so we’re we’re following through with the formalities to complete that, that acquisition and hope to do that in in the next month or so.

Our focus in the partnership is to continue our predevelopment studies on subsurface. We’ve completed reprocessing of the seismic into depth, and, we’re currently, revising the, the reservoir model so that we can best position development wells. We’ve also, acquired land on the landing point for the, the pipeline, which would be also the play the host for, an LPG plant, and this sits right next to the compressor station for the West Africa gas pipeline. So things are moving forward on, on Aje. And then the final part of the portfolio is in The Gambia.

We are chasing reservoirs that are analogous to the Sangomar field immediately to the north of us in Senegal. We’ve had a a technical work program over the last eighteen months, which has highlighted seismic attribute support for hydrocarbons and the prospects that that we have mapped. So we’re we’re continuing to be excited about the prospectivity, but we we are also continuing to look for a partner for going into the drilling phase of this license, which on the current license timing will will need to to to start in November this year. Not sure that we would go into a drilling phase at a 100%, but we we are we are hopeful that that there will be continued interest in in coming into into that phase with us from others that we’re in discussion with. And you may recall that we had a position in Guinea Bissau, which we farmed down a 100%.

The the well that was drilled was not commercially successful, but encouraging enough that, we understand the, the operator is planning to, to to follow on with a with a well in 02/1927. And this is important because there are deferred payments on on success case milestones of, of a, a field development plan being approved and, and an establishment of production, which could yield up to $60,000,000 of, of of consideration to, to Petronor in in the future. So moving on to the investigation up. I guess the the big is in the in the first half of the Department of Justice in The US have closed their investigation into the company, which, obviously was was great news. We we we are still under investigation in Norway by Opacrim.

This has been ongoing since, two thousand twenty one, and we’re cooperating fully with with with them on on this process. Don’t really have any any updates on the timeline for this. It it’s it’s it’s uncertain and obviously beyond our control. But, you know, based on the the conversations that we’ve had with Erkacrim earlier in the year, we’re we are expecting some more clarity on the way forward sometime this year. And, obviously, we will update the market if there’s any change in that.

So this is my my wrap here, before addressing your questions. And, you know, so stable production from the Congo assets and the the the offset of improved efficiency and and production decline has given us flat production through the the first half of the year. But we are expecting this to rise significantly with the, infill drilling program that is is underway, with, new production that’s anticipated to come online in in September. The overlift position coming into from from 2004 coming into the beginning of the year has been paid back, and we are building inventory now to support a a fourth quarter sale of oil and working working hard to make sure that happens. So with our cash position and the the the confidence that we have in a lifting at the before the end of the year, I think we’re we’re we’re in a strong position now for the board, to be considering, additional repayment of capital, and our focus is is maximizing the value of the portfolio and returning cash, excess cash to to shareholders as we’ve demonstrated in the first half of the year.

I expect that the next the next cycle will be the normal cycle, would be announced at the May AGM next year for a for an additional distribution, but but but we will see how the the cash position works out as we as we go into to the end of this year. So that’s really all I I have to say in a in a prepared sense, but I’m happy to to answer your your questions now. So please please send them in.

Unidentified Moderator/Analyst: Thank you, Jens. First question on the q and a is why are the admin costs so high?

Jens Pates, CEO, Echinoy A and P: Well, that’s that’s a that’s a tough question to start with. Admin costs in the first half of the year were 5,400,000.0. They’re they’re actually they’ve actually come down quite a lot, and there’s a there’s a couple of reasons for that. I think the the equivalent admin costs for the for for last year, a similar time period, was was about 7,900,000.0. And the reason that they’ve come down is that we have we’ve reduced the size of the company in terms of people.

So the people bill has come down from from about it’s been halved from about 2,400,000.0 to 1,200,000.0. And and that that will come down further once we get out of some of the restructuring costs associated with that. In addition, our legal bill, which is a substantial part of the the admin costs, is is has come down as a result of the The US closing their investigation. The The U US legal bill was was substantial, and we still have we we we did have some some invoices earlier in the year associated with meetings we were having in Washington, but, that that activity has now stopped. And so, I expect that, that to to drop further from from the the the current numbers.

So 5.4 is is is an improvement over previous years, significant improvement over previous years, and and we expect it to to come down further. It’s it’s our our current strategy to to run the company as as lean as we possibly can.

Unidentified Moderator/Analyst: Perfect. Thank you. Moving on to the next question. Are you able to provide any outlook for further dividends? Any plans for establishing a predictable dividend policy?

Jens Pates, CEO, Echinoy A and P: Well, we have a predictable dividend policy that was announced in an AGM a few years ago when we, announced the change from from being a a a growth company, a company focused on growth, to one that’s focused on shareholder value. With the in the the the following AGM, we we we put out a, a dividend policy, and we’ve been following that since then. So the the the the the predictability of of the dividend is is really around, the predictability of our lifting cycle, which is is a, always a problem for small companies when we we have to build up to a certain parcel size to fill a tanker, and and this means that our cash inflow is quite lumpy. There are some ways we might be able to address this that we are in discussion about. But but, nonetheless, we have been successful in in producing cash from our from our assets on on reasonably predictable basis of of of of selling about a million barrels a year.

And and so I anticipate we’ll be able to do that again in the fourth quarter this year, and this will put the board in a very strong position to make a an additional dividend or or shareholder distribution of some fall in in the May AGM.

Unidentified Moderator/Analyst: Thank you. And what is the status on the restrictions on taking cash out from the Congo subsidiary?

Jens Pates, CEO, Echinoy A and P: There’s there’s no restrictions as such. There’s obviously a a legal process, that we have to follow that’s that’s kind of part of the of the the corporate governance of of of companies in The Congo, which means that dividends have to be declared on the basis of fully audited accounts. And so there’s an annual cycle for for auditing accounts, and and this means there’s a there’s a there’s an annual dividend cycle. There’s been no restrictions on us accessing the cash that that that is in excess to what we need for reinvestment in The Congo. But but, obviously, we we are following the the the law in in in doing this on audited accounts that that is part of a normal corporate process.

So it it it means that timing is not always you know? Well, tie timing is constrained by by the audit cycle. It’s it’s it it doesn’t happen when you want it. It happens when we when we have fully audited accounts. And we we we do what we can to to ensure this is done efficiently and regularly, and we have a good relationship with our our auditors who who who close the books on a very efficient basis.

And so I I don’t anticipate any problems at all.

Unidentified Moderator/Analyst: Okay. What is the next steps on RJ development?

Jens Pates, CEO, Echinoy A and P: Well, as I say, we we’ve been focusing on on those pre predevelopment studies, and and the this is largely in in the subsurface area and and making sure that our our reservoir model is fit for purpose. We changed the the subsurface interpretation significantly as a result of the the the the new seismic work we did, and so this has required an adjustment there. We’re we’re continuing to to complete the environmental sensitivities assessment, and this is associated with also the landfall where we’ve purchased land for the for for the the the pipeline that will come from from the FPSO. Our our main focus right now, though, has been on on consolidating the partnership because it it has been it has been a a a an issue that that has has, I think, delayed the the development in the past. And so so we’re we’re we’re hopeful that we’ll be able to do that going forward now with with the ministerial approval that we’ve received on on the the acquisition of New Age’s interests.

So that that’s been the focus of our activity. The next the next step is really to is is is really to to complete the, predevelopment studies so we get to a position where we can, we we we can come to the market with a a field development plan update and and and a concept select that that we will be able to to to get to a final investment decision on. The timing for that is is obviously still still under discussion with the partnership group as it is today, but we hope we’ll simplify that discussion in the in the coming months.

Unidentified Moderator/Analyst: Very good. Thank you. Should we expect 2026 production to be above 2025 production?

Jens Pates, CEO, Echinoy A and P: I fully anticipate that we’ll come out of ’25 with production over 5,000 barrels a day on a net basis. So I would expect ’26 production will be will be commensurately higher than than we’ve seen through through ’25. And, you know, you have to keep pedaling hard on these old fields to to to to to keep production going, and we’ve been doing that very effectively. The operator, Perenco, has done a good job of of of maintaining the existing well stocked with with an active workover program. And we have two workover crews working on the field complex at the moment, that that that’s reducing the the the waiting list for wells that that that have fallen over and need to be need to be brought back to production.

And then the infill program adds new well capacity, and that’s what I’m hoping will will significantly increase the production through the second half of this year and then going into into ’26. So the answer to the question is yes. We should see we should see a higher production in ’26.

Unidentified Moderator/Analyst: Thank you. So any updates on PNGF base and Chendo?

Jens Pates, CEO, Echinoy A and P: I’ll take Chendo first. Chendo was a field that we put a new platform on in the in the last year, and that there was two objectives to that new platform. One was to add generating capacity to the field to to allow us to be self sufficient for power. We’ve been seeing quite a a lot of power outages and, instability in in the previous year, which which had, had been a a problem for, for the uptime of the whole field, in fact. And and so by being self sufficient in power, the field has been running much more stably, which is why we’re seeing the increase in production efficiency that has allowed us to keep production flat.

The second objective of the Chengdu platform was was it has 14 new well slots, and we’re we’re planning to to do infill drilling of the Chengdu field from from those slots. And I think we we had planned originally to to do six initial wells. That program got deferred in favor of the the the program we’re currently doing on Chubbula East, really for reasons of of of of higher priority because of rate. We think we’ll get a higher rate from Chubbara East than than the Chendo Wells. So they’re still in the program, but but we we’re we’re not sure when we’ll get to them, whether it’s it it it’ll be next year or the or or early the year after.

But, we’re still working on that, and we have the capacity now with the, with the wellhead platform to, to to to implement that quite quickly. On, the second part of the question of PNGF BISS, we you know, the the license has been awarded to a Perenco led group. Our our petronors working interest in that would would, I believe, be 25%. And we we’re in discussion with the operator as to the the the final award of the production sharing agreement that is necessary to to to start work on on the on the on the license. We have acquired three d seismic survey over it, we’ve been interpreting, which will inform that, that discussion with the government on the final, production sharing agreement.

So it’s very much in Perenco’s hands, and, I’ll I’ll be I’ll be traveling to the The Congo to to meet with Renko in the normal cycle for the the the technical committee meeting in November, and I expect that that this will be a subject of an update then. But, you know, it’s it’s a license that we are we we we see good potential in, but, obviously, it’s the the the detail of which this needs to be informed by the work that we’re doing on the the new seismic.

Unidentified Moderator/Analyst: K. Thank you. You report CapEx of 5,400,000 for the year to date period. What do you expect CapEx to be for the full year?

Jens Pates, CEO, Echinoy A and P: The full year CapEx for the infill drilling program for for us on a net basis will be closer to $18,000,000. The 5.4 for the first half reflects that we we we were a little bit perhaps a little delayed getting started, month delay, get in the rig arriving from Gabon. So I expect second half of CapEx will be a little bit higher as as we we fully execute that drilling program, which is the main the main the main investment that we’re making. So, yeah, 18 around $18,000,000 for the year in total, and we’ve we’ve we’ve paid about $5.5.4 in the first half of the year. Looking at next year, I I would expect it to be something similar.

So it it but we won’t know that until Perenco issued the license budget, which will be in in November. So I’ll be able to update the the market in the in the next, in the in the next cycle.

Unidentified Moderator/Analyst: Perfect. Moving on to, what seems to be the final question for for now. Does Petronor have the correct capital structure to support a 51% share of the CapEx on the Arche development, or is the current plan to bring in a partner?

Jens Pates, CEO, Echinoy A and P: We we’ve looked hard at, at how that project would be financed, and, we we do see a a good debt capacity for, for project financing, the, the the the project. We would still need to to put in some equity capital. You know, we don’t have any debt at the moment as a company, and the the the Congo production is entirely unleveraged. So we do have options around that. But but but I think, you know, behind the question is, would would we welcome a well funded partner?

And I think the answer to that is yes. We’re not we’re looking at what that that might look like for the partnership group. But our current focus is on on trying to to to to clean up the, the the existing partnership, and, and allow the the project to to be presented to, to to either a a debt financer or an equity another equity partner in a in a robust way. So, so so I I it’s a bit of an inconclusive answer. I realize that, but, but but we do see the project as a very attractive project, that one that can can attract both debt and equity finance.

Unidentified Moderator/Analyst: Thank you. There are no further questions, so I will hand it back to you, Jens, for your final remarks.

Jens Pates, CEO, Echinoy A and P: Very good. Well, thank you for for your questions and some good ones there. Just to reiterate the key messages really for for the for the first half of the year and then looking forward to to the rest of the year. You know, solid solid production with which gives us a platform now to to see that increase with the infill drilling campaign that is underway and and running well. And so so we expect to see good good production increase in the second half of the year.

A a lifting as well would would supported by the the growth in inventory now that we’ve paid back the the the overlift from 02/2024. And all of this to to a strengthen and already strong cash position, which we think will will put the board in a in a, a great shape to, to consider additional shareholder distributions as as we, as we look towards the the end of the year. So thank you very much for your attention, and look forward to seeing you again in the in the next quarter cycle.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.