Earnings call transcript: Petronor sees modest growth and strategic expansion in Q1 2025

Petronor E&P Ltd reported its financial results for the first quarter of 2025, showing a steady performance with a revenue of $13.9 million. The company maintains a strong cash position with $7.5 million on hand and no debt. Despite a slight decline in production, Petronor’s strategic initiatives in West and Central Africa are set to drive future growth. The company’s stock saw a slight decline of 1.49% following the earnings release, with the last close value recorded at $13.4.

Key Takeaways

• Petronor reported a Q1 revenue of $13.9 million, including government oil allocations.
• The company maintains a strong cash position with $7.5 million and no debt.
• Production efficiency improved to 90%, despite a slight decline in daily production.
• A proposed dividend of 2.2 NOK per share reflects a commitment to shareholder returns.
• Strategic expansion includes a planned infill drilling program in Congo and potential acquisition in Nigeria.

Company Performance

Petronor’s performance in Q1 2025 reflects its focus on maintaining a strong cash position and low-cost production. The company reported production of 4,321 barrels of oil per day, a slight decline from previous figures. However, production efficiency improved to 90%, and infrastructure stability issues were resolved. The company is actively pursuing strategic initiatives, including an infill drilling program in Congo and potential expansion in Nigeria.

Financial Highlights

• Revenue: $13.9 million
• Cash Position: $7.5 million, no debt
• Operating Expenses: $4.5 million ($11 per barrel)
• Capital Expenditure: $2.8 million

Market Reaction

Petronor’s stock experienced a slight decline of 1.49% following the earnings announcement, closing at $13.4. Despite the day’s decline, the stock has shown remarkable strength with a 48.4% gain over the past six months and a 22.9% increase year-to-date, according to InvestingPro data. This movement reflects cautious investor sentiment, possibly due to the modest growth and current production decline. The stock remains within its 52-week range, with a high of $14.38 and a low of $7.95, trading at an attractive P/E ratio of 5.2x.

Outlook & Guidance

Looking forward, Petronor anticipates a production recovery in the third and fourth quarters of 2025, with a significant oil lifting expected in Q4. The company is also exploring partnership opportunities in The Gambia and aims for a final investment decision on the Aje field in 2025. Future guidance projects an EPS of 0.3 USD for FY2025 and 0.31 USD for FY2026, with revenue forecasts of $211.69 million and $215.93 million, respectively.

Executive Commentary

CEO Jens Pace emphasized the company’s strategic focus, stating, "We’ve been focused on a strategy here of looking at the existing portfolio, investing in the existing portfolio." He also highlighted the potential for reserve growth, noting, "We see as much to come again as has already been produced."

Risks and Challenges

• Potential delays in ministerial approvals for acquisitions in Nigeria.
• Fluctuations in global oil prices affecting revenue.
• Operational challenges in maintaining production efficiency and infrastructure stability.
• Regulatory and geopolitical risks in West and Central Africa.

Petronor’s strategic initiatives and strong cash position provide a solid foundation for future growth, despite the current challenges in production and market fluctuations. The company’s focus on low-cost production and expansion in Africa positions it well for long-term success. For comprehensive analysis of Petronor’s growth potential and risk factors, access the detailed Pro Research Report available exclusively on InvestingPro, covering everything from peer comparison to detailed financial health metrics.

Full transcript - Petronor E&P Ltd (PNOR) Q1 2025:

Jens Pace, CEO, Petronor: Good morning. My name is Jens Pace. I’m the CEO of Petronor. And it’s a it’s a great pleasure to be back here in a delightfully sunny Oslo to give an update on the company. We put out a report this morning for the 1Q results of this year and so I have a few slides to take some highlights from that report.

But the main point of me being here is to answer your questions, so please start sending them in and we’ll get back to them after a short presentation. So we start with the disclaimer slide. Now I have been using this slide for years and it’s never changed, but there are some changes in this one. So the eagle eyed amongst you might want to to have a look at that. The outline of the presentation, give a brief update on production mainly, and then go into the financial performance since make some comments about shareholder value.

There’s a few slides describing portfolio, which is somewhat standardized pack, but it gives us an opportunity to get into a little bit more detail on each of the assets. And then an update on the Erkacrim investigation before a summary of the the highlights of the first quarter and some comments about going forward. But then we’ll get to questions and answers, so please send those those in. So starting with production, we’ve seen some natural reservoir decline, over the quarter. Our production was 4,321 barrels of oil per day, and so that’s a that’s a few hundred barrels shy of where it it has been in the previous quarter.

And the reason for that is apart from some some normal anticipated decline in the in in reservoir, We’ve had a couple of high rate wells that needed to be taken out for maintenance of the of their their electrical pumps. These are now back online, and so we will see production coming up. I think, you know, in the past year, we’ve had some difficulties with infrastructure stability. Thankfully, that problem is behind us now and we’re actually seeing reasonably good efficiencies. It was it was 90% on average over the the quarter and as as I stand here in May, it’s it’s it’s well above that for the the last month or so.

We’re addressing the the reservoir capacity issue with an infill program. We have five wells scheduled to be drilled. The program is a few weeks late. The rig, the Axima rig is still in Port Gentile of Gabon, but it’s shortly destined to arrive in Congo and start operations and certainly they’re getting ready in the field for for that. And we will start drilling five wells.

The production impact of that will start, we anticipate in August, and we will work up to an exit rate at the end of the year of over 5,000 barrels a day, we hope, given success of that program, and that will bring the full year average up to something closer to where it has been of 4,800 barrels a day on a working interest basis. So that’s based on operator estimate of of the impact of the the infill program. So looking forward to seeing that and recovery of of of the production. What does that mean in terms of some of the financial metrics? Well, you know, we’re we’re sitting on a pretty good cash position.

The end of the quarter, we had a 7,500,000 in the bank and no debt. When we look at revenue for the quarter, it’s it’s a little misleading in that, you know, the accounting standards that we use count the money that we give in oil to to the government is counted as revenue. So that was $13,900,000. We don’t actually see that, but it’s it’s it goes through our books on on our balance sheet. So the the time that we get revenue is obviously when we lift and sell sell our oil.

And the chart at the bottom here tells the story of of the back track record of of liftings and sale versus the inventory that we build up at the Geno Terminal as a result of of our production. You can see that, you know, if we look back on the last year, the first half of the the chart there, we lifted about 1,800,000 barrels of oil and that’s the large blue columns. And the last lifting was just in December, that was nearly 880,000 barrels in one lifting at the end of the year. What that did was it produced what we call an overlift situation. We we we overlifted about 470,000 barrels.

And so the production through the first half of this year is to some extent paying that back. We we anticipate that we will reach a balance point around the middle of the year in in June, and then start building inventory again. And as you build inventory, you start advancing up the queue at the Geno Terminal to to have another lifting. So we anticipate that in the fourth quarter, we will be close to the front of the queue and we anticipate a fourth quarter lifting. It’ll probably be of the similar scale that that we saw last year with a full cargo of around eight to 900,000 barrels at the at the end of the year.

And certainly, we’ll have the opportunity to do that, and that’s that’s what we’re we’re hoping to be able to arrange. An alternative might be if we get into a pooling agreement with another lifter in the general terminal and we may be able to advance that, but if it’s just us lifting by ourselves, it’ll be a late year program. Somewhat confusing picture on the on the cash side because of difficulties in the the IFRS accounting system of dealing with not only the overlift, but also the fact that we have sale of crude in December and the payment for that that’s lifting in January, which kind of distorts the way that the numbers hit our balance sheet and gives us a large working capital movement, which you see is the large blue brick in the middle of this this column here. So so the the first the first area is starting from the cash position of of of $80,000,000 at the the January 1. We have the assignment of tax oil and royalties, which I mentioned earlier, which is counted as a revenue.

OpEx costs, which is it looks a bit larger than it normally is. The actual OpEx side from the field point of view is is about 4 and a half million dollars, which is $11 a barrel, which is kind of a world class operating cost number. The other the other elements of that are other kind of cost of sales including the royalty that we’ve paid to to the government, which makes it up to 9,900,000.0. Admin cost, which is the bit that effectively I control is is the is people costs and legal costs and professional services. The people and travel bill is around a million dollars and the bulk of the rest of it is in legal costs.

And that’s something that we think will be addressed going forward with the changes in the investigation that I’ll come to later on. So the big working capital movement to account for the year end and overlift situation, the CapEx investment so far particularly in The Congo quite modest 2,800,000.0. We expect that will go up in the second quarter as we start the drilling program in in The Congo. And then the the big flying brick at the end there is the repayment of capital that was achieved in January, that was $25,200,000, which leaves us the cash position that I mentioned before of a hundred and $7,500,000 and a strong position. So I, you know, hesitate to stand in front of a a of a chart of our share price and and and maybe I won’t do it if it’s ever really bad news, but this is good news here, so you have to give me some allowance.

We’ve been focused on a on a strategy here of of looking at the existing portfolio, investing in the existing portfolio, but not looking at growth beyond that, which is a change in the strategy that was announced about a year and a half ago. And with that, we’ve made a commitment to to give excess cash back to to shareholders and so we were able to achieve the 2 NOK per share distribution in January. It was somewhat delayed by, you may recall, by conversations with the investigating authorities, but we were able to make that in January. And we’re looking at a recommendation for the AGM, which will be tomorrow, for an additional 2.2 NOK per share, about $30,000,000, and that will be proposed to the AGM and if approved will be paid before the end of the month. And that gives us a total shareholder return over the last twelve months of of about 78% following that, assuming that that second payment is approved by the AGM.

And so that that’s that’s not too shabby and and I I hope that we can continue with those sorts of contributions to to to shareholder value. Let’s go through the portfolio briefly. So you can see we’re focused in West And Central Africa. Our production comes from Congo Brazzaville, the PNGF Sud license. Gross field production is around 26, 20 seven thousand barrels of oil per day and with our working interest of 16.83% that gives us the current production levels of about 4,300 to 4,500 barrels a day at the moment, we obviously hope will be increased by the infill program later this year.

And as I mentioned, this is high margin production with lifting costs of around $11 a barrel, and depending on the production performance of the of the drilling program could be below below 10 by the end of the year. The second area is is a redevelopment project we have offshore Lagos in Nigeria, the Aje field. Our current efforts there are remained fixed on consolidating our license position with the acquisition of NewAgers interests, which when completed will give us a working interest of about 52% in that redevelopment. We’re interested in that redevelopment. It’s it’s a gas condensate and oil development, and it’s it’s well positioned just offshore Lagos for a big gas market, and it’s it’s right on the West African gas pipeline, so we see that as a as a valuable asset.

And finally, in the The Gambia, we have a pure exploration play in in deep water. It it is targeting analogous prospects to the ones that have been successful in the North in Senegal in the Sangomar field. So it’s a proven basin, and we’ve been we’ve been working on the technical description of prospects there while undertaking an exercise in trying to attract partners to to join us for the next license phase. I think the the main issue to bring out of the of the metrics there is two p reserves of 17,000,000 barrels and two c reserves or resources rather of of twice that. So some some legs at the current production level to to to continue with with with high levels of production.

And that’s all from The Congo at the moment. It’s the field complex in PNGF Sud of about 2,300,000,000 barrels of oil originally in place with only about 500,000 barrels recovered to date, which was is a is a low recovery factor for for reservoirs of this nature, and we see as much to come again as has already been produced. Our reserves position that I mentioned earlier on represents a 93% production replacement this year on the which we’ve just completed our audit on that. And that supports more than a decade at current producing levels without without doing too much more. And if we continue to invest as we have been doing, then there’s an opportunity to double that lifespan in terms of production.

The production efficiency, which is shown in the graph here, is as you can see over the performance in 02/2024, which is the blue columns, dropped down to to to just over 85% of production efficiency. We’re seeing that increase now as we’ve the investment in new infrastructure, particularly power generation has has stabilized the operating environment, and and we’re seeing operating efficiencies getting above 90%, and we hope we’ll stay at that that level where they have been historically. And the infill program, we’ll start shortly on the Chubbwala East field and that is focused on some high rate opportunities that we think will add significantly to our production levels. Just a little bit more on on Ager. So as I said, we’ve been focused on on getting the ministerial approval for the the NewAge acquisition.

The we anticipate that that will be any any week now. We’ve we’ve been we’ve fulfilled all of the meetings and workshops with the regulatory authorities that were required to and from our perspective they’ve gone very well and so we’re expecting that approval to come shortly. While we’ve been waiting for that, we’ve also been focused on the subsurface description of the the asset, in particular on the depth image of the the deeper oil reservoir that underlies the the gas condensate reservoir. This is significant because it it obviously affects the way we look at the project economics. And and, you know, I’m pleased to say that that this has given us increased confidence in in an oil upside.

We’ve previous versions of this slide had oil at around black oil at around 5,000,000 barrels in terms of reserve potential. We we’ve seen that as at least doubled, if not more, and so we’re excited about the potential that is being uncovered with this new work. Other things that we’re doing are around the regulatory environmental and social impact assessment, and to facilitate this we’ve purchased land at the landing point of where we anticipate the pipeline from the development will come onshore, and we’re in the process of doing mandatory sampling and and monitoring of of the environment there so that we can make informed decisions about how that development is is implemented. I think that’s it for for RJ for for the time being. Just a few words on the the exploration potential on on in West Africa here in The Gambia.

As I said, we’ve been working on on a seismic conversion of the three d seismic that we have across the license, and this is this is provided some some good support for the prospectivity that we see in these these reservoirs that are analogous to the Sangomar field to the north in Senegal. Sangomar has has been performing very well. It’s still on plateau, and so these these are proven proven reservoirs now. And and I I I’m excited by what what we’re seeing in the in the seismic inversion. It it does seem to show that we have support for these being oil bearing in in our license area.

So we’re continuing to work to finalize that and and working with our partners in GNPC, the national oil company, to to look for for partners to help us go through into the next phase of the license which carries a well commitment. In Guinea Bissau, you’ll recall this is a license we farmed down a % in the course of 2023. It was drilled in 2024 and you know the well was was not commercially successful. There haven’t been any formal announcements about that, but I think it’s generally well known across the industry. The operator has been conducting studies to decide what to do next, we haven’t although been in touch with them, there’s been no reports as to whether they are going to move forward to another second well in 2026 or not, but we wait on news for that.

There is a potential for Petronor to get contingent payments in the future in a success case. I’d have to say that to start that with a disappointing well at the beginning puts that at some risk, but nevertheless it’s not discounted if they still have plans to move forward and drill. And we’ll wait and see and obviously inform the market if we have any more information about that. So a brief update on the investigation. We announced earlier in the quarter that the Department of Justice in The US had closed their investigations and although the company was never a target of those investigations, we were nonetheless subject and participating fully in that process.

So it is something we’re pleased about that that work front on the legal side is is at an end now. The investigation by in Norway, started some years ago, it it remains ongoing, and we are continuing to cooperate with with them on that. There’s not much we can say about the forward timeline. It’s outside the company’s control. We do expect based on signals from Erkacrim that we will learn more before the end of the year, but we’re waiting on that, their decisions.

And we’ll obviously update the market as soon as we have anything meaningful we can say about it. So that brings me to a pretty simple summary here. It’s stable production with an infill program to bring us back up to levels we’ve seen in the past, and I expect anticipate you know, a strong exit from this year on the basis of of that being successful. Oil inventory is building as we would expect, and that has the potential support a large lifting in the fourth quarter. And with a company strategy that’s focused on maximizing the value of the existing portfolio and returning excess cash to shareholders, we have a second return of capital of 2.2 NOK per share, which is about $30,000,000 being proposed to the AGM tomorrow.

So if you wanna support me on that, you’ll come out and vote for it. Thank you very much.

Unidentified Moderator/Analyst: Thank you, Jens. We’ll now move on to the q and a. What are the news on PNGF BIS?

Jens Pace, CEO, Petronor: Yeah. Thank you. At in the February, we announced that the council of ministers in The Congo had approved the the award of the PNGF BISS license to a Perenco group in which we would have, I believe, 25% of. We we acquired three d over that license in addition to to the rest of the PNGF complex. So, you know, even though we haven’t formalized the production sharing agreement yet, we thought it was wise to to extend the survey over the whole area.

That data arrived earlier this year and we’ve been in the process of interpreting it and working with the operator to understand what it’s saying about the license. We actually found some things that are of interest which we’re in discussion with them. We anticipate that once we are able to inform the process of finalizing the PSC with our technical understanding of the license that we will move forward on it. We have, as I’ve demonstrated, quite a lot of opportunities to reinvest in The Congo as it is in the existing portfolio of of assets in PNGF Sud. So so we’re not we’re not we’re not in a hurry to to add to that to that list of of opportunities, but it it’s we have the option to do that and we will take it when when when we’re we’re ready and have reached agreement with the government on the PSC.

Unidentified Moderator/Analyst: Thank you. What can you say about expected CapEx for 2025 and 2026?

Jens Pace, CEO, Petronor: So we we had had some some big years for CapEx when we’ve been installing new platforms and and and as we did on the Chengdu field, which was largely a big spend through 02/2023 and into 02/2024. But the the kind of CapEx we’ve seen that then since then is is really just focused on on the drilling programs. And so, you know, relatively modest CapEx we’ve seen in the last quarter of of $2,800,000 will be we’ll we’ll see that increased in the next quarter with the drilling program. I think on a on a gross basis, there’s been a a shift of of about $10,000,000 and so, you know, our our net of that will will mean that we’re seeing, you know, costs of around 4 to $5,000,000 in the in the in the next couple of quarters. But I think in in general, we’re not seeing any big spend because we don’t have any any large infrastructure decisions to make.

It will be focused on just increasing the well capacity of the field. These have been very economic investments that we’ve seen payouts of these within months as a result of some of the rates that we’ve been able to add. So it’s a it’s a very a very sensible program to to to be engaged in.

Unidentified Moderator/Analyst: Good. What is the best guess when it comes to the timeline of seeing revenue from the RJ field?

Jens Pace, CEO, Petronor: Well, RJ is things things do take time and and I think we’ve learned this. Waiting for, you know, government approvals is is something that that that we’ve we’ve learned to be patient with and and so, you know, there’s an element of things moving forward the rate that the government wants. It’s a bit of a dilemma because, you know, we would like to see the New Age transaction completed quickly. At the same time, there’s an impatience on other parts of the regulatory authorities to see action in licenses and to see activity. Think we’re we’re trying to manage that dilemma and see that project move forward.

If if we could, you know, get to a point where we see a final investment decision in the course of next year, then first production would be two years after that by on the basis of the of the plan that that that we’ve we’ve developed. So so it’s not it’s not soon, but but it’s in it’s in that sort of foreseeable future.

Unidentified Moderator/Analyst: Thank you. Positive to see another dividend. What will determine when the next dividend will be announced?

Jens Pace, CEO, Petronor: Well, we’ve we’ve had the unusual situation this year of having essentially two two returns of of capital employed, one in January and and now we’re contemplating a second for the AGM this month. That’s unusual and you may recall that we we actually delayed the January payment from 02/2024. It and that was a result of conversations we were having with the with the investigating authorities. So so it’s what we would like to see is getting this back into a normal annual cycle that’s focused on our AGM, which is always around May, and will be based on prior year performance and excess cash that that we that we can identify that that exceeds the the needs of the company in terms of its investment plan. So, you know, I anticipate that that we will we will the board will will monitor this situation if we get a lifting in the end of the year, then we’ll be in a similarly strong cash position for the next the next AGM in in May 2026.

And so I I think we’ll we’ll be looking at an annual cycle for this this judgment to be made going forward.

Unidentified Moderator/Analyst: For the year 2025, do you estimate, the dividend in the same range as 2023 and 2024 payout of around NOK 2 per share?

Jens Pace, CEO, Petronor: I don’t really wanna be drawn too much on this because it depends on a lot of factors, you know, oil price being one of them. We’ve seen some softening in the the the oil price in the course of this year, which, you know, I mean, as an aside here, that that that makes you feel better about having over lifted last year at higher oil prices because we get the benefit of that. But we will have to see how the the cash situation and the company’s needs work out when this judgment is made. But if if oil price recovers and we see a good lifting at the end of the quarter, the the the fourth quarter, then then then I I could anticipate that we would see similar levels of of return of capital. But it will it will come down.

The board will have to make that judgment when we have the the finalized accounts for the year.

Unidentified Moderator/Analyst: Thank you. There are no further questions. So I will now hand over to Jens for your final remarks.

Jens Pace, CEO, Petronor: Well, thank you for the questions and and my my final comments are really a return to the the points I made on close here. So we’ve we’ve got solid performance with stable production and a plan that’s being implemented to to bring that back up to to levels we’ve seen in the past. So, you know, an asset that is demonstrated, it’s responsive to infill drilling program, and and so we’re excited about that for the next year. Oil inventory building with a view to a big lifting at the end of the year, and we look forward to that opportunity. Company strategy, which is very much focused on near term shareholder returns.

So it’s focused on maximizing the value of the existing portfolio and and returning excess cash to shareholders. And so, you know, an opportunity to vote on that in the AGM tomorrow with a return of 2.2 NOK per share for investors. So looking forward to see the outcome of that vote. Thank you very much.

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