Africa Oil (OTC:AOIFF) Corp (ticker: AOI) has announced its financial results for the second quarter and first half of 2024, demonstrating a commitment to shareholder returns and a strategic focus on asset consolidation. The company reported a decrease in cash from $232 million at the beginning of the year to $185 million at the end of the second quarter, largely due to $51 million returned to shareholders.
Despite this, the company's cash balance increased to $485 million, bolstered by a $25 million dividend from its Prime investment. Africa Oil's net debt stands at $36 million, including Prime's $222 million. The company's production experienced a slight dip due to a scheduled shutdown but has since rebounded strongly. Sales in Nigeria fetched prices above the Dated Brent average, and the company's strategy of asset consolidation has led to transactions worth over $1 billion in the last six months.
Key Takeaways
- Africa Oil ended Q2 with $185 million in cash after returning $51 million to shareholders.
- The company received a $25 million dividend from Prime, pushing its cash balance to $485 million.
- Net debt, including Prime's, totals $36 million.
- Prime's EBITDAX and free cash flow for the quarter stood at $92 million and $77 million, respectively.
- Oil sold in Nigeria achieved an average price of $89 per barrel, above the Dated Brent average of $85.
- Production is back on track following a planned shutdown.
- The company is focusing on consolidating assets, particularly in Nigeria, and targeting significant prospects in the Orange Basin.
- Africa Oil anticipates a pro forma NAV increase to $1.8 billion post-Prime Nigeria consolidation.
- A new dividend policy has been implemented, with a $100 million annual base.
Company Outlook
- Africa Oil is focused on core assets in deep water Nigeria, offshore Equatorial Guinea, Namibia, and South Africa.
- The company aims to be a leading player in the consolidation of the independent E&P space.
- The Prime Nigeria consolidation is expected to close between Q2-Q3 2025, subject to Nigerian government approval.
Bearish Highlights
- Production was slightly down in the quarter due to the Akpo shutdown.
- The departure of Total Energies (EPA:TTEF) from South African blocks could have implications for Africa Oil's operations in the region.
Bullish Highlights
- The company has been successful in selling its oil at prices higher than the Dated Brent average.
- Africa Oil's strategy of asset consolidation has resulted in transactions exceeding $1 billion in value.
- The anticipated doubling of the pro forma NAV to $1.8 billion following the Prime Nigeria consolidation.
Misses
- There was no mention of expectations for Q3 and Q4 financials, following an overlift impact on Prime's Q2 results.
Q&A highlights
- The company is considering the balance between dividends and buybacks, with room for another dividend before year-end.
- Africa Oil maintains the flexibility to initiate share buybacks in the future.
- The company is targeting a net debt to EBITDA ratio of one times and is open to increasing leverage if necessary.
- M&A strategy focuses on low unit cost, high-quality assets, with opportunities in Africa and around the Atlantic margins.
- The Prime acquisition is expected to enhance Africa Oil's operational capacity and influence over assets.
Africa Oil Corp (TSX:AOI) has revealed its Q2 '24 financial outcomes, emphasizing a solid performance despite slight production setbacks. The company's strategic moves and robust financial policies signal a positive outlook for its future endeavors in the energy sector. With a clear focus on asset consolidation and shareholder value, Africa Oil is positioning itself for sustainable growth in the competitive E&P landscape.
InvestingPro Insights
Africa Oil Corp (ticker: AOI) has shown a commitment to shareholder returns and strategic asset consolidation. The InvestingPro data and tips shed additional light on the company’s financial health and future prospects.
InvestingPro Data highlights include:
- A market capitalization of approximately $682.1 million, reflecting the company's size and market value.
- A P/E ratio (adjusted for the last twelve months as of Q2 2024) of -18.09, indicating that the company is currently not profitable.
- A dividend yield as of the end of 2024 at 3.22%, showcasing the company's commitment to returning value to shareholders.
InvestingPro Tips for Africa Oil Corp suggest that:
- The company holds more cash than debt on its balance sheet, which is a positive sign for financial stability and operational flexibility.
- Analysts predict that the company will be profitable this year, which could signal an upcoming turning point for the company’s financial performance.
These InvestingPro Tips are particularly relevant as they align with Africa Oil's recent financial results and its focus on shareholder returns. The company's strong cash position and the anticipation of profitability could provide reassurance to investors concerned about the slight dip in production and the impact of the Akpo shutdown.
For readers interested in a deeper analysis, there are additional InvestingPro Tips available, offering further insights into Africa Oil's financials and market performance. These can be accessed through the dedicated InvestingPro platform for Africa Oil Corp at https://www.investing.com/pro/AOIFF.
Full transcript - Africa Oil Corp (AOIFF) Q2 2024:
Operator: Hello everyone, my name is Sharon, and I will be your conference operator today. At this time I would like to welcome everyone to the Africa Oil Corp Q2 '24 Results Management Presentation. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there'll be a question-and-answer session. [Operator Instructions] Please note that this event is being recorded. The recording will be available for playback on the company's website. I would now like to pass the meeting to Mr. Shahin Amini, Africa Oil's Investor Relations Manager. Please go ahead, Mr. Amini.
Shahin Amini: Thank you, operator. On behalf of management I thank you for joining us today for our second quarter 2024 results presentation. On the call today, we have President and CEO Roger Tucker, our CFO Pascal Nicodeme and our Chief Commercial Officer Oliver Quinn. It will be a presentation for around 20 minutes before we go into the Q&A session. But first I would like to remind everyone that remarks made during this session are subject to forward-looking statements which involve significant risk factors and assumptions and these have been fully described in the company's continuous disclosure reports. The information discussed is made as of today's date and time and Africa Oil assumes no obligation to update or revise this information to reflect new events or circumstances except as required by law. The company's complete financial statements and related MD&A are available on our website and on SEDAR. I will now pass you over to Pascal for the highlight of the second quarter. And Pascal over to you. Go ahead please.
Pascal Nicodeme: Thank you, Shahin. Can you please move to the next slide. So I will present the financial statements for the second quarter of 2024 and the first half 2024 and first I would like to start this presentation by showing how we've used our resources and how we've maintained the strength of our balance sheet in the first half of this year. So we started the year with $232 million of cash on the balance sheet. We are ending the second quarter with $185 and the main use of this cash for the first half of the year has been the return to the shareholders to a magnitude of about $51 million both in dividend and share buyback. I will come back onto that. Minimal exploration expenditures mainly on energy about $6 million and the negative $11 million that you can see on this chart. The cross bar named as operating activities is mainly G&A's actually and you will see in this $11 million that a significant portion of this $11 million, about $5 million is one of cost in relation to the signing of the amalgamation agreement with BTG. We've received another dividend from Prime. The first of the year $25 million net to Africa in April, which is the only source of cash that we received this first half, which explains our end of quarter balance, cash balance of $485 million. So if we aggregate this cash balance with Prime's net debt of at the moment of $222 million, it means that we have a combined net debt of $36 million, which once we have completed the deal with Prime is what you will see actually on the balance sheet as we are going to consolidate 100% of Prime going forward after the completion of the transaction with BTG. Next slide, please. Thanks, Shahin. So yes, in terms of buyback and dividends, I think it has been the main use of our cash in the first half. We want to continue to manage the company and the balance sheet and continue to return some of these positive resources to our shareholders. So in the first half, we basically bought back some shares for an amount of $39 million plus $11 million of first half dividend paid in March. And so in total, since we have started the dividend return program in March 2022, we've returned a total of $143 million to our shareholders. And the Board has also decided to reconduct the existing semiannual dividends. So we are going to pay another U.S.$0.025 per share to our shareholders end of September. Next slide, please, Jane. Thank you. So yes, a few financial highlights for the quarter and the previous quarters. So Prime's performance has remained very solid with an EBITDAX for the quarter of $92 million and a free cash flow of $77 million. So very stable, very stable performance. Looking on the left side of this slide, you will see the African net income, which has been impacted by civil exceptional items. And this quarter, again, we had a few exceptional items. The first one has been, we've picked up our share of loss of Africa Energy following the withdrawal of Total and CNF from the Block 11, B12 in South Africa. We basically accounted for our share of that loss, that impairment into our net income. So that accounts for an additional loss of about $7 million. And also, worth mentioning that our share of net profit from Prime this quarter has been slightly down at $17 million, which has been impacted by a negative overlift balance of about $12 million net to us. So which explains why our net income for the quarter just breaks even. Next slide, please. Thank you. So coming back to oil sales, I've explained in the past what we market our oil now. And I think this quarter has been the evidence that we manage now to sell our oil in Nigeria consistently above Dated Brent. In Q2 has been the case again, where we sold on average our barrels at $89 per barrel, while Dated Brent has been $85. So we sold three cargos. Prime has sold three cargos, so one and a half cargo net to us. And going forward, two cargos have actually hit their trigger price in September and October, with an average price of $79 per barrel, which also evidences that the marketing strategy that we have now is efficient. And when the oil price goes down, we manage to secure a flow for our cargo. So that's also very good news. Next slide, please. Thank you, Shahin. So yes, just a few words on our production performance this quarter. So you will have noticed that our production is slightly down, and the average production has been down at $16,700 working interest and $19,300 for the first half on average on an entitlement basis. So this is mainly due to a planned one-month shutdown of Akpo, which has now restarted and actually restarted above expectations. So this drop that you have seen in Q2 is just an example, and in those periods, actually, we are now up to the average production of $19,000 per barrel on an entitlement equivalent as of the 11 August, which we are above the average for the first half. Therefore, we've maintained our existing production guidance, and we are confident that we will improve in the nine-month and full year period for 2024. I will now hand over to Roger.
Roger Tucker: Thank you very much, Pascal. And thank you all very much for joining this webcast. What I'm trying to do with this slide is just to demonstrate to you that we have been extremely active in pursuing a strategy of trying to consolidate and concentrate our efforts in particular assets. At a gross level, the value of the transactions that we've done in the last six months well exceeds over a billion dollars of value. Every single one of them was designed to get us into the position that we could then do the big consolidation, which was the prime consolidation with BTG. So we have negotiated the farm down and full carry in Venus with Total. We've done the Block 3B/4B farm down with the carried exploration with Total and managed to maintain a significant equity position in that. And as I mentioned, we are now in the process of attempting to consolidate via an amalgamation agreement, the Nigerian producing assets. And the whole process of this has been designed to really simplify the way that the company is valued at the end of the day. However, as it points out at the bottom, we have managed to maintain at zero cost to us very significant drilling catalysts on the Venus Block 2913B and Block 3B/4B in the Orange Basin, where we are targeting multi-billion barrel gross prospects by the end of 2025. And those are, if you like, trips to the casino where we're going to be fully covered on the chips. And they're very, very significant drilling targets preserved in the portfolio, but still carried. Next slide, please. And over to you, Oliver, to take us through that and I'll come back later.
Oliver Quinn: Yes, thanks, Roger. So what we wanted to do here was just show you really how do we think about value proposition in the company on the back of the transactions that Roger's talked about. And secondly, then, what is the shape of the business going forward long term because I think on the back of the transactions, we have much better visibility on that than in prior years. So in terms of value, ultimately, we see a very compelling value proposition for the company today. If you see on the chart on the slide here, we carry a very disciplined new core NAV, so we have Nigeria flowing barrels production. We have cash and we take off G&A corporate adjustments next few years. And we see that, again, this is a new core NAV at just under U.S.$800 million. And that's versus, of course, a market cap today of about 700 and no debt at the AOC level. So compelling on that type of core NAV. We then move to say, well, look, the other big components of the business, obviously, are holding an impact in Namibia. And of course, we put a public valuation out on that in March when we made an offer to some minority shareholders. And that's what you see reflected here. Of course, the project's mature since then. And we obviously think it's worth more than that because we were a buyer at that price. But again, disciplined view of value on it here. And then the second component really is the carrier that Roger talked about, South Africa, 3B/4B. And here we're showing capital value of the carrier. We're not showing a kind of risk desperation view. It's simply a disciplined outline of how much value we'll receive in that carrier in spend. So again, a tangible NAV, which we think is very disciplined, U.S.$1.1 billion. And again, trading today at 700, about a 36% discount for that. So again, significant discount. And fundamentally, from our view, no real value in the share price, no significant value for that at Orange Basin position. Particularly given, again, as Roger outlined, we anticipate a series of carrier activities, potentially next 12, 18 months to test more barrels, potential, as stated by the operator, planned decision on an FID for Venus. So lots of things coming down the line and not in these numbers. So overall value proposition, I think if you put in the closed pro forma Prime Nigeria consolidation, you can see, of course, in here that our pro forma NAV jumps up with a doubling of Nigeria to just under about U.S.$1.8 billion. So significant step up. Maybe go to the next slide, Shane. So in the next slide here, what we wanted to do again was show you something of the benefits of the pro forma prime Nigeria consolidation. As Pascal mentioned, once the deal completes, we'll consolidate 100% of those assets. And so actually, what we're able to do is kind of look at the forward shape of the business in a much more regular way than we've been able to. So what you're seeing on this plot here is our view of our best anticipated view, if you like, of the next kind of 10 years. So very, very long-term shape of the business. The headline is, it's, of course, a very strong cash generative business. And whilst we have some decline in natural decline in Nigeria next few years, that is offset by the soil from the Coriolis tieback. That's a significant project that grosses its potential for 65,000 barrels a day. That's kind of 11,000 barrels to the AOC pro forma. And then that's complemented by the potential for first oil in Venus in 2029. And then that's followed by potential for the Venus or the Orange Basin development phase. So, I think for a company like ours, it's a very strong long-term profile. What you see in terms of the cash generation that's critical here as well on the plots, is that we have a very relatively consistent generation of operating cash flow in this model. So somewhere plus or minus U.S.$400 million over this long-term period. And of course, that's generating a lot of free cash for the business because we've done the transactions to take the majority of CapEx out of the system. We have some short-term, short cycle Nigeria CapEx under 200 million a year, including the Coriolis development through to '28. Namibia, Venus, no CapEx contribution to first oil. And then this first oil in Namibia that comes on in '29, then we will contribute to any residual ongoing development there. But again, the point to take here is that a very consistent and significant operating cash flow, a very controlled and minimized CapEx and so resulting in a significantly cash liquid business. And again, to take you back to what we announced on the back of the Prime transaction, which is that we've put in place at completion, a new dividend policy with $100 million annual base. And so again, you can see what these numbers demonstrate the ability and strength of the business to deliver that dividend over a consistent period. So I'll hand back to you Roger at this point.
Roger Tucker: Thank you very much, Oliver. And I know that you've seen this slide before, but what I tried to walk you through is that we are executing and delivering the strategy that I put out probably 8 to 10 months ago, that we are very, very focused on the key core assets that we hold. And they are genuinely world-class assets. These are in deep water Nigeria, offshore equatorial Guinea, Namibia, and the extension of that basin into South Africa. We're associated uniquely, I think, only with tier one operators, Chevron (NYSE:CVX) and Total Energies. In Nigeria, where we are doubling our production and reserve base in assets that we know extremely well with the Prime transaction, that we're in three of the top five fields in Nigeria with a production profile way out into the 2040s with those assets. In Venus, again, we're in an asset with a spectacular operator in a discovery which has got the potential to add very significant reserves and production, and also has significant additional running room in it as a result of the new 3D seismic and drilling activity around the block, which I'm sure that you've seen by third parties, as that basin evolves. And along with 3B/ 4B, which we have just farmed out to Total, whilst retaining a 17% equity position in that block, we have a very material exploration opportunity that we hope that will get drilled sometime in 2025. In equatorial Guinea, we've actually just increased the size of the block slightly to the north, and we are still analyzing exactly what we've got now that we've increased that acreage a little bit. And we will be continuing with the farm out activity on what we consider to be an extremely attractive block. So the question here is that we've delivered, we've focused the organization, and we've put ourselves into a position with the Prime transaction to be a very material entity in this West Africa region. And so the next Slide, please, Shahin. And so what do we become when the Prime transaction goes through? We think that we will be a very differentiated independent E&P investment case via the relationships with the majors, via the scale of the opportunities that we are in. And we have a very clearly identified and enumerated to you capital allocation program. The business is made up of very high net back production from the world class offshore assets. We've got funded organic growth opportunities in the exploration carries and the development carry in Namibia. We have a robust balance sheet with a very low debt level and material liquidity headroom. And we have explained with the merger with the amalgamation with a Prime that we're putting forward a very transparent and committed shareholder returns policy. We have demonstrated over the last six, eight months, a little more, that we are returning significant amounts of money to shareholders, as you saw on one of the earlier slides that Pascal showed. So this is something that we have done. And so what we're trying to position ourselves to be is positioning to be the leading player in the consolidation of independent E&P space whilst maintaining our key capital allocation metrics, if you like. And with that, I think that I will conclude and then open up to Q&A, which I'll be more than willing with the team to answer any questions that you have. So over to you, Shahin, to manage.
Shahin Amini: Thank you, Roger. And I'll hand it over to Sharon. Please, if there are any questions on the conference call facility.
Operator: Thank you. [Operator Instructions] And your first question comes from the line of Teodor Sveen-Nilsen from SB1M. Please go ahead.
Teodor Sveen-Nilsen: I have four questions, actually. First one on the capital allocation and talks about both dividends and buybacks and, of course, carrying out both dividends and buybacks. I just wonder, going forward, how do you think around the split between dividends and buybacks and how sensitive would that split be to the share price? Second question, when do you expect the Prime deal to close? I think you said sometime during 2025, when you announced the deal. Is that still the case? Third question, what's the outlook for the upstream dividends from Prime in second half of this year, i.e., how much dividend do you expect to receive in second half? And my fourth and final question, that is on Slide 11 on the pro forma outlook you showed. Could you just clarify the CapEx carry for Venus? How is that included on those -- the CapEx indication there? Thanks.
Shahin Amini: Thank you. So let's start with the fourth question first, which was Slide 11. And on that note, let's go to Oliver, who can clarify the Venus CapEx.
Oliver Quinn: Yes. So basically, what we've modelled here is, of course, in the transaction in Total, all the CapEx is covered by Total. It's effectively an interest-free loan to impact. And then, when first oil from the block, anywhere on the block starts, then there's a mechanism whereby that loan is repaid. It is not the full operating cash, free cash, if you like, that impact receives. It's a portion of it that repays the loan, which is why you see here in a net AOC perspective that it's operating cash flow from first oil. So I think that's important in structure. In terms of, this is a model. It's our best kind of view today, obviously, a few years in advance of the timing of first oil. But this envisages, kind of two FPSO phase development on Namibia. So of course, the first one is fully paid for, if you like, under the Total transaction 2029 and then starts producing in '29. And then we kind of see a second FPSO potentially, I mean, again, it's just a model here, but potentially coming on later in the decade. So what that means is that some of the early spend on that second phase, if it goes ahead, would be pre-2029, therefore equally covered in the Total deal, if you like. So, whatever is spent on the block pre-first oil is covered in that Total transactions, whether that's exploration, appraisal, development, any scale of development. And then the inflection point is at first oil and then it might start paying its respective share for its revenues in the block, et cetera.
Shahin Amini: Teodor, does that answer your question? Do you have a follow-up on that before we go to the next question?
Teodor Sveen-Nilsen: Well, yes, I think it all nails my question.
Shahin Amini: Okay. Well, actually, Oliver, if you could stay on and answer the second question that Teodor asked, which is, what is the expectation on the time bar to close in the Prime here?
Oliver Quinn: Yes, it's a good question. I mean, again, as you said, Teodor, we guided in announcement of a deal at the end of June that it would be Q2, Q3, 2025 for completion. The key steps for that are a shareholder vote, which we anticipate to not be a critical path that should come much earlier. And then what is driving that critical path on timeline is government approval in Nigeria, which, of course, any transaction in Nigeria is required and standard. I think it's fair to say that we are, Africa Oil and Prime and BTG together pushing very hard and working very hard with the Nigerian government. We've got a series of engagements planned, so it's going well so far. But I think we stick with that guidance, but we give the assurance that, of course, we are all moving as hard as we can to try and do it as early as possible. So, frankly, we can move on with the reform of business and all the other things we want to do.
Shahin Amini: Okay. Let's put the next two questions to Pascal. So, Pascal, the other two questions asked is, what is the absolute for Africa Oil to receive Prime dividends in the second half of this year?
Pascal Nicodeme: Yes. If we look at the budget, there is room for another dividend before the end of the year. So, magnitude is still to be discussed. And I'm sure, as in the previous year, we will wait until December to size exactly the dividend. And as you see, there is no shortage of cash. I don't know [Technical Difficulty]. And I think the last element I would like to mention is that, before completing the deal, the amalgamation with BTG, we will probably need to make sure that under the true-up mechanism of an agreement, there is no cash payment between the parties. So, that's another element that we will have to take into account. So, I think that addresses the question number three.
Shahin Amini: Okay. Thank you. And the other question was on capital allocation. Oliver, Roger, you may want to pitch in here as well, but sort of dividends versus buybacks.
Roger Tucker: I actually couldn't hear the first question. So, can you actually repeat exactly what it was, Shahin, so I answer it correctly?
Shahin Amini: The question was, in terms of capital allocation, what are the sensitivities around dividends versus buybacks? You can pitch in as well, but obviously, this question obviously needs to also consider the output for the prior accommodation with a new base dividend policy probably kick-in.
Roger Tucker: As you've seen, when we announced the transaction, we are committing to pay a $100 million per annum dividend. But there is also a line in there, which I've shown on previous slides, that we will also distribute 50% of any excess free cash flow to shareholders as well. And it is that excess free cash flow that we could consider going back into paying, doing share buybacks. But at the moment, it is not optimal for us to re-initiate the share buyback program, because, of course, what will be happening until the consolidation is effectively the position of BTG would be, in terms of equity, would be growing. But we have the flexibility in the strategy that we have put together and the financial planning that we have done post the amalgamation to consider share buybacks again. Does that answer the question?
Operator: Thank you. We will now take the next question. And the question comes from the line of Sander Nilsen from Fearnley Securities. Please go ahead.
Sander Nilsen: So my first question, I was just wondering if you could tell us what is your take on the fact that Total Energy is leaving Block 11B, 12B in South Africa? And I was wondering if this would maybe have an impact for Block 3B/4B? So that's the first question. And then I was wondering if it's possible to say something on the capital structure post the completion with Prime. On my numbers, it seems like you have a lot of capacity there to maybe take on more leverage. So I was wondering, do you have a maximum leverage target in mind? And then, maybe a third question, if you could just comment on, you mentioned the overlift that impacted the financials of Prime in 2Q. What is the expectations there in maybe 3Q or 4Q or the second half of the year? And then finally, the fourth question is on Equatorial Guinea. You mentioned that it is or seems to be an extremely attractive block, maybe in terms of volume or what you're seeing there. It would be nice if you could elaborate a bit on that, please. Thank you.
Roger Tucker: How do you want to distribute that?
Shahin Amini: Well, actually, Roger, sorry, before that, can you just repeat your first question, please?
Sander Nilsen: Yes, that was probably on the overlift in Prime. I was just wondering, are you currently in an overlift or an unlift position in Prime? What should we expect in 3Q, 4Q?
Shahin Amini: Thank you for that. So shall we tackle that in order then? So the first question was, what does Africa oil take on Total Energy leaving 11B, 12B in South Africa? And are there any implications for our Block 3B/4B? So over to you, Roger. So have a first stab at that question.
Roger Tucker: Okay. Well, the first thing is that they're in two very distinct areas. Firstly, there is no indication at all that Total are not going to continue with 3B/4B. And the 11B, 12B situation is basically a long-term issue in marketing gas into South Africa. And that is a different game than dealing with hopefully oil in the Orange Basin. Now, we are actively looking and revisiting that asset to see if we see any additional value in it. But to answer the specific question, there is no relationship between Total's decision to exit 11B, 12B and our relationship with them in 3B/4B. But as I say, we are reviewing the situation with 11B, 12B as we speak.
Shahin Amini: Perhaps the next question can be put to Pascal first. And that is the enlarged Africa Oil capital structure post-prime consolidation. There's obviously a lot of scope and that's enlarged balance sheets that will be in control of cash flows. Pascale, any views on the potential for management of the capital structure there and leverage targets that you envisage?
Pascal Nicodeme: Yes, of course. Of course, the consolidation of Prime into Africa is going to allow us to streamline our existing debt facilities. At the moment, we have one RBL facility at $750 million at the Prime level. We have a corporate facility at the Africa Oil level, which by the way has been reduced to $65 million in the second quarter and extended for three years. It's clear that when we consolidate the two assets, we are probably going to keep and extend again the RBL facility at the Prime level because this is today our most cost-effective way to borrow. So that is going to stay. The question we are asking at the moment is whether we need $750 million or less, probably less given the cash that we managed to accumulate. It's a fact that the debt capacity at the Prime level will continue to be significant and probably much larger than the $750 million. But if we want to borrow more than the $750 million, I mean, we need a use for it. So either we continue to grow organically in Nigeria and then we would have potential uses for that larger facility. But yes, to answer in short, we will keep the RBL facility in place, continue to roll it over maybe at a smaller amount. We could potentially consider alternative financing sources on top of the RBL, second ranking potentially like bonds, maybe at the prime level or also at the Africa Oil level. And the corporate facility is not designed to stay in place after completion of the existing deal with BTG. I mean, clearly that facility was a liquidity buffer just to plan for delays in dividends from Prime. But since we are going to consolidate the cash flows and put a single cash flow pulling mechanism for Prime and Africa Oil, there is no intention to keep that facility in place. So I mean, I've given a few hints here, but I think that's the framework around which we are thinking at the moment.
Roger Tucker: But the thing to say as well is that you're absolutely right. There is significant headroom should we require to increase leverage for any reason. You're absolutely right. And in certain models you get, we become under leveraged as we model out. But you are right. There is significant headroom in the business. So, Shahin, next question.
Shahin Amini: I've got just one final point just to emphasize that under a consolidated Prime, a large Africa Oil tax allocation framework, there will be a target net debt to EBITDA one times. That would be the general rule. So actually, let's go to the fourth question, and that was on Equatorial Guinea. Do you want to share your views on the prospectivity on the two blocks, Roger? Because they're obviously two very different blocks in terms of price and potential there.
Roger Tucker: The one that's highest on our focus is EG31, which is the infrastructure-led block, which is adjacent to the LNG facility, which has got significant ullage in it. And we do see some significant features on that block. And as I mentioned to you, we just have agreed with the government to extend the block slightly to the north, and we've taken an extra tranche of acreage in that area. Because one of the significant prospects we identified does cross what was the block boundary. And I felt it was the best interest of the company to actually get the whole of the feature, the structure in there, do the work on that, and then do the full farm up. Because what you don't want to do is get into a unitization issue if you can avoid it. And that work is ongoing at the moment. We have all of the seismic over that. And what we're looking at, should they be successful, is prospects which are in the north of one TCF size, is what we would be focusing on. And we believe they are in that block. Now, I will say the geology is not the most simple in there. And this is taking us a bit of very careful work to get this right. So, as I say, we've extended the block a little bit to the north. We've got existing seismic and are reprocessing all of that and are very focused in that particular area on a very particular feature, which looks very interesting to us.
Shahin Amini: Sander, I just wanted to double check with you that the answers received so far, if you required any further clarification or so far so good.
Sander Nilsen: Sorry, Shahin. The line broke up a bit. Can you repeat.
Shahin Amini: Just wanted to double check with you that the answers received so far, answered your questions, you don't have any further
Sander Nilsen: No, absolutely. It was fine. Thank you for that.
Shahin Amini: Well, just your final question, and we'll go back to Pascal on that. And that was basically, Pascal, the question is on the overlift, underlift. Sorry, we just have a bit of technical issues. Sounds like we lost Pascal's line on that.
Pascal Nicodeme: I think I'm on. Can you hear me?
Shahin Amini: Yes, we can hear you. So, Pascal, can you --
Pascal Nicodeme: Yes. I will tackle that question on the underlift, overlift. Well, I mean, in terms of barrels, I mean, this overlift, underlift position is meant to average out over the quarters. As you can imagine, we have a specific net entitlement to barrels that is predefined on a quarterly basis. And of course, every quarter, we just have a right to a fixed number of cargos. So, therefore, on some quarters, we are going to lift more than on entitlement. On some quarters, we are going to lift less. So, the sort of balance of this underlift or overlift position is going to fluctuate between a positive and a negative on a quarterly basis. So, it's difficult to predict exactly how this is going to happen, because it depends first on our net entitlement. And second, it depends on the cargo schedule. So, it's very difficult to give a prediction. And on top of that, the overlift underlift position is a barrel position, is a position in barrel, while we account for it on the books in a dollar value. So, each time we multiply by an average sale price, which induce additional variations in terms of the overlift and underlift balance. So, I would say that as a proxy, you can expect this underlift balance or overlift balance to converge towards zero at some point. But I mean, the nature of our business is that on the quarter-to-quarter basis, there will be fluctuation simply because our net entitlement is going to be different than the actual barrels we are lifting on the quarterly basis.
Operator: Thank you. We will now go to the next question. And your next question comes from the line of Kevin Fisk from Scotiabank (TSX:BNS). Please go ahead.
Kevin Fisk: Can you give us an update on Africa Oil's M&A strategy? If there's any ideas or details on what kind of assets you're looking at, that would be helpful. Thanks.
Shahin Amini: Oliver, do you want to have a go at that? It would be good to hear from Roger.
Oliver Quinn: Thanks for the question. Yes, there's a couple of different ways to think about it. One is obviously, we've got the transactions that we've announced to close. So, there's a couple of things there, but primarily, as we talked about earlier, we're very focused on getting that done. But importantly, in parallel, we are still very active in an M&A sense in terms of looking at opportunities, looking for things that can add to inorganic growth to the company. So, we're not stopping and waiting is the message, but that deal is closed, right? We're focused on that, but equally, in parallel. I think that in terms of what are we looking for, it's a big question, but clearly, we've got at the moment a portfolio of very low unit costs, low carbon, high quality assets. So, the large scale assets of which we own relatively small shares, but we're very happy with that. Small shares are kind of world-class assets.
Roger Tucker: So, look, I'll paraphrase, Roger here, but we start rocks up. So, we're very technically driven in the sense of asset quality, and then we layer onto that what is the value and the other considerations. So, again, trying to achieve a portfolio that has low unit costs, it's robust to well-priced cycle, and ultimately, it's high quality assets. It's the shape that we like. I think we see several things out there that tick that box, and I think we've been open in our -- we announced the prime consolidation, bringing BTG into the cornerstone shareholder, but that will widen the lens a little bit there. So, lots of opportunity in Africa, but equally there's opportunity kind of around the Atlantic margins and different places that we will take into consideration. But I think it's a one-liner I would give you is asset quality, right? That's our kind of key focus when we start to look at things.
Kevin Fisk: Okay. Thanks. And maybe as a second question, is there a date or a requirement at some point to disclose the reserves associated with Venus now that there's been a few wells drilled?
Shahin Amini: Oliver, do you want to have a first start?
Oliver Quinn: Yes, I kind of fit to that. It's not the first time I've had the question, but I'm surprised. Look, I think, again, I mean, most people know this, but of course, the ownership structure here is what drives a lot of this in terms of what data we get directly adapted to oil. So, of course, our exposure is to our ownership of Impact. Impact itself is a private company that is the licensed swap partner, joint operating agreement partner to Total. So, we're kind of one step removed there, which is a slightly unusual situation for these things. And that's what kind of drives the disclosure that we get as an investor, rather than a direct license owner. But I think, look, that said, as the project matures and more data comes, and particularly, I think, in the next period, as Total said publicly, they're moving to an FID decision in 2025. Then naturally, I think, there'll be more kind of disclosure around the project, around its scale of resource, and particularly around the phasing and size of developments as they go forward, right? And I think, four wells drilled on Venus, well tests done, us giving it to Total, probably sufficient information in our view to take a clear review on it, and that work's ongoing. So, as that work matures to support that FID decision, again, we'd expect more information to flow through the system.
Operator: Thank you. Your next question comes from the line of Herman Zahl from Pareto Securities. Please go ahead.
Herman Zahl: I have a question first on production, aggregated production coming up this much after the quarter. Could you help us with thinking on production and especially decline rates into next year, and if we should expect some differences in oil gas next year compared to this year? And then also, with 40 million roughly on CapEx spent so far this year, how does that compare to your initial expectations, and should we expect that to possibly end in the lower range of the guided 100 to 130?
Shahin Amini: Thank you, Herman. Actually, I'll tackle the first question. The second question on the CapEx relative to guidance, as you've seen that the semi-annual CapEx spent so far in the first half of this year, if you were to extrapolate that for the year, there is so far to come on the lower end of that range. Obviously, there's a lot of activities going on, including drilling on Akpo, as you know, is ongoing. The recontract has been renewed to October and can be renewed again, so there's still a lot of activity on those fields. And we'll take a view on the CapEx in the third quarter and see where we stand in relation to the full year guidance. Now, going to your first question, Herman, which was on production first quarter and decline rates, I don't know if Pascal, Roger and Oliver have a view on that. Again, I can have a first go, and that is that we did have a statement in our press release on MD&A, that in the first quarter, the second quarter of 2024, if you look at the last monthly average production rates, the working interest is approximately 18,000 barrels of oil equivalent per day. That compares to a second quarter working interest production of around 15,600. So, it is considerably higher, and that really just reflects that during the second quarter, we were obviously still have the impact of the plant shutdown on the Akpo field and the ramp-up, and that is now out of the way. Looking further out, obviously, the infill drilling is aimed at minimizing the decline rates, but ultimately, I think from an investment case, you need to look at the Preowei development project. That is what is really going to give us material incremental production, and you would have seen that from Oliver's performance on Slide 11. In terms of your oil and gas ratio, we expect that before Preowei comes in to be 80-20%. So, approximately 80% liquid, 20% gas, but with Preowei coming on, we expect that to move in favor of liquid, i.e. it could go back to 85% liquid and 15% gas. Does that answer your question, Herman?
Herman Zahl: Yes, excellent. Thank you so much.
Operator: Thank you. We will now take the next question. And the question comes from the line of David Round from Stiefel. Please go ahead.
David Round: Couple for me, please. Firstly, just looking at your guidance, there is still a reasonable range of production outcomes, so are you able to just talk about the assumptions that underpin the top or the bottom of that range, please? The second question refers to the new wells at Akpo, and just similar, are you able to say anything about the extent to which those wells have exceeded expectations? Were they drilled on new seismic, and is there any read-across to future wells or future reserve bookings, please?
Roger Tucker: I'll have a crack at this, Shahin. You're absolutely right, David. The wells were drilled on the basis of 4D seismic, and the 4D seismic program is working. We can identify, or the operator can identify locations effectively, and indeed, processing is just finished on the last 4D seismic program that we have acquired, and the results of that, we haven't actually looked favorable as well. So the interpretation of 4D is helping in identifying good infill locations, but it is also important to stress that these fields have produced to-date, 2 billion barrels of oil. They're over the peak. And they will decline, but they are declining industry standard rates, and still have in excess of a billion barrels to produce. And so we've been absolutely clear in the production forecast we've given that there will be ultimately a decline, as all these giant fields do, but the 4D seismic does seem to now be working very effectively on identifying the locations, and indeed, migration of fluids within the reservoir.
David Round: Okay. I understand what you're saying about expectations for decline. Would it be fair to say you perhaps have some more optimism about your ability to perhaps arrest that decline rate, given the results you've seen to date yet?
Roger Tucker: I don't know whether anyone wants to jump in. I think that the results of the current 4D that is now being interpreted need to get under our belt to come back and revisit what the infill drilling program is going to look like. And that is just coming out of the interpretation phase as we speak. But all I can say is it does work in here, and so we obviously want to minimize the decline rates as best we possibly can. And also we're going to start to have to look at reducing costs, etc., etc., as you do as these fields get older, but as I say, the critical element here is there's still over a billion barrels to produce from these fields.
Operator: Thank you. There are currently no further phone questions. I will hand back to Shahin for webcast questions.
Shahin Amini: Thank you, Sharon. There was a question from David Mirzai, one of our analysts, and the question is, can you discuss how the operational capacity of Africa Oil will change with the Prime acquisition, and what could this add in terms of personnel? Oliver, do you want to go?
Oliver Quinn: Yeah, sure. Thanks, Shaheen. Yes, it's a good question. So I think obviously today Prime, as a standalone company, if you like, is the owner of the assets, and they have a strong team in the Netherlands that are acting as non-operator managing the assets. Equally, in Africa Oil, I think we've got a very strong team across technical and commercial space, and so of course we'll be bringing the two organizations together, and what that will do, I think, from our perspective is Africa Oil, of course, will move one step closer to the assets from a management perspective, which is very positive in terms of visibility, in terms of influence on the operators. And equally with Prime, we'll bring in asset knowledge and several years of day-to-day, if you like, on the assets, so the combination is very powerful. I think from Africa Oil, what do we end up looking like? Much more like a conventional E&P company. I think as individuals, that experience is strong in the business, but in bringing two organizations and the assets together, that will fill out the capacity, if you like. In terms of running Nigeria, but what it will also do, of course, is expand our bandwidth, if you like, in terms of the M&A things that we're looking at and the assets we're looking at as well, so it's a very positive part of the transaction.
Shahin Amini: Thank you, Oliver. We only have a couple of minutes left. Roger, I've been getting a number of questions over the email and also through the webcast, and that is, is Africa Oil effectively on standby in terms of opportunities until the prime consolidation is closed, or can something get done sooner? Are you able to comment on that?
Roger Tucker: Well, the first thing is, when is it going to close? Personally, I hope it is going to be well before the date that we've given as the long stop. To a certain extent, we are a little bit hidebound by the fact that we're closing this transaction. However, we are actively working along with our colleagues at BTG, and we have exactly the same strategy, actively reviewing opportunities, and if the right one comes along, we are formulating ways in which we can do it before this deal completes. It isn't the simplest way of participating, but if the right deal rocks up, then we could structure something that could be done prior to completion. But the critical element in this is that both BTG and Africa Oil have a very, very clear view on what would be an appropriate asset, let's deal with, and so we are actively reviewing right now all of that. As I say, the key here is that you mustn't leap into the wrong thing, and so it's important to look at exactly what is out there, do we like it, does it fit, and that screening process is actually going on right now.
Shahin Amini: All right, thank you very much. Unfortunately, we've run out of time. Roger, do you have any final comments?
Roger Tucker: I don't think so. I think that was very useful. Thank you very much.
Shahin Amini: Thank you, and over to the operator for the final comments.
Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
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