Africa Oil Corp. ("Africa Oil", "AOC" or the "Company") is pleased to announce its operating and consolidated financial results for the three months and the year ended December 31, 2023, together with its 2024 Management Guidance.
Highlights
Successfully met 2023 Management Guidance on production and cash flow from operations2,5.
The Company received three dividends totaling $175.0 million in 2023 from its shareholding in Prime, including one dividend of $50.0 million in Q4 2023. AOC's cash and cash equivalents at December 31, 2023, of $232.0 million.
2023 Full year net income of $87.1 million (2022: net loss of $60.3 million) or $0.19 per share (2022: net loss of $0.13 per share).
The Company launched a new NCIB share buyback program on December 6, 2023, and post year-end, on January 10, 2024, started share buybacks under the new NCIB. The Company will pay a dividend of $0.025 per share on March 28, 2024.
OML 130 renewed for 20 years securing AOC's long term production base and enabling the refinancing of Prime's debt. Prime's OML 130 and OML 127 were converted to operate under Nigeria's new Petroleum Industry Act ("PIA") and are now subject to a 30% Corporate Income Tax regime compared to the previous 50% Petroleum Profit Tax ("PPT") regime.
Commenced the appraisal campaign for the Venus light oil and associated gas discovery, with the positive results supporting the commercial development of the field.
Subsequent to the year-end, the Company announced a strategic farmout agreement between its investee company Impact Oil and Gas Limited ("Impact"), and TotalEnergies, that allows the Company to continue its participation in the world class Venus oil development project, and the follow-on exploration and appraisal campaign on Blocks 2913B and 2912 with no upfront costs.
Selected Prime's results net to Africa Oil's 50% shareholding*:
Recorded full-year average daily WI production of approximately 19,800 barrels of oil equivalent per day ("boepd") and average daily net entitlement production of approximately 22,400 boepd. These compare with mid-range 2023 Management Guidance figures of 20,000 boepd and 22,000 boepd for WI and net entitlement production, respectively.
Recorded cashflow from operations2,5 of $298.8 million, which compares with the guidance mid-point of $290.0 million.
Prime's cash position of $76.1 million and debt balance of $375.0 million resulting in a Prime net debt position of $298.9 million at December 31, 2023.
* Important information: Africa Oil's interest in Prime is accounted for as an investment in joint venture. Refer to Note 1 on page 5 for further details. Please also refer to other notes on page 4 for important information on the material presented.
Africa Oil President and CEO, Roger Tucker commented: "2023 was a very good year for Africa Oil. Two highlights are the renewal of Prime's OML 130 license for a further 20-year period and the successful appraisal of the Venus discovery, which supports the case for its commercial development. The OML 130 renewal not only secured the long-term future of our core producing assets, it also facilitated the refinancing of Prime's debt on competitive terms and allowed a dividend distribution of $175 million to Africa Oil for the year. The renewal also supports further investments including in the Preowei development project.
The appraisal of the Venus field during 2023 was very encouraging and we note the operator's positive public statements regarding the development of this world-class discovery. We are also excited by the wider prospectivity in the area, as evidenced by the recent Mangetti discovery. Post period end we announced the farmout agreement between Impact and TotalEnergies. Under this transformational agreement Africa Oil will retain exposure to the Venus field and associated exploration upside at no upfront cost, and with no further demand on our balance sheet."
Our focus for 2024 is to enhance the value of our core assets, including our operated exploration assets through strategic farm down transactions, and pursuing opportunities to consolidate and streamline our asset ownerships."
2023 Full Year and Fourth Quarter Results Summary
In 2023, the Company recorded a net income attributable to common shareholders of $87.1 million. This is primarily made up of income from the Company's investment in Prime of $228.0 million offset against losses from the Company's investment in associates of $47.0 million and impairment recognized to its Kenyan intangible exploration assets of $62.2 million writing these assets down to nil. The net income attributable to common shareholders in 2023 of $87.1 million has increased from a loss of $60.3 million in 2022 as the income from Prime has increased by $81.4 million and the impairment recognized in relation to the Company's intangible exploration assets in Kenya has decreased by $108.4 million. This is offset by an increase in the share of loss from investments in associates of $38.8 million.
The share of profit from the Company's 50% investment in Prime in Q4 2023 was impacted by a non-cash impairment of $131.7 million recorded by Prime, mainly due to Prime applying a higher discount rate in its valuation, and from changes in the technical assumptions in OML 130..
Prime revenues decreased by $284.1 million in 2023 compared to 2022, mainly driven by lower liftings. Prime also recorded an increase in cost of sales of $41.7 million, primarily driven by an increase in DD&A of $99.0 million as Prime has changed the method of depletion on its facilities including FPSO from straight line to unit of production, to better reflect the consumption of the reserves' economic benefits. This resulted in gross profit in 2023 to be $325.8 million lower than 2022. In addition, there was a decrease of $88.1 million in other operating income, primarily consisting of investment tax credits which can be offset against PPT, an increase of $181.0 million in impairment charges, and a tax income in 2023 of $248.6 million compared to a tax charge of $519.4 million in 2022. Prime renewed OML 130 resulting in OML 130 operating under the terms of the new PIA as from June 1, 2023, and Prime voluntary converted OML 127 to operate under the new Petroleum Industry Act from March 1, 2023, with all key conditions precedent fulfilled during 2023. Under these terms, OML 127 and OML 130 are subject to a 30% Corporate Income Tax regime compared to the previous 50% PPT regime which resulted in the release of $62.0 million and $346.0 million of deferred income tax liabilities during the year for OML 127 and OML 130 respectively. This has resulted in Prime's profit for 2023 increasing by $156.6 million compared to 2022.
Outlook
2024 Priorities and Business Plan
The Company's focus for 2024 is to advance its main opportunity set comprised of its core assets in deepwater Nigeria, Orange Basin offshore Namibia and South Africa, and Equatorial Guinea. Management will also evaluate the options for consolidating the ownership of its core assets and streamlining of the Company's business structure.
Africa Oil has made a strong start in the delivery of its 2024 business plan with the strategic farm-out agreement between its investee company, Impact, and TotalEnergies for the interests in Blocks 2912 (PEL 91) and 2913B (PEL 56), offshore Namibia, which was announced on January 10, 2024. This transaction gives the Company the opportunity to continue its participation in the world-class Venus light oil development project, and the follow-on exploration and appraisal program on the Blocks at no upfront cost. This frees up the Company's balance sheet for the pursuit of other growth opportunities and shareholder capital returns.
Namibia Orange Basin Appraisal and Exploration Campaign
The successful Venus-1X drill stem test and Venus-1A appraisal well, both completed in 2023, support the commercial development case for the Venus oilfield. The appraisal program and the development studies to be carried out during 2024 are expected to define the Venus development concept. The Mangetti-1X exploration well, located approximately 35km to the North West of the Venus-1X well, intersected hydrocarbon bearing intervals in the Mangetti fan prospect, a separate fan system to the Venus oil discovery. Mangetti-1X also achieved its secondary objective of successfully intersecting and appraising the northern area of the Venus discovery. Drilling continues at the Venus-2A appraisal well, approximately 17 km to the northwest of the Venus-1X location. The results from these wells will be incorporated in the development studies.
In addition to the Venus opportunity, the Company has retained upside exposure to the exploration opportunities that in case of success, could significantly increase the existing discovered resource base. Furthermore, the processing of the 3D seismic data that is currently being acquired could better define the prospectivity on Block 2193B to the south of the Venus discovery. It is possible that the JV could drill further high-impact exploration wells on separate fan structures on this Block during 2024 or 2025.
At the date of this report, AOC has an interest in this program through its 31.1% shareholding in Impact, which in turn has a 20.0% WI in Block 2913B (PEL 56) and 18.9% in Block 2912 (PEL 91). On closing of the farm-out transaction with TotalEnergies, Impact will retain a carried 9.5% WI in each of the two Blocks.
Nigeria
The OML 130 drilling campaign that commenced on February 22, 2023, has completed a total of five wells. One production well and two water injection wells have been brought online at Egina. Two production wells have been completed at Akpo West and brought onstream over the Akpo FPSO during Q1 2024. The multi-well program is planned for up to nine wells on the OML 130 asset during 2023 and finishing in 2024, with a further option to extend the rig contract to drill additional wells in the Block.
Acquisition of 4D monitor seismic surveys are planned for Akpo, Egina and Agbami during late 2023, through 2024. The acquisition plan also includes a baseline 4D seismic survey of the Preowei field. The surveys will support future drilling decisions across both OML 127 and OML 130.
Full year 2023 production was in line with the midpoint of the management guidance for both working interest and economic entitlement. Beyond the aforementioned drilling campaign on Egina and Akpo, which will offset production decline, there is a planned maintenance shutdown for the Akpo field which will occur in Q1 2024, this was previously planned for Q4 2023. A planned maintenance shutdown will also be executed on Agbami during H1 2024.
Following the 20-year renewal of OML 130 on May 28, 2023, FEED studies have recommenced which could facilitate the final investment decision for the Preowei oil discovery development project. The Preowei oil field is to the north of the Egina FPSO and is a development opportunity via a satellite subsea tie-back project to the Egina FPSO.
South Africa Orange Basin, Block 3B/4B
Following the approval from the Government of the Republic of South Africa of the transfer of a 6.25% interest in Block 3B/4B from Azinam to the Company on January 19, 2024, at the date of this MD&A, the Company holds an operated WI of 26.25% in the Block.
The Company and its JV parties are progressing plans to conduct a two-well campaign on Block 3B/4B and are in discussions with various potential parties to farm out a share of their working interest in the Block. The JV parties are also working with a leading South African environmental consulting firm to conduct a comprehensive Environmental and Social Impact Assessment ("ESIA") process in preparation for permitting and drilling activity on the Block.
Equatorial Guinea
The Company continued its geological and geophysical works for Blocks EG-18 and EG-31 with subsurface studies conducted during 2023 defining multiple prospects on both Blocks. Seismic reprocessing and subsurface studies will continue over the coming months to further refine and rank the identified prospects, identify any further prospects and prioritize a potential drilling target on the shallow water EG-31 Block, for drilling in 2025. The Company's objective is to farm-down part of Blocks EG-18 and EG-31 in 2024.
The Company holds an operated WI of 80.0% in each of Blocks EG-18 and EG-31.
2024 Management Guidance
The Company's 2024 production will be contributed solely by its 50% shareholding in Prime. The 2024 Management Guidance includes WI production guidance range of 16,500 – 19,500 boepd and net entitlement production range of 18,000 – 21,000 boepd with approximately 78% expected to be light and medium crude oil and 22% conventional natural gas.
Prime is expected to sell 10-13 cargoes of approximately one million barrels each during 2024. Based on the above production and Prime's current 2024 cargo lifting schedule, the Company's management estimate Prime to generate cash flow from operations of approximately $230.0 - $320.0 million net to the Company's 50% shareholding. These estimates are based on a 2024 average Brent price of $82.0/bbl.
Any dividends6 received by the Company from Prime's operating cash flows and cash on hand will be subject to Prime's capital investment and financing cashflows, including Prime's RBL interest payments and principal amortization. Net to the Company's 50% shareholding, Prime's 2024 capital investment is expected to be in the range of $100.0 - $130.0 million. Prime had a cash and cash equivalents balance of $76.1 million net to the Company's 50% shareholding at December 31, 2023.
Dividends and AGM
The Company is pleased to announce that its Board of Directors has declared the distribution of the Company's semi-annual cash dividend of $0.025 per common share. This dividend will be payable on March 28, 2024, to shareholders of record at the close of business on March 8, 2024. This dividend qualifies as an 'eligible dividend' for Canadian income tax purposes.
Dividends for shares traded on the Toronto Stock Exchange ("TSX") will be paid in Canadian dollars on March 28, 2024; however, all US and foreign shareholders will receive USD funds. Dividends for shares traded on Nasdaq Stockholm will be paid in Swedish kronor in accordance with Euroclear principles on April 2, 2024.
To execute the payment of the dividend, a temporary administrative cross border transfer closure will be applied by Euroclear from March 6, 2024, up to and including March 8, 2024, during which period shares of the Company cannot be transferred between the TSX and Nasdaq Stockholm.
Payment to shareholders who are not residents of Canada will be net of any Canadian withholding taxes that may be applicable. For further details, please visit:
https://africaoilcorp.com/investors/dividend-information/
The Company's Annual General Meeting is planned to be held on May 23, 2024.