Africa Oil Corp. (“Africa Oil”, “AOC” or the “Company”) is pleased to announce its financial and operating results for the three and six months ended June 30, 2024.
Highlights
Announced the agreement to consolidate the remaining 50% interest in Prime within Africa Oil, thereby increasing the Company’s ownership in core cash generating assets and bringing in a new, strategically aligned cornerstone investor. BTG Pactual, and also enabling enhanced shareholder returns and creating a materially stronger growth proposition.
The Company ended Q2 2024 with a cash balance of $185.6 million and no debt.
During Q2 2024, the Company received a $25.0 million dividend distribution from Prime, net to its 50% shareholding.
During H1 2024, the Company returned a total of $50.6 million to its shareholders through its base dividend distribution and share buybacks for amounts of $11.5 million and $39.1 million respectively.
The Board of Directors of Africa Oil approved a second semi-annual dividend of $0.025 per share, payable on September 27, 2024.
Post period, the Company reached an agreement with Eco to acquire an additional 1.00% interest in Block 3B/4B in exchange for its 14.84% shareholding in Eco, pursuing its strategy to rationalize its portfolio of exploration investments.
Selected Prime’s highlights and results net to Africa Oil’s 50% shareholding*:
Recorded Q2 2024 daily WI production of approximately 15,800 barrels of oil equivalent per day (“boepd”) and average daily net entitlement production of approximately 18,300 boepd.
Post Q2 2024 the rolling monthly daily WI production (as of August 11, 2024) averaged approximately 18,100 boepd and net entitlement production averaged approximately 20,800 boepd; full-year 2024 management production guidance is unchanged.
Recorded Q2 2024 cashflow from operations of $69.6 million.
Prime’s cash position of $152.8 million and debt balance of $375.0 million resulting in a Prime net debt position of $222.2 million at June 30, 2024. The AOC Net Debt inclusive of 50% Prime Net Debt is $36.6 million.
Africa Oil President and CEO, Roger Tucker commented: “It was an incredibly busy first half of the year as we signed three strategic transactions, taking Africa Oil towards the next phase of value creation and shareholder returns. We have high-quality development projects, high-impact exploration and appraisal catalysts that will all be funded on completion of these deals. The quality of our organic growth opportunity set is demonstrated by the size and calibre of our partners.
The Prime consolidation once closed, will see the roll-out of a new transparent capital allocation framework and will create scope for a significantly enlarged capital returns program for our shareholders. Africa Oil stands with a differentiated investment case of offering sustainable shareholder returns, significant organic growth opportunities, and is well-positioned to pursue new opportunities on the back of a strong balance sheet.”
In Q2 2024, the Company recorded a net income attributable to common shareholders of $0.4 million (Q2 2023 net income - $106.9 million). This is primarily made up of share of profit from the Company’s investment in Prime of $17.4 million (Q2 2023 share of profit - $212.7 million) offset against losses from the Company’s investment in associates of $7.7 million (Q2 2023 share of loss - $34.7 million) and Company’s operating expenses of $10.4 million (Q2 2023 expense – $7.1 million).
Prime revenues decreased by $4.3 million in Q2 2024 compared to Q2 2023, mainly driven by no Petroleum Profit Tax (“PPT”) and royalty revenue. No PPT revenue has been reported since August 2023 with Prime lifting its own entitlement production and paying its tax in cash and no royalty revenue has been reported since August 2023 with PML 52 royalties being paid in cash and presented in cost of sales.
There was an increase in costs of sales of $32.3 million, primarily driven by an overlift movement during Q2 2024 of $23.8 million compared to an underlift movement in Q2 2023 of $1.9 million. This resulted in a decrease in gross profit to $95.8 million in Q2 2024 from $132.4 million in Q2 2023. There was other operating income of $22.5 million in Q2 2023 relating to investment tax credits that offset PPT that Prime no longer receives under the Petroleum Industry Act (“PIA”). There was a tax charge in Q2 2024 of $31.9 million compared to an income of $302.2 million in Q2 2023. The income in Q2 2023 was mainly from Prime renewing the OML 130 license resulting in the award of three new petroleum mining leases and one petroleum prospecting license. These cover some of the areas previously covered by OML 130, with some of the areas also relinquished. These are PML 2 (Akpo field), PML 3 (Egina), PML 4 (Preowei) and PPL 261 (South Egina). PMLs 2, 3 and 4 and PPL 261 operate under the terms of the PIA as from June 1, 2023. Under these terms, PMLs 2, 3 and 4 and PPL 261 are subject to a 30% Corporate Income Tax regime compared to the previous 50% PPT regime which resulted in the partial release of $346.0 million of deferred income tax liabilities during the period. This has resulted in Prime’s profit decreasing from $425.3 million in Q2 2023 to $34.7 million in Q2 2024, a decrease of $390.6 million.
The Company’s general and administrative expenses, including BTG transaction related expenses, share-based compensation charges relating to the LTIP and Stock Option Plan, amounted to $10.4 million in Q2 2024 (Q2 2023 - $7.1 million). Adjusted general and administration expenses excluding BTG transaction related expenses amounted to $5.3 million.
Adjusted general and administrative expenses, excluding BTG transaction related expenses and share-based compensation charges, amounted to $4.0 million in Q2 2024 compared to $5.0 million in Q2 2023, a decrease of 20%. The decrease of $1.0 million is primarily driven by lower expenditure in relation to corporate development activities, lower travel costs and higher timewriting recharges to intangible exploration assets.
The Company’s cash balance of $185.6 million compares to year-end 2023 cash balance of $232.3 million and end of Q2 2023 cash balance of $175.7 million. During first half of 2024 the Company distributed $11.5 million in dividends to its shareholders and spent $39.1 million on share repurchases for total shareholder capital return of $50.6 million. The Company also used $14.5 million in its operating activities for this six month period and $5.7 million in its intangible exploration activities. These expenditures were offset with a $25.0 million dividend received from Prime during the same period.
Outlook
Consolidation of the Ownership in Prime
On June 23, 2024 the Company entered into a definitive agreement (the “Amalgamation Agreement”) with BTG Pactual Oil & Gas S.a.r.l. (“BTG Oil & Gas”) and BTG Pactual Holding S.a.r.l. ("BTG Holding"), the entity which holds the interests of BTG Oil & Gas in Prime, to reorganize and consolidate their respective 50:50 shareholdings in Prime (the “Proposed Reorganization”). On completion of the Proposed Reorganization, Africa Oil will hold 100% of Prime with BTG Oil & Gas receiving newly issued common shares in Africa Oil, representing approximately 35% of the outstanding share capital of the enlarged Africa Oil.
The Proposed Reorganization is expected to provide the enlarged Africa Oil with a number of strategic and financial benefits, including the following:
100% increase in working interest Proved plus Probable (“2P”) reserves and production on a pro-forma basis for BTG receiving approximately 35% of the shares in the enlarged Africa Oil.
Increased scale and balance sheet strength, with combined net debt / EBITDA of 0.4x on a pro-forma basis at year end 2023, along with the potential to benefit from lower borrowing costs.
The introduction of a cornerstone shareholder that is strategically aligned with Africa Oil and committed to growing a sustainable upstream oil and gas business, will, upon completion, deliver superior value creation and shareholder capital returns. BTG Oil & Gas’ support has the potential to increase Africa Oil’s access to business opportunities and potentially unlock new sources of growth capital, while complementing Africa Oil’s disciplined capital allocation and financial decision making through BTG Oil & Gas' participation on the Board.
Enabling direct control of Prime’s cash flows and balance sheet through the consolidation of Africa Oil and BTG Oil & Gas' respective interests in Prime versus the equity accounting method that is followed by Africa Oil today for its investment in Prime. This in turn will facilitate greater transparency and visibility of Prime’s financial performance for Africa Oil’s shareholders.
Significant scope to streamline the business processes and decision making to achieve cost savings.
In the view of the Board of Directors of Africa Oil, the Proposed Reorganization is in the best interests of the Company and will create a strong and differentiated upstream oil and gas company. The enlarged Africa Oil is expected to have significant scale with robust long-term free cash flows and a low leverage balance sheet, driven by large-scale and high netback assets in deepwater Nigeria. This will be complemented by funded development and exploration projects in the prolific Orange Basin.
These pillars will provide a strong platform for the enlarged Africa Oil to implement steady and predictable shareholder returns underpinned by an enhanced base dividend policy, whilst delivering organic growth from its core assets and pursuing inorganic growth opportunities supported by a long-term and committed strategic shareholder. The enlarged Africa Oil’s objective is to deliver a superior investment case, relative to its peer group, through a combination of financial discipline, sustainable total shareholder returns, and funded growth.
Completion of the Proposed Reorganization is targeted to occur during or before Q3 2025 and is subject to, among other conditions, Africa Oil shareholder approval, customary consents and approvals from the Nigerian authorities, the TSX and Nasdaq Stockholm, completion of the previously announced farm-down of Africa Oil’s Namibian interests that are held via Impact, and a reorganization of the holding structure of BTG Holding to implement the amalgamation agreement.
Namibia Orange Basin Appraisal and Exploration Campaign
The drilling and test results from Venus-1X, Venus-1A, Venus-2A and Mangetti-1X (Venus interval), completed in 2023 and H1 2024, support the development of the Venus oilfield. The technical studies to be carried out during 2024 are expected to define the Venus development concept.
In addition to the Venus opportunity, the Company has retained upside exposure to appraisal and exploration opportunities that, in a success case, could significantly increase the existing discovered resource base on Blocks 2912 and 2913B. Processing of data from the 3D seismic data survey that was completed during H1 2024, could better define the prospectivity on Block 2193B to the south of the Venus discovery. The joint venture (“JV”) will consider drilling further high-impact exploration wells on separate fan structures on this Block in late 2024 or 2025 once the 3D seismic interpretation work is completed. The Mangetti-1X exploration well, located approximately 35km to the Northwest of the Venus-1X well, also intersected hydrocarbon bearing intervals in the Mangetti and Venus fans. The operator has commenced planning of a well to appraise the Mangetti Fan.
On January 10, 2024, 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. Completion of this transaction will free up the Company’s balance sheet for the pursuit of other growth opportunities and shareholder capital returns.
At the date hereof, 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. Africa Oil plans to complete the purchase of the shareholdings of certain minority shareholders of Impact in Q3 2024.
Nigeria
The Agbami field has delivered higher production efficiencies and lower decline rates than planned during H1 2024. The operator has also rescheduled planned maintenance from H1 2024 to H2 2024 resulting in production exceeding plan for both Q2 2024 and H1 2024. The asset remains on target to meet or exceed its production plan for 2024. The Agbami 4D M3 seismic acquisition survey started in Q2 2024. The survey is expected to conclude during Q3 2024, which will be followed by processing of the seismic and detailed planning of the proposed drilling campaign expected to commence late 2025/early 2026.
The Egina field has also performed above plan during H1 2024 as a result of higher production efficiency than forecast.
In Q2 2024, the Akpo FPSO celebrated 15 years LTI-free. During H1 2024, two new producers and one injection well were brought online at Akpo West, a subsea tie back to the Akpo FPSO. Both of the new production wells are producing above expectation. H1 2024 production at Akpo has been impacted by the planned one-month maintenance outage. Full field production resumed from the shutdown in mid-April, with production rates at the end of Q2 2024 over 16% higher than the production rates at the start of 2024, primarily as a result of the successful infill drilling campaign.
The commitment to the drilling rig has been extended, allowing drilling to continue across the Akpo & Egina fields through 2025. An extensive seismic acquisition campaign was completed in Q2 2024, with surveys taken in Akpo, Preowei, and Egina. The seismic acquisition campaign has established a baseline survey for the Preowei field, and 4D monitor surveys for Akpo and Egina. The latest 4D surveys will be used to guide the infill drilling program and to assist with reservoir surveillance activities.
The first phase of the Preowei Field front end engineering design (FEED) was completed in Q2 2024, with phase 2 expected to be concluded in Q3 2024. FEED studies are aimed at supporting a FID decision on the project and enabling Engineering, Procurement, Construction and Installation (EPCI) to commence in 2025.
South Africa Orange Basin, Block 3B/4B
On July 29, 2024, the Company signed an agreement to acquire an additional 1.00% interest in Block 3B/4B from Eco. The Company also announced a farm down agreement for Block 3B/4B with TotalEnergies and QatarEnergy on March 6, 2024, which includes the transfer of operatorship of the Block to TotalEnergies for a total consideration, including the carry, of up to $46.8 million. The closing of both transactions is subject to government approval and is expected in 2024. On completion of these transactions, the Company will retain a non-operated 18.00% interest in the Block.
The Company submitted an ESIA application for proposed drilling activities on the Block during Q2 2024. An initial response is expected from the regulator during Q3 2024. The Company has also been working on the transition of operatorship to TotalEnergies following the signing in Q1 2024 of the farm down agreement with TotalEnergies and QatarEnergy. Subject to obtaining the requisite approvals, the Company expects that the first exploration well on Block 3B/4B could be drilled during 2025.
Equatorial Guinea
The Company is continuing with the farm down process for Blocks EG-18 and EG-31, as well as subsurface studies to enhance the definition of multiple targets already identified.
The Company holds an operated WI of 80.0% in each of Blocks EG-18 and EG-31.
Dividend Distribution
Africa Oil is pleased to announce that its Board of Directors has declared the distribution of the Company’s semi-annual cash dividend of US$0.025 per common share. This dividend will be payable on September 27, 2024, to shareholders of record at the close of business on September 9, 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 September 27, 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 October 3, 2024.
To execute the payment of the dividend, a temporary administrative cross border transfer closure will be applied by Euroclear from September 5, 2024, up to and including September 9, 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/investor-summary/total-shareholder-returns/ .
Notes
The 50% shareholding in Prime is accounted for using the equity method and presented as an investment in joint venture in the Interim Condensed Consolidated Balance Sheet. Africa Oil’s 50% share of Prime’s net profit or loss will be shown in the Consolidated Statements of Net Income and Comprehensive Income. Any dividends received by Africa Oil from Prime are recorded as Cash flow from Investing Activities.
Aggregate oil equivalent production data comprised of light and medium crude oil and conventional natural gas production net to Prime’s WI in Agbami, Akpo and Egina fields. These production rates only include sold gas volumes and not those volumes used for fuel, reinjected or flared.
Net entitlement production is calculated using the economic interest methodology and includes cost recovery oil, tax oil and profit oil and is different from working interest production that is calculated based on project volumes multiplied by Prime’s effective working interest in each license.
Includes non-GAAP measures. Definitions and reconciliations to these non-GAAP measures are provided in Fourth Quarter 2023 MD&A.
Cash flow from operations before working capital adjustments and interest payments.
The Company’s 2024 production will be contributed solely by its 50% shareholding in Prime.
Approximately, 78% expected to be light and medium crude oil and 22% conventional natural gas.
Net entitlement production estimate is based on a 2024 average Brent price of $82.0/bbl being the average of the Brent forward curves between September 27, 2023, and November 23, 2023. Net entitlement production is calculated using the economic interest methodology and includes cost recovery oil, tax oil and profit oil and is different from WI production that is calculated based on project volumes multiplied by Prime’s effective WI.
All dollar amounts are in United States dollars unless otherwise indicated.
Management Conference Call
Senior management will hold a conference call to discuss the results on Thursday, August 15, 2024 at 09:00 (EDT) / 14:00 (BST) / 15:00 (CEST). The conference call may be accessed by dial in or via webcast.
Participants should use the following link to register for the live webcast:
https://edge.media-server.com/mmc/p/7rktbvic
Participants can also join via telephone with the instructions available on the following link:
https://register.vevent.com/register/BI7dc53961104640759e33d69035cba0e8
Click on the call link and complete the online registration form.
Upon registering you will receive the dial-in info and a unique PIN to join the call as well as an email confirmation with the details.
Select a method for joining the call;
Dial-In: A dial in number and unique PIN are displayed to connect directly from your phone.
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