Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Africa Oil Corp (AOIFF, Financial) maintained a strong balance sheet with $185 million in cash at the end of Q2 2024.
- The company returned $51 million to shareholders through dividends and share buybacks in the first half of 2024.
- Prime's performance remained solid with an EBITDA of $92 million and free cash flow of $77 million for the quarter.
- The company sold its oil in Nigeria at an average price of $89 per barrel, above the Dated Brent price of $85.
- Africa Oil Corp (AOIFF) has significant drilling catalysts in the Venus Block and Block 3B/4B, targeting multi-billion barrel growth prospects by the end of 2025.
Negative Points
- The company's cash balance decreased from $232 million at the start of the year to $185 million by the end of Q2 2024.
- Net income for the quarter was impacted by exceptional items, including a $7 million loss from Africa Energy and a $12 million negative over lift balance.
- Production was slightly down in Q2 2024 due to a planned one-month shutdown of the Apko field.
- The Prime deal is expected to close in Q2 or Q3 2025, which may delay some strategic initiatives.
- There is uncertainty around the exact magnitude of dividends from Prime in the second half of the year.
Q & A Highlights
Q: How do you think about the split between dividends and buybacks going forward, and how sensitive would that split be to the share price?
A: We are committing to pay a $100 million per annum dividend and will also distribute 50% of any excess free cash flow to shareholders. The excess free cash flow could be considered for share buybacks, but it is not optimal to reinitiate the share buyback program until the consolidation with BTG is complete.
Q: When do you expect the Prime deal to close?
A: We guided that the deal would be completed in Q2 or Q3 2025. The critical path is government approval in Nigeria, and we are working hard with the Nigerian government to expedite this process.
Q: What's the outlook for upstream dividends from Prime in the second half of this year?
A: There is room for another dividend before the end of the year, but the magnitude is still to be discussed. We will wait until December to size the dividend exactly.
Q: Could you clarify the CapEx carrier before Venus on the pro-forma outlook?
A: All CapEx is covered by Total under the transaction, effectively as an interest-free loan to Impact. When first oil starts, a portion of the operating cash flow will repay the loan. The model assumes a 2FPSO phase development, with the first fully paid for by Total and the second potentially coming on later in the decade.
Q: What is your take on TotalEnergies leaving Block 11B/12B in South Africa, and could this impact Block 3B/4B?
A: There is no indication that Total will not continue with 3B/4B. The 11B/12B situation is different as it involves marketing gas into South Africa, whereas 3B/4B is focused on oil in the Orange basin.
Q: What will the capital structure look like post the Prime consolidation, and do you have a maximum leverage target?
A: We will likely keep and extend the RBL facility at the Prime level, possibly at a smaller amount. The debt capacity at Prime will remain significant, and we may consider alternative financing sources like bonds. The corporate facility at Africa Oil will not stay in place post-deal completion.
Q: Are you currently in an over lift or under lift position at Prime, and what should we expect in the second half of the year?
A: The over lift and under lift positions fluctuate quarterly based on entitlement and cargo schedules. It is difficult to predict exactly, but these positions are expected to average out over time.
Q: Can you give an update on Africa Oil's M&A strategy and what kind of assets you are looking at?
A: We are actively reviewing opportunities that add to organic growth. We focus on high-quality, low unit cost, and low carbon assets. We are not stopping and waiting for the Prime deal to close; we are looking at opportunities in Africa and around the Atlantic margins.
Q: Is there a requirement to disclose the reserves associated with Venus now that several wells have been drilled?
A: The ownership structure drives the disclosure. As the project matures and more data becomes available, particularly as Total moves towards an FID decision in 2025, we expect more information to be disclosed.
Q: How will the operational capacity of Africa Oil change post the Prime acquisition, and what could this add in terms of personnel?
A: The combination of Africa Oil and Prime will bring together strong teams and asset knowledge, making Africa Oil more like a conventional E&P company. This will enhance our capacity to manage assets and expand our bandwidth for M&A activities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
