Release Date: September 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong asset base with robust production and a balanced mix of oil and gas reserves.
- Low operating costs at $19 per barrel, generating significant cash flow from operations.
- Net cash position of $131 million with undrawn capacity in the RBL, providing funds for growth.
- Interim dividend retained at 9p per share, reflecting confidence in the company's financial stability.
- Significant potential for future cash flow generation, with projections showing over $0.5 billion of free cash flow by the end of 2027.
Negative Points
- Production efficiency issues, with the company not fully utilizing well capacity.
- Extended unplanned outages and maintenance shutdowns, impacting annual production guidance.
- High windfall tax rates impacting profitability, with ongoing uncertainty about future tax regimes.
- Challenges in forecasting production accurately, leading to missed targets.
- Dependence on government decisions for key projects like Buchan, adding uncertainty to future plans.
Q & A Highlights
Q: How do you plan to tackle the high and rising windfall tax placed upon the company by the government?
A: Chris Cox, CEO: It's hurt all E&P companies, but we have a strong base business that generates good cash flow. We also have tax losses from the tailwind transaction, which mitigate the tax impact in the short term. We will optimize our capital allocation policy, investing only in projects with the best returns. If the UK tax regime is unfavorable, we will consider M&A or shareholder returns. We are also lobbying the government for a sensible tax outcome.
Q: Can you confirm whether or not international expansion is a major focus for the business?
A: Chris Cox, CEO: Yes, international expansion is a focus. Our preference is for operated assets, but we are open to value-adding opportunities, whether oil or gas. We are looking at various geographies, not just Norway, to replicate our UK strategy of acquiring and enhancing mid to late-life assets.
Q: Do you have any financial limits or deal sizes in mind for M&A?
A: Martin Copeland, CFO: We won't jeopardize the balance sheet. We have an RBL facility with a borrowing base of $525 million, indicating a conservative value. We will focus on acquisitions that include production and won't over-leverage. Deals may not require significant upfront cash, similar to past Serica transactions.
Q: Why are share buybacks not ongoing?
A: Martin Copeland, CFO: We renewed our mandate at the AGM and consider buybacks as part of the mix. We are waiting for clarity on the October 30 budget before making further decisions. We have the authority to execute buybacks at any time.
Q: Will dividends be retained at 23p for next year?
A: Martin Copeland, CFO: We are heading in that direction, but the final year dividend will be set based on the year's outcome. We have retained the interim dividend at last year's level.
Q: How do you plan to avoid unplanned downtime and extended planned downtime going forward?
A: Chris Cox, CEO: It's about getting the basics right, such as continuous improvement, performance management, and minimizing maintenance backlog. We need to measure our performance against best-in-class benchmarks and address areas where we are underperforming. This process will take time but will lead to improvements.
Q: Is moving from AIM to the main market a major focus?
A: Martin Copeland, CFO: Yes, we are exploring the pros and cons. Regulatory changes have made the main board more attractive. We can't move up until 2025 due to the nine-month rule from our last audited numbers. We will update shareholders on our intentions later in the year.
Q: How long do you project tax losses to last?
A: Martin Copeland, CFO: Two to three years, depending on production levels and prices. We have over $1 billion in tax losses, equating to a value of over $500 million.
Q: Why were shares purchased from the buyback not canceled?
A: Martin Copeland, CFO: We had legacy share awards to issue, and canceling shares would have meant issuing new ones simultaneously. Treasury shares are effectively as good as canceled. Future buybacks will likely result in share cancellations.
Q: What is the maximum well capacity?
A: Chris Cox, CEO: We don't have a precise number today. We need to measure daily well capacity and losses to optimize production. This process will help us understand and maximize our well capacity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
