Panoro Energy - Hey, we are drilling oil from Africa!

[urpokala]

I’ve been following Panoro Energy’s journey for a while now. I recommend reading a very insightful article from the investment forum by the user Xrtainvestor. It recaps events since 2013 and also covers these recent developments, which are why I’ve increased my position.
I’ll try to add some value to that article with a few figures for those who appreciate numbers.

Special Situations ja muut mausteet sijoitussalkussa

I’ve been involved since ancient times, following the company’s transformation and survival, partly by luck (seriously, read that link now). The board and CEO who started in 2015 have demonstrated their ability to make the right decisions. They have experience in the oil industry, as well as ownership in the company. In 2018, deals were made for Tunisian fields, and just before Corona in 2020, a “farm-in” was agreed for Block 2b in South Africa.

I increased my ownership during the COVID dip last spring, around 8 euros. But this was more about investing in the sector than specifically increasing my position in Panoro. Panoro was an easy choice in the sector, as the company was already familiar, my faith in management was solid, and the company’s debt situation was well under control. They had also hedged part of their production (was it about ¼?) at around $55/bbl. This was initially viewed with skepticism. Then came the pandemic, which highlighted how sensibly and experienced the company was managed.

Now to the main point: about a month ago, a bomb was dropped. In summer 2020, deals were being negotiated with oil prices around $40/bbl. Tullow Oil divested its 10% stake in the Dussafu field, which it had acquired through a “back-in right,” and at the same time, deals were shaken on two other African fields belonging to Tullow.
The deals are structured so that once all approvals are received, Panoro will effectively step into Tullow’s shoes from July 1, 2020. This will result in approximately $27 million in additional earnings in H2 2020, according to my calculations. Panoro has not yet published its 2020 financial statements precisely for this reason. The numbers will change once the deal receives all confirmations. Tullow’s general meeting approved the deal last week. The purchase price is $140 million, with an additional $40 million contingent on future revenues and oil prices. The financing was arranged by taking a $90 million loan and a $70 million directed share issue.

From the 2020 trading statement (while awaiting the financial statements), here are figures on acquisitions:

EDIT: Here is also a link to the 2020 trading statement presentation and the numbers only, which was published instead of the financial statements. For some reason, it hasn’t found its way to the website. The financial statements are indeed awaiting confirmation of the deal so that revenues from July 1st can be counted as Panoro’s sales.

This slide first piqued my interest when I was going through the M&A presentation, especially the free cash flow section. $110 million in cash by 2023:

Latest public appearance from Friday. A short 15-minute chat that I encourage you to listen to.

The stock price is now around 20 NOK, or about 2.3 USD. Target prices from marketscreener.com from four analysts. Lowest $3.54 USD / 30 NOK, highest $4.74 USD / 40 NOK, average $3.85 USD / 33 NOK.

The CEO has repeatedly stated that the company will be ready to pay dividends in 2023. Net debt is $86 million.

Let’s calculate the 2021 P/E. I’ll try to use conservative estimates, as is typical for the company. 2 scenarios: Brent $60 USD and $50 USD.

(oil price $60 USD - tax 20% - OPEX $17 USD) * 9000 bbl/d * 365 - CAPEX 2021 $43 million / shares 113 million = $0.52 USD / 4.5 NOK / share. The price has been hovering around 20 NOK, P/E 4.5.

(oil price $50 USD - tax 20% - OPEX $17 USD) * 9000 bbl/d * 365 - CAPEX 2021 $43 million / shares 113 million = $0.29 USD / 2.5 NOK / share. The price has been hovering around 20 NOK, P/E 8.

For 2023, the daily production is estimated at 12-13,000 bbl/d. In addition, potential increases in reserves or new discoveries could boost the share price. Exploratory drilling is set to begin in Dussafu very soon. According to seismic data, the existing Hibiscus field could be significantly larger than currently known.

The calculations clearly show the risk involved. The price of oil is everything. Of course, Panoro has a low OPEX. If oil drops back to the $40 USD level, they will still be profitable, but dividend plans will certainly be put on hold.

edit: added link to the 2020 trading statement presentation.

[KuplaSalkku]

Dates extracted from Panoro’s financial calendar below.

April 30, 2021 Annual Report 2020
May 27, 2021 Annual General Meeting
May 27, 2021 Quarterly Report – Q1
August 25, 2021 Half-yearly Report

I’m eagerly awaiting that annual report. The price of oil has consolidated around the $60 mark.

[urpokala]

I’m also looking forward to the results from the Hibiscus extension / Mupale axis appraisal well, to be published in May. Spud is in the next few days. Norve is already in port in Gabon.

BW’s CEO stated that an additional 100 million barrels of reserves MAY be expected from there, if Hibiscus and Mupale turn out to be the same discovery, as interpreted from seismic data.

BW Energy / Pareto chat on YouTube. Starts at the point where they talk about this first appraisal well.

And from Panoro’s presentation on 10.2.2021, the same topic:

The stock price is currently at about pre-corona levels, relative to the price of oil. In between, there have only been 2 positive expansion news.

Regarding the price of oil, I would be happy if we stayed around the $60 mark. Then they might not be so keen on increasing production in America. If demand increases significantly in the fall and the price rises because of it, then so be it.

[Pohjolan_Eka]

Beautiful news flow coming in the next few months We’ll get Petronor shares, as well as information on the success of the test drillings. At the same time, current production is generating a lot of money, as oil prices are at such a good level.

[urpokala]

I’m putting the brakes on that schedule a bit.
Workovers in Tunisia won’t bring millions, but they will hopefully keep profits steady. Gross about 4500 bopd, of which Panoro’s net is, if I recall correctly, around 1400 bopd. Thanks to the workovers, gross production has increased by almost 1000 bopd.
The drilling permit for the Salloum West exploration well has been pending since before the corona pandemic. No news yet. If it were to come, and if oil were also found, it would be quite nice for Panoro. The share in SFAX is over 50%, after all.

Drilling in South Africa’s 2B is also dependent on permits, so we’ll wait patiently. I guess they’ll come someday…

In Gabon, Dussafu will seemingly be drilled for almost the entire rest of the year. I expect a lot of good things from these.

Oil prices have been hovering nicely above $60. If they were to jump so that the average price for 2021 was $70, we’d reach a P/E ratio of around 3, with the assumptions of the above calculation. If the oil price rises by about $5, 2021 EPS will increase by 1 NOK.

If we could get an additional 100 mbbl of reserves from Hibiscus, of which Panoro’s share would be 17.5 mbbl, there would be about 400-500 MUSD worth of Panoro’s black gold at the bottom of the sea (capex and opex already estimated away). Of course, any potential income would be over a period of many years.

Disclaimer: Quick post, numbers from memory and calculator. Comma and other errors possible.

[urpokala]

So, the spud notice has now arrived from Panoro and, of course, from the operator BW Energy.

PEN: NewsWeb

“John Hamilton CEO of Panoro said: “We are now restarting an exciting phase of
operational activity in Gabon. Hibiscus Extension represents the largest
potential impact well this year for Panoro. The rig will then proceed to drill
the final production well at Tortue before drilling another exploration well at
Hibiscus North to further test the significant upside at Dussafu.””

“The DHIBM-2 well is expected to take around 30 days to drill and log to a total
depth of 3,500 metres. In the event of success at DHIBM-2, one or two appraisal
sidetracks may be drilled to further delineate the field.”

“Success at the Hibiscus Extension well and sidetracks could significantly
increase the total reserves at Hibiscus. The Hibiscus/Ruche development project,
based on the already discovered reserve at Hibiscus, is currently planned to
consist of a converted jackup tied back to the FPSO with 12 development wells
drilled in two phases, with first oil in early 2023. The additional reserves at
Hibiscus, if proven by the DHIBM-2 well, would require additional wells and
possibly a converted jackup to fully develop the potential in the area.”

BWE: NewsWeb

“The appraisal well will provide new input to the ongoing Hibiscus/Ruche
development project, which is currently based on the already discovered 46.1
million barrels gross 2P reserve at Hibiscus and the 24.1 million barrels
discovered at Ruche and Ruche North East. The development project is planned to
consist of a converted jack-up rig tied back to the FPSO with 12 development
wells drilled in two phases, with first oil expected in Q1 2023. The additional reserves at Hibiscus, if proven by DHIBM-2, may lead to relocation of the first
converted jack-up and the potential deployment of a second converted jack-up to
fully exploit the resources in this prolific area of Dussafu. The timing of the
first oil from the area would not be affected.”

[viljo]

Could you translate what that means? Apparently, it’s a good thing.

[urpokala]

Planned drilling has started. The first well to be drilled is a very significant test well, which, if successful, will significantly increase reserves.

The estimated drilling time is 30 days, followed by a period for interpreting the results. Results should be known during May.

Next, one more planned production well will be drilled at the existing Tortue field.

Then, one more test well for Hibiscus, and if oil was found in the first one, then 1-2 more test wells based on the results.

[urpokala]

The news flow is continuous, and at least for now, on a positive note:

South Africa’s Block 2B has received farm-in approvals, and things are moving forward there. Towards the end of the year, an appraisal well will be drilled near a reserve discovered in 1988. The hunt for drilling equipment begins immediately.

Panoro’s share is 12.5%

About Block 2B:
Block 2B is located in the Orange Basin and covers 3,062 square kilometers off the west coast of South Africa 300 kilometers north of Cape Town with water depths ranging from 50 to 200 meters. Oil was discovered and tested by Soekor in the A-J1 borehole drilled in 1988. Thick reservoir sandstones were intersected between 2,985 meters and 3,350 meters. The well was tested and flowed 191 barrels of oil per day of 36 degree API oil from a 10 meter sandstone interval at about 3,250 meters. Significant prospectivity has been identified over the entire A-J graben area using 686 square kilometers of 3D seismic data from 2013. Block 2B contains the A-J graben, a typical rift basin, similar to others in which major oil accumulations have been discovered in Africa. Using more recent 3D seismic data, significant upside potential has been identified in six prospect areas at depths of up to 1,000 metres shallower than the original well. The next proposed exploration well, Gazania-1, will be drilled into the Gazania and Namaqualand prospects identified on 3D seismic data.

https://www.panoroenergy.com/wp-content/themes/Avada/cision/releasesingledetail.html?releaseIdentifier=59622E1B50349444

“Gazania will target a relatively low-risk rift basin oil play up-dip from the discovery. IHS Markit recently highlighted Gazania as one of the top high-impact wells expected to be drilled globally in 2021."

Billionaire aims for South Africa prize as Azinam closes farm-out

[KuplaSalkku]

The annual report was apparently coming on April 30th?

[Roffe]

Yes. We’ll see if Finansavisen writes an article about it. At least in February and March, the outlook has been super bullish. Arctic’s target price is NOK 27 and Pareto has set it at NOK 30.

[urpokala]

Tomorrow morning, the 2020 annual report is due. Official Q4/20 numbers are still missing. Hopefully, with the annual report, some of the undervaluation will become known to the market, and the share price will get a little boost.
Equatorial Guinea’s revenues are certainly included in the annual report, but I don’t know how Gabon’s 10% will be recorded, as it has not yet received approval.

Then, if we look at the bonus side, South Africa indeed reached its goal, and the development of the block there will begin with an appraisal well based on the original exploration well and new 3D seismic interpretation.

An interesting presentation has come from partner Africa Energy, going through the upcoming drilling and the field’s expected values. The results of the first drilling are apparently crucial. The video can be found here:
https://ihsmarkit.com/Info/0421/africa-rocks.html

[urpokala]

BWE (Dussafussa operator) published its Q1 trading update.

BW Energy: Q1 2021 trading update

Opex (Operating Expenses) in Dussafussa has been 23 USD, which is a bit high. It is also stated that 1 million of this is due to COVID-19 related costs. This would mean about 1 USD/BBL, but it still leaves 22 USD. When more wells are connected from Hibiscus to Adolo, it will certainly lower opex. This is based on the assumption that no oil is found in the well currently being drilled at Hibiscus.

Net production for Panoro in Q1 was 2380 bopd, which is below my own calculations. Production seems to be slowing down a bit. We’ll see how much production can be restored from the last production well to be drilled soon.

[Pohjolan_Eka]

Gross production from the Tortue field averaged approximately 13,600 barrels of oil per day in the first quarter of 2021

Average daily production of approximately 13,500 bopd gross for the fourth quarter

Yes, that seems to be completely in line regarding production, in my opinion The opex getting out of hand is a more unpleasant matter, and hopefully it’s just a temporary hiccup due to corona. Things never go as planned in these companies, but luckily, oil prices are rocketing, and there’s plenty of room to maneuver.

[Huhtis]

https://twitter.com/Tobias222225/status/1388018954690568192?s=19

A story about Panoro. I don’t own it, but I thought I’d share it here when I came across it.

[Bittis]

Last year’s Q4/annual report has been published.

Still no information about Salloum West drilling permits.

bf877619f1f5a045.pdf

https://www.panoroenergy.com/investors/financial-reports/

[urpokala]

Some takeaways from the annual report, especially from the risk department.

As mentioned, there was no talk about the Salloum West exploration permit. The permit application was submitted, if I recall correctly, in late 2019. What makes this extremely frustrating is that Panoro is the operator with over a 50% stake. And potential production could be achieved with apparently low costs. An exploration well must be drilled even for the permit, before moving to the production phase.

In Tunisia, the TPS asset carries the risk of permits expiring before oil does, if permits are not renewed.

PetroNor’s AJE transaction will be re-evaluated if it doesn’t receive approval within H1 2021. There have also been agreements on deferred payments to Panoro based on results, as long as the deal can be finalized.

Then, some more positive news. Drilling by the operator started last month on EG Block G. The aim is to drill exploration wells and production wells to try to improve output from declining wells. Seismic data has also been acquired, with results expected later in the year.

It has now been 2 weeks since the start of the Dussafu drilling, and results should be published within 30 days.

BWE’s (the operator) stock has been up by a sharp 10% today. Could it be due to the article in Finansavisen, in addition to the rising oil price?

A free Google Translate translation of the headline:

Possible huge find on the stairs

The market is tripping after news from BW Energy’s oil drilling off the coast of Gabon. The company hints at an update soon

And a sentence quoted from the article, from the CFO’s mouth, again through the translator:

You never know for sure what is underground, but it is probably reasonably certain that we will find oil. The question is more how much we find, he says.

[Pohjolan_Eka]

Lottery tickets don’t always hit

Hibiscus Extension Well Update

Hibiscus Extension Well Update

Wed, May 05, 2021 20:00 CET

Oslo, 5 May 2021 - Panoro Energy ASA (the “Company” or “Panoro” with OSE Ticker: PEN) announces that the DHIBM-2 Hibiscus Extension well did not encounter hydrocarbons in the target Gamba reservoir.

The Borr Norve jackup rig, currently drilling the DHIBM-2 well, has drilled through the main targeted Gamba sandstone in a structurally high position but logging results indicate that the Gamba is water wet and no hydrocarbon shows were encountered to date. The well will be drilled and logged to a Total Depth of 3,500 metres as planned. The rig will then move to drill the DTM-7H production well at the Tortue field, followed by another exploration well on the Hibiscus North prospect. The data acquired from the DHIBM-2 well will be analysed and integrated into the larger Dussafu model to further refine the extensive exploration prospect inventory.

The existing Hibiscus 2P gross recoverable reserves of 46.1 MMbbls established by the DHIBM-1 well and its appraisal sidetrack, drilled in 2019, remain unaffected and will form the core of the upcoming Hibiscus/Ruche development project. Planning for this next phase remains on track.

John Hamilton CEO said, “We are clearly disappointed with the Hibiscus Extension well result, which in a success case would have made the Hibiscus area even bigger than the original discovery. However, we remain extremely confident on the remaining exploration potential in this huge block. Plans now return to focus on production growth at Tortue and the next phase at the Hibiscus Ruche fields. Dussafu remains a highly valuable, long term asset and we look forward to continuing to bring production online and explore for additional reserves.”

Good thing though that the oil price is high, so we can still enjoy a good cash flow

[urpokala]

Well, it happened, the great streak of successful drills unfortunately broke. We’ll rely on old reserves and humbly accept this temporary dip in the share price.

There were no comments in the BWE announcement. Perhaps precisely because they blurted it out to the media just two days ago.

Once this one is drilled to the bottom, it will be Tortue’s 7th, and final, production well. Once that’s drilled, 6 and 7 will be brought into production. Then we’ll return to poking Hibiscus again.

[Pohjolan_Eka]

@urpokala found a webinar online that Panoro also participated in.

https://channel.royalcast.com/hegnarmedia/#!/hegnarmedia/20210519_7

This is perhaps the sexiest PowerPoint slide I’ve seen this year