President Energy has now released their interim results for the year ending 2017.
Revenue increased by $1.1M when compared to the first half of last year. Depreciation was up $76K and well operating costs increased by $575K to give a $423K improvement to the gross loss. Salaries increased by $499K but other admin expenses were down $269K which meant that the operating loss saw a $141K improvement. There was a $61K income from deposit interest, a $123K increase in the realised gains on forex transactions and loan interest reduced by $318K, which was offset by a $676K negative swing to tax charges. All of this meant that the loss for the period was $4.7M, broadly flat year on year.
When compared to the end point of last year, total assets declined by $5M, driven by a $12.9M reduction in cash, partially offset by a $5.8M increase in property, plant and equipment along with a $2M increase in receivables. Total liabilities increased during the period due to a $1.7M growth in borrowings and a $714K increase in payables. The end result was a net tangible asset level of $37.3M, a decline of $7.3M over the period.
Before movements in working capital, cash losses improved by $269K to $2.6M. There was a cash outflow from working capital due to an increase in receivables and after interest payments reduced by $378K the net cash outflow from operations was $4.2M, an increase of $1.5M year on year. The group spent $183K on exploration along with $9.8M on development and production so before financing there was a cash outflow of $14.5M. They received a related party loan of $1.7M but the cash outflow for the period was $12.8M and the cash level at the period-end was $4.7M.
Group production in the period was 691 boped, an increase of 31% year on year. The US average realised price increased by 34% to $47 per barrel with the average Argentine realised price of $50 per barrel an $8 reduction, reflecting the move from regulated to market pricing. On a like for like basis, the well operating costs before depletion in the period were $39.1 per boe compared to $41.32 in the first half of last year. These have since come down significantly, however, due to the increase in production.
Current production is in the range of 2,300 to 2,400 boepd, a 333% increase when compared to the first half of the year, and is apparently generating positive cash with the benefits partially reflected in H2 2017 and the full year impact being shown in 2018. The current level of Louisiana production is in excess of 300boepd with the benefit of the increased production from the Triche acquisition announced in April, for $2.25M plus $400K in contingency payments, which is performing ahead of expectations.
Whilst the 1,200bopd target of production from the Puesto Guardian concession has now yet been achieved, the individual producing wells in the concession have demonstrated they are capable of achieving this rate of production but have been constrained by mechanical infrastructure issues.
This constraint on production revolves around the centralised nature of the downhole jet pump system which is dependent on centralised pumping units in the two central processing units. The more wells connected up, the more horsepower is needed. The five pumps intended to replace the old system have not yet been put in commission by the Chinese manufacturers but some engineers have flown out to attend the pumps and with due application, the issues should be solved and the wells should then be able to deliver their optimum.
In Paraguay, the current farm out process is generating an encouraging level of interest including from majors and the next near term step is to permit access to the data room. The Pirity Concession exploration period has around one more year to run.
In Argentina, the recent work has identified interesting new prospective plays in the Matorras and Ocultar areas, both of which have had their exploration licence terms extended by another eighteen months. Management now expects further additions to the prospective resources upon completion of studies in these two areas and a farm out process for them is planned to start in the New Year.
In relation to the dispute with the service providers on the DP1002 well, the group have already fully provided for all claims that can be made against them and have taken no credit in the accounts in respect of the substantial claims they have made against the companies so this could be a boost going forward if it goes President’s way.
Going forward, the work programme aimed at increasing production in the new acquisitions is expected to start in Q1 2018 and extend for 36 months. With the macro economic climate in Argentina improving, the board views the future with confidence and looks forward to enhancing the material positive change in their financial position in the near to medium term.
As the group is loss making there are no PE ratios but going on this year’s consensus forecast, the PE ratio is 80.7 for 2017.
On the 21st September the group announced the acquisition of Chevron’s oil producing assets at Puesto Flores and Estancia Vieja in Argentina. This adds 1,200bopd of net current production, taking the current production in Argentina to over 2,000bopd, and adds 5.46MMboe of 2P reserves, of which 3.6MMboe is 1P proven. The $400K purchase price has already been paid to Chevron for the remainder of the concession period to mid-November. $15M is to be paid to the Rio Negro province following ratification by the already signed ten year extension of the concession to November 2027 with a further $7M payable through 2018. The energy company of the province, Ediphsa, will hold a 10% interest with President holding 90%.
The group believe that through work programmes there are opportunities to grow production to over 3,000boepd. The current concession turnover is $25M and it is generating $1M monthly positive cash flow before capex and exploration.
The acquisition cost of the purchase and payment to the province has been covered by the agreed availability of an extension of the existing credit facilities provided by the Chairman/CEO’s company but they are in discussions with institutional debt providers with a view to them replacing or supplementing the loan extension. The extension bears interest at 10.5%!
On the 9th October the group outlined a work programme for the newly acquired assets in Argentina. Work will continue from November through to the end of the year and will consist of three firm well workovers and another two wells contingent. Four of these wells have been shut in for some time and the objective is to bring them back into production and in addition in certain wells a number of previously unperforated by-passed intervals which demonstrated fresh oil shows. The capex will be funded out of cash and the wells will be capable of being placed on production at the end of the year should the work be successful.
On the 20th October the group announces that it was raising $8M through the issue of shares at a price of 10p per share. They will also look to raise $5M through an open offer at the same price. The placing proceeds will:
Strengthen the capitalised position, support the ongoing work programme at the recently acquired fields in the Rio Negro province; contribute to the overall funding package to be paid to the province and permit a debt conversion to take place.
Overall then the group has again struggled during the period under review but the performance improved slightly. The losses widened, but this was due increased tax charges and pre-tax losses improved. The net asset based deteriorated and the operating cash outflow worsened due to working capital movements. The group produced 691boepd during the period but as the management point out, this is historical.
For once, they might actually have a point. After so many false starts here, there really does seem to have been a step change in production which is now sitting at 2,300boepd. Whether this is enough to actually produce meaningful cash flow out of these assets remains to be seen, and the group has taken the opportunity to raise funds and further dilute the current shareholders. Once that is out of the way, however, this might be worth a punt given current production levels. There have been so many false dawns, however, that I am a bit reluctant to follow up this feeling with hard cash!
On the 17th October the group announced the receipt of payment from the first delivery of oil from the Puesto Flores field, acquired in September.
On the 3rd November the group announced an upgrade to prospective resources at Salta. Aggregate Paleozoic gas/concentrate prospects net to the group with mean unrisked prospective resources of over 7Tcf with an upside case of over 20Tcf and 185MMbls of concentrate were highlighted and new previously unreported Cretaceous oil prospects of over 40MMbbls were identified. They are planning to include the MDT producing field within the package for farm-out.
On the 16th November the group released an operational update at Puesto Flores. The group is to receive in November over $3M net cash proceeds from its oil sales. The expected receipts relate to oil produced partly in October and partly from November from the Argentine fields.
After a rig inspection, the previously announced three well workover programme is ow commencing and has been extended to an initial four firm wells with further possible contingent wells next year after results of the initial programme are considered.
All of the four firm wells are currently shut in and the objective is to place them back into production, generating oil from the intervals initially perforated when the wells first came into production. In addition, in three of the wells, a series of previously undrained intervals interpreted from the original drilling logs as oil bearing will be perforated and produced in parallel if successful. The total programme is expected to cost around $2.2M and will be funded from existing resources. Pay back is projected to be less than a year at the current oil price of $55 per barrel.
On the 15th December the group announced some results from the first two workovers. Results from the first two workover programme wells at Puesto Flores were completed ahead of time and under budget. The first phase of the workover on PFO—50 repaired the well which was put out of action in October due to a lightning strike. Before placing the well on stream, the untested up-hole intervals were perforated. The results were beyond expectations and the well is now on stream solely from the new intervals and production is still stabilising at around 400bopd, more than double what it was.
Well PFO-9 has been worked over to repair a hole in the tubing and is now back on production with the well currently contributing around 100bopd. Work has now commenced at the next location. The group expects to receive just over $60 per barrel for its December oil from the concession.
On the 2nd January the group announced the disposal of its non-operated beneficial interest in EastWhite Lake Field to Alpha Imperial for a total sum of $525K. The effect on the group will be minimal with the continuing share of their assets in Louisiana producing around 300boepd, generating annualised free positive cash of some $2.5M per annum. The group received around $264K per annum from the asset currently but production is declining with no possible significant economic uplift.
This seems OK but it should be noted that this is being sold to a company owned by President’s largest shareholder and Chairman, Peter Levine which seems a bit iffy.
On the 12th January the group released an update covering the recent workover wells. The third and fourth wells at Puesto Flores were completed ahead of time and under budget with an expected payback for the entire four well workover campaign of less than three months. The results were substantially ahead of expectations with testing at various flow rates ongoing. The two wells are now on stream and producing from the new intervals and once stabilised in February are expected to increase gross field production to approximately 1,700bopd.
As a result of this success, further workovers are planned at Puesto Flores in Q2 2018 with the start of development/appraisal drilling scheduled to start in H2. The group has also now set in motion the testing of the wells in the currently shut-in but previously producing adjacent field of Estancia Vieja within the same concession with preliminary results due at the end of February. A total of up to four wells will be pilot tested with a more ambitious future programme including workovers and reactivations due to start in Q2 2018. The Estancia Vieja field was previously a prolific producer of both oil and gas, at one stage producing over 18,000boped in the 90s, although it was producing only 63boepd before being shut-in in 2011.
All the costs of the projected work at Puesto Flores and Estancia Vieja are fully funded and will be met out of the group’s existing resources and cash flow.
The group is in a strong trading position. In relation to oil prices, they received $60.80 per barrel in December from the Puesto Flores concession with oil produced in January currently expected to realise around $64 per barrel. This increase of nearly 20% since they acquired the asset, together with the increase in net production since the start of the workovers is having a materially beneficial impact on cash flow and margins which are substantially ahead of pre-acquisition expectations.
Overall this all sounds positive and I continue to hold.
On the 22nd February the group released an Argentina trading update where they recorded record results in January with each of the concessions making good returns and contributing profits. The Argentine assets generated $1.3M and positive cash generation was $1.8M, higher due to continued utilisation of tax credits which are estimates to continue through 2018. Sales prices achieved were an average of $63.50 per barrel for Puesto Flores, and $53.70 for Puesto Guardian.
The Puesto Guardian concession is now making a significant contribution to the overall results in Argentina and this contribution should increase as the work being performed progresses through Q1. When combined with the $200K per month free cash generation from Louisiana, the group seems to be in a decent position.
On the 28th February the group announced that it is obtaining a second listing on the Argentinian stock exchange. They are keeping the one on AIM.
On the 16th April the group announced an accelerated programme of workovers and drilling activity at Puesto Flores. Six Eight well workover programmes at Puesto Flores will commence in May. The total costs for the workovers are estimated to be $3M with an expected payback of under a year. They will include both necessary remedial work to three wells and the workover of other wells which are either non or low producers. In four cases, new potentially produceable hydrocarbon zones will be perforated.
They have also started the planning of an accelerated three development well drilling campaign, also at Puesto Flores, targeting proved undeveloped resources in existing producing reservoirs. The project is an enhancement to the single well previously planned for this year. The application process for surface location permits has been initiated with the relevant authorities. Each well will be drilled to around 2,750 metres at a cost of around $3M per well. Subject to negotiations taking place with the partner, it is planned to start work in Q3 and be completed during that quarter or early Q4. Each successful well is estimated to have a payback of under two years.
On the 14th May the group released an update covering its Argentina assets. Preparation has started for the long-term gas testing of three formerly shut in wills in Estancia Vieja, which will be started in June. The gas produced from these tests will be sold through mobile LNG units based at the battery. If they prove successful the wells will be placed on production with the gas sold through these dame units. Currently the group only sells a modest amount of gas from the Puesto Flores field, receiving around $30K a month with the balance produced used for internal field purposes so it is expected the gas sales proceeds from the testing should substantially increase this amount.
The drilling programme at Puesto Flores has now been accelerated further to start in September. The programme is now projected to comprise two development wells one appraisal well. The inclusion of the appraisal well is due to the identification that not all production in this field cab be explained as coming from four-way closures and there may be combined traps extending beyond the previously defined field boundaries in the concession.
There has become an issue concerning the Peso exchange rate and inflation in Argentina. This apparently does not materially adversely change the group’s financial position or prospects, however. The group sells its gas monthly on the basis of a dollar value for which payment is received in pesos at the prevailing exchange rate.