President Energy 2020 Trading Update and 2021 Outlook

President Energy release

President Energy (AIM: PPC), the energy company with a diverse portfolio of production and exploration assets currently focused primarily in South America announces an unaudited 2020 trading review and a 2021 outlook.

Key points

2020 Trading 

·      Turnover of approximately US$28 million, a reduction of 32% year on year driven primarily by average oil price realisations falling 33% to US$37 per barrel

·      Average net Group production up 12% year on year to over 2,700 boepd

·      December average net Group production of circa 3,300 boepd demonstrating the early impact of the new wells drilled in late Q4 

·      Over US$10 million of free cash generation from operations (after workovers) and treasury income

·      Adjusted EBITDA of approximately US$3 million 

·      Well operating (excluding royalties and workovers) and administrative costs successfully reduced by 19% year on year to circa US$20 per boe

·      Capex incurred (including capital leases) of over US$11 million

·      Net debt reduced by 25% year on year to approximately US$16 million, including the US$5 million loan secured at the end of the period to fund development of the new treatment plant in Puesto Flores 

·      Trafigura, one of the largest commodity traders in the world, and an important offtaker of President, became a major strategic shareholder 

·      Robust Group net 2P reserves of over 24 MMboe as at the year end with additional 9 MMboe of 2C contingent resources convertible to reserves on licence extensions

2021 Outlook 

·      This year's busy drilling programme is expected to kick off as scheduled at end of March with four new gas wells in the Las Bases and Estancia Vieja fields, Rio Negro Province, all due to come on stream by end May

·      In H2, a further three oil well drilling programme planned at the Dos Puntitas field, Puesto Guardian Concession, Salta Province, Argentina, all due to come on stream towards the end of 2021

·      New 3D seismic data acquisition planned over Canada Grande, a formerly prolific but now non-producing oil field also at Puesto Guardian 

·      New treatment plant and infrastructure set to start first phase operations in Rio Negro by end June bringing immediate cost savings

·      Paraguay farm-in discussions ongoing, targeting completion during H1. Initial well planning to drill the high impact Delray complex exploration well within next 12 months 

·      Full year average production projected to be between 3,600 and 4,000 boepd, based on Group capex spend of circa US$18 million. This is planned to be funded through own cash generation complemented by additional non-equity sources as required. The full benefit of capex will only be fully felt from the start of 2022 when all Salta new wells are expected to be on stream

·      Atome Limited, a new alternative energy subsidiary formed to focus on developing a hydrogen and ammonia production business 

Peter Levine, Chairman, commented

"In an unprecedented year of so much personal tragedy and pain for the World which we must humbly acknowledge, the President family pulled together and not only survived but by the end of the year became stronger. We successfully controlled what we could and the key performance metrics bear witness to this. We are sincerely grateful to everyone within the business for their efforts. We have a lot of work to do this year but we are very much up for it and relishing the prospects.

The energy landscape has changed even faster and more dramatically than anticipated. President, as an energy company focused on long term goals, embraces this. Any action has to be considered carefully, seriously and be planned with the ultimate objective of delivery for the Group in key relevant areas. It takes time. We are pleased to announce the incorporation of Atome Limited, a first step in respect of one of those actions." 

2020 Trading review

Last year, one that no-one could have foreseen, was incredibly hard for the industry as a whole given the material decline in commodity prices and demand that ultimately resulted in significantly reduced revenue and associated financial performance.

However, notwithstanding the challenging macro environment, President's average production for the year increased modestly and operating costs reduced by almost 20% with over US$10 million of free cash generation being US$6 million from operations after taking into account workovers and over US$4 million from astutely managed treasury income, taking advantage of market volatility. 

This demonstrates the robustness of President's oil and gas business and sets the Group up well to benefit from the improving financial climate in 2021. 

The resilience is further highlighted by the fact that the two new wells drilled in late 2020 were the first for some two years, increasing the operating challenges of managing production declines and shut-ins within the existing well stock. Production from the two new wells came too late to materially impact the full year results but did in December allow us to register a record peak daily production figure of over 4,000 boepd; this demonstrates the potential of the currently producing wells and helps to underpin the 2021 production guidance. As experience has shown, it is important not to overwork / overproduce wells for good field management.

The internal unaudited Group management accounts for the year 2020 suggest the following overarching take-aways:

1.   In relative terms, President's performance was robust in the face of unprecedently harsh, pandemic blighted trading conditions;

2.   The primary elements within the Company's control such as production, operating costs, administrative costs and net debt levels have all been managed appropriately. 

3.   Well operating and administrative costs have been reduced by 19% year on year to circa US$20 per boe

4.   Net debt was reduced significantly with Trafigura, one of the largest commodity traders in the world and a major offtaker of President coming on board as a major strategic investor 

5.   The two new wells drilled in Argentina on time and budget at the end of last year were successful. The successful logging results at LB-1001 have led to the follow on drilling in H1 of this year in the Las Bases field, targeting additional production from the previously unproduced Centenario formation:

a)   The well EVN-x1 at the Estancia Vieja field is still undergoing long term tests to evaluate the reservoir in that structure and optimise production levels currently having a steady stable production rate from the lowest identified interval.

b)   The successful LB-1001 well having produced significant gas from the lower section, is in the next 21 days to undergo a testing of what is considered the main target interval which is the next section higher up the hole. 

6.   Significant new infrastructure was completed including laying some 20km of new pipelines and installing new compressors in readiness for what has transpired to be the successful push for increased gas production at the year end. 

In summary, for the industry it was a year more to survive than thrive but in which the stability of President prevailed. Having gone, as stated before, some two years without drilling new wells, President was the only company to drill in H2 2020 in Rio Negro, Argentina, post the start of the pandemic. The foundations were laid for a significantly more active 2021 where an important mission is to exploit the assets of the Company, increase consistent average production and enlarge the well stock to mitigate the continued effect of production being disrupted by older wells going down or in need of constant repair.  

2021 Outlook 

2021 will be a very busy year for the Company with a record number of wells to be drilled and a return to growth. There are several things for investors to look out for in 2021. 

1.   Seven new production wells are projected either side of the half year. The drilling will kick off with the first four gas wells scheduled at the end of March in Rio Negro. These will be followed by three vertical oil wells in the Dos Puntitas field at Puesto Guardian.

2.   Later in H2, there is a planned 3D seismic data acquisition programme over a formerly prolific Canada Grande field within the Puesto Guardian Concession, Salta Province to find new well locations to target and drill the productive A6 sand there. An initial land survey by potential contractors is currently underway. The best wells in Canada Grande produced initially as much as 1,000 boepd from the clean A6 sands. If the data indicates commercially viable well locations, then it would be President's objective to drill in Canada Grande following on from the H2 drilling in Salta. 

3.   The return to activity in Puesto Guardian is significant with the real beneficial impact on the Company only occurring in all material effects from the start of 2022 when it is projected all wells will be on stream. Puesto Guardian is a long term Concession to 2050 and 100% owned and operated by President. Its current production is stable and showing good reservoir properties albeit low in volume due directly to the fact that there has been no new successful drilled wells there for some 10 years. Unproduced reserves of scale are unquestionably present and there is significant potential to grow. The hard lessons that have been learnt from unsuccessful drilling in the past has given President a determination to succeed with the Company now having the resource and a drilling and engineering design team that have proved themselves able to deliver in action. Moreover with higher oil prices mitigating the greater discount for Salta oil and all necessary infrastructure in place to cope with greater volume, there are potentially materially enhanced margin barrels to be had.

4.   Along with drilling and workover operations, President continues with the infrastructure projects previously announced including the treatment plant set to be commissioned by end June which will result in an estimated $4/boe reduction in operating costs.

5.   As announced on 8 February 2021, President is seeking to renew its core Puesto Flores/Estancia Vieja Concession by a further ten years before the end of the year, thereby allowing for the conversion of some 9 MMboe of contingent oil and gas resources into reserves in due course.

6.   With regards to Paraguay, the farm-in discussions continue with the previously identified party, a substantial national energy company from a non-Paraguayan, democratic, economically stable and technologically advanced country. The Main Board and technical committee of the proposed partner have approved its participation in the project, including the main financial and commercial terms. The parties are now finalising the definitive legal agreements. Although it was stated in the RNS dated 22nd December 2020 that President hoped to conclude matters before the end of Q1 2021, patience is required in these pandemic restricted times which affect legal due diligence and negotiating final form agreements in two languages. Nevertheless, the target for both parties is to complete the farm-in during H1 2021 and in that event, drilling is expected to commence in the first part of 2022 at the high impact Delray complex of prospects internally estimated to contain 230 MMbo of unrisked oil in place.

7.   As to oil prices, whilst our modest Louisiana operations approximately track WTI and Lousiana Light prices, Argentina realisation prices are always subject to a discount from Brent and also depend on geographic location. In February, in Rio Negro, President's realisation price is currently estimated at just over US$52 per barrel whilst in Salta, the realised price for this month is approximately US$46.

8.   Gas prices reflect the current modest supply squeeze which is expected to exacerbate over the winter. Current spot prices are US$2.40 per MMBtu with President projecting higher winter prices of US$3.60 per MMBtu.

Oil and gas business acquisition strategy 

President remains committed to growing its oil and gas business by acquisition where appropriate and material efforts continue to be made in this regard, including considering opportunities outside of its present areas. 

Each and every opportunity is carefully considered; however, in the absence of suitable prospects and terms, the Company continues to avoid spending acquisition dollars with all the direct and hidden risks, costs and expenses when much under-utilised existing production assets in the Company's portfolio, such as Salta, can be exploited.

Alternative Energy strategic initiative

President is an energy centric company. As such, as a long term business it has to embrace and develop in energy outside both its present geographic core area of Argentina and also its oil and gas business whilst not neglecting the same. So whilst recently forming President Nuevo Energia SAU, a new renewables company in Argentina to consider opportunities in that country, President, after careful research has determined that it is appropriate to step out in a more concrete and definite direction.

The Company has formed Atome Limited as a UK intermediate holding company focusing on developing a hydrogen and ammonia production, marketing and sales business as distinct from an OEM (original equipment manufacturer). It will leverage on the international contacts and experience of President's management and is being seeded out of cash flow. In due course, it will have an independent board experienced in alternative energy. President is pleased to announce that the first of such directors has now been appointed being Mary Rose de Valladares, former long standing General Manager of the IEA (International Energy Agency) Global Hydrogen Collaboration Programme. It is too premature to make further comment save that Atome which has already started detailed research work represents a serious step for President and updates on progress will be made as matters develop later in the year.  

Glossary:

2P means proven and probable reserves

Adjusted EBITDA is Earnings before interest, tax, depreciation, amortisation and impairment and adjusted to exclude non-recurring items

Boepd barrels of oil equivalent (oil and gas) per day

Contingent resources means oil/gas estimated at a given date to be potentially recoverable but which are at that date not capable of being commercially recoverable eg because they cannot be produced within the current term of the contract

MMbo means million barrels of oil

MMBtu Million of standard British thermal units

Oil in place means the total content of an oil reservoir

Metrics:

As defined in half year- and Annual Reports

Investor Presentation

President Energy is pleased to announce that Peter Levine (Chairman), Rob Shepherd (Group Finance Director) and Jordan Coleman (COO LatAm) will provide a live presentation relating to its Trading Update and Outlook via the Investor Meet Company platform at noon (GMT), today.

The online presentation is open to all existing and potential shareholders.

Please see the RNS dated 8th February 2021 for further details on the Investor Meet Presentation.

Investors can sign up to Investor Meet Company for free and add to meet President Energy PLC via:

https://investormeetcompany.com/president-energy-plc/register-investor