Oil in Africa 2022 First Quarter Financial Results
Africa Oil Corp. ("Africa Oil", "AOC" or the "Company") is pleased to announce its financial and operating results for the three months ended March 31, 2022.
- Venus-1X exploration well makes a significant light oil discovery on Block 2913B, offshore Namibia. AOC has a 6.2% interest through its investment in Impact Oil and Gas Limited.
- Q1 2022 net income of $45.6 million (Q1 2021: $38.9 million) and end of quarter cash balance of $140.6 million (December 31, 2021: $58.9 million).
- The Company paid its maiden semi-annual dividend of $0.025 per share (approximately $11.9 million) to its shareholders. This is the initial step in delivering on the Company's commitment of returning capital to the shareholders.
- The Corporate Facility was amended to provide the Company with a stand-by line of liquidity of $100.0 million, available for general corporate purposes, including acquisitions, until end 2022.
- Prime drew down a further $150.0 million under its pre-export finance facility ("PXF Facility"), increasing the outstanding balance to $300.0 million and further extending the duration of its debt profile.
- The Company received one dividend from its shareholding in Prime, totaling $100.0 million1.
- Selected Prime's results net to Africa Oil's 50% shareholding*:
- Average daily W.I. production of 25,400 boepd and economic entitlement production of 27,400 boepd (83% light and medium crude oil and 17% conventional natural gas) in Q1 2022 (Q1 2021: 26,200 boepd and 30,100 boepd respectively)3,4,5;
- Cash position of $265.7 million and debt balance of $501.0 million at March 31, 2022; Robust Net Debt to EBITDAX6 for the twelve months ended March 31, 2022, of 0.4x (twelve months ended December 31, 2021: 0.4x);
- in Q1 2022, EBITDAX6 of $122.2 million (Q1 2021: $143.4 million); and
- in Q1 2022, cash generated from operating activities of $116.6 million (Q1 2021: $78.8 million)7.
Africa Oil President and CEO Keith Hill commented: "I am pleased to report another strong quarter of operating and financial results. We received our largest dividend payment from Prime to date for $100 million. This takes our total dividend receipts to $500 million since our acquisition of a 50% interest in Prime in January 2020 for $520 million. Also, our share of Prime's cash at end of first quarter 2022 of approximately $266 million, compares to about $70 million at the time of the acquisition. Prime's performance, that includes achieving positive reserves replacement ratios for the last two years, has exceeded all our expectations. However, I view the news of the Venus light oil discovery as the most important and exciting update in the first quarter of this year. Most immediately, we can look forward to the high-impact Venus appraisal drilling program and the Gazania exploration well, both of which are expected to commence later this year. We also have further prospectivity on Block 3B/4B, which we operate with a 20% interest and on Impact's Orange Basin Deep Block, both are in Orange Basin and on trend with the Venus discovery."
FINANCIAL POSITION AND EARNINGS
The Company recognized a total operating income of $53.7 million and net income of $45.6 million during the first quarter of 2022. The operating income primarily relates to the Company's share of profit from its investments in Prime amounting to $51.0 million.
The Company ended first quarter 2022 with cash of $140.6 million in comparison to cash of $58.9 million at the end of 2021. The Company has no outstanding debt. During first quarter 2022, Prime paid one dividend for $200.0 million with net payment to Africa Oil of $100.0 million, related to its 50% shareholding interest. Since the acquisition of a 50% shareholding in Prime in January 2020 for $519.5 million, the Company has received 11 dividends from Prime for a total amount of $500.0 million, representing 96% of the closing purchase price has been returned in less than two years.
On January 31, 2022, the Company announced that all lenders to its Corporate Facility had approved increasing the available amount to $100.0 million from the then unutilized amount of $62.0 million, and extending the availability period to December 31, 2022, from May 13, 2022. The Corporate Facility maturity date of May 13, 2024, and interest margins were unchanged.
On February 28, 2022, the Company announced that its Board of Directors had declared an initial aggregate annual dividend of $0.05 per share (approximately $24.0 million) to be paid semi-annually, with the first payment payable on March 31, 2022, to shareholders of record at the close of business on March 17, 2022.
This initial annual dividend has been determined by the Board to strike a prudent balance between allocating capital for potential acquisitions, shareholder capital returns and maintaining a robust balance sheet in a range of oil market conditions. The Board will regularly review this policy and depending on the Company's progress in maturing acquisition opportunities and the market outlook, the Board may approve additional distributions and/or share buybacks, subject to the customary approvals. As always, the declaration of dividends is at the discretion of the Board.
PRIME'S FIRST QUARTER 2022 PERFORMANCE
Prime's first quarter 2022 average daily W.I. production was 25,400 boepd and economic entitlement production was 27,400 boepd (83% light and medium crude oil and 17% conventional natural gas), net to Africa Oil's 50% shareholding in Prime. These compare to first quarter 20215 average working Interest production of 26,200 boepd and economic entitlement production of 30,100 boepd (83% light and medium crude oil and 17% conventional natural gas), net to Africa Oil's 50% shareholding in Prime.
During the first quarter 2022, Prime was allocated 5 oil liftings with total sales volume of approximately 5.0 million barrels or 2.5 million barrels net to Africa Oil's 50% shareholding. These volumes only represent Prime's share of cost and profit oil, with its share of tax oil lifted and sold on its behalf by the operators to settle its tax liabilities.
Prime achieved an average realized oil price of $68.8/bbl in Q1 2022 (Q1 2021: $58.1/bbl) including hedging.
Prime achieved first quarter 2022 sales revenue of $204.4 million (Q1 2021: $162.2 million8); EBITDAX of $122.2 million (Q1 2021: $143.4 million) and cash flow generated from operating activities of $116.6 million (Q1 2021: $78.8 million7), in each case net to Africa Oil's 50% shareholding.
During the first quarter 2022, Prime increased its PXF Facility on the back of the approval by the PXF lenders received last year and drew down a further $150.0 million, increasing the PXF Facility amount and outstanding balance to $300.0 million. The PXF Facility is arranged by Shell Western Supply and Trading Limited and Africa Finance Corporation and has a 7-year tenor, extending the duration of Prime's debt profile on very competitive cost terms that are comparable to Prime's reserves-based lending ("RBL") facility.
As at March 31, 2022, net to the Company's 50% shareholding, Prime had $265.7 million of cash and debt of $501.0 million (as at December 31, 2021 - $258.9 million of cash and debt of $508.4 million).
The debt outstanding has decreased slightly following gross repayments on the RBL Facility of $164.8 million which net off a drawdown on the PXF Facility of $150.0 million. Net to the Company's 50% shareholding, the overall debt has reduced by $7.4 million during Q1 2022. The next repayment under the RBL facility will not occur until September 2022. The PXF repayments will also begin in September 2022.
As at March 31, 2022, Prime has a Net Debt of $470.6 million (as at December 31, 2021 - Net Debt of $498.9 million) and a Net Debt/EBITDAX of 0.4x for the twelve months ended March 31, 2022, (0.4x for the twelve months ended December 31, 2021) as Net Debt and EBITDAX remained similar. The strength of this ratio demonstrates the low leverage of Prime compared with industry peers. This strong Net Debt/EBITDAX ratio, combined with the full repayment of the Company's Corporate Facility in 2021 means the Company and Prime are well placed to raise more debt in the future if required. Net Debt/EBITDAX is a non-GAAP measure and a reconciliation is performed in Note 6 on page 5.
Performance of the Company's investment in Prime has continued to exceed expectations with strong cash flows, dividend distributions and very modest investments on the upstream assets, offshore Nigeria. Higher oil prices and a strengthening outlook for the oil markets support increasing capital investments to arrest production declines and monetize undeveloped assets, such as the Preowei field, a low-risk satellite tie-back project to the Egina Floating Production, Storage and Offloading platform ("FPSO").
The successful drilling and completion of Akpo-P4 infill well, that came onstream late last year and which was ramped up to 6,000 bopd, is very encouraging for the upcoming drilling program on OML 130. The operator is finalizing an extendable one-year rig contract with the plan to drill up to 9 development wells and up to 2 near field exploration/appraisal wells on the current rig schedule, with the drilling expected to commence at end of Q3 2022. Processing of the 2021 Egina 4D seismic survey is ongoing and is helping to confirm the final well locations. Up to 3 development wells are expected to be completed on the asset by the end of this year, with further infill drilling or near field exploration/appraisal expected after the completion of the first 3 infill wells on Egina. The rig will move to Akpo upon completion of the Egina drilling campaign.
The Company will work to maximize Prime's dividends by distributing its excess cash, whilst maintaining a prudent treasury management policy at Prime. The near-term priority is to extend Prime's debt tenor with the primary objective over the next year of refinancing Prime's RBL facility, possibly facilitated by the voluntary early conversion of Prime's licenses in Nigeria to the new PIA terms. The Company's management will also work with Prime to assess other financing options that could extend Prime's debt maturity profile on competitive costs, such as the PXF facility that was arranged by Prime in 2021.
Through its 30.9% shareholding in Impact Oil & Gas, the Company has an indirect interest of 6.2% in Block 2913B, offshore Namibia. The Company announced the Venus light oil and associated gas discovery on this block on February 24, 2022. Venus' initial results have exceeded pre-drill estimates and along with the recently announced Graff discovery on a neighboring block, has opened a new petroleum province in the Orange Basin with significant upside potential. Venus and Graff discoveries support the exploration case for Block 3B/4B, which is operated by the Company with a 20% working interest and Impact's Orange Basin Deep Block, both located on trend in the Orange Basin, South Africa. The Company's management expect the Venus appraisal drilling program to commence later this year providing shareholders with potentially high impact catalysts.
Through its shareholdings in Africa Energy, the Company has exposure to the Gazania-1 exploration well that will be drilled in Block 2B offshore South Africa, with a target spud date by end of 2022. Gazania-1 will test a prospect in the A-J rift basin that is near but updip of the A-J1 oil discovery (1988) that flowed 36o API oil to surface.
A success at Gazania-1 would de-risk a large inventory of prospects in the block that have been identified from 3D seismic data. Africa Oil has an indirect 5.5% economic interest in Block 2B through its 19.8% shareholding of Africa Energy. Africa Energy holds a carried 27.5% working interest in Block 2B with partners Eco Atlantic (Operator, 50% WI), Panoro Energy (12.5% W.I.) and Crown Energy (10% W.I.).
During 2021, the Company and its JV Partners (Tullow Oil and TotalEnergies) have completed the redesign of Project Oil Kenya to ensure it is technically, commercially and environmentally robust. The Company and its partners initiated a farm-out process for Project Oil Kenya in 2021.
Advanced discussions are on-going with the interested parties. A successful farm-out is viewed by the Company as a critical step towards the FID for Project Oil Kenya being achieved over the course of next year. There is no guarantee that the Company can successfully conclude a farm-out to new strategic partner(s) on favorable terms. The Company will update the market on this process in due course.
The Company has been actively working on the acquisition of strategic producing assets that are accretive on per share valuation and cashflow metrics. The Company has maintained a very disciplined approach towards this goal with detailed technical, commercial and legal due diligence applied for each opportunity and the primary goal of not diluting or risking the current strong investment case.
The Company's focus remains on buying producing assets offshore West Africa and the management will consider both operated and non-operated opportunities as well as oil and natural gas assets. The Board may also consider corporate merger and acquisition opportunities if there is strong strategic rationale for such a transaction with strong prospects to increase shareholder value. There is no guarantee that the Company can complete such transactions and it will update the market during the year on its efforts.