Why did you raise money recently and thereby dilute shareholders when you are generating so much cash?
Whilst we generated some US$ 20 mln from core operations in 2018, we also invested some US$ 17 mln in capital expenditures in Argentina during the same period on our extensive workover plus three well drilling programme and also paid some US$ 9 mln towards the acquisition of the new Puesto Prado and Las Bases licences at the end of 2018. Given we continue to generate material free cash flow from our licences, we could have funded the 2019 work programme fully from those resources. However, the Board felt it was in the best interests of shareholders to accelerate the work programme planned for the new licenses acquired in late 2018 thereby continuing the significant growth in production and improvement in financial performance achieved in 2018. Again, given the significant free cash flow, we could have obtained additional funding from other sources, but we decided that, as a secondary objective, a modest share issue would help improve share trading liquidity, that is cited by some potential investors as being a reason not to invest in President. In addition, the share issue has resulted in IYA, an entity affiliated to Peter Levine, part converting some of their debt, thereby reducing the total outstanding and also reducing the Company’s interest payments.
The Company has an ambitious growth plan underway which will see production rise 50% year on year for the next three years. This fundraising helps deliver this objective thereby providing material potential returns for shareholders. It also enables us to fast track the development of our gas assets which currently comprise 3% of production and 17% of our reserve base.
Why did the Offer raise less than you wanted?
As we stated above, we didn’t need to do the Offer at all but did so in the best interests of our shareholders. The £6.5 million referred to in the documents was the maximum amount we could raise via that structure and, whilst the full amount was not taken up, we have more than sufficient capital to accelerate our 2019 programme of activity. We will also redouble our efforts to set out why we believe President is a solid investment case going forwards.
So why is the share price currently so low?
The Company is currently performing strongly in all areas and we have kept the market informed of all updates regularly, most recently with the results of an independent reserves audit in Argentina that support a Group economic value of 2P reserves of almost US$ 300 mln which is now nearly treble our entire enterprise value ie market cap plus debt
We believe the share price is currently being impacted by market factors, not least as evidenced by the fact that there has been a general decline of interest in small cap oil and gas stocks over the last five years (the sector AIM index is down 60%)
With regards to President specifically, specific issues may include: (1) despite our clear messaging, confusion as to the rationale behind the recent Offer and consequences thereof that we have hopefully addressed above (2) in our view misplaced prejudice and failure to understand present day Argentina (3) a historic view of certain failure, several years ago, by the Company to meet expectations and (4) relative illiquidity of our shares. In terms of concern regarding Argentina, we continue to clearly articulate how limited true political risk in Argentina is in terms of its impact on our day to day operations. The high quality of our management team is shown clearly in the success we have achieved in 2018 and the outperformance on all key metrics. And in terms of liquidity, we are looking to improve it with an active programme underway to introduce new institutional investors and family offices which we believe in time will lead to higher levels of trading in our shares.
Why should we invest if Peter Levine is going to take the Company private?
The Company has not been notified of any plans in this regard and we can say that Peter Levine continues to strive, like us all, to get the value message across to the market. However, if this were to happen, minority shareholders can take comfort from the presence of a number of quality institutional shareholders on President’s register, including Schroders, JP Morgan and the IFC, as well as the fact that there are a number of “checks and balances” inherent in a publicly listed company such as President that protect the interests of minority shareholders, including the need for the independent directors and the Company’s regulated NOMAD to approve any proposal as being fair and reasonable as well as minimum thresholds for shareholders to vote on. For the avoidance of doubt, Peter Levine would not be able to vote his shares in respect to any proposal.
How many wells are going to be drilled at Puesto Flores this year?
President drilled three new wells on Puesto Flores in 2018 and will be drilling new wells in 2019. The presentation on our web site addresses the indicative activity for this and all our fields during 2019
What sales price do you get for your oil?
Oil purchasers in Argentina pay what is called Brent “parity” prices, ie the effective cost to ship Brent crude from Rotterdam (where it is traded) to Argentina, or vice versa. This equates to a ca. 12% discount to the quoted Brent price. In March, we are looking to receive approximately $58 per barrel in the Rio Negro Province. At that figure, President is achieving operating margins (revenues less royalties and field opex) of over US$ 35 per barrel, higher than many peers elsewhere.
Which quarter do you intend to drill Puesto Guardian?
Subject to rig availability and the right economic circumstances towards the end of 2019
Already this year extensive sub-surface has been performed with a complete peer review which has underlined the prospectivity of this Concession which has until 2050 to run
It remains a very important Group asset to address and expand in due course
How will gas at Estancia Vieja be monetised?
Gas as Estancia Vieja is currently being utilised for electricity to power the recently acquired Puesto Prado oil field through the first stretch of the newly acquired pipeline (see the latest presentation on our web site for the interlocation of our Rio Negro assets).
By the end of the summer Estancia Vieja gas will power the Puesto Flores field, saving us some $60k per month in power bills and will also generate revenue by selling excess electricty to the grid which we estimate with the power cost savings will produce some $140k of savings and revenue combined at current prices which will go straight to our bottom line
However, the main area of future revenue will be gas sales offtake through the newly acquired pipeline as discussed above
Extensive sub-surface work is being done on this field which is showing good prospectivity for new drilling of gas wells as well as the opening up of currently shut in wells, the latter being our first priority
We are targeting this to start by or about the end of H2 and to ramp up through the end of 2019 into 2020
Accelerating the bringing on Estancia Vieja now we have the outlet to market complements the very prospective Las Bases gas field we just acquired which we view as having significant potential and where we intend to drill new gas wells this year. The gas wells there are much shallower to drill at some 60% of the cost of the Puesto Flores wells
Paraguay drilling/ farm out
After the drilling failures in 2014, is there any prospectivity left in Paraguay?
Yes, significant and the more work we do the more we appreciate how compelling the exploration opportunity is. But this is exploration, it is inherently risky. It has to be remembered that this is a new frontier. It is not unusual in such cases that there is initial failure from which one learns and we have learnt a lot both operationally and sub surface. On the former with our successful Argentine management handling the operations and with the experience gained in all areas, significant savings and efficiencies will be achieved
Whilst elements of the 2014 drilling program were indeed disappointing, it was by no means a failure. In fact, two logged discoveries in the deeper more expensive Paleozoic formations were made in the second well but structural issues down hole prevented testing
Since then, President has focused on de-risking a number of Cretaceous opportunities that have certain characteristics in common with the prolific producing fields across the border in Argentina
Taking into account the previous events we have carried out extensive work to proof test the concept continuing right up to now
Recent remapping, geophysical re-interpretation, analogue comparisons with data from the Argentine side, geochemical and AVO studies over highgraded prospects provide support for charge/migration of hydrocarbons into what there are undoubtedly structures with what shows as successful sealing
One well is planned, targeting one such prospect to commence operations at or around the end of 2019 which will mean that the major expense will fall into 2020 and accordingly will not affect in any way our plans for growth in our producing areas this year
In parallel a farm out process is continuing with parties signed to NDA’s. You will appreciate when we say that there can be however no guarantee that any farm out will happen. The farm out process does not affect the plans of President in this regard.
Will you be able to provide a tabular schedule of monthly bopd, including $/bbl and ‘net backs’?
President is always looking at ways to clarify and refine the best way to report its figures and will bear this in mind when drafting results in future. However, we will not be issuing monthly figures as they give an unrepresentative and misleading view of field production which can ebb and flow, particularly as extensive work continues in the fields with wells shut in and then restarted to facilitate this.
What is the timeline?
At the moment it remains on hold but is not forgotten
Debt levels are considered by some too high...what are the plans?
Current net debt levels amount to some 1.8x 2018 adjusted EBITDA, well within acceptable limits.
In 2019, given the projected growth of EBITDA as well as amortisation of the bank loan and partial conversion of the IYA loan as part of the Offer, net debt is projected to fall to around 1x 2019 adjusted EBITDA.
In any case, 2/3 of the debt is provided by IYA and is non-amortising and unsecured, further underlining the high degree of support provided to the Company by Peter Levine.
The blended interest rate is around 9% over LIBOR, in line with our peers. Nevertheless, the Company is evaluating options that may lead to lower interest costs and more advantageous terms, in each case for the benefit of shareholders.
Will the company start to pay dividends, if so when?
The Company has made significant progress over the last year. Whilst the topic of payment of dividends is anticipated to be considered during H2 2019, at the present time it is sensible to apply our free cash flow in continuing to grow the company to a stage where meaningful, stable dividends can be paid without affecting our growth and proportionate to our financial resources and facilities at the relevant time. The cash flow is targeted to have growth rates of over 50% a year; the continuance of this will lead to a sustainable dividend policy.