Mar 27, 2025 / 09:00AM GMT
Randy Neely - Capricorn Energy PLC - Chief Executive Officer, Executive Director
(audio in-progress)
Good morning and thank you all for attending or listening in remotely. I'm joined today by Eddie Ok, our CFO, who will walk through the operational and financial highlights as well as Geoff Probert, our COO, who will provide a review of ongoing operations and provide more detail on the progress we made to improve our production sharing contracts in Egypt.
Over the past two years, the new Board, myself, and the rest of the management team have made a major effort to transform the culture, priorities, and focus of Capricorn. This wheel is meant to capture very simply how we are approaching our business. We like to describe ourselves as a blue-collar oil and gas company. We focus on the small details. We finance the business conservatively. We approach every project with technical rigor and apply strict capital discipline. We demand operational excellence from ourselves and our partners.
In Egypt specifically, we administer the business strictly through a self-funding business model. And for new ventures, we will require the application of a prudent approach to risk management. We cannot be completely risk-averse. No risk will result in no return. The priorities set out almost two years ago, include rightsizing the organization, exiting noncore non-revenue activities and ventures, returning excess capital to shareholders, and refocusing the company on the assets in hand; these have all chiefly been achieved.
The company returned over $600 million to shareholders through dividends and share buybacks. Our goal is to continue to provide returns to shareholders, and we are very disappointed that we can't confirm a dividend to shareholders on the back of the receipt of the $50 million contingent payment received earlier this year from Woodside. Our financial planning had included a couple of things occurring, which have not come to pass since our last financial reporting period.
First, we had expected that we would receive $22.5 million from Waldorf, who has now entered administration and has proposed a plan to avoid making any material settlement of that debt due to us. Second, we were optimistic that the Senegalese government would agree with a reasonable settlement of the taxes being claimed on the proceeds paid by Woodside to Capricorn on the original transaction. This, of course, has not occurred and the prospect of an early settlement has deteriorated.
At this time, we expect a lengthy period of arbitration, will be ahead of us to determine an outcome. As we have previously stated, we do not believe any amounts are due on that claim. We do not provide for this claim in our financial statements, and we, along with Woodside, intend to defend that position vigorously.
However, with all arbitrations, there is a chance the outcome will not be as expected. And as such, it is only prudent for the company to act conservatively regarding distributions until we have certainty on any settlement.
In Egypt, the entire team has been working very hard to improve our business, both operationally and financially. Over the past year, we made very good progress operationally. But financially, the macro environment continued to dominate, which has resulted in our trade receivables increasing year-over-year by about 5%.
We remain optimistic that along with the renewed PSC for our 50-50 concessions held with Cairo, we will see increased receipts that will enable all parties, the government, and the contractors to realize on the improved opportunity set created through the improved fiscal terms. As promised, we have delivered on an 80% reduction in headcount and gross G&A from '22 to our expected expenditures in 2025.
With those initial goals principally achieved, we are now turning our attention to increasing value for our shareholders. Our intent is to do that through three principal activities. First, the improvement of the base business in Egypt. Improvements to fiscal terms and lengthening the contract life will open up significant new resources for the joint venture to exploit.
Effectively, the amended contractual terms will allow the joint venture to pursue a very large existing resource base, dramatically larger than available under the current contract life and fiscal terms. Geoff will provide more detail momentarily.
Second, we, led by Nathan Piper, our Director of Commercials, will continue to search for a material deal in the UK North Sea to realize on our advantaged position there. We have a strict set of criteria we measure every North Sea opportunity. We have been deep into several processes, but have been unable to successfully conclude any of them, either due to being outbid or the seller electing to retain the asset. A challenge for us in this initiative is that we remain resolute that we will not take on any material near-term decommissioning liabilities as part of the transaction.
And the third activity, we will look for another material asset to add to the business portfolio. This third activity will likely garner the most interest and possibly concern for shareholders, but let me assure you, we will approach any new venture in the same way we approach our existing business. The venture will need to be financeable with conservative leverage. It will need to be quickly self-sustaining from funds generated internally.
We will also need to enhance the company's ability to return value to shareholders and be such that the skills and reputation that Capricorn possesses are complementary to the opportunity. Ultimately, in our review, we will be driven by value, more so than geography.
I'll now turn the presentation over to Eddie Ok, our CFO, to provide a review of financial and operating highlights for the year.
Eddie Ok - Capricorn Energy PLC - Chief Financial Officer
Thanks, Randy. If we can go to slide 7. Capricorn exited 2024 with a strong performance from operations in Egypt with earnings of USD 105 million but balanced against the backdrop of a challenging receivable situation, where AR increased to $184 million by year-end. We continue to engage with EGPC and multiple levels of government to underscore the fiscal position of Capricorn in Egypt and the need for reliable and material payments given the significant investment made by the company against this building receivables balance.
Our year-end net cash saw a small improvement from the beginning of the year to $23 million, largely driven by nonrecurring items from discontinued operations. OpEx for the year was at an all-time low at $4.80 per BOE. This performance is not likely to be repeated as inflationary impacts from the material devaluation of the Egyptian pound last year worked their way through our contracting process.
Next slide, please. The business followed through on its commitment to shareholders, distributing available funds through its capital allocation policy and slightly improving our year-end net cash position from an adjusted balance at the start of the year. Though again, this was primarily driven by one-off collections from discontinued operations.
Next slide, please. Our preliminary guidance for 2025 is a reduction over the prior year and reflects an underlying base annual decline of around 40%. Our capital investments for 2025 and minimal impact on full-year production is reflective of exploration commitments that must be drilled in the current year, balanced against accretive development drilling opportunities, all funded from operational cash flow.
We expect that the new concession agreement will be ratified in the current year, which should give us a material runway to [ROS] decline and work towards recovering production under improved commercial terms. We also want to alert the market that production will be impacted by a 3-week turnaround for required maintenance in Q4 that will impact 60% of our production base.
I'll hand off to Goeff here for an operational review of the business.
Geoffrey Probert - Capricorn Energy PLC - Chief Financial Officer
Thanks, Eddie. Today, I plan to take a few minutes of time to briefly run through 2024 Egypt operational activity with a look at year-end 2024 reserves and production and resources. However, I'll open with the renegotiation of our concession agreements, which we expect to expand and underpin the value of our Egyptian business moving forward into 2026 and beyond. Move on to slide 11, please.
You can see on the graphic here that we've moved forward on our journey to completing the consolidation of our 8 50-50 concession agreements into a single extended and approved agreement. We recently passed through the smaller Executive Board of EGPC and expect to have the new agreement proposed to the big or main Board of EGPC in the near future.
This new agreement underpins the future of our Egyptian business, revised terms and extended time line are a catalyst to increase Capricorn's reserves and production with value delivered by increased investment self-funded from Egypt, something that current agreements do not support.
For EGPC, this increased and more importantly, sustained investment delivers greater production over the long term for Egypt, having the potential to be a true win-win for all stakeholders. While our current guidance is based on the existing agreements, we are planning activity in '25 and beyond on the basis of the new agreement that we await the final steps on approval, both by EGPC and the competent authorities. slide 12, please.
This map tells a story of focus, continued focus on liquids development and production in 2024, primarily in the second half of the year when the rigs returned. You can see here that the key focus has been on drilling in the BED two and three areas, chasing liquids and implementing a reservoir management plan with water injection, all supported by Capricorn technical work. It's a story that we expect to continue in 2025 with Capricorn investing significant technical effort into our own understanding of these fields and their potential, maturing our unrisked contingent resources.
Next slide, please. Here, we just moved to show the hatched areas indicating concessions that we expect to form the new consolidated agreement. We're also expecting to execute our final commitments in 2025 on the three exploration concessions.
Next slide, please. This slide expands a little on the committed drilling plans for 2025 and notes the potential to increase activity levels in '25 with approvals of the integrated concession. Firstly, I'm pleased to see the progress made on second recovery plans with BED water injection. While our focus is not on pure-play exploration, we will fulfill our commitments there, too, with this drilling having been slipped out of our 2024 plan. There is some interest in the planned test of the Abu Roash F unconventional play that has a significant presence on our land in Egypt.
Next slide, please. This last slide on reserves encapsulates the rationale behind Capricorn negotiating an extended and improved integrated concession agreement on our 50-50 concessions. Simply put, production in 2024 was from the reserves that we have historically booked. Remaining reserves become production in the subsequent years. But without running room, technical, economic and time, there was limited scope to add reserves in 2024.
Our ability to replace our reserves and extend the life has been impacted by the near-term expiry of two of our key concessions with third now also expiring in the 5-year booking window. This is compounded by current poor concession economic terms. A new concession agreement will extend these concessions, improve the overall economic horizon and support a material increase in investment and future reserves and production.
Concession improvement will also impact our risk appetite to chase near-field exploration potential on our lands and to mature and develop our portfolio of resources. Capricorn has been working the opportunity hopper on the 50-50 new concession acreage, not just near-term development options, but also contingent and prospective resources. This work will help to underpin future reserve and resource bookings and also direct and prioritize productive drilling activity.
You can see here that internally, we've identified a working interest of approximately 350 million barrels of oil equivalent unrisked best estimate contingent resources. Near-term license extensions resulting from an approved integrated concession potentially support an early conversion of up to a working interest of 20 million barrels to reserves with further reclassifications anticipated, all underpinned by five-year investment plans. Once approved, we will rapidly move to drill wells to exploit these reserve additions.
I'm going to wrap up now with a parting note that while I talk here about operations at the end of the day, it's about the company investing to generate the best possible cash returns and value for our shareholders from these assets. Thanks for your time. I'm now passing over to Randy to wrap up.
Randy Neely - Capricorn Energy PLC - Chief Executive Officer, Executive Director
Yes. Thanks, Goeff. The Egyptian business environment has been up and down this past year. However, official government communications continue to reinforce that payments to IOCs remain a highest priority. Our JV's potential will be vastly improved post ratification of the new terms and will once again make these assets a potential growth area for Egypt.
We believe this will help prioritize Capricorn and our partner for regular and meaningful payments. As you can see from this chart, our current business in Egypt, along with our cash balances clearly justifies our current valuation. What has not been made clear for investors is how dramatically the valuation will improve with both new terms of the amended concession agreements and the value that can be derived from the UK North Sea.
Everyone on this call knows that myself and the team here have a great deal of experience with amending Egypt production sharing contracts. Some of you even know that we were the team that started this evolution back six-plus years ago when we were at Trans.
As Geoff just discussed, we expect this to be finalized this year. We have added a bar here to represent the potential value of the new deal in Egypt. That value is shaded on purpose to represent the value to be recognized over time as we develop the resources. As for the UK North Sea, it's a bit less within our control. However, we remain steadfast in our commitment to achieve this. And as said earlier, we are committed to doing a deal within our parameters, including valuation. With some element of luck on the part of obtaining a counterparty willing to sell an asset to us in the UK North Sea, we expect to complete both of these ventures in the current year.
Ultimately, our goal is to build a long-term sustainable business that can pay a consistent and growing dividend to our shareholders. That is why we are not only focused on these two major near-term catalysts, but also beyond them to ensure that we have additional projects being sourced and analyzed for potential future investment. Well, that's it for the formal presentation.
But before I sign off, I just want to acknowledge the huge efforts that have been made by our entire staff and contingent who have really done a tremendous job helping resurrect the company over the past two years. And now I'd like to invite questions.
Questions and Answers:
Operator(Operator Instructions) There appears to be no questions from the conference call at the moment.
So, I'd like to hand the call over to you [Chile], for any questions via the webcast.
Unidentified Participant -
We've got a question from Philip Hallam from Canaccord Genuity Corp. Following the completion of the PSC renegotiations, what do you feel you can do with the assets in terms of production? Is it a matter of maintaining? Or is there scope for growth?
Randy Neely - Capricorn Energy PLC - Chief Executive Officer, Executive Director
Geoff, why don't you go ahead on that one?
Geoffrey Probert - Capricorn Energy PLC - Chief Financial Officer
Yes. Phil, it's a good question. I mean, the core here is the underpinning of the, let's say, the portfolio by the increased, let's say, contingent resources, which moves into reserves. And of course, our willingness and ability to invest we have a 40% per annum decline rate that we have pretty much arrested; well, recent months, and we're looking to kind of turn that around.
But what was the shutdown this year and the six exploration wells and one of the rig or two of the rigs actually, that makes an impact also on 2025. I think going forward, there's certainly plenty of potential for increasing. But I think as I mentioned last year, it's unlikely we're going to swiftly turn this around into a 30,000 barrel a day working interest project for us. It requires a lot of effort to hold production, but that's our objective through '25 to stabilize and to grow.
Look, last year, we lost about 6,000 barrels a day oil equivalent, I think, one year to the next. And this year, we're stabilizing just a couple of thousand barrels a day down in Charlotte. So that's our objective is to use the maximum margin we can of the contract to let's say, invest within the capacity of our business and the capacity of EPC to fund us to do that.
We're certainly looking at a significant program in 2024, and there's a lot of scope to add further rigs going forward. But a lot of it will depend upon the ability of EGPC to match our investment requirements. And they certainly signaled that's their objective.
Unidentified Participant -
James Hosie, Shore Capital. On the CapEx budget, can you provide a breakdown of the $85 million to $95 million between development activity and exploration commitments?
Geoffrey Probert - Capricorn Energy PLC - Chief Financial Officer
Yes, about was it $9 million, $10 million is on the exploration commitments. The rest is development activity.
Unidentified Participant -
And to what extent could you reduce the spending if the receivables balance doesn't improve?
Geoffrey Probert - Capricorn Energy PLC - Chief Financial Officer
We demonstrated, I think, in 2024, the levers that we're able to use in the event that there are, let's say, a significant mismatch between receivables and our commitments to fund the joint venture at the Pepco. So will we use similar levers should we end up in that position. So, we have a lot of flexibility around drilling in particular and also on projects.
Randy Neely - Capricorn Energy PLC - Chief Executive Officer, Executive Director
But I'd just add, Geoff, that this renegotiation and update of the existing PSCs is done with the view that these assets can become more productive in the future. And the only way they're going to do that is through regular and in this case, increased payments. So, nobody gets the results intended.
And there's been a lot of effort, not only in the part of the contractors being ourselves and Khiron to get this negotiation nearing complete, let's say, but also on the part of EGPC and the ministry. So, it would be kind of a waste of all that effort if we did it all and then there wasn't further investment, which would be controlled by lack of payments.
Unidentified Participant -
Mark Wilson, Jefferies. If the former management team of Capricorn sold out of UK North Sea assets to enter Egypt, what is different today to suggest you can and should do the reverse?
Randy Neely - Capricorn Energy PLC - Chief Executive Officer, Executive Director
Well, we're not, at this stage, proposing that we sell out of Egypt and buy UK North Sea assets. We weren't part of the team that made the decision to sell those UK North Sea assets. And so, we can't really comment on what the rationale was at the time.
But our view is that there is a significant position that we have that we could take advantage of if we can attach our existing structure and value embedded in it to production in the UK North Sea without jeopardizing sort of near-term decommissioning costs and whatnot and do it in such a way that we don't have to increase our G&A materially that there's real value to be derived there for us.
So, I can't comment on why they did what they did, but we're not talking about selling Egypt to buy the UK North Sea. We're talking about adding UK North Sea to the portfolio.
Operator
Matthew Smith, Bank of America.
Matthew Smith - BofA Securities - Analyst
I think hitting on the theme really, my question has already come up. And I suppose it was just around you clearly have a great progress in terms of the new PSC terms, great momentum there in terms of what that could unlock for additional value creation. And I suppose that shaded bar, a lot of the shading, the upside comes from increased investment.
So, I guess I just wanted to come back to that topic on how this will be tied to the receivables position? What do you practically need to see? Will there be a more formal sort of payment plan implemented? Is that what you need to see to give you confidence to increase the activity set? I just sort of really wanted to get to the crux of that issue. What will be the trigger from your point of view that will enable you or give you the confidence to commit more dollars to the ground in Egypt, please?
Randy Neely - Capricorn Energy PLC - Chief Executive Officer, Executive Director
Yes. Thanks, Matthew, for the question. From our perspective today, we expect that going forward, we'll start to see better payments. Part of what's occurred in the past year or two, and it's not new. I mean we've seen it happen in Egypt before when there's financial stress, the IOCs receivables seem to get extended out.
Now over the past couple of years, our hopper, let's say, in terms of what we can invest in was getting smaller and smaller because the economic and time constraints on the concession agreements as they stood. So, with the new concession terms, not only do we get the benefit of more time, as Geoff noted, there was three concessions that were starting to be expiring in the near term, but we also get the benefit of much better fiscal terms.
So, the investment portfolio expands pretty dramatically. So, we would expect the government then sees this as an opportunity for us to start to reverse that decline and start to see some growth. So, by paying us versus someone else, we're not going to just simply be on a decline basis in the industry; it is a challenge for smaller companies and ones that don't have an opportunity set that they can invest in.
Do we expect to see a formal plan? We'd love to see one. We haven't seen one historically, and I've been working in Egypt for over a dozen years, and I've never seen a formal type plan. And we've always seen payments kind of ebb and flow. I wouldn't expect it to be materially different. But as Geoff said, we will control the spending based on how we get paid. We'll sort of plan on the basis that we'll be getting paid on a regular basis. And if those payments slow down, we have to slow down the capital investment.
Operator
(Operator Instructions)
No further conference call questions at the moment. So, I'll hand back to you [Chile], for other questions from the webcast.
Unidentified Participant -
Thanks. We've got a follow-up question from Mark Wilson at Jefferies. He's asking, what did Eddie say was the baseline decline in Egypt?
Randy Neely - Capricorn Energy PLC - Chief Executive Officer, Executive Director
That's 40% is what we would characterize as baseline decline. Geoff, I don't know if you want to add any color to that, but with this asset base, yes.
Geoffrey Probert - Capricorn Energy PLC - Chief Financial Officer
Yes, that's right. I mean it's a 40% approximately annual decline rate across the assets on average. And that's why for example, the loss of a couple of key concessions. So, the way you invest here under these older PSCs is you can only recover the cost on an amortized basis. When you get into the amortized sort of window of what it was five years, it becomes less and less attractive to invest. So, the 40% decline actually, we're struggling to address it.
We have been struggling to address it late last year into this year. We now have the opportunity to plan and execute wells back on those concessions again, which will allow us to address that. But that's the truth of the matter is you have to run here to stand still. It's ever been so in the Western Desert, they all these things that string of pearls.
You have to keep drilling and keep bringing new production in to replace the declines on the existing wells. But that's why a great resource base and attractive terms work for both us and for EGPC and the state. This encourages us to invest to address and to reverse that decline.
Unidentified Participant -
Chris Wheaton, Stifel. Does the suggestion of new ventures mean that consolidation within Egypt is not either less likely or less desirable?
Randy Neely - Capricorn Energy PLC - Chief Executive Officer, Executive Director
Well, our view on Egypt is that we're there. And if the right asset package comes available that we are attracted to, it's going to be return-driven for us. So, we don't consider it is our backyard. So, if the right opportunities there, we certainly would look at it. But in terms of putting another leg on the stool, we think that perhaps outside of Egypt would be beneficial for the shareholders to have, with the issues that we face on collections in Egypt, we'd like to offset that.
We know that they come and go, and we know that at times, it can be a really good place with respect to collections and other times, its lower. And so, we'd like to have some offset to that outside Egypt. But I wouldn't say that we've written off the idea of any sort of additional assets in Egypt. I wouldn't say that at all.
Unidentified Participant -
David Mirzai, SP Angel. After last year's reset of the production base and the operational issues seen in 2024, can you understand that investors are disappointed to see another production fall being predicted for this year? Can you give a bit more granularity behind why the output is expected to fall by 10% to 20% again, despite a significant investment in development expenditure this year?
Geoffrey Probert - Capricorn Energy PLC - Chief Financial Officer
I'll take that. Fundamentally, as we just a moment ago, there is a very high decline rate, and activity levels this year have significantly flattened out. I think we exited the year 2024 at around just a little just over 21,000 barrels a day. We're looking guide at the top end of 21,000. So that's with nearly a month's worth of 60% of our production shutting down.
And of the activity levels we got out there, we got at the moment approximately 12 straight months of concession exploration drilling. And that's an artifact of the timing of getting the new concession agreements approved, and our obligation to fulfill those commitments or frankly, hand back cash.
So, there's a balancing effort we have to make in terms of timing this year. Yes, we're to be able to hold within 1,000 barrels a day or 2,000 barrels a day of our exit for the year will be a good effort. And obviously, we'll be trying to get the top end of the range, but we're guiding the middle. So, yes, we'll do our best. It's just kind of the way it is with such a high decline rate and other things impacting our ability to address that in 2025.
Going forward in '26, we'll see the impact of this increase in drilling activity, which will occur, well, hopefully through the second quarter and certainly in the second half of the year, particularly with the new concession agreement approved. And then the optionality is there for us as we work with EGPC on payments to potentially increase rig activity further into '26 and beyond.
Unidentified Participant -
David Mirzai. On the planned new country entry to create a third leg, can you give some high-level guidance on where the value sits in terms of country risk profile versus portfolio diversification? What type of asset package are you looking to acquire, for example, in terms of free cash flow versus predevelopment assets?
Randy Neely - Capricorn Energy PLC - Chief Executive Officer, Executive Director
Yes. The basics are that we'd be looking for an asset that's in development or about to be developed, not needing a giant amount of early investment in order to bring on to production. We want it to be additive to the base business, additive to ultimately paying dividends, and of course, not one that we're going to be investing for 3-, 4-, 5 years before there's production and cash flow. So, more of a brownfield type operation, redevelopment type operation than simply a Greenfield. That's definitely what we're looking for.
Unidentified Participant -
Thank you. Follow-up question from Chris Wheaton. If development spend is $65 million to $75 million, why is production still down 10% year-on-year, excluding the shutdown in quarter 4?
Geoffrey Probert - Capricorn Energy PLC - Chief Financial Officer
Cost to drill wells and maintaining facilities. We got a shutdown this year, which has to be financed in terms of capital spend to repair and replace equipment. Yes, that's we've only taken out what, about $9 million, $10 million, our share of concession exploration, we have for rig costs and equipment. It's just the cost of drilling.
Unidentified Participant -
Thank you. There are no further questions on the webcast. So, I'll hand back over to you, Randy, for any closing remarks.
Randy Neely - Capricorn Energy PLC - Chief Executive Officer, Executive Director
Okay. Well, thank you, everyone, for attending this morning, and we look forward to speaking again sometime in the not-too-distant future regarding a successful announcement regarding our PSC progress.
Call participants:
Corporate ParticipantsRandy Neely, Capricorn Energy PLC - Chief Executive Officer, Executive Director
Eddie Ok, Capricorn Energy PLC - Chief Financial Officer
Geoffrey Probert, Capricorn Energy PLC - Chief Financial Officer
Conference Call Participants
Matthew Smith, BofA Securities - Analyst
Refinitiv StreetEvents Transcript
Full Year 2024 Capricorn Energy PLC Earnings Call
Mar 27, 2025 / 09:00AM GMT
