Africa Oil this week announce its financial and operating results for the three months ended March 31, 2021. The Company has also achieved one of its primary objectives for 2021 with the signing of a new term loan agreement, to refinance its existing term facility that is due to mature in January 2022. This achieves significant reduction in borrowing costs, strengthens the balance sheet and improves the Company’s liquidity position.

Africa Oil President and CEO Keith Hill commented: 
“I am delighted with the strong support from our banking syndicate, a clear endorsement of our investment case and high-quality assets. As well as the immediate benefits of lower borrowing costs and improved liquidity, this refinancing strengthens our banking relationships, a strategic advantage as we seek to acquire additional producing assets in this attractive market and progress our South Lokichar project in Kenya. We also look forward to the results from our high impact Venus and Gazania exploration wells as we progress Brulpadda and Luiperd discoveries towards development.

CORPORATE LOAN REFINANCE

On May 13, 2021 the Company signed the new Corporate Facility, for an amount up to $150 million and a three-year term, which can be drawn from end of July 2021 until 12 May 2022. $130 million has been committed at signing and an uncommitted accordion feature allows for an additional $20 million to be drawn. Completion is subject to customary conditions precedent and is expected to occur by end of July 2021.

The purpose of the Corporate Facility is to refinance the existing Term Loan, and general corporate purposes. It will be repaid from the proceeds of dividends received from Prime, while ensuring the Company preserves sufficient minimum cash balances to conduct operations. This loan has an interest rate of LIBOR plus a margin of 6.5% in the first year, 7.0% in the second year and 7.5% in the third year.

The initial $130 million of the commitments received, together with the existing cash balances will be used to repay the existing Term Loan in full, which is expected to occur by the end of July 2021. Any amounts of the Corporate Facility available after the repayment of the existing Term Loan and the potential exercise of the uncommitted accordion would be used for general corporate purposes.

If the Company makes a repayment under the Corporate Facility prior to May 12, 2022, unless the repayment is made from a dividend received from Prime, a make whole provision is payable at LIBOR+6.5%. The security provided on the loan is similar to the existing Term Loan. The loan will be subject to financial and liquidity covenants for facilities of this nature.

The banking syndicate currently includes Rand Merchant Bank, Mauritius Commercial Bank, Natixis, and Standard Bank. 

FINANCIAL POSITION AND EARNINGS

The Company recognized net operating income amounting to $44.2 million during the three months ended March 31, 2021 compared with a loss of $131.0 million during the same period in 2020. Included in the Company’s net operating income is profit from its 50% investment in Prime of $48.8 million in the first quarter of 2021 compared with $85.6 million during the first quarter of 2020. Prime’s profit has reduced due to a lower realized oil price of $58.14/bbl in the first quarter of 2021 compared with $72.28/bbl during the first quarter of 2020, and the timing of liftings, moving from a net underlift position as at March 31, 2020, to a net overlift position as at March 31, 2021.

In the three months ended March 31, 2021, profit from equity investments was offset by operating expenses relating to corporate overheads. In the three months ended March 31, 2020, the operating expense was primarily due to the recognition of a $215.6 million impairment of intangible exploration assets relating to the valuation of Block 10BB/13T and Block 10BA, both in Kenya.

As at March 31, 2021, the Company had cash of $29.4 million, compared with cash of $40.5 million at December 31, 2020.

Prime did not distribute a dividend to its shareholders in the first quarter of 2021. During the year ended December 31, 2020, Prime distributed six dividend payments totaling of $400.0 million to its shareholders, with a net payment to Africa Oil of $200.0 million related to its 50% interest. The dividends earned during 2020 were applied partly to the repayment of its loan facility, reducing the balance from $250.0 million to $141.0 million at December 31, 2020.

Going forward, the company will continue to apply dividends in priority to debt repayment and continuing to maintain a minimum cash balance.

PRIME’S FIRST QUARTER 2021 PERFORMANCE

Prime’s first quarter 2021 average daily W.I. production was 27,700 boepd and economic entitlement production was 30,300 boepd (84% light and medium crude oil and 16% conventional natural gas), net to Africa Oil’s 50% shareholding in Prime.

Production of the Egina field continued to be affected in the first quarter of 2021 by the imposition of Opec+ quotas. These quotas limited production from Egina in the first quarter of 2021 to an average of approximately 152,000 bopd. In April 2021 Opec+ members agreed to gradually increase the crude production quotas and production from Egina is now expected to exceed 160,000 bopd in the second quarter 2021.

During the first quarter of 2021, Prime was allocated five oil liftings with total sales volume of approximately 4.9 million barrels or 2.4 million barrels net to Africa Oil’s 50% shareholding.

Prime continues its hedging program in 2021 and has sold forward or hedged 95% of its 2021 cargoes at an average price of $56/bbl. These contracts are with counterparties including oil supermajors and commodity trading houses. The counterparties are part of groups with investment grade credit ratings.

First quarter 2021 average operating cost of $6.4 per boe compares to fourth quarter 2020 average operating cost of $5.9 per boe. The increase is primarily attributed to non-recurring well intervention costs for Akpo and Egina fields. No leasing costs are payable for Prime’s Floating Production, Storage and Offloading (“FPSO”) platforms because they are fully owned by the joint venture partners.

Prime achieved first quarter 2021 sales revenue of $153.3 million; EBITDA of $143.1 million and cash flow generated from operating activities of $85.9 million, in each case net to Africa Oil’s 50% shareholding.

Capital expenditure during the quarter, net to the Company’s shareholding was $2.6 million.

2021 OPERATIONAL OUTLOOK

Through its 30.9% shareholding in Impact Oil & Gas (“Impact”), the Company has exposure to the Venus-1 exploration well in Block 2913B, offshore Namibia which is expected to spud by the end 2021. Venus-1 will target a large basin floor fan system with significant undiscovered petroleum initially in place that has been identified using 3D seismic data.

Africa Oil has interests in Block 11B/12B and Block 2B, offshore South Africa through its shareholding in Africa Energy and Impact.

In 2020, Africa Energy announced the successful drilling and testing results of its second consecutive discovery on Block 11B/12B. The discovery on the Luiperd Prospect reconfirms the Paddavissie Fairway as a world-class exploration play with substantial follow-on potential. Due to the success at Luiperd, the joint venture decided to proceed with development studies and engage with authorities on gas commercialization. Africa Energy management believe the fundamentals are strong for a gas condensate development on Block 11B/12B, as South Africa is a large energy market looking to transition from coal to natural gas and is currently limited to expensive imports.

The Block 2B joint venture partners are focused on procuring a rig for the Gazania-1 oil exploration well offshore South Africa in order to spud in the third quarter of 2021. Block 2B has significant contingent and prospective resources in shallow water close to shore and includes the A-J1 discovery from 1988 that flowed light sweet crude oil to surface. Gazania-1 will target two prospects in a relatively low-risk rift basin oil play up-dip from the discovery. In Kenya, the JV partners are designing a field development plan for the South Lokichar development in collaboration with the government of Kenya in order to optimize the economics of the project, enhance its sustainability performance and secure a long term extension of the licenses, while minimizing expenditures in the short term.

KeyFacts Energy: Africa Oil country profiles: Equatorial Guinea   l   Kenya   l   Nigeria   l   South Africa