KEYFACT Energy
President Energy, the upstream oil and gas company with a diverse portfolio of production and exploration assets focused primarily in Argentina, provides highlights from the unaudited Group management report for the full year 2019, a comparison with the previous year and a review of current trading.
Financial Highlights
- Turnover of approximately US$41m (2018 - US$47m) with average price realisation in Argentina 19% less in 2019 than in 2018
- Average production of 2,414 boepd is 6% up on the previous year (2018 - 2,279 boepd)
- Free cash generation from operations before G&A of US$16m (2018 - US$21m)
- Adjusted EBITDA* circa US$12m (2018 - US$17m)
- Cash operating profit of approximately US$10m after all administrative expenses and workovers, but before depreciation (2018 - US$14m)
Commentary
The internal unaudited Group management accounts for the year 2019 reflect a solid and indeed commendable performance in the face of unforeseen challenges throughout the year.
The year saw significant progress on the ground. First oil was produced by the Group from the Estancia Vieja field with the field facilities in Puesto Prado and the Gas plant in Las Bases re-commissioned. First gas was transported from the Estancia Vieja field to market throught the Company's pipelines. The Puesto Flores/Estancia Vieja fields were unified in one enlarged Concession and, at the end of 2019, the producing Angostura field was purchased, which whilst coming too late in the year to have a material impact in the results, is already contributing profitably this year.
The challenges encountered included unplanned downtime in key producing wells and electricity supply outages in Rio Negro, Argentina, a three month shutdown of production in Louisiana and the harsh effects of the temporary Decree 566 in Argentina which reduced realised oil prices by almost 25% for a full three months between September and December. Consequently, margins were squeezed, which was mitigated only to a certain degree by the Company's prudent cash management and good housekeeping.
The results in the year were further impacted by lower oil prices which was reflected in average Group sales prices declining to US$49.63, down nearly 17% from the previous year (2018 - US$59.60) with Argentina itself down almost 19% to US$49.90 (2018 - US$61.54).
As a result of the above factors, the Group prudently suspended planned drilling activity in Argentina. Nevertheless, and notwithstanding the operational issues previously identified, each and every month the Group continued to deliver operating profits after all operating expenditure and g&a but before depreciation with average Group production actually increasing by 6% over the previous year, albeit not as much as originally hoped at the start of the year. Furthermore, independent audited reserves as at 31 December 2019 actually increased.
In light of the above, the performance in 2019 is creditable and demonstrates the resilience of the Group in the face of the confluence of unrelated negative factors which transpired as the year progressed. Free cash flow generated on an operating basis and adjusted EBITDA are notable positive key performance indicators complemented by the efficiencies and cost savings that have been made which will be reflected in improved cost metrics in the present year. Further progress is also reflected in the recently announced positive year end 2019 Argentine reserves audit.
Trading and Outlook
The current year has got off to a good and profitable start with January showing a material improvement from H2 2019.
The international commodity trader and logistics company Trafigura has consolidated its position as an active strategic commercial partner by coming on-board as a significant equity shareholder with Group debt commensurately reduced by some US$6m and potentially up to US$15m. Compañia General De Combustibles S.A. also continues to subscribe for new shares in the Company under the agreement made in late 2019.
Temporary Decree 566 in Argentina lapsed in December and so, with prices recovering from its effect, the Group is preparing to drill three new wells in Rio Negro, with the first expected to be spudded by the end of H1. Additionally, with Louisiana production largely restored, we expect to drill in Jefferson Island, Louisiana during H1. A further six wells are targeted to be drilled across our assets later in the year of which two are expected to be exploration. Each successful exploration well would lead to further drilling and reserves enhancement. Further details of all wells to be drilled wells will be released in due course.
In relation to the funding for such activity, whilst the Company carefully manages its cash, it is successfully negotiating terms with its service providers with the objective of facilitating the capital expenditure currently envisaged this year within the free operating cash flows being generated.
The construction of the new gas pipeline between Estancia Vieja and Las Bases in Rio Negro has now been completed on time and budget and should be commissioned by end of this month. Group production will be supplemented by gas flowing through that enlarged pipeline where we expect, by the end of February, gas deliveries to market of some 1,000 boepd with a target of 1,500 boepd by the end of H1 being the start of the winter months. In this regard, the recently acquired Angostura exploration block is expected to make a good contribution of some 600 boepd by mid-February.
The Company is cautiously optimistic that the macro environment in Argentina has calmed and that we may well see beneficial developments during the year .
The Company repeats its guidance for 2020 of average production in excess of 4,000 boepd.
Peter Levine, Chairman commented:
"With all key performance indicators improving, significantly lower debt levels, an expanded asset base and exploration upside through our asset base, we look forward to a year of growth and tangible improvement."
*Adjusted EBITDA is Earnings before interest, tax, depreciation, amortisation and impairment and adjusted to exclude non-recurring items