Keo Capital AB (publ) (KEOC) Earnings Call Transcript

[Foreign Language] Kjetil, Roberto, how are things in Venezuela and respectively in Brazil?

No, I think -- well, first of all, a pleasure to be here again talking to you and to the market. And no, things are very nice in Caracas. I managed to get a cold, but it's more spending time in meeting rooms with Andres, negotiating our technical plan for the future than anything else. So no, things -- Caracas is actually very calm and nice.

Okay. Cool. And Roberto, we can hear you loud and clear, I guess.

Yes. No, same here, at Rio. Thank you, Kaarlo. Thank you, everyone. It's a pleasure to be here again with you.

So without further ado, let's go through the results. So please, go ahead.

Okay. Thank you for this, Kaarlo. So I will start out as usually with an update on where we are more operationally and what we are working on and then hand it over to Roberto. I apologize for the cold. I might cough a bit, but I hope that doesn't interrupt too much of the presentation anyway. So if we go to the first page. So basically, I don't want to repeat everything that we have done over the last 24, 18 months. Just highlight the fact that we, in the fourth quarter, realized an oil price that means that we could get the earn-outs linked to PetroReconcavo deal, $4.4 million, which is now part of our cash going forward. And of course, I'm very happy then to also announce that we have now reached the end of the discussions with PDVSA on the Mesa Mesas Tecnicas. What does that really mean? I'll come back to that in a moment, but it's a very important milestone for us, and I'm super happy to have reached that goal in a very short time compared to the plan. PDVSA thought we'd have to sit until end of May, and we have now been able to reach this goal already by the end of February. On the next page. And next one. So this is what we are talking about, of course. And we have talked about this several times. You know where we are, we are working on La Paz and Mara. Mesa Tecnicas is basically a process together with PDVSA to outline the business plan, the development plan, redevelopment plan, you can call it many different things. And we are basically now just revised the existing one and agreed upon new profiles for gas, oil, water production, OpEx and CapEx. There are still some small, small adjustments that are being basically checked. And they are very rigorous in their process. But the fact that we now have a combined understanding of what the field can do says a lot. And I'm very happy with the numbers as well. What we have done over this Mesas Tecnicas is to provide PDVSA with detailed information about how we think we should produce the remaining oil in these reservoirs. And they have basically bought into our story, bought into our detailed explanations, and we have gone well by well. So you see a total of more than 150 wells that has been studied and now it's part of the plan. I would have to say that, of course, we start -- we always start somewhere. So the first 2 years is about really 20 wells, 20 to 25 wells that we have identified and we see how quickly we will get them on stream; 5 of these are the ESPs that I talked about that has an enormous potential that will be tested. So all this will be a 2-year test period before we really ramp up and further increasing the production. But PDVSA wants to have a full presentation of the potential for the remaining time of the concession period. And that's quite okay with us as well. It demonstrates a bit of the potential. I would say this is not a super optimistic view. I think this is actually a bit conservative on some of the single well opportunities that we see and again, in alignment with PDVSA. So what we see is that we have -- we are able here to identify resources that we can produce 90 million barrels of oil in the remaining period we have and about 180 billion cubic feet of gas, which is the equivalent of another 30 million barrels of oil and gas. We have estimated the top production to be approximately 40,000 barrels of oil and gas equivalents per day. And the first -- during the first years, we will, as I said, be focused on testing and then take this decision to really ramp up and continue after the first 2 years. Reminding again, everybody, we are close to Chevron in Boscan. We are continuing the dialogue with everybody there. But right now, what we have reached is a common understanding together with PDVSA on how to develop this field, how much resources we have here. And I'm very pleased with basically saying that the PDVSA people have understood our ideas and agreed to our approach and agreed to the numbers that we now set in front of us. So now we have a concrete plan, and this is what we're going to deliver on going forward. So next page. This says a bit about what is really -- okay, what are the next steps now? We have basically now concluded on the Mesa Tecnicas. What's going to happen now is that we will start up negotiations on what kind of contracts we can operate under. That will be a contract for an operating regime, how we will operate in combination with PDVSA, how we can sell the oil. We also want to sell the gas. As you saw, gas is 30% of our products. So this has been important. We have seen -- we have received positive signals on this, but signals is one thing, the concrete contract is not. So that's why we have to do the work now going forward. And our model is, of course, that we want to have similar type of contracts as Chevron and Maurel & Prom operates under today. They have been very successful for Venezuela and for the companies, and that's our target. Then, of course, I'm sure there will be questions around the 2. The next thing we miss is, of course, also a license from OFAC -- from the Ministry, from the State Department in the U.S. And of course, with the new administration in Washington, we have not yet been able to have any meeting and not yet been able to get any signals. We have a very close dialogue with several other partners in Washington, companies that are in similar position as ourselves. So we have, in a way, good reason, I think, to actually expect that this could happen. That's a personal note. Because I think we have seen the new administration being very eager to make deals to basically try to negotiate favorable terms for Americans, American companies and so on to do business. So that's what we hear. That's what we believe. But of course, yesterday's news from Trump makes everybody have a question. But well, we have seen that before. So we can continue to discuss that a bit perhaps under the Q&A. But basically, this is the way forward. We need to -- for us, today, it doesn't really matter much. We need to discuss and agree upon the terms with PDVSA for operating. And we don't see ourselves starting operating here before June, July, August, very earliest anyway. So that's basically our way forward. So let's go to the next one. And the next -- so Brava is also an area where I know there has been a lot of question marks. We are now, I would say, overall that I am still focusing on the underlying values of what is in Brava. It's been a very bumpy ride, and I have received lots of concerns from shareholders directly to me, and I understand all of those concerns. But I will still repeat what I have said before, I do strongly believe in the underlying values of Brava. There was uncertainties about Atlanta FPSO coming to starting up. It now has started up and it's working, and there will be more wells connected. They will also work. We have very limited concerns when it comes to anything on the reservoir in both of these fields and especially now Atlanta, as I'm talking about, and the FPSO has already proven to work. FPSO at Papa Terra that had been through lots of maintenance. There are still issues to be fixed, but also the FPSO, I've been there myself twice. I am very confident that this machine, call it that, the FPSO is going to work fine. And -- but there will be more need to do repairs and the current issue they have is linked to the gas processor, the gas compressor in order to reinject gas because they are not allowed to flare all the extra gas that they are producing. The extra gas comes because they are producing high volumes of oil. So it's a good -- in a way, a good signal, a good problem. But of course, we want also the FPSO in Papa Terra to deliver the full capacity volumes, which will be in the order of 20,000 barrels per day. Another thing is there's a lot of initiatives now to high-grade the portfolio. There have been some messages already of very small transactions that are basically meaning that they are cleaning up in their portfolio. I think this is a very good sign. I think it's a very -- it's a thing we have been requesting, been supporting. It means that they should focus on the important assets to deliver more value to the shareholders. So I remain very bullish on Brava. It's been a bumpy ride. It's not that easy to sit and say, well, it's going to be fine, but that's really what I do believe. I think Atlanta, Papa Terra, Petrojarl, these are great assets. And now we just have to expect and push also the management to stay focused, which I think they are on delivering these volumes to the market and increase the cash flow. Next one. And next one again. So Illinois, it's going fine. We are producing a lot more now this quarter than last quarter, but this is also driven very much by exactly when we -- the timing of the wells and so on. But it's a nice operation. We have proven to drill successful new wells, added reserves and created an additional good cash flow for the company. Let me also say something very important here. The work we are doing in Illinois is exactly what we also will do in Venezuela. So here, we are demonstrating a very efficient operation of something that we are exactly the same type of operations we're going to start up in Venezuela. And actually also in dialogue with the people there to see if they are flexible, I can -- and I can assure you that we will get good support from the competence that the company is building and has built over a long time in the operations in Illinois. And I think also with the current administration in Washington, that it's an important part of being Maha applying to get the license in Venezuela, the fact that we have a significant operation in Illinois. So very pleased with the activity, very pleased with the wells that have been drilled, very pleased with our guys that are working there day and night to deliver these values to our shareholders. And I'm also very pleased to say that I think this is super relevant for what we are doing also in Venezuela. So with that, I think I'll hand it over to you, Roberto. So and then I can squeeze a bit over here. Thank you.

Thank you Kjetil. So going to the next slide, please, one more. So here, we are showing the production and revenue evolution. So as Kjetil was mentioning, we increased our production around 130% when compared to last year. Of course, you can see in the last quarter of Q4, this ramp-up after the completion of the drilling program. And also this -- in terms of revenues, also have this increase on more than 100% if you compare to last year, last quarter, an increase of around 30% quarter-over-quarter despite the lower price environment. Going to the next slide, please. So here, we show the production profile. We can see we have stable production, even we increased a lot in terms of the production. So our OpEx are pretty stable, as we can see in terms of OpEx per barrel in dollars. So we have this decrease of around 30% in the metric. And as a consequence, we have this operating netback in terms of dollars per barrel, and we increased our netback of more than 100% as well during -- if you compare to last year. Going to the next slide, please. Here, we are showing the G&A and EBITDA evolution. Basically, we have our G&A, we are working hard to reduce this quarter-over-quarter. But of course, we have these effects of the potential M&As, all the legal consultancies we have during these operations and transactions made in the past. We hope this will decrease over time. So we have here a decline of around 50% if you compare to last quarter last year. And we have ended up the quarter with this EBITDA negative on $3 million in last quarter 2024. Going to the next slide, please. Here, we have the net financial result and the net results by the quarter. Basically, we have unrealized gain in Brava shares of around $12.6 million, affecting positively our net financial results for the quarter and of course, impacting also positively our net result on almost $10 million. Going to the next slide, please. Here, we show just a breakdown of the CapEx. So we have a minor CapEx during the quarter because we already completed the last drilling program. And we end up the quarter with more than $10 million in available cash. Also, we have additionally on top of that, around $87.5 million of liquid investment, which is basically Brava shares and 3R offshore debenture. And now we are a 0 debt company. We are debt free after prepaying the debt during the quarter to avoid addition or higher interest expenses going forward. And here, we have the chart on Brava share performance in U.S. dollars, where basically we have a positive increase of around 18% during the quarter. Going to the next slide, please. Here, we have the cash flow breakdown. So we started the quarter with around $88 million of net cash plus liquid investments. And we end up here in the last quarter of around $97.6 million, which were basically impacted by the repayment of our debt and also the unrealized gain appreciation on Brava shares. And additionally, as Kjetil already mentioned, we expect to receive during the quarter, first quarter of 2025, $4.4 million of the Brent earn-out from PetroReconcavo and also additionally $200,000 of dividends of our Bolivian gas pipeline investment. So we will end up in a pro forma basis with more than $100 million net cash plus liquid investments, boosting our capital structure and be a solid position for growing Venezuela and potentially other M&As. So going to the next slide, please. So here, we have the closing remarks. So just again, we have a strong enhanced capital structure with more than $97 million in liquid investments and cash. We will receive an important amount of $4.4 million of earn-outs. And now we have this 0 debt company ready to boost growth. And also looking forward, as Kjetil were mentioning, we are happy we concluded the technical discussions with PDVSA on the business plan of PetroUrdaneta. We also will start the negotiations with PDVSA during this quarter, the first quarter of 2025. So we are targeting the same framework agreements as Chevron and Maurel & Prom already has. And in parallel, we will still be working with OFAC license and other approvals so we can start operations as soon as we get it. And of course, as Kjetil also mentioned, we will be still working with Brava shareholders so we can push this agenda to focus on the existing and most important core business and also deleverage the company, so they can be prepared to start paying dividends across the way. And also, of course, we are always looking for selective opportunities in Latin America, so we can bring more value to our shareholders. So I think that's it. Thank you, and here we close the presentation.

Well, Roberto and Kjetil, thank you. And as you can imagine, there is a lot of questions coming in, and I will try to restructure them in an orderly fashion here. So I was just going to start with a couple of questions relating to the result, and then we can jump into Papa Terra. And obviously, I think that the elephant in the room would be Venezuela, although I'm not so sure that we can get a proper answer on every count. But I'll start here with the administrative expenses amounted to $2.56 million in Q4 and $8.2 million for the full year. And the question here is really what's driving these high costs, especially considering the company is now debt free and has reduced operational activities. And then I can add one other question into this is the administrative cost seems from extraordinary consulting fees. So could you please walk us through that? And what can we expect going forward?

Maybe I should start a bit on that and leave Roberto to potentially go through some more details. But I think the first thing I would say is that we have somewhat -- I don't know whether it's conservative. I think it's how it's perhaps supposed to be. But basically, all the costs linked to the work we're doing here in Venezuela, for instance, is booked at SG&A. So I'm spending most of my time here. And most of our -- well, Roberto will go through that. A significant part of our cost is actually linked to the preparation being here. So in a normal sense, I would say that this should have been activated cost because it's not really cost of running the company as it is. It's a preparation for doing -- a preparation to operate a fantastic project in Venezuela. And that's a commitment where we actually -- we do spend significant amounts on this. However, I think it's not more than what I think is actually -- I think we're also doing that very cost affordable. But that is also linked to some of the special consultant fees because we basically have used extensive very, very good consultants to be able to demonstrate this kind of volumes. Going through 150 wells, well by well, understanding the potential of this and changing the whole production strategy from Venezuela, that doesn't come by itself. And that's where we basically see a lot of cost. And these costs, I understand. I've been actually challenging the accounting and Roberto a bit. I think these costs should have been activated because it's part of preparing for a project. And apart from that, I think we are -- back to what Roberto said, we are working hard with -- there are also some -- yes, some old funds to put it that way, coming. There's always -- there's still work going on with closing of the deal in Oman. It has proven to take some time. All of those things are actually also driving some of the costs. And so there's always a bit of things that are linked to the history. We try to close them out quickly, but it still kind of influence our cost levels. So -- but we do have lots of initiatives. I think Roberto has actually done already quite a lot of work on reducing the cost, and I know he's continuing to pursue that. So rest assured that it's not something we don't think about, but something we are working very hard on. But maybe I have some more details on that, Roberto.

Thank you, Kjetil. I think you covered the main topics. I think part of our current costs are related to Venezuela. We have a technical team there discussing all these assumptions with Kjetil, preparing all this business plan. And we are always focused on trying to identify new opportunities of cost savings. So for sure, our agenda here is try to reduce this even more going forward.

Thank you for that. And we have a couple of questions related to shareholder value and share buybacks. Your share buyback program was initiated in 2024, I believe, but it was only 1.5 million shares repurchase. Do you plan to accelerate buybacks to support the stock? What's the thinking there?

Yes. So that's a question that always naturally come up. So we -- I can only say that this is -- the program is there, and it's not something we have canceled. And we have every -- on a weekly basis, a dialogue with the Board on how we continue this program. So yes, so that's basically all I can say. It's not been canceled. And you will see if we -- again, there has been a long period of time where we have considered not to buy. And I won't go into the details of all these things behind that. I think maybe it explains by itself. But I think also now it's not been canceled, and it's something that we are discussing every week, and we just have to follow up on that later.

And could I just have a follow-up question there and try to be the devil's advocate here. Now that the company is virtually debt-free and the Brava holding, well, has appreciated and being booked as a short-term asset for Maha. And if I understand that correctly, that means that it can be liquidated within a year. Shall we see this as a possibility of building up a war chest for buying assets? And if so, is there any geographic area? Or is it opportunistic? So 2 questions in one here.

Okay. I think, of course, we're optimistic. I think that's -- I think also it's clear that our focus is Latin America. That's where we feel we have a competitive advantage. But I think it goes without saying our largest shareholder is a private equity special situations fund. So of course, it lies in their blood to look at special situations. And of course, they are pushing ideas, pushing things to us continuously. So yes, I think we will be opportunistic. We will look for the values. And of course, we are -- I mean, our biggest shareholder is basically in this to create value for himself. And they have been constantly also buying, supporting the stocks, supporting the company, not buying shares. And they strongly believe in the underlying value, strongly believe in the story we have. So -- yes. So we continue. We have a very, very close and good dialogue with our owners and especially then the larger owner. And believe me, they want to make money. They want to increase the value of the company. And of course, if there are not good enough opportunities, they will figure out other ways of doing -- increasing the value like the buyback or other ways to give this money and give this value back to the shareholders.

Thank you for that. And now I'm going to be a little bit technical, and I would expose my ignorance here because I would just read the question. But -- so the questions are around Papa Terra. And basically, 15,000 in production with 100,000 expected. Could you elaborate a little bit on that? And what shall we expect going forward?