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

[Foreign Language] Roberto, yet another busy quarter. Please walk us through your presentation.

Okay. Thank you very much. And first, I would like to thank everyone. It's a pleasure to be here with you. So here, we have our Q1 main highlights, starting on the portfolio highlights and start with Brava. We reached during the first quarter of this year, around 21,000 barrels of equivalent day production. And going forward in April, Atlanta, which is one of the -- basically the main assets offshore, which we are going to explain later, make 2 new wells and increase their production even more, reaching up to 82,000 barrels a day, very positive news on Brava, which we are going to explain later. On the Illinois U.S. side, we have the stable production around 300 barrels a day, and we reached our lowest OpEx per barrel of $15 a barrel if you compare the last 4 quarters, a very good and positive news regarding operational side. And in Venezuela, PetroUrdaneta, we concluded our business plan, which is basically an update on the old business plan, and we see huge and very attractive potential upside there. And mainly we will have 84 million barrels of oil and 167 billion cubic feet of gas. So there's huge potential in terms of the asset. And the financial aspects, we collected $4.4 million by the earnout received from PetroReconcavo and also around $200,000 from the Bolivian gas pipeline, which represents around 18% yield, which is also a very positive news on this small investment. On the financial highlights from Maha itself, we have a $1.1 million netback and represented also $2.1 million EBITDA in the period. And we end up the quarter with a very strong balance sheet and capital structure. We have more than $106 million in cash plus liquid investments and also, we are a debt-free company. So we show here a pretty strong quarter, and we are continually focused on building this high-performance portfolio in order to deliver value to our shareholders going forward. So going to Venezuela. As I mentioned in the previous slide, PetroUrdaneta business plan was updated during Q2. We have our license period until October 2026, and we can produce in this new business plan around 112 million barrels of equivalent. That means $84 million of oil and the difference is this 167 billion cubic feet of gas. We are going to work with around 150 wells. So it's very pulverized and not concentrated wells. And we expect to increase production from 1,000 barrels as of today and reach the peak production of around 4,000 barrels a day of oil equivalent, so oil and gas. And the main assumption behind is we are going to work with several new technologies. We are basically changing the lifting methods on these existing wells. So basically, we are going to use ESP instead of gas lifting only, which is the technology they have currently, and we will boost a lot and we'll have a lot of associated gas during all these projects going forward. So here, we have a huge potential growth. So we are ramping up production from 1,000 barrels up to 40,000 barrels with a very disciplined capital allocation. So we are doing all the investments with a very disciplined approach in order to deploy minimum CapEx going forward and use newest technologies available in the region. And here, the next steps on Venezuela. Basically, as I mentioned, we concluded the first step, which was the technical discussions and updating the business plan that was concluded on May this month, and now we are basically waiting for authorizations and also the negotiations of all the set of contracts targeting to the same framework agreement as Chevron and the other important companies has in Venezuela to operate all these fields. And of course, we are going to monitor all this U.S. policy regarding Venezuela and this waiting process, of course, with a very limited cost approach in order to avoid spending lots of money until we have more clarity on this political situations. And now moving on to Brava, our major investment. So Brava updates regarding Q1, the important message here is they are moving in the right direction. So if you look here in the first chart, in the previous quarter, Q4 last year, they were with -- the offshore business halted with several reasons. But in the end of December, they plugged in Atlanta first oil. They also restart Papa Terra and they reached an average of Q1 2025 for around 21,000 barrels a day, which is very impressive, 80% increase. And then in April, after Atlanta, which was only in 2 wells in December, plugged 2 wells now in April, and they increased even more, reaching up to 82,000 barrels a day, and going forward, they expect to additionally 2 wells. So Atlanta will end up with 6 wells until June, and this production is expected to increase even more going forward. So that ends with a very strong cash flow generation and deleveraging figures. So solid financials. Brava delivered almost $500 million in revenue, $182 million EBITDA and converting almost 100% of their EBITDA into operational cash flow of around $166 million. And also, it's important to note, Brava already completed the offshore CapEx. So Atlanta already made all the investments. So it's expected more positive free cash flow going forward, mainly due to these conclusions. And the onshore side of the business, they are making optimization strategies in order to reduce its CapEx on the onshore part of the business, considering this new oil low prices environment. So the deleveraging strategy is being achieved. They are moving in the right direction, and this will be implemented by growing production, optimized CapEx and reducing costs going forward. So they are in the right track. And the next slide, I want to show a little bit on the Brava current valuation. So in this chart it's easy to see a very significant value gap in the stock price, which was mainly driven by this offshore downtime in last quarter and also the current Brent price. So if you see in this chart, Brava is in the all-time high production pro forma considering all the merger with Enauta, but they are almost in the lowest prices ever. So this shows us there's still a lot of upside on this position. And here, in the next slide, I want to introduce you also, if you compare Maha, including also our indirect share from Brava production. So if you compare our current indirect production with our peak production in 2022, we are reaching almost our peak production, but we are trading almost with 70% discount on Maha share price. So this is also confirming that Maha has a lot of potential upside on valuation as well. Going to Illinois. Here, we have basically after last year drilling program, we keep sustaining our production almost in a flat curve. Of course, we present a natural decline if you compare Q4 to Q1 now. but this is normal to unconventional wells in the region. And we presented also a netback of $1.1 million, which represents $39 per barrel netback metric, which is almost one of our highest netbacks in terms of operational performance. This is also linked to our cost-saving initiatives. So we are basically targeting investments and activities that present returns higher than 25%. And going forward after this quarter we are also following all the price rebound. So we are going to evaluate and see which type of projects and activities can present us returns higher than this 35% IRRs. So we are focusing now in high-return projects in the Illinois Basin. Moving on here to financial highlights. Talking about a little bit on production and revenue. So production, as I mentioned before, we faced this natural decline on the Illinois Basin after completing the program last year. And the revenue also declined mainly because if you compare to last Q1 2024, also because of the price environment, which has declined the average of WTI. And the production expenses here, we have this very good news. We reached $15 OpEx per barrel, is the lowest in the last 5 quarters, mainly explained by this new cost control efforts that we are doing with the team in the region. And we reached this operating netback of around $1.1 million, representing a very stable and nice cash flow generation with this asset. Going to EBITDA. In the quarter we have a very strong EBITDA of $2.1 million, approximately, mainly explained by the earn-out of $4.4 million collected from PetroReconcavo. And we ended the quarter with a net result of around $6 million, also supported by the unrealized gain on Brava shares of around $5 million during the quarter. And here, talking about CapEx and balance sheet, basically, we have very small CapEx, limited CapEx because we are, as I mentioned, focusing these high-return projects. And Brava share has performed in U.S. dollars. So if we convert the share price into dollars and make the performance all during the quarter, we have this 6.4% increase. So we end up with this robust cash and liquid investment position of $106 million, 0 debt and with total assets of around $136 million and $138 million equity, showing a very strong balance sheet. Going to the cash flow review. So we started the quarter or we ended the last quarter with around $97 million of cash and liquid investment being $87.5 million on liquid investments and around $10 million in cash. And we end up this quarter of Q1 with $106 million of cash and liquid investment being $9.1 million of liquid investment and around $15 million in cash. This is mainly explained by the $4.4 million earn-out and also unrealized gain on Brava shares of around $5 million, increasing our cash position. And here, going to our strategy going forward. So I think we mentioned this during March, we are now very focused on cost reduction initiatives. So we already implemented part of them. So if you look, management until our internal team has been downsized. So I'm accumulating the functions and positions of CEO and CFO in order to save cost. We are already cleaning up corporate structures, so reducing legal entities in order to generate savings going forward and also this approach of very limited costs associated with the Venezuela project. And going forward, we are starting this contract negotiations with PDVSA, basically all the set of framework legal documents targeting the similar agreements that Chevron has and the other IOCs. In the meanwhile, we are waiting for license and other necessary approvals to move forward. And of course, we are still very active as we are also mentioned this new business plan for sourcing and trying to find very attractive new opportunities in the energy, oil and gas and minerals space, and with that, build a very high-performance portfolio in order to generate value to our shareholders. And now I conclude here the presentation, Kaarlo. Thank you very much.

Thank you, Roberto. And as always, we received a lot of questions ahead, and there are a couple of questions coming in here. And I just thought that I shall try to pack them in an orderly fashion. So as per 19th of March, Maha will focus on financial investments in the energy and minerals industries with a reduced cost base, as you mentioned. And there is a question here. Would you be looking into investing in minerals as well?

Yes, sure. We have in our shareholder base -- our 2 major shareholders have a very attractive and solid track record on the mineral space. So we are also very keen on trying to do business on the mineral space as well because we see a lot of opportunities in this sector.

But isn't Illinois the only netback operator here? Netback pay operator, I should say.

Yes. As we speak, we have our main operational assets, Illinois Basin. And of course, Illinois, it's a very attractive project. We are very happy with all in our team there. They are doing a fantastic job. And now we are trying to give cost control there as well and focusing even in this low oil price environment to look for good projects within the base to unlock value there with high IRRs above 25%. So we are doing -- we are postponing a little bit our new program so we can have better oil prices and also identify the best alternatives there during the year.

And I have another technical question here. And then how can production in Brava be counted as Maha production?

No. Actually, we are just showing this into a pro forma basis. So basically, we just have this indirect share. This is not our share, but we are following in terms of governance the company. So we are trying to support them in order to start deleverage the company and paying dividends going forward. So the way we are going to have this oil is by collecting dividends going forward.

And if you look at the balance sheet here, the company is virtually debt-free and the Brava Holding being booked as a short-term asset, as I understand it, then it's classified as being liquidated within a year, giving you some opportunities here. And we have some question here. Why doesn't the company buy back shares more aggressively? And to that, I would say that you bought back some $1.2 million here in this quarter. So what's going on with the share buyback program?

Okay. Perfect. So just before I start talking about Brava shares accounting in the short term, this is just an accounting perspective because it's easily -- and there's a very high liquidity on the shares. So we could easily sell it in the market. That's not our goal. That's not what we're willing to do, but this is just accounting classification. And this is why we call it liquid investment. And talking about buyback, we are always looking to buy. As we showed in the previous slides, we don't believe that Maha price is being properly reflected. But sometimes with all this mission to look for other opportunities and also with blackout periods regarding financial statements, we are not able to buy the whole year shares in the market. So sometimes we have some restrictions. But of course, we are going to discuss this also in the next general meeting in order to approve and renew the program.

Thank you for that. And we have some questions here regarding dividend from Brava during 2025. And I'd like to add on to that. Q1 production in Brava was up 80% and mainly due to streams coming on, and you said moving in the right direction. So how would you like us in the market to interpret that? To continue with a substantial increase, or is this the level that we should see, which is a hefty one.

I think, first, we expect the production profile to increase even more. As I mentioned before, Atlanta will plug in 2 new wells during June or in the second semester. So this will boost even more the production above 90,000 barrels a day, if not more. And there's also this impact on the oil price, which is unpredictable, as we know. But even though you can see a lot of potential in the share price of the company, if you compare with peers, so if you compare to PetroReconcavo, PetroRio, you can easily see they are trading below market multiples. So we see a lot of potential on this position.

And I will continue with a viewer's questions regarding Brava, and I will connect that with one of your themes with this quarter, which is cost saving and cost control. Are you expecting further cash consumption this quarter for Brava when it looks to that investment?

No. I think now we are being very cost control oriented. We expect this to reduce significantly going forward. So as I mentioned, we reduced management team, we reduced our internal team. So the idea is to reduce our G&A going forward very significantly.

And in general, when it comes to SG&A here, would you have, let's say, a percentage cut going forward for the full year? Could you elaborate a little bit on that?

I think we expect around at least 50% reduce. But of course, we are going to work and do everything in a proper way. And if you analyze, I think 2026 will be a cleaner version of the G&A going forward.

And then obviously, Venezuela, you mentioned that you have a limited cost and you are viewing the cost here, and we have one viewer saying, don't you want to sell the project?

No. I think Venezuela, even though we have this bunk road, if I say so, right, considering all these aspects between U.S. and Venezuela, we always knew that, and that's why we created this financial structure of a call option to have a very limited investment in the beginning, and then we create this upside scenario. So Venezuela has, as we know, has the largest reserves in the world. So there's huge potential there. So if everything goes well in terms of exercising and moving on with the project, I think we have this several potential alternatives, even to bring some partners to act as operators, maybe some farm-out to create and bring a new partner. So I think everything going well, we can work in different alternatives that could bring even more value to Maha.