Meren Energy Inc. (MER) Earnings Call Transcript

Hello, everyone. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to Meren Energy's Third Quarter 2026 Results Presentation. [Operator Instructions] This event is being recorded, and the recording will be available for playback on the company's website. I will now pass the meeting to Mr. Shahin Amini. Please go ahead, Mr. Amini.

Hello, everyone. Thank you for joining us today for Meren's Third Quarter 2026 Results Presentation. My name is Shah Amini. I'm Head of Investor Relations and Communications at Meren. And I'm joined today by Oliver Quinn, our President and Chief Executive Officer; and Aldo Perracini, our Chief Financial Officer. We will begin with prepared remarks and then open the floor to questions. Before we get started, I will remind everyone that remarks made during this session are subject to forward-looking statements, which involve significant risk factors and assumptions that could cause actual results to differ materially. More detail on these risks can be found in our regulatory filings on SEDAR+ and on our website. The information discussed is made as of today's date and time, and Verint assumes no obligation to update or revise this information to reflect new events or circumstances. The company's complete financial statements and related MD&A are available on the company's website and SEDAR+. With that, I will now hand you over to Oliver. Oliver, please go ahead.

Thanks, Amini, and thanks, everyone, for joining us today. Q3 demonstrates strong continued execution on our strategy with production tracking at the upper end of our revised guidance range. Net debt is down to $185 million, remains at 0.5x EBITDAX, and we ended the quarter with around $328 million of liquidity. We've also declared the fourth $25 million dividend of the year, taking distributions in 2026 to $100 million and to around $200 million since the Prime amalgamation in 2025. Maintaining a strong financial position is important as in the short term, we now commence a period of capital investment from Q4 and into 2027. At Akpo and Egina, a drilling program will commence shortly in parallel with a vessel-led well intervention campaign and a rig is planned to return to the Agbami area in the first quarter of 2027. So as we head towards year-end, we move into a phase of new activity that will support the existing production base, whilst in parallel, we have renewed momentum around the maturation of the significant discovered resource base around our existing infrastructure. I'll come back to the key milestones and what they mean for the production outlook later in the presentation. Turning to guidance on Slide 5. Production remains on track and the financial outlook has further strengthened. We've narrowed working interest production guidance to 25,000 to 27,000 barrels of oil equivalent per day and entitlement production to 29,000 to 31,000 barrels per day. We're also raising EBITDAX guidance to a range of $390 million to $440 million and cash flow from operations to a range of $250 million to $280 million. Higher realized oil prices are clearly part of that, but the assets have also continued to deliver. Capital investment is now expected to be $70 million to $90 million in the year. That reduction is mainly operational timing, so the associated spend moves into next year as the activity phasing is finalized. So overall, we expect to finish 2026 with stronger cash generation and substantial liquidity ahead of a much more active investment program in the organic portfolio across the next few years. Moving to Slide 6 and Q3 production performance. We averaged 25,300 barrels oil equivalent per day on a working interest basis and 28,300 on an entitlement basis. The trend through the year largely reflects the planned pause in drilling and natural decline. That pause is used to reinterpret the latest 4D seismic and improve the selection and sequencing of the next well activity and as such, has derisked the upcoming program significantly. The intervention program is getting underway and the Akpo and Egina drilling campaign is expected to begin this month, starting with the Akpo Far East near-field exploration target. I'll go through the drilling program in more detail later in this presentation. But the key point I'd like you to take away is that the operationally quiet period is behind us, and we're now entering a sustained period of activity across the portfolio. I'll hand over to Aldo to take you through the financials.

Thank you, Oliver, and hello, everyone. We lifted two cargoes in Q3 at an average realized price of $92 per barrel, representing a premium of around $6 to Dated Brent across July and August when the cargoes were lifted. With the legacy trigger price forward sales arrangements now behind us, our cargoes are priced in line with the Dated Brent shortly after the lifting date. We also continue to benefit from the amended Akpo and Egina gas sales agreement. Gas revenue was $12 million in Q3 compared with $4.5 million a year ago. On hedging, we recorded a $35 million loss on commodity contracts in the quarter, of which $13 million was related to settlements during the period with the balance a noncash mark-to-market of open positions at the end of the quarter as oil prices rose. The purpose of the program is to provide visibility of cash flows to support our capital allocation priorities. For 2027, we have collars on a portion of our production with floors of around $70 per barrel and upside to around $93 per barrel. So the approach is about balance, providing visibility of cash flows that underpin our investment plans while maintaining exposure to stronger oil prices. Turning to the financial highlights. In Q3, we generated $113 million of EBITDAX and $74 million of cash flow from operations before working capital. This demonstrates the strong cash flow generation of the business, driving a revision in our full year guidance. Capital investment was $14 million in the quarter. With the PML 52 rig now expected in Q1 2027, part of the planned spend moves into next year and guidance has been revised to reflect that. This reduction reflects the timing of activity with investments stepping up as the drilling campaigns progress. We generated free cash flow of $59 million in the quarter and $77 million year-to-date. Operating costs averaged around $16 per barrel in the first nine months. Q3 was higher, reflecting the timing of routine maintenance and nonrecurring operator personnel costs. That supports strong margins and keeps the business resilient across the oil price cycle. Turning to cash movements for the third quarter. We began the quarter with $78 million of cash and our operations generated a further $73 million. We invested $14 million back into our assets and returned $25 million to shareholders through the dividend. We also drew $41 million under the RBL to manage working capital across the business. As a result, we ended the quarter with $146 million in cash, which puts us in a strong position as investment activity picks up. Our capital allocation priorities remain unchanged, balancing investment in our highest value organic opportunities, balance sheet strength and shareholder returns. This approach preserves financial flexibility while supporting disciplined investments into the business. Next slide, please. Moving to liquidity management. Net debt fell to $185 million in the quarter with leverage of 0.5x at our through-the-cycle target. Following our successful September RBL redetermination, our borrowing base is $513 million, leaving $182 million of headroom and total liquidity of around $328 million. That trend is particularly important as activity now picks up. It gives us more than enough capacity to fund the drilling program from operating cash flow while maintaining resilience through the oil price cycle. With that, I'll hand you back to Oliver.

Thanks, Aldo. Now let's turn to the next slide and our business outlook for the next year. After an extended period without drilling, the next 12 months mark a significant increase in activity for Meren. In Nigeria, we are entering a sustained investment program that runs into the early 2030s and offsetting natural decline, adding reserves and progressing our discovered resources through our existing infrastructure to deliver overall production growth. That activity begins with the PML 2 and 3 drilling campaign around Akpo and Egina. Drilling is expected to commence this month, starting with the Akpo Far East exploration well located around 5 kilometers from the Akpo infrastructure and which, if successful, could move quickly into a production tieback. The campaign then continues with infield wells across Akpo and Egina alongside the vessel-led well interventions that support near-term production. In PML52 and PPL -2003, the rig is expected in Q1 2027. The initial program includes three firm Agbami infill wells that will deliver incremental production in 2027 and appraisal of the adjacent Ikija discovery. The Ikija well supports definition of a future development through a tieback to the Agbami FPSO. Alongside the near-term investment activity, the path for the Egina tieback developments is now much clearer. Following interpretation of the latest seismic data across Preowei, the project is moving ahead through the FEED process in 2027 based on an optimized lower-cost development concept ahead of FID. In parallel, the Egina South discovery that sits across two licenses will be appraised through a well in the license adjacent to Meren's position, and this should derisk the resource range and allow the tieback concept to Egina to be optimized with no appraisal cost for Meren. So over the next year, there are several tangible milestones for the Nigeria portfolio. Delivery of the interventions, commencement of the Akpo and Egina drilling campaigns, arrival of the Agbami area rig and maturation toward FID for the Preowei and Egina South tieback developments. More broadly, the investment environment in Nigeria continues to be supportive with the deep offshore incentives order signed in August that offers tax credits for qualifying projects reaching FID by the end of 2029, further enhancing the investment proposition of Meren's deepwater discovered resource base. Beyond Nigeria, we're continuing to progress the longer-term opportunity set. On Venus, the operator has said the project is ready for sanction and that it is working towards FID in the near term with first oil targeted in 2030. For Meren, our interest remains fully carried through to first production, giving us exposure to long-term and diversified production growth without any upfront capital exposure. In South Africa, the minister's dismissal of appeals against the environmental authorization to drill up to five wells on Block 3B/4B is a positive development for the project. The Nayla prospect remains ready to drill with timing subject to any further proceedings that may be initiated. Taken together, we're moving into a much more active period for the business. The immediate focus is on executing the drilling program in Nigeria while continuing to progress the series of growth opportunities across the wider portfolio. And that gives a good sense of what we're building towards more broadly, which I'll turn to on the next slide. On Slide 12, we can see the direction of the organic business based on the multiple growth options in the portfolio today. The starting point is the Nigerian production base. The interventions in the infill program are intended to offset part of the natural decline and protect the cash flow from those assets, and that's a near-term priority. The next layer is the discovered resource around the existing hopes. Preowei, Egina South and Ikija offer meaningful options for production growth as they each mature toward different FID points. These are greenfield developments with the attraction of utilizing our existing infrastructure and allowing us to optimize CapEx and reduce project risk. Then there is Venus. Based on the operator's current public plan, Phase 1 can add a long-life production stream around the turn of the decade. And beyond that, we have a portfolio of exploration exposure in Nigeria, the Orange Basin and Equatorial Guinea that could deliver material upside through a large carried component that minimizes the upfront risk capital required to test these options. So overall, we move into 2027 with a strong financial position that underpins our ability to deliver growth on multiple fronts, a return to near-term operational activity, development project maturation across several near-field resource projects and material carried exploration upside options. Thanks for your time, and I'll now hand you back to the operator for questions.

[Operator Instructions] Our first question comes from Jeff Robertson from Water Tower Research.

Oliver, can you talk a little bit about the incentive -- the tax credit incentives with the new Nigerian incentive order and how that could affect the ultimate development economics at Preowei? And then secondly to that, are there other projects in the portfolio that could advance to FID before the 2029 deadline?

Yes. Jeff, thanks for the question. I think just as a refresher for people on Preowei, that is a 150 million barrel plus gross discovered resource, about 25 kilometers from the Egina FPSO same license area. So that's a project that actually has made great progress recently. We will move back into feed after a revised and improved subsurface picture. And again, we'll move very fast towards an FID there stretch target end of '27. So it's a pretty exciting big project for us. I think specifically on the point, look, if we step back again, we've seen a raft of measures from the current government in Nigeria over the last few years in terms of fiscal support, particularly for the deepwater in the contracting landscape kind of bring in more competition there, which ultimately puts pressure on CapEx for these projects, which is great from our perspective. The specific incentive that you mentioned there, it's effectively a production tax credit, which is $3, $4 a barrel that would be applied as a credit for projects FID before '29. So like, I think, firstly, we see Preowei doesn't necessarily need that fiscal incentive to be attractive to us. It's a good tieback project. But of course, that accelerates its value to the JV, and therefore, means we bring that project as fast pace as we can to be within that window, and it certainly will be in terms of '29. So it adds significant value. And then secondly, on the follow-on, I think there's another, call it, a lookalike of Preowei Egina South, which as the name gives away, is close to Egina as well, very, very similar kind of plus or minus 150 million barrels gross, similar distance tieback to the Egina FPSO. And the way we look at that is that's a project that would follow Preowei -- you bring -- ideally bring Preowei on and then a short period of time later, you bring on Egina South to phase them. So I think even with that, then we would look to certainly get that FID on Egina South within the window of the tax credit in '29 for sure. And that will be a driver for the time line of that project. So yes, certainly, for Preowei, it's very helpful. And I think for Egina South and potentially some other tiebacks that are less mature it just adds to the compelling case that already exists in Nigeria.

And can you remind at Akpo Far East, what you might anticipate the production from that project being?

Yes. So that's kind of super exciting well for us. I mean I think we'll spud that well. We've said mid-November, and we're almost there. So I think we're on track to do that. And again, that well is about 5 kilometers from the nearest Akpo infrastructure. So it is an exploration well. So there's clearly some geological risk on that, but relatively low, I would say. So the plan would be to drill that through the end of this year, see what we get. And in a success case, I think we would do some extra work on the well to keep it as a potential producer. And then maybe somewhere through '27, six to nine months, we hook that up as a first well of a wider campaign, a wider development, if you like, of the discovery. But the aim would be to bring accelerated first oil there again in '27. I think we'll see what the well brings. But in terms of rate, I think first well producer, new reservoir, you'd hope to do something around plus or minus 10,000 barrels a day growth. So meaningful from a field perspective for sure.

And then lastly on that, Oliver, have you been able -- or has the operator ordered some of the longer lead time items that might be needed to bring that on?

Yes. So the benefit of the current campaign is that we've got several activities. So the rig has arrived in the Akpo field area about five days ago, just getting predrill prep now. So of course, it's going to drill Akpo Far East. It's then going to go drill in the Akpo field itself. It's going to drill not on our license. Again, it's kind of third party, but an appraisal well on the other side of Egina South. So there's a whole lot of activity in there and a sustained campaign. So in that respect, there's been planning done to account, particularly for the success case on Akpo Far East. And so it retains that flexibility to, again, do what we need to do to put a completion and get that ready for being a producer through '27. So we feel pretty good about that.

I will now hand over to Mr. Amini for the written questions.

We have a couple of questions on the Q3 results, and I'll put this to Aldo. Aldo, the first one is that given the EBITDAX realized year-to-date and our revised full year EBITDAX guidance, this implies that the Q4 EBITDAX could be around $58 million to $100 million compared to $113 million in Q3. Is this conservatism? Or is there something that the market should expect that could weigh on Q4 results?

Yes. So I think we're going to be careful with reading too much into what we see on the implied quarters for EBITDAX. I think the full year guidance, we have to remember is a range. So it's not just -- we shouldn't take it as a quarterly forecast. And a single quarter can be quite sensitive in terms of timing of the cargoes and the lifting. So we are comfortable with the range, and I expect to land within it.

Okay. Second question for you. The third quarter realized price of $2.40 per barrel was below the Q3 average of $97. So the question is why is Meren pointing to a premium having been achieved?

Yes. So again, it comes down to timing on this one. We had two cargoes in Q3, lifted in July and lifted in August. And during those two months, the average Brent was around $87 per barrel. So compared to that window, we sold them to a premium of around $5.5 per barrel. So the higher quarterly average actually reflects the price throughout the whole quarter, but recall that we have discretionary lifting, right? So that's what matters for the price realization.

Thank you. So the next question, and perhaps this is one for Oliver. It's regarding future opportunities in Nigeria. And the question is, is Meren looking to expand its working interest in more assets in Nigeria? For instance, there is a marginal field bid round coming up. Oliver, can you share your views, please, on opportunities in Nigeria and your potential plans.

Yes. Look, I think it segues with the question Jeff asked in the sense of Nigeria and its landscape. So again, when we look at two key components here. The first one, of course, begins with the subsurface and the potential of the basins there for resource, and it's very high. I mean it's a prolific petroleum system in the Delta. It's prolific petroleum system in the deepwater. So look, we start with that simple promise that there's a lot of resource here. There's a lot of resource that's discovered, not developed and there's a lot of resource to be discovered, right? So a great place to play in that respect. And then you move to the second bucket, which we've touched on, which is, again, what's the aboveground situation and how attractive is that from an investment perspective. And I think the short answer is it's very attractive right now. I think from a high level, we have a government that is extremely supportive of the sector, not just in words, but also when you look at the actions. So it's a government that's delivered on that, and we've just touched on some of those fiscal incentives again. But that's created a landscape, which you can see across the industry has brought a lot of confidence. So project FIDs have increased hugely, particularly in the offshore. Transactions have been moving. So yes, look, I think it's a good place for the industry. And therefore, as an incumbent with that advantage, it's a great place for Meren. I think again, we're very -- as we always are disciplined on our capital allocation here. We have some fantastic organic growth projects and very happy to see those have turned the corner really and moving fast. And on top of that, we remain open-minded if there are good growth opportunities in the offshore in Nigeria, then we're certainly interested. And we think those could be a good addition to the current business with the right transaction.

A question on Nigerian drilling activity. The point here is that we had previously guided that the rig for Ikija and Agbami could be operating by end of this year, but it has slipped into next year. How confident are we on the arrival of that rig and start of that campaign?

Sure. Yes. Look, I think end of year is always a milestone that triggers a statement like that. The reality is it's an operational delay. The rig is on contract elsewhere and that work has been extended, which again is kind of normal business, if you like. It's very hard to predict the end of the well activity if a well is an exploration well has made a discovery and then there's decision to test or whatever, then that runs on. So that's what we're seeing. I think it could be mid we'd have had this few months pushback before we commence, and it wouldn't have been as visible but you trip over into a new year and it triggers, hey, it's '27, not '26, which is all true. So yes, look, I mean, the short answer is very confident that the joint venture is aligned, but Ikija again, is another discovered resource that, in this case, could be tied back to the Agbami FPSO. So in some ways, a lookalike project is the way to think about it with Preowei Egina South. So for us, it's another great organic growth option. I think it makes sense with the JV over ikija. We're all aligned to appraise that and optimize the potential development plan. So the desire is there to do that. And then when you look at the other part of that program is to drill infill wells in the Agbami field. And I think we see some really exciting wells there that could really lift production. So JV is aligned. Everything is moving ahead, and we've had a few months operational delay just because the rig is active elsewhere. But normal business, nothing that we're concerned about.