Prospex Energy Plc (PXEN) Earnings Call Transcript

Good afternoon, and welcome to the Prospex Energy Plc Investor Presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Bill Smith, Non-Executive Chairman. Good afternoon, sir.

Thank you, Lilly, and thank you all for attending this. As you may know, this is the first time I presented in an investor meeting, so I'm going to stumble along. Luckily, we've got Mark here who's going to be able to give us a short presentation. And then we'll -- as Lilly said, we'll take some questions. So thank you again for attending. We appreciate your support. Over to you, Mark.

Thank you very much, Bill. So we have a short presentation here for what's going on currently at Prospex. So here's Bill Smith and myself are presenting today. So the overview of the company, we have the 3 normally producing assets, Selva Malvezzi in Northern Italy, Viura in Northern Spain, El Romeral in Southern Spain, and we have applications for licenses in Poland, and we have an exploration license in the South of Spain, Tesorillo, which is a suspended exploration concession at the moment. But we're going to talk about the 3 normally producing assets. Unfortunately, 2 of them are shut in at the moment as you might have seen from the RNS that we recently published. So the Viura gas field in the north of Spain successfully repaired the leak in the production tubing, which was identified in April. However, there is an unexpected blockage of residual drilling mud in the tubing, which currently is being bailed out using wireline conveyed bailers, but that's a rather slow process. I'm told that there's some 30 meters to go, but that changes by the day. They can't bail out very much on each run. Ideal equipment to clear such blockage is a coil tubing unit. These are fairly large and expensive units to mobilize. There are none available in Spain. And so one is being mobilized from Poland and there are various permits required to get it across Europe to get it to Spain. That's being done. But in the meantime, the wireline bailing continues in case there are any other delays, and we might get the blockage cleared by mid-August before the coil tubing unit arrives. So resumption of production is expected very shortly after the coil tubing unit arrives or it could be before if the wireline bailing is successful. Obviously, that is our largest producing number on our producing gas field, and that would be very welcome to get that back into production. It has been frustrating that we've had a whole quarter without production from Viura. So the -- it should be stressed that it's been a very good investment. We own 7.24% working interest. It's operated by HEYCO Energy Iberia, a subsidiary of HEYCO Energy Group in Dallas, Texas. The Viura-1B well, which was drilled and finished in December '24, produced some 1.1 Bcf of gas, that's 154 million cubic feet net to Prospex. You've got the metric numbers there on the screen. The Viura acquisition significantly increased Prospex' proven reserves by 6.5 Bcf net to Prospex. So for the money that we paid for the asset, this is a very good deal. The gross proven 2P most likely reserves in the Viura field, the gross number is 90 Bcf, and we own a 7.24% share of that. So it has boosted our reserves, and it just needs the wells to produce and further wells to be drilled to get that gas out of the ground to the benefit of the company and the shareholders. So on to Selva Malvezzi in Northern Italy. We have a 37% working interest in this field. It is operated by Po Valley Energy listed on the ASX, PVE. And we sell the gas to BP Gas Marketing. That's a picture of the wellhead and the gas processing plant. It's a smaller fair, but it produces very steadily at some 80,000 standard cubic meters per day and obviously, we are 37% of that number. So you've got the quarterly report that was published last week and the revenues, as you can see by quarter, we should be providing more information on that, we'll come to that later. This is the map of the concessions. You can see in red labeled the Selva field, the PM-1 well, as it's called. That's a 13 Bcf reserve, which has been producing since July '23. And we have 4 prospects, 2 of them contingent resources and 2 of them prospective resources, which are going to be drilling up, getting preparation for that toward the end of this year, the drilling in the following year or possibly early 2027, depending on when permits are granted. There was a resubmission of the permits required because of the top hole locations had to be changed because of the recent flooding that happened in the Po Valley. So that's ongoing. It's an ongoing process. It's run by the operator. We were with the operator just recently, and we are very supportive and we're very impressed with the work that they're doing locally in talking to the landowners to get the agreements to build the well pads and lay the pipelines to tie the well back to the SNAM grid pipeline. So on to El Romeral in Southern Spain, that's an aerial picture of the power plant, which we've hybridized it by putting solar panels on the roof. And this is normally producing from the gas that we produce and we generate electricity from that gas in the power station, and we sell that on the spot market. While the transformer is being replaced, the metal transformer was changed out and there's been an issue with that and the change out has been delayed, which is another frustrating thing. However, we are getting compensation from that, which is now up to EUR 4,000 per day. So that's like an insurance policy. But the new transformer is expected soon. I don't have an absolute firm date for that. Again, rather frustrating, but we're not producing our gas. So we're saving that for later production. So that's not necessarily the best thing. So the other investments I've mentioned already, Poland, we have license applications, which with the ministry, and we have Tesorillo in Southern Spain, which is a suspended exploration project. So here, we've got a summary of our net resources and reserves. This is on our corporate presentation on the website, which is updating and that will be done soon. So the message is that the portfolio has got -- when they get back into production -- 3 producing assets of natural gas in Europe, where demand for natural gas remains strong. We have significant volumes of proven contingent and prospective gas resources to be drilled from up to 11 wells on the concessions that we have the right to produce hydrocarbons from. All we need to do is permit each individual well. In Spain and Italy, that can take some time, and that can be frustrating. But we're going to be unlocking this reserve and get into production as soon as we can. That's all I wanted to share with you at the moment. So I think we can head into the Q&A session.

[Operator Instructions] Mark, Bill, as you can see, we received a number of questions throughout today's presentation. Can I please ask you to read out the questions and give responses where appropriate to do so? And I'll pick up from you at the end.

Thank you. Should I read the first question, Bill?

Sure.

First question is the share price is the lowest in 3 years. Anyone who bought in the past 3 years is down. Can you explain a CEO who is responsible of the share price and what plan to do -- what do you plan to do?

Maybe, Mark, I'll answer -- I'll try to answer that one. I think that as you said in your presentation that if you look at the longer term, the medium term, over the last couple of years, the company has made significant progress. What we haven't seen is any reflection of that progress in the share price. The management and the Board hold about 40 -- over 40 million shares. That's almost 9.5% of the shares of the company. So we, too, are quite focused on the share price. What we are doing is we are increasing the communications lines. We're attempting to be responsive to shareholders in all ways. And we're going to follow the corporate strategy, which Mark just outlined. But basically, it's to become what is probably a unique onshore gas in Europe company, small but growing with a lot of activity and a lot of positive results. Sometimes it feels like 3 or 4 steps forward and a couple of steps sideways. And we have had, as we have just said, some delays here. But the share price is not reflective, we don't think of the underlying value, and we're trying to get the word out through our brokers through these presentations, through the RNS system and any other suggestions that people have in terms of better communication into the market, we'd be happy to listen to.

Very good. So on to question #2. Do you consider Selva your most successful investment to date given its consistent production, favorable fiscal environment and stable offtake agreement with BP? The response to that is absolutely yes. It has been a very good investment. It did come at a cost. We had to pay for the well, we had to pay for the gas processing equipment, and we had to raise money to do that. However, it has been a very stable and well-run operation by Po Valley Energy. So yes, it has been a successful investment because it continues to deliver a steady cash flow from a very stable well. So question 3, there have been a number of problems with the Viura-1B since acquisition. Do you still see the Viura acquisition as positive for shareholders, particularly as it resulted in further dilution? The answer to this is the Viura deal was an extremely good deal for the company. The Viura field has a potential to transform Prospex. It has produced 1.1 Bcf growth since December 2024. That should have continued throughout the second quarter of this year. But unfortunately, we had that setback. Two further wells should unlock the 90 Bcf of 2P reserves, that's proven plus probable reserves in the field. And that's worth a further EUR 11 million to the company unrisked net to Prospex. So Viura is set to contribute some EUR 3 million net revenues to Prospex in 2025, growing to EUR 11 million in 2028 once all 3 wells are brought on stream. So yes, the answer to this question is the Viura acquisition was an extremely positive move for shareholders. And continuing to fund it was the right thing to do rather than dilute the share we have in the asset for the future. That was the consideration at the time, and I stick by that as the right decision. The next question is, is the company looking at any further investments? The answer to this is that as an investment company, we are always looking for opportunities where we feel we can add shareholder value. But we only do that if shareholder value is to be accretive. Our focus is still on Europe, and it sets us apart from many other companies because we are focusing not only on Europe, but on the product that we sell, which is natural gas. The companies we operate in have favorable fiscal regimes, both Italy and Spain, and there's no extraordinary oil and gas tax like there is in U.K., especially in U.K. and in Norway. So we have the appetite to build energy independence, and there is a demand for natural gas in Europe. There's a continuing demand. So the answer is yes, but we won't just invest in anything. It's got to be something that we believe as a Board will be accretive to shareholders. So question 5 here is, I don't think that the company provides shareholders with enough clarity on the financial position of its subsidiaries and funds coming into Prospex. How do you plan to address this? Bill has already addressed some of this, and I'll hand this question over to you, Bill, because you answered some of this already.

Thanks again, Mark. The current thinking is that we will be producing a quarterly update such as the update we've had today, but an update on the operations over the last quarter. We're targeting to have something in the fall, put out an RNS describing the basic operational details, along with some selected unaudited financial information, including what people are calling the consolidated cash position. Not all of the cash in the system is actually accessible to us. For example, cash generated in Viura stays in Viura, in the HEYCO Energy subsidiary. We're a shareholder of that company, and that company is holding money for future operations, and we'll have to continue to support that as well. That's the commitment that we've made in terms of future drilling. But we are planning on having quarterly meetings, investor update type meetings, largely on this platform, sometimes perhaps in person or a hybrid and providing some financial information. It's been suggested by a few shareholders that we should be able to publish some consolidated audited financial statements. And that presents a number of challenges, some of which are, as I just mentioned, in the Viura situation, we're not in a position to consolidate the Viura results. But what we will do is we'll start a program and provide information because we understand the shareholders are looking for additional information about the progress that we're making and the plans. Back to you, Mark.

Thank you. So the next question we've got is, why do you think shareholders should continue to support the company despite the share price? Well, all I can say is that we believe that the company is significantly undervalued at this share price. And the current assets when they get back into production underpin the current share price with significant upside with the undeveloped reserves and resources that we have from the wells that we're going to be drilled. We are unique, I think, on AIM as being a company focused on European gas, and that puts us aside from some other companies. So if somebody wants exposure to the upside of European gas, Prospex Energy is the place to be. So for that reason, I believe that shareholders should continue to support us and the Board of Directors and the management team certainly believe that as well. So I've got another question coming here. It's a fairly long question. Thanks for the update, funding stems to help us improve shareholder return. So how does the loss of production and cash flows from Viura affect the wider CapEx plans and investments? Well, that aspect of the Viura investment has been a challenge. But it's actually -- it means that the CapEx that was from Viura was going to be allocated to drill the next well. So the next wells have shifted to the right. So they will be drilled later than initially planned. So this loss of production has had the effect of meaning that the future wells on Viura will be drilled a bit later, which means that further cash can be accrued so that we can fund those wells from production income. It also allows the operator to invoke a debt facility in order to fund the new wells because a debt facility would be achievable by the operator on behalf of the investment owners of HEYCO Energy Iberia because it's a larger resource and there's a consortium of banks, which is talking to the operator about a credit facility for that, but we need to get back into production before that can happen. So the second part of the question here is market war is often focused on Prospex' cash needs, and this has heavily hurt share price. Yes, I think that's a fair point. Sure, it's a better way for investors to understand the ongoing cash levels and see growing cash flows as we secure success from our investments.

Mark, can I just address that part?

Yes, you can. Yes.

So there has been or appears to have been a focus on the cash position of the company. I addressed that a moment ago. I can say that if you look at the history of this company and frankly, a lot of very small companies, the way to grow the company is by making investments in assets by drilling wells, by acquiring land, by acquiring productive fields, such as what we did in the Viura situation. Those things take capital, and small companies do need to access capital and need to access capital regularly. One of the big shifts that we've had over the last couple of years is we have cash flow to support the operating expenses. And many small companies in this company, when it first started as an investment company in this area, required capital just to pay for the operating expenses. Those are now covered. But I don't think it's reasonable to expect that we're going to be able to generate enough cash to grow the company with no further investments whatsoever. The timing of those, we don't know. As Mark just mentioned, sometimes projects get pushed out further. Sometimes there's additional costs, which we hadn't anticipated, such as the workover in Viura. What we're trying to do is invest the money continuously on continued improvement in asset growth and revenue growth. Back to you, Mark. Next question.

Yes. Thank you for that. Okay. I'm just trying to get the questions in order. Okay. A question here. I know you have been asked for consolidated accounts, but I don't think this is required. That is true as an investment company. However, it says here, you have an easily audited cash position and debtor book, which can be published for the comparative past period, but also highlighting the CapEx reinvestment spend in the period between 2 reference time points. This is what will give the shareholders a feel for cash generation before CapEx. Surely, this would be good and easy comps to produce half yearly. I think we've addressed that point.

Well, other than at the very end, which was we agree that providing some more information is good. I don't personally think it's as easy as it could be expected. As everybody knows who's been involved in running businesses, it's a complex process. So we are proceeding. We will provide some additional information. And over time, we'll try to refine that and make it as meaningful as possible for the investors.

Right. Next question here. When you get into full production, what will the annual free cash flow attributable to the company? I'm not going to attempt to answer that question because it's going to depend on what the production is. And moreover, it's going to depend on what the gas price and electricity prices. So this number will be visible on our quarterly updates as to what the cash flow is going to be. And we are -- we've committed to do that. It will be to do quarterly updates followed by an investor presentation. So we can improve the communication, but I'm not going to try and pick a number to say what the annual cash flow is going to be because I don't have a full picture on what the commodity prices are going to be.

Just to add to that, Mark, I think that we're all familiar with guidance given by some of the major companies who have large financial staff and also have very steady production from assets. And even they don't get their forecast correct all the time as we're constantly seeing. It's just not -- it's not an endeavor that we propose to undertake in a company of this size.