- Production from Prime Oil & Gas B.V.’s (“Prime”) Nigerian assets remained strong in the first half of 2020 despite curtailments at Egina in May and June due to OPEC quota limitations. Second quarter average daily Working Interest (“W.I.”) production2 was 28,313 barrels of oil equivalent per day (“boepd”) and economic entitlement production3 was 35,010 boepd (86% oil), net to Africa Oil’s 50% shareholding in Prime. First half average daily W.I. production was 30,812 boepd and economic entitlement production was 38,980 boepd (87% oil) net to Africa Oil’s 50% shareholding in Prime.
- Second quarter average operating cost of $5.1 per boe represents a 12% decrease over first quarter operating cost of $5.8 per boe. No leasing costs are payable for Prime’s Floating Production, Storage and Offloading (“FPSO”) platforms because they are owned by the joint venture partners and are not leased.
- Crude sales have been unaffected in this difficult environment with all 5 planned sales completed in the second quarter. In the first half of 2020, Prime lifted and sold 10 cargos representing a sales volume of 9.50 million barrels or 4.75 million barrels net to Africa Oil’s shareholding in Prime at an average price of $68.95 per barrel.
- Prime has also sold forward all 10 planned cargos in the second half of 2020 with four of these cargoes already lifted and sold in July and August 2020. Prime has also sold forward or hedged 7 cargoes out of a planned 10 cargoes in the first half of 2021. This results in 17 out of the next 20 cargoes planned for second half of 2020 and first half of 2021 being hedged at an average price of $60.06 per barrel.
- Prime’s total 2020 capital expenditure is expected to be $54 million or 41% lower than the initial budget of $91 million. The reduction includes deferral of infill drilling and activities related to the Preowei field development project due to COVID-19 and the oil price crash. These activities are expected to resume in 2021 as economic conditions improve.
- Africa Oil posted a second quarter net operating income of $27.0 million and a net income of $19.2 million, driven by an operating income of $31.7 million related to its investment in Prime. No impairments were required in the second quarter of 2020 at Africa Oil level.
- First half 2020 net income of $97.0 million, excluding a $215.6 million non-cash impairment of exploration assets in Kenya already posted in the first quarter of 2020.
- These results were underpinned by Prime’s strong sales revenues of $159.3 million in the second quarter (first half 2020 total of $338.8 million), Adjusted EBITDA4 of $193.0 million (first half total of $391.3 million) and cash flow from operations of $134.5 million (first half total of $330.5 million), in each case net to Africa Oil’s 50% shareholding in Prime.
- Africa Oil received an additional $25.0 million of dividends5 from Prime in the second quarter bringing the year to date dividends to $112.5 million. Africa Oil applied these dividends in part to repay its acquisition loan from $250.0 million down to $194.6 million, including a $10.2 million repayment in the second quarter. Africa Oil will continue to apply any future dividends in priority towards the repayment of its acquisition facility to accelerate the repayment of the loan principal amount.
- In the second quarter, Prime started to repay its Reserve Based Lending (“RBL”) facility by $149 million and repaid and canceled another $76 million on 31 July, reducing the total outstanding from $1,825 million down to $1,600 million. The next redetermination of borrowing base of the Prime RBL facility is due by 30 September 2020.
- Africa Oil ended the period with $39.4 million in cash and net debt of $155.2 million.
- Subsequent to end of the second quarter, the operator of Prime’s OML 130 assets (Akpo and Egina) identified a number of workers who tested positive for COVID-19 onboard the offshore facilities (i.e. FPSOs); however, with the prompt execution of the contingency plans by the operator these were managed proactively with no impact on these facilities or production operations.
- The operating partner on Blocks 10BB and 13T in Kenya submitted notices of Force Majeure to the Kenyan Ministry of Petroleum and Mining on behalf of the joint venture partners in these blocks. These declarations are the result of impact of the COVID-19 on the operations, including Kenyan government’s restrictions on domestic and international travel, and recently introduced tax changes that adversely impact the project economics. Discussions are ongoing between the joint venture partners and the Government of Kenya on the best path forward to resume operations.
Africa Oil President and CEO Keith Hill commented: “Despite the immense challenges faced during the second quarter, I am pleased to report that our Prime investment continues to perform very well, with crude sales, revenues and debt reduction well on track. Based on Prime’s income contribution, Africa Oil was able to post a quarterly profit of $19.2 million. With our strong cash flows underpinned by our admirable hedging position, we believe we are well positioned to take advantage of the recovery in oil demand and price once the COVID-19 situation stabilizes. The outlook for remainder of 2020 is promising with number of potentially high-impact exploration wells offshore South Africa and Namibia and we continue to look for value accretive acquisitions, with a focus on West Africa producing properties. On behalf of the board I thank our shareholders for their continuing support in these difficult times.”