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Africa Oil Announces Q2 2021 Financial Results

Highlights

  • Net income of $38.4 million (first half 2021 total of $77.3 million) and end of quarter cash balance of $35.1 million.
  • Received a dividend for $37.5 million from Prime during the quarter and a further $37.5 million dividend in July.
  • On August 2, 2021, Africa Oil announced the closing of its corporate debt facility with $160 million committed. The Company utilized $98 million of this new facility to fully repay its BTG term loan with the undrawn balance of $62 million available to Africa Oil until May 2022. This can be utilized for general corporate purposes, subject to customary covenants.
  • At end of July 30, 2021, AOC had an approximate cash balance of $42 million and net debt of $56 million.
  • Selected Prime’s second quarter 2021 results net to Africa Oil’s 50% shareholding*:
    • end of quarter cash position of $292.8 million that includes an amount of $152.5 million, which is 50% of the security deposit received from Equinor in relation to the Agbami field;
    • average daily working interest (“W.I”) production of 28,100 barrels of oil equivalent per day (“boepd) and economic entitlement production of 30,500 boepd (84% light and medium crude oil and 16% conventional natural gas)2,3; and
    • EBITDA4 of $155.1 million (first half 2021 total of $298.2 million) and cash flow from operations of $252.3 million (first half 2021 total of $338.2 million).
  • Post period, in July 2021, the OML 130 Gas Sales and Purchase Agreement was signed by Prime and all other parties, settling historical gas sales from July 2018. This will result in an additional $36 million of sales revenue with a net cash payment of $21 million expected in the third quarter 2021, in each case net to Africa Oil’s 50% shareholding.
  • Field operational performance remains strong and was enhanced by the removal of production limitations on Egina due to OPEC constraints.

Africa Oil President and CEO Keith Hill commented: “We are going from strength to strength on the back of excellent operational performance and strong cash flows from our Nigerian assets. We have significantly deleveraged, reduced our cost of capital and improved liquidity. I am very pleased with the strong cash position in Prime at end of the second quarter, standing at $293 million net to our 50% shareholding. I am also encouraged by the initial positive indications of Nigeria’s Petroleum Industry Bill, which is expected to facilitate new project investments and support early license extensions. Our Kenya project continues to gain momentum and we look forward to the drilling of two high impact exploration wells, Venus and Gazania, by end of the year. With the improved financial position, Africa Oil is considering the option to institute a shareholder capital return program by end of this year, which could include a dividend policy and/or share buyback program, subject to the necessary approvals.”

PRIME’S SECOND QUARTER 2021 PERFORMANCE

Production from the Egina field continued to be affected in the second quarter of 2021 by the OPEC+ quotas, but these were relaxed in June, with further increases to production planned in the second half of 2021. These quotas limited production from Egina in the second quarter of 2021 to an average of approximately 162,000 bopd, which compares to the first quarter 2021 average of 152,000 bopd. The quotas in June in respect of the Egina field were approximately 173,000 bopd. The approved July and August quotas are approximately 181,000 and 177,000 bopd respectively. In July 2021, OPEC+ members announced they would be gradually increasing the crude production quotas by 400,000 barrels per month from August 2021 to September 2022. This will result in Nigeria’s production output increasing from 1.554 mb/d to 1.829 mb/d.

Prime’s second quarter 2021 average daily W.I. production was 28,100 boepd and economic entitlement production was 30,500 boepd (84% light and medium crude oil and 16% conventional natural gas), net to Africa Oil’s 50% shareholding in Prime.

During the second quarter of 2021, Prime was allocated four oil liftings with total sales volume of approximately 4.0 million barrels or 2.0 million barrels net to Africa Oil’s 50% shareholding.

Prime has sold forward or hedged 100% of its second half 2021 cargoes at an average price of $58/bbl. These contracts are with counterparties including oil supermajors and commodity trading houses. The counterparties are part of groups with investment grade credit ratings. Only 21% of cargoes in 2022 have been hedged at an average price of $67/bbl, giving the Company exposure to improving oil prices associated with economic recovery.

Second quarter 2021 average operating cost of $6.0 per boe compares to first quarter 2021 average operating cost of $6.4 per boe.

Prime achieved second quarter 2021 sales revenue of $127.6 million (first half 2021 total of $280.9 million); EBITDA4 of $155.1 million (first half 2021 total of $298.2 million) and cash flow generated from operating activities of $252.3 million (first half 2021 total of $338.2 million), in each case net to Africa Oil’s 50% shareholding. Capital expenditure during the quarter, net to the Company’s shareholding was $3.1 million (first half 2021 total of $5.7 million).

On June 25, 2021, Prime signed a Securitization Agreement with Equinor and Chevron, whereby Equinor agreed to pay a security deposit to the two other partners to secure future payments due under that Securitization Agreement, pending a comprehensive resolution being reached among all unit parties in respect of the tract participation in the Agbami field. In accordance with the Securitization Agreement, on June 29, 2021 Prime received from Equinor its portion of the security deposit in the form of a cash payment of $305 million. A provision has been recorded to reflect the mechanism pursuant to which any such imbalance payments due from Equinor to Prime under the terms of any future agreement among the Agbami parties will be set-off against this security deposit. The parties will continue ongoing discussions in an attempt to seek final resolution of the formal redetermination of the Agbami tract participation.

As of June 30, 2021, Prime had a cash balance of $585.5 million or $292.8 million net to Africa Oil’s 50% interest. Prime also had an outstanding debt balance of $1,114 million or $557 million net to Africa Oil’s 50% interest.

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