Jon Hopkins
11:45 Tue 28 Feb 2023
Investor deep dive
Africa Oil is building an integrated oil company with producing assets
read more > viewAfrica Oil Corp(TSX:AOI) Africa Oil posts 2022 financial results after 'a very positive year'; issues reserves statement 
Africa Oil Corp (TSX:AOI) has released financial results for the three months and the year ended December 31, 2022, together with its 2023 management guidance, a drilling update on its offshore interests in Namibia and Nigeria, and, separately, its 2022 statement of reserves.
In the results statement, Africa Oil president and CEO Keith Hill commented: "2022 was a very positive year for Africa Oil with two notable achievements. The Venus oil discovery, offshore Namibia, has opened up a world-class petroleum basin. We are at the forefront of this exciting play through our interest in Venus and its possible westerly extension, as the only publicly listed Independent E&P company presenting investors with exposure to its potentially transformational upside; as well as through our twenty percent operated interest in Block 3B/4B that is on trend with Venus, and our indirect interest in the Orange Basin Deep block."
He added: "The second notable milestone was the introduction of our base dividend policy and our first share buyback program. I am proud that on the back of a strong debt-free balance sheet and robust cash flows from Nigeria, we delivered on our promises and returned $63.3 million to our shareholders during 2022. We now have a busy and exciting period ahead of us and we can look forward to the upcoming transformational catalysts with three offshore rigs actively drilling on our assets."
READ: Africa Oil notes investee company, Impact Oil & Gas, to imminently commence multi-well drilling program in Namibia
Announced in February 2022. the Venus 1-X well made a major light oil discovery, offshore Namibia. The company has a 6.2% indirect interest through its shareholding in Impact Oil & Gas Limited and is the only publicly listed independent E&P company with an interest in Venus.
A multi-well program in Namibia is due to commence imminently, targeting up to four wells, to appraise the Venus discovery and to investigate a potential westerly extension of Venus on Block 2912.
A multi-well infill drilling program on the Egina oil field, offshore Nigeria, in which Africa Oil's 50%-owned company Prime Oil & Gas Cooperatief UA has a stake, has also commenced.
Looking at its financials, Africa Oil had a cash balance of $199.7 million as of December 31, 2022 (end 2021: $58.9 million). During 2022, the company returned $63.3 million to its shareholders through its share buyback program and dividend policy.
Africa Oil said its board of directors has declared a semi-annual cash dividend of $0.025 per common share. The dividend will be payable on March 31, 2023, to shareholders of record at the close of business on March 13, 2023. The dividend qualifies as an 'eligible dividend' for Canadian income tax purposes.
The company received five dividends totaling $250.0 million in 2022 from its shareholding in Prime, including one dividend of $37.5 million in Q4 2022.
For 2022, Prime recorded an average daily working interest production of about 23,500 barrels of oil equivalent per day (boepd) and net entitlement production of 25,600 boepd, almost in line with the mid-range of 2022 management guidance. In Q4 2022 and 2022, Prime had EBITDAX of $140.7 million and $600.5 million respectively (Q4 2021 and 2021: $163.4 million and $654.5 million respectively).
2023 management guidance
During 2023, Africa Oil said it will maintain its primary focus on its Nigerian and Namibian Orange Basin assets and continues to work on optimizing and unlocking shareholder value in its other assets.
The company's 2023 production will be contributed solely by its 50% shareholding in Prime. The 2023 management guidance includes a working interest (WI) production guidance range of 18,500-21,500 boepd and net entitlement production range of 20,500-23,500 boepd with approximately 82% expected to be light and medium crude oil and 18% conventional natural gas.
The net entitlement production estimate is based on a 2023 Brent price of $80.9 a barrel (/bbl) being the average of the Brent forward curves between November 15, 2022, and January 15, 2023. Net entitlement production is calculated using the economic interest methodology and includes cost recovery oil, tax oil and profit oil and is different from WI production that is calculated based on project volumes multiplied by Prime's effective WI.
Prime is expected to sell three cargoes during Q1 2023. The first cargo of the year was sold at spot with the second and third cargoes sold with an average fixed Dated Brent price of $76.1/bbl. Prime has six cargoes, scheduled between April and September 2023 with an average trigger price of $70.0/bbl. None of these triggers have been reached.
Based on the above production and cargo lifting ranges and Prime's current 2023 forward sales program, the company's management estimate Prime to generate cash flow from operations of approximately $250.0-$330.0 million net to the company's 50% shareholding, before working capital adjustments.
Any dividends received by the company from Prime's operating cash flows and cash on hand will be subject to Prime's capital investment and financing cashflows, including Prime's RBL and PXF interest payments and principal amortization. Net to the company's 50% shareholding, Prime's 2023 capital investment is expected to be in the range of $80.0-$100.0.
Reserves statement for 2022
In a separate statement, Africa Oil reported its 2022 statement of reserves based on the company's 50% ownership interest in Prime.
Year-end (YE) 2022 reserves determination has delivered an after-tax Proved plus Probable reserves (2P) NPV(10) valuation of $1,232 million (YE 2021: $1,444 million). The change in 2P reserves valuation is net of total dividend payments of $250 million by Prime to Africa Oil during 2022.
The company noted that 72% of the produced volumes in the three years since acquiring the 50% shareholding in Prime have been replaced with new Proved (1P) WI reserves. YE 2022 WI and net entitlement 1P reserves of 34.6 million barrels of oil equivalent (MMboe) (YE 2021: 48.6 MMboe) and 41.3 MMboe (YE 2021: 55.0 MMboe), respectively.
Africa Oil reported YE 2022 WI and net entitlement 2P reserves of 55.6 MMboe (YE 2021: 72.8 MMboe) and 63.9 MMboe (YE 2021: 82.1 MMboe), respectively. It said 2P WI reserves are lower than the previous year primarily due to WI production of 8.7 MMboe and technical revision of 8.4 MMboe. The technical revision is mostly due to a reduction in the expected ultimate recovery of the Egina field following the incorporation of production performance and the results of the 4D seismic processed during 2022.
Commenting on the statement of reserves, CEO Hill said: "Since acquiring our 50% shareholding in Prime in January 2020 we have received $650.0 million in dividends from Prime compared to a closing cash consideration of $519.5 million, and we still have a material reserves base that will generate robust production and cash flows for many years to come. One of the larger assets in Nigeria, the Egina field, had a 2P reserves reduction due to changing well performance and a revised understanding of reservoir complexity, based on the information obtained from the 2022 4D seismic provided by the operator.
"However, we are looking forward to the results of this year's Egina infill drilling program and the upcoming 2023 4D monitoring survey to help underpin future drilling campaigns and optimize reserves volumes within OML130. There are also multiple attractive development, appraisal and infrastructure-led exploration opportunities on both OML 127 and OML 130, presenting us with low-risk, short-cycle investment opportunities that have very attractive rates of returns."
Prime's main assets are an indirect 8% interest in Oil Mining Lease (OML) 127 and an indirect 16% interest in OML 130; both are deep-water Nigeria concessions. OML 127 is operated by the affiliates of Chevron Corporation and contains the producing Agbami field. OML 130 is operated by affiliates of TotalEnergies SE and contains the producing Akpo and Egina fields and the undeveloped Preowei field.
Management Conference Call
Africa Oil said its senior management will hold a conference call to discuss the 2022 results on Tuesday, February 28, 2023, at 9.00am ET/2.00pm GMT/3.00pm CET.
Participants can use the following link to register for the live webcast: https://onlinexperiences.com/Launch/QReg/ShowUUID=F1BAFF1F-6862-4C78-9281-D20467A0B44F. Participants can also join via telephone with the instructions available on the following link: https://register.vevent.com/register/BI6b5af2d6ec854982851dad879ccef82c
The company said it plans to hold its Annual General Meeting on April 20, 2023.
Africa Oil is a Canadian oil and gas company with producing and development assets in deepwater Nigeria; development assets in Kenya; and an exploration/appraisal portfolio in west and south of Africa, as well as Guyana.
Contact the author at jon.hopkins@proactiveinvestors.com
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Africa Oil is building an integrated oil company with producing assets
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