Africa Oil Corp. (OTC:AOIFF) (ticker: AOI) held its Third Quarter 2024 Earnings Call, announcing significant progress in its consolidation with Prime and a strong financial outlook for the coming years. CEO Roger Tucker, CFO Pascal Nicodeme, and CCO Oliver Quinn outlined the company's strategy, which includes a tripling of dividends, a robust drilling program, and a disciplined approach to capital allocation. Despite a non-cash impairment loss, the company is poised for substantial growth following the completion of the Prime transaction, with a focus on increasing reserves, production, and free cash flows.
Key Takeaways
- The anticipated completion of Africa Oil (TSX:AOI)'s amalgamation with Prime by early 2025 is expected to significantly increase reserves, production, and free cash flows.
- Africa Oil reported a 13% increase in average daily production in Q3 2024 and expects to meet its full-year guidance.
- The company has plans to enhance its stake in Impact to 39.5% and expects to benefit from long-term cash flow from the Venus development.
- Africa Oil anticipates a significant rise in net asset value following the Prime transaction, with a projected $1.8 billion NAV.
- The company is committed to a strong financial profile and shareholder returns, forecasting $400 million in operating cash flow annually against an average capital expenditure of $200 million.
Company Outlook
- Africa Oil aims for a predictable financial profile with an operating cash flow target of $400 million and significantly reduced capital expenditure of around $200 million over the next decade.
- The company's net asset value is projected to increase substantially after the Prime transaction, potentially reaching $1.8 billion.
- Africa Oil plans to maintain a strong balance sheet and explore growth opportunities in Africa and the Atlantic margin.
Bearish Highlights
- Africa Oil recorded a non-cash impairment loss of $305 million due to a decrease in share price impacting the fair value of its stake in Prime.
- There was a minor adjustment in mid-case production guidance due to slower-than-expected infill drilling in Nigeria.
Bullish Highlights
- The consolidation with Prime is expected to offer shareholders a threefold increase in dividends and a commitment to distribute 50% of excess free cash flow.
- The company has simplified its portfolio and is focusing on growth potential through transactions like the farm-down of assets in Namibia and South Africa to Total .
Misses
- Despite outperforming Dated Brent prices with an average sales price of $80.8 per barrel, the impairment loss has affected the company's financials.
Q&A highlights
- Oliver Quinn discussed the potential value of Block 11B/12B and confirmed drilling in the Orange Basin in 2025, contingent on environmental permits.
- Pascal Nicodeme confirmed the persistence of a 10% withholding tax on dividends in Nigeria post-Prime consolidation.
- It was noted that BTG (LON:BTG)'s governance rights are linked to their equity stake, with the potential loss of board representation if their position falls below certain thresholds.
Africa Oil Corp. is navigating a transformative period with the nearing completion of its deal with Prime, which is expected to fortify its financial and operational standing. The company's executives have conveyed a strategic vision that leverages increased dividends, disciplined capital allocation, and exploration ventures to enhance shareholder value. As Africa Oil prepares for a robust drilling program and the realization of its consolidation efforts, the market will be watching closely to see how these developments unfold and contribute to the company's growth trajectory.
InvestingPro Insights
To complement the earnings call analysis, recent data from InvestingPro provides additional context on Africa Oil Corp.'s financial position and market performance. Despite the company's optimistic outlook presented in the earnings call, InvestingPro data reveals some challenges.
The company's market capitalization stands at $594.08 million, reflecting its current valuation. An InvestingPro Tip indicates that Africa Oil Corp. has not been profitable over the last twelve months, which aligns with the reported non-cash impairment loss mentioned in the earnings call. This is further evidenced by the negative P/E ratio of -4.97 for the last twelve months as of Q2 2024.
However, there are also positive indicators. Another InvestingPro Tip suggests that analysts predict the company will be profitable this year, which could support the management's bullish outlook on future cash flows and dividends. Additionally, the company's Price to Book ratio of 1.04 indicates that the stock is trading close to its book value, potentially offering value to investors if the projected growth materializes.
It's worth noting that Africa Oil Corp. has a dividend yield of 3.88%, which could increase significantly if the company follows through on its plan to triple dividends post-Prime consolidation. This commitment to shareholder returns, coupled with the company's strategic moves, may help offset the recent stock performance, which shows a one-year price total return of -30.49%.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and metrics that could provide deeper insights into Africa Oil Corp.'s financial health and prospects.
Full transcript - Africa Oil Corp (AOIFF) Q3 2024:
Operator: Hello, everyone. My name is Nadia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Africa Oil Corp. Third Quarter 2024 Results Management Presentation. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there'll be a question-and-answer session. [Operator Instructions] Please note that this event is being recorded. The recording will be available for playback on the company's website. I would now like to pass the meeting to Mr. Shahin Amini, Africa Oil's Investor Relations Manager. Please go ahead, Mr. Amini.
Shahin Amini: Thank you, operator. On behalf of management, I thank you for joining us today for our third quarter 2024 results presentation. We appreciate your interest and support. On the call today, we have President and Chief Executive Officer, Roger Tucker; our Chief Financial Officer, Pascal Nicodeme; and our Chief Commercial Officer, Oliver Quinn. There will be a presentation for around 20 minutes, before we go into the Q&A session. First, I would like to remind everyone that remarks made during this session are subject to forward-looking statements which involve significant risk factors and assumptions, and these have been fully described in the company's continuous disclosure reports. The information discussed is made as of today's date and time, and Africa Oil assumes no obligation to update or revise this information to reflect new events or circumstances, except as required by law. The company's complete financial statements and related MD&A are available on the company's website and on SEDAR. I will now hand you over to Roger.
Roger Tucker: Thank you very much, Shahin. So before we delve into the third quarter results, I want to discuss the positive developments toward the closing of the amalgamation deal to consolidate all of Prime in Africa Oil, and to recall the merits of this transaction for the Africa Oil shareholders. We are making quick progress to completion, and I am very happy with the pace of the regulatory engagement with the Nigerian authorities. As we announced at the end of October, we have received the regulatory clearance to proceed with the transaction from NUPRC. This was initially considered to be the critical part item in the process. And thanks to a diligent and timely turnaround by NUPRC, we are now looking at a much shorter process. Also, earlier this week, we received the competition clearance from the Federal Commission and Consumer Commission of Nigeria. So together with the Africa Oil shareholder approval and the completion of the farm down of our Namibian assets, we have satisfied the main CPs to the completion of the Prime deal. We have two remaining CPs: the approval from NASDAQ Stockholm and the reorganization of BTG Holding to affect the amalgamation, and in turn, complete the deal. These are both procedural, and we now have a much greater control from the timing of the completion process. So I'm very confident to now guide you to a completion date, by the end of Q1 2025, and possibly as early as the end of January to mid-February. Let's recall what Africa Oil shareholders received through this deal. And as the charter boat shows, AOC shareholders will see substantial immediate upside in reserves, in production and in free cash flows. Following the consolidation, they will gain a material increase in shareholder capital returns. We will double our reserves and production base in assets that we know very well. We are set to report substantially higher operating and free cash flow metrics. These will materially enhance our position relative to our peer group of companies. The enlarged AOC following completion of this arrangement will introduce a new shareholder return program that will reward investors with a threefold increase in dividend distributions. Further, there is commitment in the return policy to distribute 50% of excess free cash flow through additional dividends and/or share buybacks. Now turning to the strategic benefits of the transaction. We know these midlife producing assets well and have great confidence in their remaining reserves. These are complemented with low-risk, high-return opportunities such as the Preowei development project that we have spoken to previously. As already noted, the deal is highly accretive on reserves, production and cash flows for AOC shareholders. I must also highlight the vital advantage of gaining direct control of Prime's cash flows and balance sheet. There is scope to optimize and streamline operations and in turn, create value through synergies that can be gained through the consolidation. For instance, the merged financial resources and capital structures provide for us to optimize debt financing for the enlarged AOC. Our Board understands that investors in this sector see capital returns. We will introduce a $100 million base dividend commitment, plus a further promise of 50% of free cash flow net of base dividend. The compelling technical and financial merits of the deal, are ultimately enable us for us to deliver on our shareholder returns commitment. In BTG, we gained a long-term, sophisticated and well-funded shareholder. We have a long-standing working relationship with BTG, since we acquired our Prime interest in January 2020. In effect, we are creating a highly differentiated, and secure platform for disciplined growth. Now let's turn to the operational highlights in our report. Our first half 2024 production was impacted, by the planned maintenance shutdown on the Akpo FPSO. With Akpo now back on stream, and with the benefit of the ongoing infill drilling program, we achieved higher average daily production rates for Q3, 2024. Working interest production averaged 17,900 barrels of oil equivalent per day, which was 13% higher than the average for Q2, 2024. Post period, we have seen even stronger performance with an average daily working interest production of approximately 18,100 barrels of oil per day and net entitlement production of approximately 20,800 barrels of oil equivalent per day. For the remainder of 2024, there are no planned maintenance shutdowns. We expect to achieve full year average daily production rates, within the original management guidance range. In fact, for entitlement production, which drives revenues, we expect it to come in close to midpoint of the guidance range of 18,000 to 21,000 barrels of oil equivalent per day, which is unchanged. For working interest, we have narrowed the guidance range by lowering the upper end of the range by 1,000 barrels of oil equivalent per day to 18,500, but keeping the lower end of 16,500 the same. So for working interest, we also expect to come inside the original guidance range. I will now hand over to Pascal, for the financial results highlights.
Pascal Nicodeme: Thank you, Roger. So Prime continued to achieve superior Brent pricing for its sales. During Q3, average sales prices were $80.8 per barrel, compared to an average Dated Brent of $80.3 per barrel. And for the first nine months of the year, Prime has achieved an average sale price of $84.6 per barrel, compared to average Dated Brent of $82.7 per barrel. Prime is continuing to use its previously designed marketing and price risk strategy based mostly on the conditional forward sales contracts with a trigger price mechanism. And this quarter, Prime has complemented this strategy with hedging instruments. First, during the quarter, they have purchased an Asian put option for 1 million barrels at a strike price of $75 per barrel valued for the period between January 2 and March 31, 2025. They have also entered into a zero premium Asian Dated Brent Collar for 1 million barrels of oil, and the contract will protect Prime against price movement with a threshold of $75 per barrel, and a cap of $90.85 per barrel for the period between the 1st of December 2024 and the 20th of February 2025. So considering our third quarter results, I must first address the non-cash impairment, due to the revaluation of our current 50% shareholding in Prime. Recall that for the Prime consolidation, AOC agreed to issue shares to BTG for their 50% interest in Prime in the deal announced on the 24th of June 2024. Now due to the significant decrease in the Africa Oil share price between 24th of June and end of September 2024, the fair value of the existing 50% shareholding in Prime decreased, as the fair value considers a number of Africa Oil shares that were agreed in relation to the purchase of the additional interest in Prime, and the trading value of Africa Oil shares, as this is an observable fair value input under IFRS accounting standards. At the end of the third quarter, the fair value of AOC's existing shareholding in Prime was calculated to be $310 million, based on the implied value of the proposed reorganization, resulting in a non-cash impairment loss of the investment in Prime of $305 million. The consideration under the proposed organization will be based on the share price and exchange rate as a date - as of the date of completion of the proposed oil organization and may therefore, change materially, compared to the fair value of $310 million at the end of the third quarter. This might, therefore, result in a recognition of additional impairment charges, or the reversal of previously recognized impairment charges in future reporting periods based on the movement of the Africa Oil share price, and the USD/Canadian dollar exchange rate between the end of the third quarter, and the closing date of the transaction. It is important to reiterate that this is a non-cash impairment. AOC net adjusted income for third quarter, excluding the impact of this non-cash accounting exercise, is $25.3 million, which compares to the Q3, 2023 results of $21.9 million. Prime continues to perform obviously. And as shown on the chart on the right, its EBITDA and cash flow from operation before working capital adjustments have been stable during the first nine months of the year. Next (LON:NXT) slide shows our uses and sources of our cash in the last 12 months, basically starting with a $232 million cash position on the 1st of Jan. The main news has been the dividend and the share buyback for more than $61 million. We've also used this cash balance to invest more in Impact. It was a $27.5 million use in terms of buyback of minority shareholders in Impact, and also the payment of an option to other shareholders. We've also received a dividend from Prime of $25 million. And overall, our cash balance has now reduced to $136.1 million. Looking at the Prime and the Africa combined net debt position, we are at $28.6 million combined Africa Oil and Prime. I will now hand over to Oliver.
Oliver Quinn: Yes. Thank you, Pascal. I'll now take you through, firstly, a recap of the commercial transactions that we've undertaken in 2024, which has been a pretty busy year on that front. So as you can see on the slide, there were several transactions. The three key transactions were firstly, the Total and Impact farm down in Namibia. Also in the Orange Basin or farm down in 3B/4B South Africa to Total. And then of course, as we've been discussing, the consolidation and amalgamation of Prime in Nigeria. Critically, of course, our aim for the year was, firstly, to simplify the existing portfolio; and secondly, to ensure we had a strong growth profile for the company with, at the same time, the CapEx removed as much as possible. So our recent announcements of completion of the Orange Basin transactions, has really enhanced that removal of capital and preservation of growth. We will proceed through November, to exercise the option we hold over an incremental position in Impact. That will take our ownership and shareholding in Impact to 39.5%. That's important for two reasons. Firstly, because we see accretive value there, both from a net asset value today and long-term cash flow accretion through the Venus development. And secondly, because at that shareholder level in Impact, that significantly enhances our influence over future decision-making at the company level. As we turn towards 2025, we start to see the impact of these transactions. Firstly, we expect an ongoing exploration and appraisal drilling program in Namibia outside Venus. So we're currently drilling the Tamboti well in the North of Venus. And then our anticipation is that further exploration targets are drilled in 2025. As a reminder, of course, all of the capital spend is covered under the Total Impact transaction. So that's a zero expenditure to Africa Oil in the year. Equally in South Africa 3B/4B, we anticipate, per operator guidance, a well in 2025. And again, per the terms of the previously announced farm down to Total and Qatar Energy, that's fully carried from an Africa Oil perspective. As we turn to Slide 12, we can start to look at the pro forma Africa Oil here. So that's Africa Oil and Prime combined. And as Roger has outlined, we're moving towards, of course, an accelerated completion of the amalgamation of Prime. And so this is how we will see the business looking from '25 forwards. The headline story remains the same. So our shareholder returns are underpinned through the decade from our Nigeria production. Whilst there's some natural decline there, there is also significant organic infill opportunity and investment. As we move through the end of the decade, we anticipate Venus to produce First Oil in Namibia in 2029, again per TotalEnergies (EPA:TTEF) guidance. And so what you see overall, is a very consistent and predictable financial profile through as long as a decade. If I point to the lower two plots here, I think the crucial observation is that we have an operating cash flow, circa $400 million through that period, again, Nigeria, then followed by Namibia. And actually, because of the transactions in 2024, we've, of course, removed most of the CapEx for the business. In fact, all CapEx outside Nigeria . So what you can see there is a CapEx level of around 200 on average through the decade versus that 400 per year of operating cash flow. So again, as we talk to our capital allocation framework and our shareholder returns that Roger outlined, it's a very solid free cash flow position to deliver the $100 million dividend. If I turn now to Slide 13 and just as a refresher really on our capital allocation. And this remains consistent with the frame we outlined in June this year, on the back of the announcement of the Prime amalgamation. So priority one, is balance sheet strength. So again, minimum liquidity, US$150 million. There will be some debt leverage in the business, but a relatively modest level of less than one times net debt to EBITDA. Shareholder returns, Roger has outlined, is the $100 million base dividend, and a commitment to distribute at least 50% of excess annual free cash flow on top of that. And then that takes us to the growth components of capital allocation. So the first of those is organic growth. So again, in Nigeria, we see significant opportunity through in-fill drilling through near-field tiebacks or short-cycle, high-return, very high-margin barrels. The fourth pillar in the capital allocation is inorganic growth or M&A. I think in this bucket, what we see is a significant opportunity set, both in Africa and more widely around the Atlantic margin. Those are opportunities to buy production assets, cash flow generating assets. We, of course, have the support of BTG Pactual's as our new cornerstone shareholder with a long-term commitment to this sector as well. What's critical headline under the M&A column is discipline, really. So you'll see here we're saying adherence to a strict strategic financial and operational criteria, so we hold a very high bar before we will commit capital to M&A, albeit in a world where there's a significant opportunity set. I'll move now to Slide 14, and just talk about how do we see the value of the company, and how do we think about the net asset value in this case. Again, I think we're very disciplined here in how we view our core asset value. So as you can see on the slide, that's a simple two-component system of Nigeria net asset value, as defined in our external independent valuation that we undertake every year, plus cash. So production plus cash takes us just under US$800 million of NAV. And again, as we're speaking, we are trailing about $570 million market cap at the moment, no debt at the upper core level. So a significant discount to a basic core NAV. As you move to the right on this plot, you can see valuations here for our Orange Basin portfolio. So firstly, Impact Namibia. And then as we move into South Africa Block 3B/4B. So again, these are the base values. We do see significant upside on top of those through time. But the headline today is they're not recognized in the share price today, as we see it. So we're trading below core NAV, and certainly no recognition of assets beyond that core NAV. I think the final point here is if you look - we've added in the Nigeria consolidation element here. So just to give you some guidance as to when we complete the Prime transaction, we'll, of course, double our Nigeria NAV. So you can see that the pro forma full NAV for the company at that point, is around US$1.8 billion. So it's a significant uplift in the net asset value of the combined entity. And with that, I will hand back to Roger.
Roger Tucker: Thank you very much, Oliver. So we have achieved a great deal during the three quarters of 2024. We have a differentiated investment case focused on total shareholder returns with commitment to sustainable capital returns, as well as delivering high-impact growth opportunities. This business is supported by high netback production, and a strong balance sheet. In addition, our funded organic growth opportunities, we are also well positioned to be a leading player in consolidating the independent E&P space. And I'd like to conclude there and now go on to Q&A.
Operator: Thank you, dear participants. [Operator Instructions] Now we're going to take our first question over the phone. And it comes from line of Jeff Robertson from Water Tower Research. Your line is open. Please ask a question.
Jeff Robertson: Thank you. Good morning. Roger, will the simplification in Nigeria have an impact on the types of things you can do around South Africa - or I'm sorry, around the Atlantic margin in Africa? And also, just as you talk to potential other host governments?
Roger Tucker: I think the - sorry, could you do repeat - that came across really poorly here. Could you repeat that question? Would you mind? Just so I can make sure - I understand that question.
Jeff Robertson: Sure. Will the simplification deal with Prime have an impact on how Africa Oil can negotiate with other host governments, and look at other opportunities?
Roger Tucker: I think the - I mean, the simplification of the business makes us more viable, if you like, and more viable and bigger potential partner with host governments, but it won't significantly change the type of terms that we will get or whatever. So it helps in increasing the size of the company and the balance sheet that, we are obviously now a viable - much bigger viable partner, but it won't change our ability to negotiate specific deals with host governments.
Jeff Robertson: And secondly, if I can, on the M&A front, you've got a lot of things that could come in toward the end of the decade. Do you see opportunities to acquire assets that could have more of an intermediate-term impact?
Roger Tucker: Yes. We - how can I say this. We're going through a very extensive screening process at the moment. One of the great things about this tie-up with BTG, is that we are very driven by the rocks up. And BTG have the screening process, which is often driven by the spreadsheet down. And in the middle, there is a sort of sweet spot where both sets of significant skills and the financing capacity of BTG meet. And that is actively going on at the present time. But I stress, the key screening mechanism for us is the quality of the underlying assets. And yes, there are opportunities, which are currently producing which come to the top of the list.
Jeff Robertson: Thank you. I'll get back to the queue.
Operator: Thank you. Now we'll go and take our next question. And the next question comes from the line of David Round from Stifel. Your line is open. Please ask a question.
David Round: Great, thank you. Afternoon guys and thanks for the presentation. I'd like to come back to capital allocation, please. And I appreciate you've been very clear, so I feel slightly guilty about this. But post the real, I mean, you should be well over that minimum cash number that you referred to on that slide. So I mean, how are you thinking about the right level of cash? And how are you going to balance wanting to keep cash for M&A, with demand to return cash, if your free cash flow is as strong as you set out in the chart earlier?
Roger Tucker: Well, the screening process is obviously with the share price, it is at the present time. Probably, the best thing that you could ever do, would be buying your own stock back. And so, the return of buying your own stock will be a threshold, which we will measure any other opportunity that we are considering. But obviously, we recognize the undervaluation of the stock at the present time. And you probably, David, have worked out that there will be a significant amount of cash on the balance sheet, after this transaction has gone through.
David Round: Yes. Because presumably, you're accruing cash all this year from Prime anyway, aren't you?
Roger Tucker: Yes.
David Round: Okay. Brilliant. Thank you. I'll hand it back.
Operator: Thank you. Now we're going to take our next question. And the question comes from the line of Matt Cooper from Barclays (LON:BARC). Your line is open. Please ask your question.
Matt Cooper: Thank you very much. And so starting off with Namibia drilling, I don't know how much you can tell us here. But I don't know. If you give some color on when we could hear a result on Tamboti? And is it right to think base case, we're looking at a size of about 1 billion barrels potential there, so about half the size of Venus? And then also, if you're able to update on the wells that are planned post Tamboti? Thank you.
Roger Tucker: Yes. All right. Nice to hear from you, wearing your new hat, so to speak. So Tamboti, we anticipate to get the results there. If the well is tested by the end of Q1, 2025, it'll probably be in the objective in December. They are drilling very well on that feature. In terms of the size, obviously, we can't give you the actual reserve number that, we've evaluated. But we will point you to what Patrick Pouyanne said in that it is an elephant. And he then was asked what an elephant is, and he said over 1 billion barrels. And I would not disagree with that interpretation. But I think what you - I don't know, obviously, what the results of - that this well is going to be. But it's going to be very, very interesting to see the interplay of Mangetti and Tamboti, and the evolution and the sort of the reveal of the secrets of that Northeastern corner of our block. In terms of further drilling, we would anticipate that there will be further drilling on our blocks in Namibia in 2025.
Oliver Quinn: I would just add - it's Oliver here, hi. Part of that as Roger said, is dependent on Tamboti, right, what that result is. Does that go to appraisal or does the rig move to those other targets. So there's a bit of uncertainty there. But as you say, we anticipate continued activity.
Matt Cooper: Okay. That's helpful. But in terms of number of wells post Tamboti in this program, that's not signified yet?
Oliver Quinn: No that's, so they're going through the '25 impact, is going through the '25 budget process with Total. I think as we say, we anticipate for a couple of reasons here, or the targets beyond Tamboti outside Venus to be drilled. I think one of the drivers to think about is classic kind of exploration license retention strategy in the sense that. As you come up against various licensed deadlines, although not imminent today, you want to, of course, preserve as much acreage as possible. And to do that, you need to, of course, have shown the government that you've drilled out the prospectivity to a reasonable degree. So there are some kind of classic reasons there, to believe that and be confident that there will be a sustained drilling program.
Matt Cooper: That's helpful. Thank you. And if I could just ask on Nigeria production as well, if that's okay. So just looking at the release, yesterday looked like Egina and Agbami are producing above expectations year-to-date. It looks like Akpo infill drilling is going well. So I was just trying to understand how that fits with the small reduction in mid-case working interest production guidance, for the year that you announced yesterday?
Shahin Amini: I will have a first stab at that answering that question, Matt, this is Shahin. So look, when we came at looking at our full year management guidance, obviously, the CapEx was below - we expect to come below that range. And we also felt that it was the right time to narrow the range on the working interest production. I think what you can look at the reduction in the CapEx guidance, is that the pace of the infill drilling is a tad slower than what we had originally accounted for, or assumed in our full year guidance. So it partly reflects that. But I think when you look at the midrange, the new midrange is only 500 Boes per day lower than the original guidance. That is a very modest 2.8%. And I would put it to you that that, is just really kind of just fine-tuning models and firming up estimates. It's nothing more than that, it's a very modest revision in our view.
Matt Cooper: Yes, no, fair enough. Okay. That makes sense. Thank you very much. Appreciate that.
Operator: Thank you. Now I would like to hand over to Shahin for any written questions.
Shahin Amini: Thank you, operator. Pascal, one question for you. And this really has been triggered by - with that non-cash impairment. Can you remind the market on whether the shares to be issued to BTG, are they fixed in number?
Pascal Nicodeme: So yes, Shahin, that's a good question. When we complete the transaction with BTG amalgamation, we are going to issue a fixed number of shares, which have been pretty fine and it's roughly 240 million shares. So the nature of this impairment is purely linked to IFRS. And the need basically to mark-to-market the value of the shares, to the book value of our 50% in Prime. So if you take the 240 million shares, multiplied by CAD175 at the end of the quarter, that basically derives book value for the asset of US$310 million. And the difference with what we had on the books was $305 million. Therefore, the impairment of $305 million that we have posted at the end of the quarter. If in the subsequent quarter, before completion of the deal, the share price goes up or down again. I think we will have to adjust that impairment or partly reverse it. So that's - I think that's the way it's going to work. And of course, as soon as we complete the transaction, we are going to consolidate 100% of the Prime asset on the balance sheet. So at that time, we will revert to a more conventional impairment mechanism. Whereby we're going to, compare the asset value of Prime to the NPV and if there is a data, then we would post an impairment or reverse an impairment. So, I think that's a quick answer to cover purely accounting points, which has no cash impact, as you mentioned.
Shahin Amini: Okay. Thank you, Pascal. If you could just stay with you for the next question. What is the current thinking and the management plan, for shareholder capital returns and the dividend distribution of this larger base dividend policy, post-deal completion in terms of timing and frequency?
Pascal Nicodeme: Yes. So the new shareholder written policy, is going to be put - in place as soon as we complete the transaction. I think there are questions whether we put in place a quarterly return, quarterly dividend versus the actual semiannual. So that's still in discussion. And we also committed to return 50% of the excess cash after that dividend, either in the form of extra dividends or share buyback. And what we also - what we have also done is that we've restarted our share buyback as of today, actually. I think you will recall that one uncertainty we had, was the completion of this farm down in Namibia, which has now been completed, and we just exited our existing blackout period. Therefore, we were able to restart the share buyback as of today, exactly.
Shahin Amini: Thank you, Pascal. I'm afraid we're going to stay with you for the next one as well. There are questions on debt management at Prime level. So people wondering, is there going to be a potential RBL principal repayment by the end of this year? And in fact, what is the philosophy around debt management at the Prime level?
Pascal Nicodeme: So we've just been through the determination of the borrowing base at the Prime RBL, which basically resulted in no repayment at the end of December. So the next repayment will be at the end of Q1, 2025. And I think, I've mentioned this in the past, I think the primary objective of also this consolidation, is to consolidate our debt and refinance the Prime RBL, as soon as possible. So the target is really to refinance the existing RBL, and extend it again in Q1, 2025. And we've done that in the past. I think the whole principle behind this debt management, was to push back the maturity and the amortization of the RBL, which we are going to do once again. So we are probably going to refinance the RBL, at a slightly lower amount as it is drawn today. It's $750 million at the moment. So probably a lower amount, but again, extended for at least five years.
Shahin Amini: Okay. Thank you, Pascal. Roger, there's a question from David Mirzai, SP Angel. What's the current ownership levels at Impact Oil and Gas? And is there anything that we can say about the motivation and ambitions of the shareholders at Impact?
Roger Tucker: So we have exercised the option to increase our stake in Impact. And after the completion of that, which is imminent, we will have an equity position of 39.5% in Impact. 51% is held by HCI or associates, if you like, of HCI. So effectively, there are a very few other minority shareholders that are out there. In terms of the motivations of us, as you're aware, we negotiated on behalf of the Impact, the deal with Total that was announced back in January of this year. And the motivations, our problem is that we are very, very happy to have a fully carried interest through what is likely to be a very major development. And so, we are both monitoring the situation. And don't plan to do anything with our equity positions at the present time. So you - can see us stay at 39.5%, and they will stay at about 51%. Does that answer the question, Shahin?
Shahin Amini: I believe it does, yes. Thank you, Roger. And so let's actually turn attention to Oliver. And Oliver, a question for you, and this is in relation to one of our investee companies, Africa Energy outlook for what we may, or may not do in relation to that investment on Block 11B/12B. Do you have any thoughts that you can share with us on that front?
Oliver Quinn: Yes. Look, I think it's, of course, public that Total have pulled out of the project, 11B/12B as operator. That leaves Africa Energy really kind of in the driving seat, and in the role of acquiring a production right, which is a next step in maturing the project from the South African authorities. So look, I think at the moment, clearly, that's an option value. The production right has to be obtained, and then you have to move that forward and see if there's a real project. I think action is the right way to think about it, because at the moment, there's no real spend in Africa Energy and therefore, as a shareholder in Africa Energy, there's no - to go back to capital allocation. We're not allocating towards that. So I think the next few months are important to see how it evolves. But certainly, it's an option today, but we have to see that something real comes out of that in the near term, before it would compete against the other opportunities we've got.
Shahin Amini: Thank you, Oliver. And Oliver, do you want to share your views on Block 3B/4B as well? I mean you were obviously involved in the farm down, which was a very successful deal for us. But in terms of the outlook for drilling on that block, and just a broader views around the South African Orange Basin?
Oliver Quinn: Yes. I think if you start with the latter point, look, we've talked about Namibia and multiple discoveries, lots of wells drilling now, both in the block that we hold an interest in and out with it. But of course, when you come to the border, we're yet to see a real Orange Basin test in South Africa. So I think from the kind of big picture there, huge geological opportunity, but only withheld, because there's been a slower pace of activity in South Africa. Of course, that said, there were a few things to line up to unlock South Africa, one of which was the transactions and ownership, including our farm down of 3B/4B to TotalEnergies and Qatar Energy. So that's basically brought in people who have rigs in the basin, of course, because of Venus in this case and therefore, can drill, right? Because of course, we're actually okay. So look, TotalEnergies guidance has been planning for a well in 2025. I think permitting is largely in place for that. The risk of the time line, is some of the challenges you can get on the environmental permits in South Africa. But that's in progress. And again, the guidance remains its planning for a 2025 well at this stage.
Shahin Amini: Thank you, Oliver. There is one comment that Galp are releasing more information on the drilling results in the Orange Basin, and that's when we could expect to announce more. I mean, we are repeating the answer time-after-time. Please note that we are working with our investor company Impact, and we will coordinate any updates on the Orange Basin in coordination with Impact and the operator TotalEnergies. But again, I think it is important to recall positive statements from the operator, TotalEnergies in the last Capital Markets Day, where they are providing more information specifically on the first phase development on Venus, talking about FPSO capacities and so on. But again, we will be working with those two entities, Impact and TotalEnergies, to update you in due course. And also, I'm just going to go back to Oliver on this as well, because I know you did your PhD on it, Oliver, but there has been some comments and questions. This is becoming a hot topic actually among some shareholders and observers of the Orange Basin about the so-called poster position of cementation issues, in these reservoirs. I understand you might have done your PhD on this front. Do you have anything on the technical front that you want to share with us?
Oliver Quinn: That's a very technical question. But yes, sure. I mean, look, these are relatively deeply buried sandstone reservoirs. So of course, as you bury the rock and it gets hotter, you typically get cementation in the pore space, which reduces the porosity. I'll try and not get more technical than that. So rock quality is driven by that. The other point, though, is, which is critical for Venus and the block that we're in, is the nature of the fluids and the physics of the fluid flow in the reservoir. So although it's been made public, the porosity and permeability of some of these parts of the reservoir, are lower than kind of average for West Africa. We have a fluid, a critical fluid, if you like, that flows extremely well at those pressures and temperatures. So it's a slightly different system, but that doesn't mean it's not a very technically attractive system. It has one further component, which is an advantage, which, although, of course, as TotalEnergies have said, we'll produce gas here and the plan would be to reinject that gas. Because of the nature of that reservoir and it's cementation, you don't expect to produce much water here. So from a top side perspective on the development, you wouldn't anticipate handling large volumes of water or water injection, which again is a benefit to the project, right? So yes, it looks slightly different than some kind of textbook West Africa reservoirs. But I think if you look at the - again, the proof is in the investment, four wells on Venus number of DSTs. And as we discussed earlier, several wells planned and anticipated for the rest of the block as well as the rest of the basin, it tells you that there's clearly a degree of confidence, all that context to side.
Shahin Amini: Thank you for that technical description. And if we can stay with you for one more because I know you are very much involved in doing this deal with BTG for Prime consolidation. Can you just remind the listeners on what are the restrictions around BTG's shareholder position in terms of Board seats and any other selling restrictions and so on?
Oliver Quinn: Yes. So again, so again we announced this in June, but I think it's a good reminder, as Pascal said, BTG will come in with 35% of the pro forma shareholding equity. They are then restricted, locked up to a two-year period. And in that two-year period, they can't go below that 35%, so they can't sell, and they can't go above 49%, so they can't take effective control. So there's a window there. In terms of the governance, at 35%, again, they get three of nine - the right to nominate three of nine Board seats, including the Chair. If we grow the company and they choose to dilute their equity position, those rights kind of fall away as the equity position falls away. So the first point would be if BTG was ever diluted below 35%, they would lose a seat and the right to nominate the Chair. Again, below 20% ownership, they lose another seat, and then no seats below 10%. So I think - it's pretty conventional and you have to kind of when you've got large cornerstone shareholders and public companies. So it's modeled on what we've seen out there as kind of market, if you like.
Shahin Amini: Thank you very much, Oliver. There was a question, what was the rate of repayment of the Total carry from the Namibian cash flows? So that's another reminder we need to give, as this has been disclosed before. So actually, Oliver, you may want to finish on this one as well?
Oliver Quinn: Yes. I mean, look, the horrible answer is it depends. And the reason I say that is because, of course, as a reminder, we - Impact will repay all of the, spend that TotalEnergies have done through to First Oil sales. But there's a waterfall, if you like, on the repayment. So firstly, the total amount spent won't be clear until it's - until First Oil is produced. So if there's a second FID and a second FPSO for example, in construction prior to First Oil, that's also in the amount that TotalEnergies will cover. But the important point then to think about on the repayment is it's an after tax, after CapEx, after ongoing CapEx repayment. That's point one. So everything that's going on in the block comes off the top before there's an amount left to repay. Then when we have that amount that could be used for repayment, that is split, 60% of that pot goes to TotalEnergies, and 40% is retained by Impact. An important principle of that is that in almost all the scenarios that we model, including an extremely rapid development and high CapEx case of multiple FPSOs, Impact will still receive free cash from the asset when First Oil occurs. So I think that's a really important principle to think about is, Impact will be receiving its dividend, if you like, it's free cash from the asset from First Oil.
Shahin Amini: Thank you for that reminder, Oliver. So we'll finish with one more question, and we'll go to Pascal for this one. Will the 10% withholding tax on dividends in Nigeria, would they apply post Prime consolidation deal closing?
Pascal Nicodeme: Yes, the answer is yes, because the withholding is basically between Prime's Nigerian subsidiaries and [Park BB] and the deal we have set up with Prime basically affects the entities above Park BB, not below Park BB. So this 10% withholding will stay in place.
Shahin Amini: Thank you very much. That is the end of questions that we've received online as well. And operator, you can confirm, I don't believe there's any more questions on the phone line?
Operator: There are no further questions. You are welcome to proceed for any closing remarks.
Shahin Amini: Well, we thank everyone joining us today on a Friday. Well for some, it's a Friday afternoon, for some, it's Friday morning, for some, it's late Friday evening. So thank you all. And we appreciate your interest and support of Africa Oil Corp. Wishing you all a great weekend. Thank you, and goodbye.
Operator: That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.
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