CAMAC Energy Management Discusses Q2 2013 Results - Earnings Call Transcript

Aug.13.13 | About: Erin Energy (ERN)

CAMAC Energy (CAK) Q2 2013 Earnings Call August 13, 2013 11:00 AM ET

Executives

Jason Lee

Earl W. McNiel - Chief Financial Officer and Senior Vice President

Analysts

Kipley J. Lytel - Prime Equity Research, LLC

Operator

Good day, everyone, and welcome to CAMAC Energy's Second Quarter 2013 Earnings and Operations Conference Call. Just a reminder, today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Jason Lee, Corporate Finance Manager for CAMAC Energy. Please go ahead, sir.

Jason Lee

Thank you very much. Before we get started, I want to highlight that this conference call includes forward-looking statements and estimates of future performance. There are numerous risks associated with forward-looking statements and forward estimates, and there can be no assurance that the statements and estimates will be realized. A listing of many of the risk factors you should consider, as part of the materials discussed in this conference call, has been outlined in our earnings release and in CAMAC Energy's SEC filings, and we incorporate these materials by reference for all discussion in this call. All statements in this conference call relating to oil and gas resources, prospects and potential, are not references to proved reserves as defined in the applicable SEC regulations and are not permitted in CAMAC Energy's filings with the SEC.

At this time, I would like to turn the call over to our Senior Vice President and Chief Financial Officer, Earl McNiel. Please go ahead, Earl.

Earl W. McNiel

Thank you, Jason. Good morning, everyone. Thank you, for joining us today for CAMAC Energy's second quarter 2013 earnings conference call. CAMAC Energy's Chairman and CEO, Dr. Kase Lawal, had expected to join me on the call this morning but he is traveling in Africa on behalf of the company and is unable to join us. Today, I will provide a brief update on the company's operating activities and the status of the Oyo #7 well, as well as a financial review of the second quarter. After these remarks, I'll open the line for questions.

Before I discuss activities in Nigeria, allow me to briefly update you on our activities in the Gambia and Kenya since our last call in May. In the Gambia, our internal analysis of existing 2D seismic lines has identified leads on both offshore blocks, A2 and A5. Each lead is less than 25 kilometers from the previously drilled Jammah #1 well, and both are currently being evaluated further to assess geologic probability and estimated resource volumes. We are also in negotiations with a leading geophysical services company to acquire a new 2D seismic survey on both A2 and A5 beginning in 2014. As Dr. Lawal mentioned on the last call, we continue to receive inbound inquiries with regard to partnering on our Gambian acreage from various operations and we will evaluate serious inbound offers as we acquire more data on our 2 blocks.

In Kenya, we expect to receive the results from Sander Geophysics Limited's acquisition of airborne gravity and magnetic geophysical surveys on our onshore blocks, L1B and L16, by the end of the third quarter. If you recall, these surveys cover essentially the entire acreage of both blocks and has satisfied the first exploration period's gravity and magnetic survey requirements. The results of the surveys will be used to optimize the placement of 2D seismic lines. Thus far, our geophysical team has identified 3 leads on the previously drilled Block L1B using existing data and is currently refining the analysis to ascertain resource and geologic risking estimates. The leads will be further delineated with new data and we are currently in discussions with a leading geophysical services company to acquire a new 2D seismic survey for both onshore Kenya blocks by the end of this year.

On our deep water offshore blocks, L27 and L28, our technical team continues to undertake regional data surveys while we plan to participate in a regional, multiclient 2D seismic activity acquisition sponsored by the Kenyan government. We expect the acquisition to commence within the next 12 months. In Kenya, regional activity remains robust. The onshore oil discoveries in the Rift Basin recently crossed the commerciality threshold and several operators, including Anadarko, continue to explore for oil offshore in the near vicinity of our offshore blocks, L27 and L28. With this type of activity in the area, it is no surprise that we have received several inbound inquiries from operators with regards to our Kenya acreage. As in the Gambia, we will evaluate serious offers as we progress assets.

Now to discuss what most of you are probably the most interested in, the Oyo #7 well in Nigeria. As most of you know, our partner, Allied, is still awaiting arrival of Transocean's Sedneth 701 semisubmersible drilling rig, so that it can begin drilling operations on the Oyo #7 well. Allied is to receive the rig pursuant to a Deed of Assignment with the Nigerian Production and Development Company, or NPDC, and as we have announced, NPDC previously provided Allied with proposed assignment dates of July 6, and later, July 31, but due to operational issues with their current well in Nigeria, NPDC was unable to release the rig to Allied on either of those dates.

NPDC is currently assessing the issues at their current well, and once they have settled on a final course of action to resolve the issues with it, they will be able to give us a better idea of when we can expect the rig. We will, of course, keep you informed of developments with the rig, but based on what we know today, we currently don't expect the rig to arrive before the 1st of September. I would like to emphasize that the rig will come and the well will be drilled. Although we would have loved for Allied to have received the rig in July, in the long run, we think the flexibility that Allied has demonstrated will be helpful in securing the same flexibility from NPDC in the instance that Oyo well #7 operations require some additional rig time during this first phase of drilling.

As a reminder, the Oyo #7 well is a dual objective well. The first objective is to increase production from a pud location in the Pliocene and deliver between 6,000 and 7,000 additional barrels per day of gross production to the Oyo Field. The second objective is to test the exploration potential in the deeper Miocene, which as most of you know, is the most prolific producing zone in the Gulf of Guinea. During the first phase of drilling, which is expected to last 60 days, our plan is to drill down into the Miocene, and after testing, we will plug the lower section of the well, move back up and drill directionally into the Pliocene reservoir. That means that we should be in position to announce the results of the Miocene exploration aspect shortly after that 60-day period. This will represent a significant catalyst for shareholders because a Miocene discovery at Oyo will significantly de-risk the other large Miocene prospects in OMLs 120 and 121.

As Dr. Lawal mentioned on the last call, our geophysical team has recently completed an exercise of reevaluating the 3D seismic on OMLs 120 and 121, refining existing prospect and mapping new ones. The internal results of this exercise have been extremely promising and we are currently in the process of getting these prospects evaluated by a third-party reserve auditor. The results of that evaluation, in conjunction with the new data secured from the Oyo well #7, will be the foundation for a formal, farm out process of our Nigerian acreage to begin this fall. Our goal is to bring in a credible partner to fast-track and help fund the Miocene exploration in the OMLs. We will be sharing more information on that process as it progresses.

On the production side, after the 60-day drilling period, our plan is to return in 2014 to complete Oyo well #7, and then drill and complete Oyo well #8, which we expect to deliver an additional 6,000 to 7,000 barrels per day of gross production. The delay in production has to do with the delivery of certain long lead completion items like subsea flow lines and Christmas trees. To this end, Allied and the company are currently in negotiations to secure a 12-month rig contract for 2014 to execute the plan for Oyo #7 and #8, as well as to potentially spud Oyo well #9 and 1 Miocene exploration well. Securing this rig would be an extremely important development for the company as it would provide more visibility to our forward drilling program for the market.

As you can see, CAMAC Energy has been very busy during the quarter, preparing not only for the drilling of Oyo well #7, but also for the next 18 months of activity in Nigeria, Kenya and Gambia. We understand some of you have been frustrated with the drilling delays at Oyo, and believe me, we've been also frustrated at times but ultimately, I want to reiterate that we are highly confident that we will deliver the value from this well, both in terms of production and confirmation of the Miocene. We appreciate all of your patience thus far and we look forward to announcing the rig assignment and the spudding of the well very soon.

Now, I want to briefly discuss results for the second quarter. For the quarter, we reported a net loss of $4.4 million, or $0.03 per diluted share. Average daily gross production of oil from the Oyo Field was 2,329 barrels of oil per day during the quarter. In the second quarter, there was a lifting of approximately 220,000 gross barrels of crude oil, 18,800 barrels net to the company's interest at a sales price of approximately $103 per barrel. This resulted in revenues net of royalties of $1.9 million. Our G&A cost for the quarter increased by $500,000 from the prior year period to $3.4 million, mainly due to an increase in salaries and benefits and increased consulting expenses. And finally, net cash used in operations was $200,000 in the quarter.

Right now, we are fortunate that Allied is fully funding drilling operations in Nigeria. Ultimately though, we will have to pursue additional sources of capital to execute our forward plan with appropriate levels of participation. With that in mind, we were pleased to see the positive momentum in our share price a couple of weeks ago. We believe the nearing of the significant catalyst of Oyo well #7, in addition to the investor marketing initiatives that I described on the last call, have begun to pay dividends in terms of share price appreciation and ultimately, return to shareholders, although we still have a long way to go. We anticipate that as we execute our program and continue to market the company aggressively to the right investors, our share price will continue to strengthen, thus, giving us additional flexibility when it does come time to secure capital for future investments. The company will also continue to evaluate potential transactions and/or corporate restructurings that can provide cash flow, critical asset mass and additional access to capital.

We at CAMAC Energy are extremely excited about both the near- and long-term opportunities in front of the company. Our team has been working extremely hard to manage preparations for the drilling operations of Oyo well #7, while also progressing our other exploration assets in Nigeria and in Gambia and Kenya. Right now, we are 100% focused on executing to create shareholder value and we look forward to communicating with you regularly as we enter this critical phase in the company's growth trajectory.

Thank you for your time. And we will now take questions. Operator, please open the line.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Anthony Gullo [ph].

Unknown Analyst

Could you kindly give us a little more color vis-à-vis structuring that you're considering?

Earl W. McNiel

Concerning what?

Kipley J. Lytel - Prime Equity Research, LLC

The financial structuring. You mentioned about restructuring?

Earl W. McNiel

No financial restructuring. What I was referring to is that we've acquired a significant position, acreage position, in Kenya and in Gambia and of course, our very nice position in Nigeria. And to fully exploit all of those assets will require a substantial amount of capital. Now that capital can come in several forms. Partnering is a great source of capital and as we progress and develop these assets and they become more attractive to other companies, then we would like to bring in partners to share the cost and quite honestly, to share the risk. And so we think that's a good source of capital but there still may be needs to raise capital ourselves and we're sensitive to the stock price and sensitive to dilution issues, and that's why we've not raised any -- we've not sold any equity in -- goodness, in years now. And as we get -- bring Oyo 7 on stream, and drill Oyo 8 and Oyo 9 next year and get production up closer to the 20,000 barrels a day that it had been previously, then we think that generates cash flow and becomes financeable as well. So there's -- the main point, Anthony, is that we will need additional capital, a lot of additional capital to fully develop and unlock the value in the assets that we hold, but that can come through partnering, it can come through bank financing, it can come through equity sales, but certainly, we'd prefer higher prices.

Unknown Analyst

Earl, just 1 more question. With reference to the statement about completing well #7 and #8, potentially drill Oyo well #9, and 1 Miocene exploration well. I'm a little confused, that Miocene exploration well, that's in addition to the other 3 that you've outlined?

Earl W. McNiel

Right. So as you know, we have dual purpose for Oyo 7. The primary purpose is to increase production and cash flow out of the Pliocene reservoir in Oyo Field. The secondary purpose is to drill down and test the oil potential in the deeper Miocene since there are a number of very large producing Miocene fields around our block. And we've identified several large Miocene prospects on our block. So what we hope to do is drill down, test the Miocene, prove that there's oil in the Miocene on our block and we believe that will significantly de-risk the large Miocene prospects on our blocks and enable us to attract a partner to perhaps -- along with contracting a rig for all of next year, it's very possible and we will -- what we would like to accomplish is to include in the drilling program for late next year to drill one of those large Miocene prospects.

Operator

[Operator Instructions] And I'm showing no further questions. I will turn the conference back over to Earl McNiel for closing remarks.

Earl W. McNiel

Wow. Short call. Must have covered it all. I would just like to make one comment about the drilling of Oyo 7 and our expectations on the arrival of the drilling rig. The latest information we have as of this morning is good news, very good news, in fact. We've learned that the NPDC has resolved the technical issues they were having on the well that they are drilling. That they have now sidetracked and are drilling ahead. They have approximately 1,700 meters to go to complete the well and that would be expected to take 20 to 30 days. So our best -- that's good news, so they are drilling, they will complete the well and our best guess today would be that we'll see that rig in about 30 days. So with that, thank you very much for your time and attention and we'll talk to you next quarter.

Operator

The conference has concluded. Thank you for attending today's presentation. You may now disconnect.

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