President, the upstream oil and gas company with a diverse portfolio of production and exploration assets focused primarily in Argentina, is pleased to announce its audited results for the year ended 31 December 2019 and a 2020 update and outlook.
In the face of unforeseen challenges in 2019, the Company still delivered solid progress and operational profitability, with adjusted EBITDA* of almost US$12 million on turnover in excess of US$40 million. The continued strength of the Group can be seen demonstrated in the previously announced unaudited results for Q1 2020, and in the Company's resilience in navigating through the perfect storm of Covid-19 which has enveloped the whole of the world.
Following the recently announced share subscription, loan conversion and placing, President is in a robust position going forward with, despite the obvious challenges, another year of positive operational profits and EBITDA in prospect.
Highlights
Financial
- Group turnover US$40.8 million (2018: US$47.2 million) in spite of Group wide operational shutdowns and issues as well as the 19% reduction in average realised sales prices in Argentina to US$49.9 per boe (2018: US$61.5 per boe)
- Net cash generated by operating activities US$21.5 million (2018: US$14.7 million) enhanced by US$10.0 million advance under offtake agreement with Trafigura S.A., all of which has subsequently been converted into equity and therefore effectively repaid
- Adjusted EBITDA* of US$11.6 million (2018: US$16.7 million) with no material contribution from gas sales which only began to show in Q1 2020 as gas started to flow through the newly built pipeline from Estancia Vieja field in Argentina
- Free cash generation from core operations* (excluding workovers) US$15.1 million (2018: US$ 21.7 million)
- Borrowings at year end reduced year on year by 25% to US$22.6 million (2018 borrowings: US$30.1 million), intended to be further materially reduced by 35% to US$14.6 million as a result of the resolutions passed at the General Meeting on 22 June 2020. Of this US$14.56 million only US$3.7 million is third party financial debt with the balance being a shareholder related loan to IYA
- Reflecting a careful and thoughtful approach in changing market circumstances, non-cash impairments have been taken in relation to the non-core producing Puesto Guardian Concession, Argentina and the Paraguay exploration blocks totalling US$88 million which will, inter alia, materially mitigate the level of any future possible non-cash impairments of those assets as well as their depreciation
- No benefit taken in the accounts in relation to the acquisition of the profitable producing Angostura Block
- Reflecting these impairments, a retained loss of US$88.3 million (2018 profit of US$0.1 million) arose in the year to December 2019
Corporate
- Angostura, a producing exploration block in Rio Negro, Argentina was acquired in late in 2019 for no payable consideration to the seller. Whilst the purchase due to timing had no significant impact in the year, the Block is already contributing profitably to the current year and has proven and probable independently assessed reserves with an interesting prospective resource upside
Operations
- An increase of 6% in Group net average production to 2,415 boepd (2018: 2.279 boepd) notwithstanding all the production challenges encountered during the year
- All operating fields in Argentina and Louisiana generated positive operating profits notwithstanding operational challenges of field shut-down in Louisiana for 5 months, power issues and intermittent shut-downs in Argentina as well as key producing wells requiring lengthy remedial workovers in both Rio Negro and Louisiana
- Further improvement in Argentina core operating performance with well operating costs per boe*in 2019, excluding royalties and workovers, reduced by 7% to US$21.1 per barrel (2018: US$22.7). These have now been reduced further in the core Rio Negro assets to US$13.8 per barrel in May
- Group-wide administrative costs per barrel *reduced by 25% over previous year to US$4.8 per boe (2018: US$6.4 per boe).
Reserves
- Net 2P (proven and probable ) reserves in Argentina at year end, as confirmed by an independent reserves audit, increased to 25.9 mmboe (2018: 24.9 mmboe) with the higher value core Rio Negro assets increasing by over 20% to 13.8 mmboe (2018: 11.4 mmboe)
- Louisiana 1P proven producing reserves estimated at 540 mboe
Post year end update
- The unaudited results for Q1 2020 announced on 3 June 2020, demonstrated the solidity of the Company notwithstanding the more than 50% decline in oil prices in March as a result of the global spread of Covid-19. These results included a net cash profit in Argentina for Q1 of US$3.45 million after all G&A, foreign exchange, and finance charges are taken into account but before depreciation
- Despite the historic fall in oil prices in the second quarter, the unaudited results for Argentina for that period are estimated to show a net cash profit after all G&A, foreign exchange and finance charges but before depreciation of approximately US$1 million. Louisiana likewise is estimated to show a net cash profit on that basis.
- Accordingly the estimated unaudited figures for H2 in terms of net cash profit as aforesaid demonstrate a commendable cash generative performance during the periods most impacted by the Covid-19 pandemic, with realisable prices in July for oil produced from Rio Negro expected to be substantially higher than in May
- In the first six months of the current year, the international commodity trading and logistics group Trafigura agreed to subscribe for new ordinary shares in the Company for a total sum of US$10 million at an average share price of 2.34 pence per share (based on an FX rate of 1.27), thereby becoming a 16.7 per cent shareholder in President.
- During the same period, IYA, a Peter Levine group company, converted US$7.2 million of debt owed to it from the Company into new ordinary shares at the same average price. In aggregate this will result in Peter Levine holding through his investment fund PLLG Investments 29.95% of the Company
- The net effect of the above has reduced liabilities as at today's date by US$17.1 million, a significant positive change to the Company's balance sheet
- On 4 June 2020, the Company announced that it had raised £4.73 million before expenses by way of placing ordinary shares at a price of 1.85 pence per share
- In H1 2020 the gas pipeline in Rio Negro was built and commissioned and new compression added to the gas infrastructure thereby enabling the start of material gas sales to market to the benefit of both the Estancia Vieja and the recently acquired Angostura field.
- On 3 June 2020, Company inter alia provided the market with a Trading Update and the reader is referred to the contents of that announcement
Outlook
- Since February, the Covid-19 pandemic has seized the world in a manner few could have anticipated. The effect on demand for oil and gas industry combined with the already present pressure on prices due to the Saudi Arabia and Russian standoff has been unprecedented with potentially uncertainty to continue in the coming few months until the demand and supply side become more balanced
- Notwithstanding this, President has not had to shut-in producing wells in any of its locations and its business model concentrating on maximising margins and generating positive cash flow is helping us to weather the current market challenges
- The changes in share capital, inter alia seeing Trafigura extend its holding in the Company to 16.7%, combined with the material reduction in balance sheet debt, as well as the President's strategic focus on low cost conventional hydrocarbons, stand us in good stead
- Unlike many of the Company's peers, President is planning to return to drilling in late Q3 or early Q4 with at least 2 wells being planned in the Rio Negro province: one development and one exploration
- With demand slowly picking up, there is optimism that the steps taken so far this year have placed President in a robust position to grow in the medium term if not before and to be able to take advantage of opportunities that arise.
Annual General Meeting and Investor Q&A
The Annual General Meeting will be held on Wednesday 22 July, after which the Company will host an interactive presentation through the digital platform Investor Meet Company.
The Company is committed to ensuring that there are appropriate communication structures for all elements of its shareholder base so that its strategy, business model and performance are clearly understood. Further details of the presentation on the Investor Meet Company platform will be provided closer to the date.
Peter Levine, Chairman, commented in the Chairman's Statement:
"It is hard not to describe the results for 2019 as a footnote in the context of the post Coronavirus world. Suffice to say, the Company has delivered a solid performance in the face of a series of one-off unexpected challenges.
Clearly 2020 represents an entirely different and a once in a century scenario for everyone and the Company is no exception. Things are radically changing in our industry. The shale boom is over for the moment and President, with its concentration only on conventional resources, is in my view on the right side of the fence.
The continued driving down of operating and administration costs, significant reduction of debt, improved liquidity and Trafigura becoming a major shareholder holding now over 16% provides President with a firm foundation to develop and succeed in the post coronavirus world where we still see a challenging demand side and surplus of supply build up over the last few months, the result of which provides continued pressure on pricing. In light of the prevailing circumstances and in common with many in our industry we have given careful thought to, and applied non-cash impairments to certain of our non-core producing and exploration assets.
We expect 2020 to be a year of positive cash flow, EBITDA and operational profitability with our balance sheet much healthier reflecting borrowings as at 30 June 2020 projected to be US$14.6 million (almost halved since year end 2018), of which only US$3.7 million is a third party financial debt with the US$10.9 million balance from IYA Global Ltd ("IYA"), an associated entity of mine.
With the World starting to unlock, we have cautious optimism that the worst, as far as President is concerned, is behind us and we look forward to rising to the challenges ahead and taking the opportunities that this year may bring."
