Africa Oil Announces 2020 Second Quarter Results
Africa Oil Corp. recognized a total operating income of $30.3 million and net income of $19.2 million during the second quarter of 2020. The operating income primarily relates to the Company’s share of profit from its investment in Prime amounting to $31.7 million.
For the first half of 2020, the Company recognized a net loss of $118.6 million with a total operating income of $117.4 million being offset by $221.4 million in operating expenses, that primarily relates to the recognition of a $215.6 million non-cash impairment of intangible exploration assets, relating to the valuation of the Kenyan development project and Kenyan Block 10BA.
The Company ended 2020 second quarter with cash of $39.4 million and working capital of $20.2 million in comparison to cash of $329.5 million and working capital of $290.7 million at the end of 2019. The reduction in the Company’s cash position of $290.0 million is primarily attributed to its acquisition of a 50% shareholding in Prime, as described below.
Production from Prime Oil & Gas B.V.’s (“Prime”) Nigerian assets remained strong in the first half of 2020 despite curtailments at Egina in May and June due to OPEC quota limitations. Second quarter average daily Working Interest (“W.I.”) production2 was 28,313 barrels of oil equivalent per day (“boepd”) and economic entitlement production3 was 35,010 boepd (86% oil), net to Africa Oil’s 50% shareholding in Prime. First half average daily W.I. production was 30,812 boepd and economic entitlement production was 38,980 boepd (87% oil) net to Africa Oil’s 50% shareholding in Prime.
Second quarter average operating cost of $5.1 per boe represents a 12% decrease over first quarter operating cost of $5.8 per boe. No leasing costs are payable for Prime’s Floating Production, Storage and Offloading (“FPSO”) platforms because they are owned by the joint venture partners and are not leased.
Crude sales have been unaffected in this difficult environment with all 5 planned sales completed in the second quarter. In the first half of 2020, Prime lifted and sold 10 cargos representing a sales volume of 9.50 million barrels or 4.75 million barrels net to Africa Oil’s shareholding in Prime at an average price of $68.95 per barrel.
Prime has also sold forward all 10 planned cargos in the second half of 2020 with four of these cargoes already lifted and sold in July and August 2020. Prime has also sold forward or hedged 7 cargoes out of a planned 10 cargoes in the first half of 2021. This results in 17 out of the next 20 cargoes planned for second half of 2020 and first half of 2021 being hedged at an average price of $60.06 per barrel.
Prime’s total 2020 capital expenditure is expected to be $54 million or 41% lower than the initial budget of $91 million. The reduction includes deferral of infill drilling and activities related to the Preowei field development project due to COVID-19 and the oil price crash. These activities are expected to resume in 2021 as economic conditions improve.
Africa Oil posted a second quarter net operating income of $27.0 million and a net income of $19.2 million, driven by an operating income of $31.7 million related to its investment in Prime. No impairments were required in the second quarter of 2020 at Africa Oil level.
First half 2020 net income of $97.0 million, excluding a $215.6 million non-cash impairment of exploration assets in Kenya already posted in the first quarter of 2020.
These results were underpinned by Prime’s strong sales revenues of $159.3 million in the second quarter (first half 2020 total of $338.8 million), Adjusted EBITDA4 of $193.0 million (first half total of $391.3 million) and cash flow from operations of $134.5 million (first half total of $330.5 million), in each case net to Africa Oil’s 50% shareholding in Prime.
Africa Oil received an additional $25.0 million of dividends5 from Prime in the second quarter bringing the year to date dividends to $112.5 million. Africa Oil applied these dividends in part to repay its acquisition loan from $250.0 million down to $194.6 million, including a $10.2 million repayment in the second quarter. Africa Oil will continue to apply any future dividends in priority towards the repayment of its acquisition facility to accelerate the repayment of the loan principal amount.
In the second quarter, Prime started to repay its Reserve Based Lending (“RBL”) facility by $149 million and repaid and canceled another $76 million on 31 July, reducing the total outstanding from $1,825 million down to $1,600 million. The next redetermination of borrowing base of the Prime RBL facility is due by 30 September 2020.
Africa Oil ended the period with $39.4 million in cash and net debt of $155.2 million.
Source: Africa Oil