Notes from the BWE Q3 CC

This is a summary of main aspects commented in the conference today

This post includes my notes of the conference call today. You can find the analysis of the results in:

ESPs issues

Regarding the ESP problems, management seemed quited relaxed and confident about. The ESPs were provided by Baker Hughes and they are in contact with them, external advisors and a major that operates the same product line. The ESPs correspond to a recent new line and the problem is basically electrical. Thus, they are looking at all potential cause of the issues, including the topside equipment at the platform. They have pulled out the ESPs to inspect them and run wirelines in the wells. They insisted that it is NOT lost production but deferred barrels. There isn’t any issue with the reservoir as the good performance shows when the ESPs work. The idea is to permanently solve the issue. They confirmed that problem affects to all wells drilled in the campaign.

Some of the wells are even able to produce naturally without the ESP thanks to the low water cut.

FPSO BW Adolo capacity

The performance of the wells have surpassed all the estimations. When the ESPs are working, production has even surpassed the nominal capacity of the FPSO of 40,000 bopd at some moments. They are also working on increasing the capacity of the FPSO above this level as more wells come into operation.

Golfinho opex

The opex of Golfinho is expected to lower (no estimation was provided) as after the handover from Petrobras and Saipem there are some ecxtraordinary expenses.

Dussafu outlook

There were some questions regarding a potential lower production outlook at Dussafu, management confirmed that the 2024 is impacted by the ESPs as there isn’t a timeline to solve the problems. They insisted on the addition of reserves, which will increase the life of the block. Regarding a potential lower production estimation in 2027-2028, they mentioned that it is what the current production model delivers but that they cannot confirm the long-term production.

Note: the long-term production outlook includes Hibiscus/Ruche Phase 2 development with 6 additional wells, which is not even approved yet.

They confirmed that the current outlook does NOT include production from Hibiscus South.

Casing for DRM-3H well

Regarding the issue of the Ruche well that requires a specific casing, management confirmed that isn’t related to ESPs, but due to the long distance from the platform. They mentioned it is the farthest well drilled in offshore southern Gabon. The extraordinary length requires a different casing according to the data collected from the hole, including a hydraulics, tectonics and a large salt section. There wasn’t any confirmation that there is an issue with the reservoir.

Note: I do think we could expect lower performance from this well compared to the others, remember that they have lowered the resource estimation for Ruche, so there is something else.

Hedges

They have 2.5 MMbbls in hedges, mostly zero-cost collars ($55/60 - $90/100) and some swaps (no price was mentioned). The RBL requirements include hedging 40% of the first year production and 45% of second year production.

2024 CAPEX

Total CAPEX estimation right now is $400 million spread accross all assets, including investment for Golfinho and Maromba, which is contingent. They have some payments for the FPSO Polvo and contingent payments for Kudu. Dusaffu could take $100-120 million dollar and Golfinho another $100 million. They didn’t specify it for Kudu and Moramba, but they are the less firm commitments.

Namibia - Kudu

The have made the first analysis of the data and it is high quality. They have seen several layers that could contain gas/or and oil in the Northern quarter of the licence. The area is still undrilled and is very promising.

They are planning 1 single exploration well that could “take multiple bites of the apple”, but it still is at an early stage. They are processing the data and expect to add Galp’s data from the drilling that are conducting adjacent to Kudu. This well is going to drill in the same layers that they have seen in their licence.

Regarding the long-lead equipment, it includes subsea wellheads (the main investment so far) and the upfront engineering for the casing of the exploration well. Management wants to trigger it as early as possible to take advantage of the rigs present in the area, which grants opportunities to get a space in the queue and makes them more optimistic on the timing of this exploration well.

Note: the results that Galp obtains in PEL 83 would be very important regarding a decision to drill this exploration well sooner than later. A positive result would shorten the schedule, and a dry well would make more difficult that the well is prioritised. The stock has 0 excitement for Namibia priced in, so it could become a short-term catalyst for the share price.