Q – The new management team have been in place since June 2018. Could you tell us what you’ve been working on?
A – We have been busy, although we know that there’s still a lot to be done. However, we’ve achieved a great deal of repositioning the Company for future growth.
We’ve completed the transition of our management and administrative base from Canada to the UK, cleanly and efficiently through Q3 2018.
We continue to receive regular Tanzanian monthly revenue and deleverage the balance sheet by delivering consistent, uninterrupted debt service and term-loan repayments.
We have reduced general and administrative expenditures and view our 2018 exceptional costs as a matter of course on an ongoing basis, but there’s more work to be done and we will look to materially reduce our proforma G&A 2017 to 2019 forecast (i.e. excluding those 2018 costs that would not have been incurred in the normal course of business) by ca. 25% per BOE, a material change.
In Mozambique we have tapered down our operational on-the-ground and look-through cost exposure, with respect to our Tembo license appraisal activities throughout 2018. As of Q4 we have completed a thorough technical and commercial review of the company’s asset portfolio and determined that our Tembo asset does not provide the Company with suitable monetisation solutions in keeping with our material growth mandate. As a result, we announced this month that our intended relinquishment of the license and full departure from the country by mid-2019.
On our core producing Mnazi Bay gas asset we have worked hard at strengthening our relationships and governance model, corporately with Maurel et Prom, our Operating partner, but also with our key stakeholders in Tanzania (TPDC, PURA and the Government). We continue to push for an aggressive JV strategy to unlock full value from the asset to satisfy the significant demand led backdrop in country.
Finally, but no less importantly, we have simplified the business from a corporate and governance perspective through successfully completing the Canada to UK re-domiciling and Oslo Bors de-listing process, all focused on creating a simplified and more effective transactional platform for growth.
The 2018 transitional year was critical at this stage of the Company’s evolution in order to position ourselves to diversify our risk(s), transact more simply and efficiently, secure additional sources of revenue, increase our flexibility and have more control over our destiny to deliver accretive value options to our shareholders.
We are moving forward on a mandate to create a simpler platform to create value for all shareholders. Our historical corporate complexity made it extremely difficult to transact in a highly competitive market; we are now a simpler entity and far better equipped to secure accretionary value for our shareholders.
We certainly recognize and are appreciative of the patience of our long-term, loyal shareholders through this transitional period, but believe we are now poised for material change.
Q – Why did you decide to de-list from the Oslo Børs and re-domicile the Company?
A – The drivers for the delisting and streamlining of the business were the result of direct feedback from our largest individual and institutional shareholders in late 2017. This support and the rationale was further demonstrated at our SGM on 2 October 2018, whereby we received the majority of supporting votes cast , 90% and 81% for redomiciling and delisting respectively.
Furthermore, we believe that the changes are in the best interests of all shareholders and will provide positive long-term benefits, ultimately (if not necessarily in the near term) through improved liquidity and investment profile of the stock. The goal was and is to position Wentworth for materially accretive growth.
Q – I hold WRL shares through Oslo Børs. I want to continue to hold shares in the Company. Do I have to sell my shares once you have delisted from Oslo?
A – After delisting from OSE, the Company will maintain a shareholder register in the VPS for a period of at least two years. All VPS shareholders will keep their interests unless they choose to transfer them out of the VPS. You have the choice to transfer your depository interests via CREST through a broker if you wish or retain the VPS interest as set out above.
We have posted an advice sheet for our Norwegian shareholders on our website explaining how they can transact their shareholdings post effective OSE de-list in February 2019.
Q-In your Q3 2018 Investor Presentation you are assuming revenue of $15-20m per year from 2019, what level of production is this based on?
A– This was based on a current flat DCQ (Daily Committed Quotient per GSA) assumption of 82.5mmscfd and was prior the Ziwani Exploration well carry (which we could not make public at that point as we were still discussing commercial options).
With regards the 15 November 2018 RNS, on Ziwani with respect to monthly payment impact, given the Mnazi Bay production increases (w/revenue and thus cash follow-on) the outstanding receivables have been paid back more rapidly.
There is a clear cash flow priority with Opex then Expex and finally Devex- however due to the 2009 Farmout agreement, M&P have prioritised rights to the Ziwani/3D exploration cost recovery, which basically means M&P will recover (via deduction from their payment to Wentworth) $8.4m of those costs over the next nine months, rather than the monies coming directly to us.
Q – Why have you stopped publishing monthly production and payment updates?
A – We have received regular payments from Tanzanian production since June 2017 and we would like to move to a more normalised (relative to our peer group) reporting structure in which the focus moves to the interim and annual results with trading and operational updates where appropriate.
It is our intention to update the market more regularly on the performance of the group than was previously the case and you will have seen this since Q3 2018. This means that in reality we shall still be making regular updates on payments as part of our wider reporting calendar and operational news-flow.
Q – Have you lowered expectations on production from Mnazi? Should current production be viewed as plateau production?
A – The field is near plateau based on the current well stock and we have been working closely with Maurel et Prom to ensure that the 5 current wells produce as efficiently as possible and deliver above the contracted 82.5 mmscfd gross requirement.
To increase the daily production rate to 130 MMscfd (the production ceiling under the GSA) would require the joint-venture to drill additional wells and ultimately implement future gas compression needs. Before we commit to the capital outlay required to drill these wells there are a number of commercial milestones we need to achieve.
Firstly, we need to secure the full Gas Sales Agreement which will move us out of the testing and commissioning phase and implement the full terms of the GSA such as take or pay clause or the ability to secure reserves based lending.
Secondly, we need to implement and optimise the work program for the current wells and gas infrastructure to increase efficiencies and ensure that current plateau production is maintained.
Thirdly, we need to agree a reduction in the contractual minimum pipeline delivery point pressure from 95 bar(g) to 60 bar(g) which would materially increase recovery rates from the current well stock while allowing compression to be delayed into later in field life.
Finally, we need to renew the Production Sharing Agreement, which would push the expiry date out a further ten years from 2031 to 2041, thereby delivering the commercial rationale to spend the CAPEX required to develop the material 2C and 3P (ca. 1.5Tcf GIIP unrisked) resource base.
Q – Why are you leaving the Tembo appraisal license?
A – Previous evaluations have addressed the “play scope” rather than “prospect (gas discovery) reserves”. This is critical as Tembo was previously described as a fairway trend with potential to hold upwards of 1 Tcf on block – this is the model RPS worked with on their mid-year 2018 CPR, and at the time of their analysis was the best interpretation that was available.
However, as we have continued to re-evaluate our assets both technically and commercially, our understanding of the subsurface has evolved. We have thoroughly reviewed the Tembo-1 well results, and our new interpretations and models are more aligned with those developed by Anadarko during their post-drill evaluation.
We now view Tembo as essentially a tight sand play with poor-to-moderate rock properties that have lower gas volumes, and minimal up-dip and lateral development potential, which would make commercialising this “stranded” gas discovery complex based on our current technical assessment.
We have spent ca.$3.8mm on the asset to end Q4 2018 and as a part of our H1 2019 exit plan will seek to secure a ca.$1mm/pa cost saving. Ultimately, we believe we can deploy Wentworth’s resources more effectively elsewhere, as per our strategic growth mandate.
Q – What about the outcome of the H1 2018 farm-out process?
A – We had the data room open for approximately 8-months and reached out to over 80 companies, 11 of whom had signed the NDA, and of which only 2 expressed technical interest. No viable commercial offers have been received to date. The disappointing results of the data room effectively provided validation that the legacy play fairway driven model was commercially unrealistic. This technical and commercial view as outlined in our 17 Dec-18 RNS has been supported by our Joint Venture partner ENH and our April 2019 planned relinquishment at minimal cost exposure and without exit penalties accepted by INP the Mozambican regulator.
Q – Wentworth shares have suffered a material decline throughout the Q3-4 2018 de-listing process. What will you do to close the NAV / share price gap?
A – We are mindful of the H2 2018 share price fall and reduction in liquidity related to the Oslo delisting; however, we believe that this will be more than offset by the benefits we will see from our move to a single market, streamlined corporate structure and a deliberate move into the deal flow of the London and International M&A market.
Moving forward we will be undertaking a sustained IR campaign in the coming months to engage new shareholder interest in Wentworth and to highlight the value disconnect in our stock price vs. our core NAV, which is now even more compelling. As we secure progress on our Mnazi Bay commercial value triggers in 2019 and beyond, we hope to see recognition by the market of our differentiated value proposition.
We are also mindful that most small listed E&P companies are currently “cheap” and diluted vs. their core NAV. This may not change in the near term until the market sees credibility and fiscal prudence taking hold along with an uptick in oil price (systemic issues). However Wentworth is unique in that our Mnazi Bay asset is developed and producing, directly realizing our NAV into Free cash flow, in addition to have material sustainability and Exploration upside.
This Q&A page and future retail investor focused events should help us better communicate the compelling value proposition of Wentworth with both current and potential investors in Norway and the UK in particular.
We are not considering buy-backs or capital returns policy at this point, primarily due our single jurisdictional risk with respect to revenues and our continuing balance sheet position. We aim to fully pay down all our debt by Q1 2020 in order to fully deleverage our balance sheet. A dividend policy is certainly an aspiration for the Company but we will continue to be fiscally prudent in the interim.
Q– What are your plans for growth?
A– We clearly need portfolio diversification and more control on our asset(s) to secure sufficient forward value triggers and tangible NAV accretion. We cannot do that solely as a JV non-operating partner on one producing gas asset.
We are focused on M&A led transactional opportunities that give us more asset control and value our core NAV over our paper, as we are cognizant that WEN stock like its peers in the E&P sector are currently (Q4 2018) discounted to their core NAV by up to 50%.
With the new simpler platform and aligned Board and Management team, we believe we have never been better placed to secure value and are working hard at seizing the opportunity in front of us to both unlock the latent value in Mnazi Bay and grow the Company.