Sintana Energy agrees PEL 90 interest transfer to chevron affiliate for $11M upfront

But as a result of these milestone payments that we have, we will continue to bear the benefits and experience the economics associated with progress with no downside.

Welcome back inside our Proactive News room and joining me now is Robert Bose. He is the CEO of Santana Energy and Robert, it's great to see you again. How are you?

Uh good, Steve, good. Yeah, I'm just trying to catch my breath but uh happy to be here and thank you as always for having me. I really appreciate it.

Yeah, you know, last time you and I chatted, you mentioned that you were expecting it to be a very busy next couple of months and sure enough, uh that's the case because you announced last week uh a transaction related to PEL 90. So, I'll let you pick it up from there.

Uh perfect. And and and thank you again, Stephen. I think, you know, we chatted a couple weeks ago and one of the purposes of that call was really to sort of, you know, highlight the expectation of a lot of activity in the coming quarter, as you allude to and you know, we talked a lot about kind of operational progress on the licenses and upcoming drilling activity. You know, as always, there's many things we we can't talk about and at the time, you know, the transaction that we announced uh on PEL 90 last week was one of them, but we're really excited about it. It's a it's a phenomenal transaction from a from a number of perspectives. Um just to sort of frame what it is, um, our Trago, which is our Namibian affiliate, which is currently a participating interest holder in PEL 90 will exchange that participating interest in exchange for some money up front, a number of milestone payments and then a number of payments tied to production. Um, you know, admittedly, the disclosure has been a little bit clunky. We had to work with our friends at Chevron to sort of uh ensure that the confidentiality that they were looking for, we could adhere to as much as possible while making sure, you know, our investors were able to kind of understand what we did. But in a nutshell, what we are doing is essentially taking our exposure to that license, removing any capital obligations associated with it, and exchanging those for exposure to as I said, a number of upcoming milestones including appraisal and first oil, and then a series of payments post first oil tied to production and revenues. So, it's a fantastic transaction on its own, Steve. It is an example of our continuing ability to reduce the capital intensity of the portfolio as well as its risk profile while preserving our upside to uh what we expect to be an extremely high impact initial exploration well on PEL 90 expected in December and then to be able to continue and preserve that exposure as PEL 90 hopefully goes through various continuing forms of progress including appraisal, development and ultimately production. So, it's a great transaction intrinsically and I I think the other thing that I would note, um, I think our investors have seen us kind of be quite effective in making investments, um, along the way. But one of the key things we as well need to demonstrate is our ability to realize on those investments and convert them into upside with little capital. So, it is, you know, one of the first examples on the back of the significant success we've had in Namibia of our our ability to execute kind of part two of our strategy. So it's uh, good all around and really exciting and and keeps us in the game going forward.

Yeah, and just on that, keeps you in the game going forward. Uh, just to clarify, so you will have uh some interest in PEL 90 going forward?

Absolutely, Steve. So I mean, technically speaking, we will um, remove ourselves from the joint venture, but the contract that we have with Chevron gives us payments subject to meeting certain milestones. So for example, um, if an appraisal plan is approved, there's a payment to us, when the project reaches first oil under a commercial production plan, there's another payment to us. Um, and then from that point onwards, tied to both production and revenues, we receive a series of payments. So we will not be a direct participant in the joint venture and that's how we relieve ourselves of the capital obligations that go with that. Your audience may recall like uh PEL 90 is one of the licenses where we have no further carry on exploration or development activities. Um, and so, you know, by removing ourselves from the joint venture, we relieve ourselves of the related capital obligations which could be extremely significant, Steve. Every time an exploration well is drilled on PEL 90, that's another $15 million that Trago needs to find. And if we were to move that project into development and retain an uncarried 10% interest, I mean that could easily be a $500 million capital obligation. So by pulling ourselves out of the JV, we eliminate all of those capital exposures. But as a result of these milestone payments that we have, we will continue to bear the benefits and experience the economics associated with progress with no downside.

So,

it seems like that's the point and and for shareholders to understand that that you're you're getting a lot out of this without having to to put things at risk, which is I think the key of what you're trying to do in business.

Totally. Totally. You said much more elegantly than I can say it, Steve, but completely.

Yeah. Uh, let's talk about the rest of the year. What what are we expecting to happen uh for Santana? Uh you've obviously got some some cash up front, which is always a positive, but give us an idea about the next couple of months.

Sure. So, you know, again, the next couple of months are really going to be focused on some things we've talked about already, which are really the upcoming drilling campaigns on PEL 83. Um, your viewers may recall Total has uh noted and discussed, um, the initiation of a three-well campaign on PEL 83 beginning in Q4. So, you know, if things go well, hopefully we'll see some rigs move over the next few weeks and activity will begin on PEL 83. Um, they've uh described a program which includes an exploration component and then a subsequent appraisal component. So all of that activity has the potential to grow the overall size at Mopane as well as put in place the requisite information to move into um, an FID on the phase one development there and, you know, as I said, that's a campaign we expect to kick off, you know, here shortly and if things go well, hopefully we'll see some rigs moving in the next number of weeks and so that's, you know, front and center. And then secondly, you know, the well on PEL 90, I think as we talked about last time, uh Equinor has just farmed into that license. Um, it is I think emblematic of the potential and scale and materiality of that exploration outing and you know, the transaction we did keeps us front and center in the game without the capital required. So, I think as we look out through the balance of the year, Steve, um progress on PEL 83, progress on PEL 90 and a couple of other corporate things that we're working on are hopefully stuff we can talk about before uh, before I say Merry Christmas to you at the end of the year.

All right, we look forward to that. Robert, thanks so much. Really good update as always and good to see you again.

And you Steve, thank you so much for the time.

All right, there's Robert Bose, the CEO of Santana Energy.