The Russian invasion of Ukraine has shone a bright light on the need for the west – particularly Europe – to find alternative sources of energy and to break its dependence on Russian oil and natural gas.
That’s where companies like
ShaMaran Petroleum Corp. (SNM) (
TSX-V.SNM,
OTCMKTS: SNM,
Forum) are positioned to meet the existential need for safe, reliable energy extraction and delivery – especially in the wake of geopolitical strife. SNM is a Canadian-based independent oil development and exploration company with a 27.6% interest in the Atrush Block production sharing contract, located in the Kurdistan region of northern Iraq.
Stockhouse Media’s Dave Jackson was joined, once again, by the company’s Chief Executive Officer, Dr. Adel Chaouch, to get our investor audience up-to-date on this intriguing multinational petroleum company…
that’s poised & positioned to help fill the global energy void.
(CLICK IMAGE TO PLAY VIDEO)
TRANSCRIPT BELOW:
SH1: Dr. Chaouch, some big news just announced – the company’s 2021 financial results with some very impressive numbers. Can you elaborate?
AC: Absolutely. We indeed announced exceptional financial results for ShaMaran. Actually 2021 was the best year ever for the company. Let me share with you some of these results if you don't mind me unpacking them. Our EBITDAX for 2021 stands at 66 million which is 330% larger compared to the previous performance in 2020. In the same time period, our cash from operations was close to five times what it had been the previous year and most importantly, we generated our highest oil sale revenues in the history of the company. This stands at roughly $102 million. This is certainly a clear indication of the company's ability to generate significant cash from our operations.
SH2: As I mentioned in the intro, energy companies like ShaMaran are now positioned to help meet the existential requirements of energy-dependent countries? Simply put, how so?
AC: So Dave, if you recall early last year, we shared with you our vision of a significant appreciation in the oil price for a number of reasons. One of them, the lack of consistent capex spending on development for years in the oil gas industry and the possible recovery from the pandemic, which we are now on the verge of heading out from it and maybe moving to a different phase. We still see high oil prices sustained for the short and the mid-term, unfortunately for additional reasons, certainly linked to the current crisis in Eastern Europe. You indicated that some of these countries that are energy dependent will have to make a choice and find other ways to meet the needs of their constituents and where these needs will be supplemented from certain regions. We, here, at ShaMaran happen to have producing assets in one of the most prolific regions of oil and gas and energy in the world; and there is significant room for additional production upside without the constraints of OPEC so far. We also happen to be producing from the world class field in this case, Atrush that has significant proven reserves ready to be brought to market. As you know, we also are closing a transaction with Total for the Block next to us that ultimately will double our production sometime later this year. We expect that this increase will allow us to contribute in helping to address the needs of these markets.
SH3: You just announced $30.5 million dollar equity rights offering underwritten by a major shareholder. Can you expand on this initiative for our investor audience?
AC: Sure Dave, the rights offering is now fully launched both in Canada as our primary market, as well as in Sweden. So to give you the context, the rights offering was originally meant to provide funds to support the transaction with total. This transaction, of course, was announced last year. with our improved financial situation and our strength, the RO is no longer needed for this particular transaction but proceeds from this rights offering will go towards other corporate needs in support of future and potential transactions. So in terms of our investors and shareholders, I think they need to see the rights offering as an incentive for them to benefit from the fantastic growth of the company. We are offering this rights offering for subscribers, both in Canada and Sweden & other jurisdictions where the share price is provided at a discount right now around a third of the announcement price in line with two markets for this underwritten rights offering - and the underwriter is our largest shareholder the Lundin family trust, which is of course, one of our main supporters and continues to be a supporter as well as a founder.
So if you are a shareholder, for example in Canada, you can subscribe to your pro rata proportion of shares. As a matter of fact, in Canada, specifically, if there are additional shares available here that are not subscribed for, you can ask for additional subscription and well above the entitlement. The rights offering is ongoing right now. The closing will happen in Sweden first, May 16
th and for the Canadian audience, it will close May 20
th. We encourage of course, all our shareholders to participate. We, as directors of the company and our officers, have full intention ourselves to participate in support of this event.
SH4: Can you talk a bit about the Sarsang acquisition from French energy giant Total-Energies?
AC: Absolutely. That transaction, of course we've been looking at it from the beginning of last year. We felt- something that we got to share with you, our vision of the increased oil prices and the cycle up from there. So we are basically very bullish and very opportunistic. So we approached directly Total which we've known over a number of years to transact with them. We were pleased that in the middle of the summer, we were able to sign the agreement with Total. We subsequently raised $111million in a very successful and oversubscribed bond campaign where our current creditors as well as new ones, grade A investors came in along and joined us with the intention that the proceeds not only will service the new transaction but also transform our current bond into a better bond, which has a shorter tenure, which also will allow us over time to pay dividends for our shareholders once the level of debt drops below a certain level. And we just did that.
We are now in the final stages (of course, in any in transaction of this type, there is a consent agreement to be provided by the host country in this case the Kurdistan region of Iraq) and I'm pleased to report that we are in the middle of exchanging the final documents and progressing basically these documents to conclusion hopefully in the very soon future. In terms of significance of the transaction to the company, we are now entering into a block right next door to us with an operator we know very well., We as management of ShaMaran were involved in this block before, so we know it. There's no need for time to learn about it. We believe in the ability of the new partner to deliver on these commitments that we have together and we see a significant diversification of the portfolio, at least from two types.
We go from one world-class- field to three, all within a perimeter of less than 10 kilometers and we also diversify the type of reservoir as well as the quality of the crude. Right now Atrush is a medium type of oil. Let's say for those who are more technical the API is around 24-27, Sarsang will take us to a crude in the range of Brent, 36 to 39. So the combination really provides significant improvements because it improves the realized price as you market it. So it's a significant diversification across the board and of course it provides significant financial de-leveraging of a number of the key metrics. This is on top of, of course the production, as I said will double towards the end of this year. We are very excited about it; we are very focused on making sure we progress that.
SH5: The Company looks set for very robust growth in 2022. How are you placed to expand operations to meet demand?
AC: So we have made plans with our partners, including the government to significantly step up our capital commitment for this asset. Let me share them with you.
The plan for 2022 is to spend, on a gross basis, 116 million of Capex, that is a 220 percent increase compared to 2021, which shows the commitment that we have to our development. Among the many activities here, the first thing is to start with re-deploying development wells. We are r drilling our first well as we speak, it is progressing very well. The first well would be dedicated to water reinjection for water produced through fractured carbonates as a measure for environmental safety and protecting of course the mainstreams, so we will not have any discharge outside the reservoir. and this well would be followed back-to-back by the second and the third wells which would be dedicated for development and production.
Those wells, we hope will come online before the end of the year. We of course continue to engage with our partners for further acceleration of production and drilling but we have to also be mindful about the current supply chain situation and there are also a number of logistical constraints that we all face, not just ShaMaran but the entire industry as everybody wants to ramp up. So we are working on that, let's stay tuned and hopefully, we can do something on that.
For the Sarsang Field, which we mentioned, the team is in the process of finalizing the expansion of new facilities and they are currently finalizing the construction of another 25,000 barrels per day facility, that will take the current production capacity to 50,000 barrels per day . Right now, the asset has two fields that are producing around 29,000 barrels per day.
SH6: For company shareholders and potential investors, what kind of future development and progress can we expect at the Atrush Block?
AC: Well, let me take a step back here. I want to also mention the strength of the field. Atrush has performed consistently over the years and as you can see it, we have announced that we marked just this month 58 million barrels of total production since the inception of production in July, of 2017. That is a significant achievement by any measure for production in this area in less than five years. From a development strategy for this field, we are focusing this year on re-establishing a new plateau for production through a new drilling campaign that I mentioned just earlier to you and we're going to continue to work on assessing the integrated heavy oil column that we talked about sometime last year. So far, we've been able to produce last year, 4% of the total production from heavy oil, putting the proof to the concept.
Furthermore, as we explore our field, we are encouraged by the reinterpretation of our 3D seismic data that was happening late last year and this year, and these are particularly focusing on the Triassic formation, which is the formation below the one we are producing from; and this formation is where this Sarsang field is producing close to 30,000 barrels per day. So something to be more tuned to, hopefully once we finish the study, we'll have more good news in the next few months.
SH7: …and what kind of increased capacity can we expect from proven oil reserves at Atrush?
AC: Today, proven reserves are reserves that the producer like us or any producer in the context of the regulations has a high level of confidence they can bring/ extract by what they've seen from a successful drilling and testing campaign from the approved plan of development with the regulator and also from the work plans and the budgets that we have a commitment to. In our case, we announced earlier this week that we have now 110 million barrels of proven gross reserves for Atrush. This is under the designation of 2P and largely medium oil. We've been replacing the reserves year on year, Dave, since inception fully. It is a record that we are very proud of. So for the benefit for our investors and our shareholders, we intend to bring in these new barrels, (the proven barrels) safely and as quickly as possible to market the same way we brought these 58 million barrels in the past five years, and our intention is to do it at competitive lifting costs, which have been so far low between $4.80 per barrel to $5.8 range. So we want to continue with that same track record.
SH8: Can you explain the importance of “contingent resources,” and how this effects both future revenue streams and future exploration?
AC: So again, back to the investment shareholders, they should look at the contingent reserves as a true upside to the current business case for the enterprise. Basically, if and when we are able to successfully market these additional barrels, we’ll move them from contingent to the proven reserves and produce them., We should be looking at additional revenues and further growing the base for the enterprise and the growth will be considered as an organic growth as a true upside, beyond the business case. We have quite a bit of contingent resources and these are different from the proven reserves, they are mostly heavier oil. In the context of sustained high oil prices. It makes a lot of sense to look closer at the heavy oil because it has a higher level of cost for development but also it has lower realized price. But when we see these high oil prices, we got to focus on them. I indicated earlier that we have a strong and an encouraging response from the concept of the integrated heavy oil column, and we've been producing now 4% from it. I think we're going to look and lean heavily in that direction this year and hopefully it'll lead to something that makes sense.
SH9: I have to mention your stock has had a very nice bump over the last three months…nearly doubling in value since mid-January. What can you tell our investor audience regarding the current valuation of your stock and why you think it’s still a good buy right now?
AC: So in terms of context, I think the conversation we had earlier around the great financial/operation performance of 2021 should be for investors or prospective investors, a good indication of the path forward this year. Look, the focus also on closing the transaction with Total that will further grow the revenue base and strengthen all the metrics is also an indication of the great transformation that we are engineering for ShaMaran. When you look at the stock, of course, we're very pleased with the bump. We still think the stock is very undervalued based on what has been happening, based on the news of the company, and the significant strengthening of the company. So I think without putting more dots to those who want to buy at low price, this makes a lot of sense. We believe in the growth of company.
SH10: What’s the long-term strategy for the company moving forward and what should retail and institutional investors be looking out for?
AC: So investors, retail, institutions, as a matter of fact, even on the credit side, quite a bit of them that are involved with us as they look at us, they should see that we are focused on growth and significant value creation for them. and think of examples around the strength, the finances, the path forward around being an opportunistic strategist around these transactions. Taking them on at the right time and growing the company un-organically beyond what I mentioned in terms of growing the company organically. So we have a double layer there. By the end of the year, we will double the production of the company and we remain very bullish on the oil price. So we see this transformation as just the beginning for ShaMaran. That's the beginning of the journey.
SH11: And finally, Dr. Chaouch, if there’s anything I’ve overlooked the floor is all yours.
AC: Dave, it's a very comprehensive one, but I want to share with you something very special we did in the past month, if you don't mind and this is around our commitment to ESG, particularly for the environment. Look, we want to be among the early players, particularly for companies of our size. We announced last month a very strategic and one-of-a- kind alliance with a local NGO in Kurdistan to develop a forest around the loop of Erbil, which is the capital of the Kurdistan region. We will plant 1 million trees, native oak trees there and the idea is threefold: first work with local experts. This NGO is mostly scientists and professors from the local university empowering them to do a project within the area where we operate in the capital city. Allow this project to mitigate the impact of emissions in this very dense, urban setting, as well as have that as part of our early strategy for our carbon offset going to net zero gaol. Because we will use the carbon credits generated from this project to offset our missions in Kurdistan, we're very pleased and very excited about that. It is truly a one a kind project and very unique in terms of size and scale in the Middle East. There are very few places in the Middle East where they can plant a million trees in this short order.
For more information, please visit
www.shamaranpetroleum.com.
FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.