London, UK, 18 November 2019: MAGNORA ASA, a leading Norwegian royalty and license revenue company reports third quarter 2019 results.
Q3 2019 Highlights:
- Magnora ASA has returned NOK 499.7 million over the last 12 months to its shareholders, totalling NOK 9.5 per share following the last distribution of NOK 1 on July 11th, 2019. We expect to continue to generate revenues over the lifetime of the Western Isles FPSO (the “FPSO”), and in addition from the royalty of the Shell Penguins FPSO project. We expect to hold a cash balance of NOK 25-30 million and pay out all remaining cash generated by the agreements to the extent legally permitted. Our dividend is expected to be significant in the coming years, supported by the Western Isles FPSO and significant payments expected from the Penguins FPSO when completed, installed and starts to produce. These income streams are likely to provide for significant dividends in 2020, 2021, 2022 and beyond based on the existing contracts. For 2020 we expect to pay a dividend of around NOK 1 per share subject to no adverse effects on our operations, underlying contracts or acquisitions.
- Erik Sneve was appointed acting CEO effective from April 17, 2019, working closely with the Executive Chairman Torstein Sanness. Bård Olsen was appointed CFO with effect from September 1, 2019. Reese McNeel and the Board of Directors of Magnora agreed that Mr McNeel step down as CEO and CFO with effect from April 17, 2019. Reese McNeel continued as an advisor to the Board of Directors until he left the company at the end of August 2019.
- Q4 2019 will mark the first full quarter with a new cost-efficient operating model for Magnora ASA with new offices in Karenslyst Alle 2, Oslo, Norway and an outsourced accounting function. Annualised fixed operating costs, including non-cash costs, are expected to be NOK 7-10 million going forward from Q4 2019. Under the new operating model, the board and management can focus on value creating activities going forward.
- The revenue from the Western Isles agreement was NOK 9.2 million (NOK 9.4 million) for Q3. The agreement gives Magnora the right to USD 0.5 per barrel of oil produced and offloaded from the Western Isles FPSO (the “FPSO”) during the lifetime of the FPSO. The Western Isles development is expected to have a field life of 15 years. The FPSO is expected to have a design life of 20 to 25 years, and thus could produce oil for longer than 15 years. Magnora´s right to payments is tied to the FPSO, irrespective of operating location and field. Any potential oil field tied-back to the FPSO or any redeployment, irrespective of location, will also be subject to the payment obligations under the agreement. The Western Isles agreement is expected to generate income for Magnora in the years to come. The FPSO is owned and operated by Dana Petroleum and is currently producing at the Western Isles development in the UK sector of the North Sea. First oil was achieved in Q4 2017. The FPSO has a production capacity of 44,000 barrels per day. From first oil, the Western Isles FPSO has produced over 20 million barrels. At first investment decision (FID) the operator estimated the field to have 45 million barrels of oil equivalent (MMBOE) economically recoverable. Typically, fields in the North Sea produces much longer and more than anticipated at FID.
- The Penguins agreement gives Magnora the right to future license income of approximately USD 16 million from the Shell Penguins FPSO project. The Penguins FPSO is currently under construction in Asia. The payments of USD 16 million in total are tied to three milestones. These three milestones are: 1) the completion and sail away of the Penguins FPSO from the construction yard 2) the installation of the Penguins FPSO at the field and achievement of first oil, and 3) the successful production, offloading and gas export of 4 million barrels which is estimated to be approximately 6 months after successful start-up. It is anticipated that the construction of the Penguins FPSO will be completed in Asia during mid-2021. Achievement of the further milestones will take place subsequently.
- Adjusted EBITDA, as defined in note 1, was NOK 7.5 million (NOK 2.9 million), an increase of NOK 4.6 million versus the second quarter. The drivers for the increase were fewer one-off expenses, and expenses returning to more normal levels after an abnormally high expense level for the prior quarter (Q2 2019). Q4 2019 will be the first quarter with the new operating model where operating costs will be in the range of NOK 1.75-2.5 million.
- Operating costs decreased by NOK 4.5 million compared to the previous quarter, which was high due to (1) M&A due diligence expenses for one potential acquisition, (2) success fees related to the Sembcorp transaction, (3) increased employee expenses due to severance pay, additional fees to the chairman, and the implementation of a new options program, a non-cash cost.
- Net profit increased to NOK 4.8 million driven largely by the decrease in expenses as explained above.
- At the Annual General Meeting (“AGM”) held on May 21, 2019, an authorisation was granted to the Board of Directors to initiate a new share buyback program. As of the date of this report, Magnora owns 862 shares and can therefore still purchase up to NOK 2.57 million worth of shares under the program until the next AGM in 2020 or latest 30 June 2020.
- An options program was approved at the AGM, and the Chairman of the Board and the CEO have been granted 400,000 options each, and the two independent directors of the Board have been granted 50,000 options each. The cost of the options program will be recorded over the first 12 months following the approval date May 21, 2019, as the options are fully vested on May 21, 2020. The non-cash cost of the options is approximately NOK 1 million per quarter, in addition to employment tax at NOK 0.1 million.
- The company has continued a process of evaluating potential investment opportunities with the objective of realizing the strategic potential of the company and to generate further shareholder value. The company has considered a numerous amount of companies and investment opportunities over the last 12 months but to date none of the opportunities have fit the strict criteria for value creation for our shareholders.
- The Board and management believe 2020 revenues from Magnora’s contracts will be approximately the same as in 2019, based on current operational and foreign exchange assumptions.
About Magnora (OSE: MGN): Magnora ASA is a royalty and license company looking for profitable investment opportunities. The company is listed on the main list on Oslo Stock Exchange under the ticker MGN. ASA is a royalty company looking for profitable investment opportunities
For further information, please contact:
Erik Sneve, CEO, Magnora ASA
This information is subject to the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.