Title: Tony Marino (Tenaz Energy) — $65 Million to $2 Billion: The Netherlands' #1 Gas Producer
Show: Rose Bros Podcast (host Trevor Rose)
Guest: Tony Marino — President & CEO, Tenaz Energy (TSX: TNZ)
Date: 2026-08-27 (published; recorded 2026-08-06 — "Today is August 6th" in the interview)
URL: https://youtu.be/DDFgElG-vZY
Length: ~1h37m
Note: Verbal fillers (um/uh/"you know" interjections, stutters, false starts) removed; wording otherwise verbatim, every (mm:ss) cue kept in place. Repeat appearance (part II; first was ~May 2023 at ~$2/share, ~$65M market cap). Auto-transcript name garbles left as captured — map them when reading: "Tanaz/Tennaz/TANA" = Tenaz; "ENTP" = TNZ (ticker); "NOM/Nama shore/NOBV" = NAM Offshore B.V. (now Tenaz Energy Netherlands / "TEN"); "One Dios" = ONE-Dyas; "Granagan" = Groningen; "rot league/rotan" = Rotliegend; "Utizen" = Uithuizen; "Denhelder" = Den Helder; "Kula" = the barge/service provider; "manville" = Mannville; "Ellersley/Eldersly" = Ellerslie; "Glock" = Glauconite; "racks/Rex" = Rex member; "AO" = AECO.

(00:00) Good morning, Mr. Tony Marino. Thank you very much for doing this yet again. I appreciate your time. >> Yeah, thanks Trevor. I'm happy to do it. For the listener, you are the CEO of Tanaz Energy. But as a refresher, what is Tennaz Energy and what's your value proposition to the market? Okay. Tanaz Energy, ENTP.
(00:19) We are a TSX listed company, really an international producer. About 90% of our production is in Netherlands, all gas there, and 10% is in Canada, mainly oil. So the critical thing about the company today is that we're the largest gas producer in Netherlands among the producing community there. By equity interest.
(00:44) To me it's an extremely desirable position that we're very lucky to have. It is to me again it's an ideal jurisdiction to be in. Of course, it's European gas and very high priced in comparison to North America and particularly in comparison to Canada. There are good reasons why it has such strong pricing.
(01:07) The fiscal regime is consistent and it's very very good. The political environment there is quite stable, as is the set of rules that the industry operates under. There is strong rule of law. Physically it's a very good setup. Our production is entirely offshore. Our platforms and licenses and fields and wells are entirely offshore.
(01:37) It's shallow water 35 m typically. So that's good. 30 35 m. It is pretty close to shore, usually within about 30 kilometers. The weather environment is another positive piece and that it's pretty benign in the southern North Sea near Netherlands. It's not kind of this really rough weather area like you think of in the North Sea typically.
(02:02) Great service infrastructure there. Very good work ethic. We're very blessed to have the former NOM or Shell Exxon JV staff from NOM offshore BV that is now energy Netherlands. Strong group technically, really well trained, really well mentored in the Shell era and we are further lucky in a couple of important ways regarding the actual asset characteristics.
(02:39) It's good geology, reliable geology, conventional geology. So it doesn't have ultra high costs although it is offshore. It doesn't have super high decline rates, actually quite low because of the conventional nature. Very extensive, very reliable, very high success rates even in cases where we're doing something other than a pure development well, an extension well or exploration well, and everything we've drilled to date has come in for us.
(03:07) Importantly, there is a lot of infrastructure in this asset base. It's built for an industry that used to produce at much much higher rates. Industry and particularly the NOM assets went through a period of low development activity, very little drilling, almost no workovers done on the NOM offshore assets.
(03:32) And given the geology with multiple pay zones and quite extensive pools that haven't been fully developed, it means with that low level of activity that there's a large development inventory at quite high rate of returns, quite reliable and quite rapid payouts on our investment program.
(03:56) Infrastructure again is built up for higher rates. So that doesn't have to be recapitalized by us. We don't have to put significant sums into pipelines and platforms. Everything we drill is from an existing platform. Gas plants are there with much higher capacity than we produce at today. So great setup in that in this super capital intensive business, we don't have to redo that portion of it.
(04:23) We don't have to really invest very much in that infrastructure part of it to be able to grow. It's really about the workovers and wells and some of the platform work that requires capital but not that other also quite capital intensive element of infrastructure. And we're very lucky as well in our second project. We made two major acquisitions last year. I mentioned already Nama shore BV, this has become Tanaz Energy Netherlands. We made a second transaction that was the ownership position in the GEMS project, gateway to the Ems.
(05:02) This is a new development area that is basically on the Netherlands German maritime border. It's just started to be developed in our period. It's at 100% success rate on the drilling activity. The wells are very very high rate. Two of the three wells that we have on production in the current pool that we're developing, we're in a non-op position there but pretty high interest, typically one third, ranges from about 27 to 45% working interest for tanaz. Two of those wells produce about 75
(05:38) million cubic feet a day and this is into a market where gas in Canadian dollar terms on an energy basis sells for 25 or so Canadian per MMBTU. So you can see especially with a favorable fiscal regime how you can get very very high returns, very very rapid payout on this kind of productivity.
(06:00) That project is in its very early stages of development. So it's going to ramp up very rapidly in production and there's additional discovered pools to develop and extension and exploration projects on that one. Back on NOM, the first major acquisition of last year. It's kind of a midlife asset. It just hasn't had very much investment for the past 15 years or in some cases more than that on certain licenses.
(06:27) And it is to us it's replete with opportunities across the development, extension, exploration spectrum to drive up rates. It's kind of a long answer to your first question there about what is the value proposition. That is really the main proposition in the company, that we have the capability at quite reasonable levels of capital to drive up production organically in a very very high value market.
(06:55) I don't want to neglect the Canadian piece. We've done great with it since the recap when we got this asset in the recap 5 years ago. Production's up two and a half x. It has free cash while it grows at that strong pace and we're going to continue to drill and to grow that multizone manville position there.
(07:17) So it's a good one but it's 10% of the company and as Netherlands grows a lot faster than Canada, Canada becomes an even smaller piece over time but they're both great assets, just of kind of different sizes. That's the value proposition, that we've taken an M&A model. It's kind of a classic, consolidated the position in a super desirable jurisdiction to be in.
(07:42) I can't think of a better one for us to be in, the Netherlands. And now we're growing it organically. We still have acquisition opportunity. Company is by no means dependent on it. It would be kind of the icing on the cake. We hope to do some more over time. No guarantees. But we can become a significantly larger company just with the organic activity in Netherlands and again we'll continue the Canadian piece as well.
(08:06) >> Core strategy acquiring undervalued overseas assets where entry multiples are lower and operating upside is higher is maybe one way to put it. >> It's exactly the way to put it and this is kind of the mantra that we had when we came out with the recap. We had the good Canadian asset.
(08:24) But the objective was to grow internationally precisely as you put it. Multiples lower at entry, more opportunity to drive up production, drive down unit costs, improve profitability in the overseas assets. And you put those two together, you have this great chance for a high return on capital.
(08:43) >> We kind of executed that strategy in the Netherlands. We're not done with acquisitions, as I said a second ago, but really now the primary activity of the company is to just execute on this organic growth. We've been growing every quarter I think that the company has been in existence and we're starting to show some significantly higher growth rates now just because we have this real strong high return diversified organic development program in Netherlands while we continue to have
(09:22) the lower rate growth in Canada. This podcast episode is powered by ATB Capital Markets. ATB Capital Markets provides financial solutions and strategic advisory services to help businesses thrive. With a track record of successful deal execution, ATB is a full-service investment dealer with a deep understanding and commitment to the industries it serves.
(09:45) Visit ATBcmarkets.com for more information. Taking advantage of some market inefficiencies in the Dutch North Sea >> that certainly have existed. It's a good question that you asked there, to whether they'd be characterized as market inefficiencies or if it was just sort of the changing of the guard to a company that was really kind of designed and very well suited to undertake a midlife asset position.
(10:21) In the case of NOM offshore and of course gems was very early stage, a slightly different thing but nonetheless produces the organic growth with free cash just like the nom assets do. But market inefficiency, it depends I guess on how you look at it. The fact is that we recognized via previous experience that we had in the overseas market
(10:48) the idea that you could execute this at lower multiples at the beginning and if you had the operating capability, technical production operations commercial as well, you could really grow the assets organically and expand the margins at the same time. One thing that the lower multiples did allow us to do, the lower multiples on entry, we were able to execute these acquisitions without really issuing much in the way of equity, almost none.
(11:24) >> The first deal had no equity out the door. The second one for gems, we had a very small equity kicker. It was only something like 3% of the total consideration in the deal at the time of the deal. And that's all the equity that we issued for purposes of making the acquisition.
(11:44) So we don't have very many more shares out than we had at the time we did the recap. But the company is now whatever we are now. We're 30 times bigger already and headed for >> much higher growth as we go forward. In this way, if you don't do it with equity, we can represent better value today than we represented at the time of the recap.
(12:09) >> And it's a surprise maybe to people, but actually we end up doing it at pretty low debt multiples in the company as well. We're kind of underlevered even today. And as we generate free cash, and we believe we would generate more and more free cash over time even as we grow to a much larger size, we can pay off that debt and we can be completely underlevered if we choose to do so.
(12:38) So the ironies are that you could have this high growth, represent better value, do it without issuing equity and still be underlevered. And this is just how it has kind of turned out. Today is August 6th. The market cap is approximately $2 billion. Q2 average production was about 17,000 BOE a day.
(12:59) Your latest July estimates getting towards 23,000 BOE a day. Your Q2 results came out last night. All the metrics looked really good. So things are going well for the company. >> Thanks. You do a great recap in describing the company. We're fortunate to be where we're at. We're pretty happy with it.
(13:22) Nothing is perfect. We want to do better all the time. But it's oil and gas, difficult business. It's difficult in commodity prices and with its volatility. Sometimes it's difficult in terms of geopolitics. It's always kind of difficult operationally and technically. They're real challenges, right? And the kind of wells we drill, while conventional in nature, they have their own set of technical difficulties and the offshore has its own I think interesting and fun characteristics
(13:55) but they are logistical challenges. So in oil and gas there's always some things that you need to improve on and nothing ever goes perfectly right as you would like it to. By oil and gas standards we've been pretty lucky with how everything has evolved and I think the second quarter and how we're doing so far for Q3 is in line with that kind of progress and with being pretty fortunate with how everything is turning out since our first combo which was in May 2023
(14:32) the share price has gone from approximately $2 to today it's about 54. There was a time it was about 70. So things have gone incredibly well. Market cap at the time 2023 was $65 million. Like we said, it's about 2 billion. So it's been a great run. Yeah, we're lucky to be where we are. And certainly we're super, we think, fortunate, lucky to be in this position in this jurisdiction with the growth ahead of us, with the infrastructure in place, with the team that we have inherited in addition to
(15:04) the team that we put together in Calgary originally. So, we're very fortunate to have all these items. Again, it kind of goes with what we were talking about just a minute ago. The fact is that yeah, we've had this increase in the stock price. We did trade higher a couple of months ago.
(15:25) We've had this pretty crazy path that we followed during the >> Middle Eastern war where stocks ran up a lot originally and then they traded off a lot when >> it appeared at a time the issues were being settled. And for us, we would have preferred for sure not to have the war. We'd prefer stability in the world and just steady growth everywhere.
(15:51) I don't think that runup in price in the stock that the war induced has particularly been a positive because we feel like we can execute the growth plan at very strong prices and super strong margins without it. As far as that's kind of speaking to the hump we had when we reached 70 whenever it was a month or two ago.
(16:12) As far as the overall point-to-point change from when we talked the first time, yeah, the stock was probably about $2 back then and it's 54 today. Again I would feel that we represent far better value today. Certainly far greater certainty today. We've had this enormous growth in the company.
(16:36) I don't know, 30 fold perhaps in maybe in production from where we started. Cash flows way up. We're generating free cash at some pretty high growth rates. But because all of these metrics have moved up, all these quantities that we have in the company of production and cash flow and all these financial quantities, I do feel to me we represent better value today and there's a second part of that too, in that I think we're a far less risky entity than we were. At that time it took us 3 years ago. Nobody
(17:17) could say, we had some degree of confidence but nobody could say for sure where we would be in 3 years or 5 years. Of course, we can't say for sure where we'll be in the next two years either, but I think we have a much better idea today. And since we did not issue equity in any significant manner to achieve that growth with the growth in production and cash flow, reserves, everything, that's why we can represent better value today with the business significantly derisked from where it was three years
(17:51) ago. I was joking to my wife that I need to start doing a podcast investing index on my own guest because if I'd bought the stock three years ago when we first talked, I could have retired. But [laughter] Trevor, you get a lot of great companies talking to you on your channel here.
(18:12) So I think you'd probably have a great fund if you put one together. Actually, >> start listening to my own advice maybe. But like we were saying, the last year or so you've closed a couple of very interesting deals which in summary is how you've got the production up to what it is today. Maybe for the listener we'll go through the two deals.
(18:28) The first one being the NAM offshore acquisition which took the was about 11,000 BOE day, TTF gas, about 55 million boes. It was a purchase from a 50/50 JV with Shell Exxon Mobil if I'm correct. So, that was a great deal in the sense that you got it for a good price and boosted production, but how did that deal come together and how did you spot the opportunity? This episode is brought to you by Bunch Projects.
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(19:25) Bunch construction-led engineering is built on trusted partnerships and proven performance. Learn more at bunch.ca. >> Okay. Go back. I'll discuss that and I just wanted to think about, you mentioned all the assets bought. We had a couple of small non-op deals at the beginning. Of course, we had the recap Canadian asset about 900 BOED at that time 5 years ago.
(19:50) It's now two and a half times that in production. So we did a good job actually even in Canada. Credit to our team there. Free cash on the way up too. So putting them all together. Nama shore was not really quite, it might have been 10 at the time, we probably bought, I don't know, 14 or 15,000 BOED in the deals at the effective dates, I suppose.
(20:23) And we just announced in today's or yesterday's release that our accounting estimate right now for July of this year is 23,000. So really I think there's been something on the order of 50% organic growth for the company as a whole just with the two deals closed in 25, small non-ops 23 basically, and the original recap in 21 with the Canadian assets.
(20:50) So it's been pretty good organic growth in addition to the acquisitions. To specifically answer your questions there on NOM. So NOM is a 50/50 joint venture between Shell and Exxon. It's in Netherlands and of course originally this was Royal Dutch Shell main driver but they're equal shareholders.
(21:17) Most of the personnel, vast majority came up through Shell which is good because Shell is a top-end technical company. They hire very well. They're very very technically focused. Really the same approach that we have at a much smaller level at Tanaz because it's a big company. They had a lot of formal training within the company in addition to that good hiring plus a lot of mentoring which is very very important.
(21:44) So we had a very very good staff at NOM. The other thing when it's Shell and Exxon there is the highest standard you could get in the world for asset integrity. So these offshore platforms could not in my view be maintained at a better standard than they were at the time that we got the assets. Very lucky in that respect for a variety of reasons.
(22:08) NOM had not been a heavy developer to say the least of the offshore assets for a long time, probably 15 years, maybe more when you consider certain groups of licenses prior to our deal. Just very very low capital investment. Virtually no heavy workovers, very very limited drilling done on the assets.
(22:32) And as a result of that, we get something that is not in our view a late life asset at all, but kind of a midlife asset. It's not a brand new development like it is at gems. But they are significant pools that in most cases are not fully developed. There's a huge amount of extensional and I think quite low risk, have to be classified as exploration activity, kind of small to use the industry cliche, because there just was not that kind of reinvestment into the assets for a long period of time and again there are
(23:10) multiple reasons for this, logical reasons when you're sitting in the position I think of super majors like Shell and Exxon. But the fact is there is all this development inventory as I said before placed within an infrastructure system that is built for far higher production levels allowing us to grow into that infrastructure without really having to put all this capex into building the infrastructure.
(23:41) It's already there. So the deal came about as a result of contacts that we made when we started out in Tanaz. Again >> we had worked, the team had worked in the Netherlands industry mainly onshore previously. We all have a super high regard for the country. To me Netherlands is an amazing place.
(24:11) It's modern to say the least. It's got a diversified economy. It's actually quite a wealthy country. Very very wealthy considering that it is nearly 20 million people. It's not a tiny country yet I think for its size it represents one of the most affluent places I think you could find in the world.
(24:34) I think I said it before, very stable rule of law, well-established petroleum regime in terms of quality technical operational regulation and in having this superstable fiscal regime. So we like the industry, we made contacts early on. It I think dovetailed with NOM's objectives to sell the offshore they were not developing. So logical sale on their part. They had a very large business overall in the Netherlands, a lot of it of course was the Granagan field, biggest field in Europe onshore, that was ultimately shut in
(25:11) due to seismicity characteristics that it had and the offshore was a logical sale I think contemplated by NOM prior to our contacts for sure and we were part of really a very limited process. We had a very honorable high quality counterparty in NOM and the Shell and Exxon people that worked on the deal and we were able to ultimately get it done and we're lucky to have the team that we have, to have the assets that we have and economically it's turning out
(25:53) pretty good. It was also a really good deal construction I think because the asset generated free cash flow between the effective date and closing. You received money at the closing date. Well, we did at closing and this is first of all kind of a characteristic >> approximately $15 million. >> Yeah.
(26:13) Yeah. Now, we had 15 million euro. We got it closed, but we had made a deposit of I don't know 22 or 23 million euros already. So, it was not like it was a negative value consideration. And it was not, the deposit netted out versus the payment at closing was a positive number. Secondly we had contingencies, contingent payments in there as well.
(26:38) We had the free cash flow earnout under which nom has already received a payment and we hold on our balance sheet an estimate for future payments as well. It is constructed as free cash. So, the more we invest, it reduces that free cash flow pad, and a couple other contingencies on exploration and long-term pricing, not current pricing, but that if they kick in, it'll be beneficial for both parties because they'd be at very strong levels of either exploration success or pricing. So it
(27:14) did have positive value and it did have a number of contingencies for the seller there. But we're lucky to have it. One of the characteristics we knew about working in the European transactions. Yes. We expected them to go off at pretty low multiples. That's just how it has been historically.
(27:33) And also they take typically a long time to close. It's very complex. There's technical complexity. There's a variety of organizational transition activities, everything really, IR, HR, contracts, procurement >> that have to be, safety, all these things have to be executed. Now we were fortunate in that we were getting the NOM staff which made all of those transitional elements better, easier and able to do them more effectively.
(28:08) But nonetheless they take a lot of time, regulatory considerations etc. And so given the long period between the effective date, in our case on that deal it was Jan 1 24, and closing which we actually achieved earlier than targeted at May 12 25, that's a 16-month period, so the free cash generated during that period went against the consideration, the base consideration as of Jan 1 24, paid it down a lot. We had pretty good pricing.
(28:39) We were able to lock in some of that with hedging during that period. So this is why it ended up where it did. Yes, there's a lot of opportunity going forward. We are executing on that now. We're delighted to have the assets. Of course they were maintained as I mentioned at very high levels of asset integrity.
(28:59) So physically we're in good shape with these assets for a long period of time. And that's where we are today with NOM. It was actually a pretty interesting deal. The way you did the contingent payments too, which for the listener I think was basically seller financed how it works.
(29:18) So maybe how does that work and for the listener how does the, you split the contingencies 50/50 I think. But how does that work? >> Yeah, again this is kind of a matter of semantics or nomenclature. I don't view it exactly as seller financing. They are really pure contingencies and I like the acquisition business, M&A and D, businesses both buying and selling. I've been more of a buyer historically but quite a few sales as well and you can be quite creative when you put together these structures. Ultimately the
(29:54) objective in the entire deal and the way to get them done is to meet the objectives not only for our company in this case as the buyer but also for the counterparty, the seller, nom in this case. So the whole key is to come up with a structure and a degree of confidence between the parties both, but a structure that meets the objectives not only for Tanaz but also for the seller.
(30:23) That's where these contingencies came from. We had a pretty healthy number of base consideration at 1 1 24. Now, vast vast majority of that was paid off in the 16-month interim period before >> initial cash payment. >> Yeah. Yeah. The consideration was €165 million at 1 1 24. We made a deposit.
(30:46) I think the number was like €23 million or something like that. And we got some money back at closing cuz that deposit was already in place. And that whole thing took care of the base consideration. We had arranged for three contingent sets of payments. They're contingent. We didn't know at the time for sure if they would occur or not.
(31:14) But they give the seller retained upside in the properties. That's the whole purpose. So if conditions are bad, the property turned out poorly, pricing was terrible, they wouldn't get anything under any of the contingencies. The first one we called an earnout. And maybe because of that terminology, maybe this is where the idea came that it was seller financed.
(31:40) But really it's a sharing of free cash flow for three of the years of the deal, 25, 26, and 27. Half of free cash, FFO minus capex, going to the sellers in 25, half, and 26 one quarter in 27. And we made a payment, a meaningful one in 25. We hold one on the balance sheet for 27. It is free cash right >> exactly >> there are good investment opportunities. We want to get the return on those investment opportunities so we tend to invest the vast majority of the free cash that comes in from the old nom
(32:23) assets, now we call it TNA energy Netherlands, and when we have that high investment level, yes it sets up growth for the longer term and it also reduces the amount of earnout payment. We are overall a free cash generator because of gems even while it grows, but for Netherlands and in addition for Canada, but nonetheless the fact that we invest significantly in nom drilling workovers means that the contingent payment under the earnout is lower than it would otherwise be.
(32:58) But you can see how this one would work to the advantage of the seller in periods of very high free cash flow. And again we made a payment for 25. We hold one on the balance sheet as an estimate for 27 and it gets re-measured every quarter. We have a second contingency on exploration success for a set of exploration prospects if they're pretty big discoveries.
(33:24) Everything in Europe is really in SI terms or BCM, billion cubic meters, rather than BCF but I'll translate it to imperial units that we're all used to in North America. So if we make about 17 and a half bcf on a brand new field that is identified as an exploration prospect on the old NOM offshore, we would begin to pay a royalty after that point.
(33:55) If it gets up to 35 BCF on a single discovery then the royalty goes up there. Trying to recall actually the exact royalty percentages. I think it's five and 10 after you hit each of these thresholds. Nothing before 17 and a half and then you don't get to a full I guess 10% ride until you get to 35 BCF.
(34:17) So, a big discovery and of course in this market that would be super profitable before either of the thresholds. So, it's advantageous if it occurs. We hope it does. We haven't had that kind of new field effort yet. But we hope it does occur in the future. May or may not. This is why it's contingent.
(34:40) The last one is a pricing contingency. This does not apply until 2028. It goes 28 through 31. It's at pretty high levels. Would not kick in at all until we get above €50 a megawatt hour, which is I don't know 22 probably Canadian per MMBTU. It's an after tax inclusive of hedging incremental value above 50.
(35:11) They get I think a quarter of it until we get to €60 a meg, and at that point the increment is I think 38 above that for the period 28 to 31. Currently the pricing is about 55 euros a meg which is really quite a strong level. We didn't anticipate that kind of a high pricing at the time we made the deal but we're in 2026.
(35:38) >> We'll have to see what the pricing is in 28. Currently the forward strip for 28 is about 31 I think, that's about 30 euros a meg I think right now something like that. So it's around half of the threshold level to have that contingency kick in. But if it does kick in on an incremental after tax basis inclusive of any hedging that we have done then there will be a payment. It's an annual calculation 28 to 31. A little bit better to do it annually because that means you don't just clip the tops monthly or quarterly.
(36:16) It has to be at these averages for the entire year and that's done on an annual basis. So it's a fair contingency, all of them are in my view, and again allowed us to get to a structure that met the needs of both the seller and the buyer. The other element in these acquisitions is trust and that's being honorable on both sides which I think we were throughout the process so that the parties know that they can get to the finish line and they know after the finish line, after the closing,
(36:48) there's going to be a reasonable party on the other side. A lot of people say trust no one, but you can't really do that because there's no way in any contract you can provide for every contingency. I've heard also the saying, I think it's true, good contracts make good friends.
(37:11) You want to construct your SPAs and every other contract very accurately and clearly. But nonetheless, even with the best contract, you can't say trust no one. >> It always takes some trust to get a deal done. If you truly trust no one, you would never make a deal. You would never have a deal. So there's both these elements and we were lucky to have them with NOM.
(37:35) Both parties honorable, both parties seeking to create a transaction that meets the objectives of buyer and seller. The idea was it allowed the seller to have some upside on the deal, allowed Tenaz to make a big purchase for sizable assets. And it's also great for you because you split the pot after cash flow which investment.
(37:56) >> Yeah. >> So you spend all the money, the more you spend, the less you have to share with the seller in a nutshell. >> The more you invest during that period, it does reduce the earnout. Yes. >> Which is great for tenants. It matches the characteristics of the property and it matches our objectives in that we got these high returns on capital investment and we want to grow. The mantra of the company is organic growth now with acquisition upside >> in a backdrop with high natural gas
(38:26) prices in Europe >> that helps the economics. We were never really dependent on it because we try to build the company for lower prices. Interesting too, a characteristic of this set of assets especially applies to the NOBV or now TEN, I need to remember to keep calling it TEN to shift to the new name, but our margins do improve over time even if pricing stays flat and that is because so much of the opex offshore, vast vast majority of it, is fixed. You bring in an additional
(39:08) molecule or MCFD, it does not really change the opex very much. So it's huge contribution margin. All that increase in production in a growth mode like we are in, almost all of it flows to the bottom line. We have a little bit of transportation expense and the transaction opex of course is a per unit basis, but what is it, transportation opex probably compared to opex is less than 10% of the total. Opex largely fixed means that unit costs decline over time as we grow.
(39:39) >> Mhm. >> And you look at the corporate level, we've got a slide about this in our corporate deck. It's kind of an alligator jaw because the mix of higher priced European gas in the portfolio compared to our Canadian mainly oil, but some AECO as well, that goes up over time.
(39:57) There has been a runup in price recently in Europe as well. So we kind of get an increasing revenue per unit line and a decreasing cost per unit line because of the investment and the work that we put into growth. This alligator jaw is higher margins and that's obviously desirable, improves returns. That also makes a company less risky because a change in commodity price has less of an impact when you start with high margins rather than low margins.
(40:24) The second deal you did was the Gateway to the Ems deal which closed October 6, 2025, approximately $230 million cash, $60 million contingent. It was about 4,000 BOED, 19.3 million BOE at 2P reserves, which was a great deal as well. So again for the listener, how did that one come around? >> Yeah. Okay.
(40:47) A number of contrasts in comparison to the NOBV or TEN deal. >> Both North Dutch. >> Yeah, they're both North Sea and Dutch. >> Well, GEMS kind of runs through the maritime border with Germany, but all of the development activity has been on the Netherlands side of the border. So they're both Dutch North Sea. Yes.
(41:09) With additional licenses in Germany in the case of gems. So NOM, NOBV, TEN, is an operated asset. I don't know, 85% operated, something like this. There's always some non-op that goes with it. And of course we prefer operated assets. Control, we can do it our way.
(41:33) Make it meet our, exactly tailored to our objectives. Gems is a nonoperated asset. In the current development, we're about a one-third interest, almost exactly. The licenses range from 27 to 45% if you look at the entire leasehold spread. Gems is a very early stage asset. It's not midlife like I'd characterize TEN.
(42:03) It had one discovered pool at the time. Well, I take that back. It actually had three discovered pools that are going to be developed. Had a couple other more distal contingent pools that have positive tests on them, but mainly three existing pools to be developed. One under production with one well at the time that we bought it, a 75 million cubic feet a day well, highest in the Netherlands, this N5A pool.
(42:27) >> And that was a Yeah, like you said, 4,000 day barrels roughly to us at the time of the purchase. So it was 230 million US with an exploration contingency as well and 12 million US of equity at the time. It would be worth more today for those shares. And we did it because we recognized the fact that it was going to grow pretty rapidly and the fact that it had huge additional development and exploration opportunity.
(43:02) It's turned out I think to be quite a strong deal. There have been two wells drilled by the operator on that asset since we closed. The first one originally tested 40 million a day. The last one just came on 75 million a day. So now there's 74 75. Now the two highest rate wells in the Netherlands are on this asset.
(43:27) Both approximately 75 million cubic feet a day. We have a one-third interest in it. And in that N5A development currently an extension well now being drilled. There'll be an exploration well drilled to a significant potential size, pretty high COS pool to the east, potential pool to the east. And there's a lot of additional exploration in the area,
(43:54) some of it on the resource books. Not every potential prospect in the resource book yet. And there's these two other pools in addition to the N5A pool that have been discovered. One tested 20 million, one tested 50 million a day. N4 pools A and C. And those would be developed with another platform couple years from now basically.
(44:19) So that's what is sort of known today and then there's, I think we had about 11 or something total contingent and prospective resource projects recognized and there's a few other blobs as we call them, seismic leads that are not yet characterized as prospects for the resource book.
(44:48) So there's a lot of upside. A lot can be done just from the existing N5A platform. There will be the N4 satellite to develop these other pools and these other two N4 A and C discovered pools and some other exploration that will occur in that area and I think over time additional platforms will be set as well as the exploration of the overall area continues.
(45:11) It's a strong area geologically. Now that the geologic model is well understood, I think the success rates are going to be quite high here. Very high. It's 100% for us to date in the N5A pool. And I think the exploration is going to happen at pretty high success rates as well. Hopefully 100% but we don't know yet.
(45:36) So should have very very strong growth. Production today is I don't know what it is exactly, something on the order of two and a half times where we >> bought it at. So returns have turned out good on that one as well. So different, earlier stage than the kind of midlife that we get out of TEN. It is nonoperated. Very high rate wells of course. It starts at lower unit opex because there's only one platform producing at a very high rate.
(46:10) That platform, that N5A platform in Netherlands waters, is powered by an offshore wind farm on the German side of the maritime border. So basically the platform in the production phase doesn't generate any, even drills with an electric rig. That drilling going on right now doesn't really generate any emissions. It's all powered by that renewable >> wind farm.
(46:36) So we like it from a standpoint of sustainability as well. >> So who is the operator and how come you decided to do non-op because I think in the past your strategy has been to be an operator and control everything. >> Of course we want to control. There are certain companies that have pure non-op models.
(46:53) That is not us. We like to control. >> We feel like via engineering and geoscience capability, commercial capability too, but it really comes down first to these technical elements of engineering and geoscience. We're very focused on it. We think we're pretty capable. We got I think a pretty good record of it.
(47:11) You can look at Canada, you look at what we're doing in the Netherlands now. So yes, we want to control. Not only do we think we're capable of doing it, but of course as operator you can optimally match it to your company's objectives. So normally yes we want to operate. We are not the operator in this project.
(47:34) One Dios, which is the largest private oil and gas company in Netherlands, is the operator and they're a good operator. Even though we would prefer to operate, it's not the case today. And the value in the asset, the growth opportunity, the rates of return on the original investment and on this drilling which pays out super rapidly at these prices and rates, production rates, within a few months.
(48:03) It was worth it to take on the non-control position >> and it's worked out well for us to date. >> So the market's not dumb, so to speak. What do you think Tanaz picked up on these deals that others missed? And how come you guys were the successful bidder without overpaying? Ah, it's always a good question.
(48:25) But yeah, kind of maybe gets back to this market efficiency label that we talked about earlier, but the fact is in our A and D approach, M&A approach, we've been doing it for a long period of time. We all started, including our financial people, they're very technical as well, some of them seem like great engineers in their own right even though they're in finance, like our CFO for example and our VP of finance, they're all very technical people. It's not just the engineering and
(48:58) engineers in geoscience. We started in our careers working at the base level, for me in the field, a great deal learning this business from the bottom up and all the technical aspects of it and there are myriad aspects and they actually evolve all the time in this industry. I like it from this standpoint, this combination of science and then kind of the art of visualizing what is downhole and in the reservoir.
(49:26) That technical approach, engineering and geoscience, is the foundation actually of what we do in the acquisitions. We try to make the most accurate projection that we can of what these assets are going to do. What rate are they going to produce at, what projects do we have available to move up the rates? What's the capex going to be for those projects? What's the opex stream going to be? So all of these kind of technical inputs I call them really the controllable inputs.
(49:56) We try to make as accurate as possible and to me there's a good reason to put all this effort into that individual projection on every well, individual project case on everything. It's very technical labor intensive when you do that and especially in acquisitions where you only make a small fraction of the deals that you evaluate it takes a great deal of organizational effort to make that kind of forecast.
(50:25) But we do it because that's the element we can control in acquisitions. The fact is, and I don't think it's contradictory to what I have just said about what we focus on, but in acquisitions the biggest driver of whether it's high rate of return or not is how does a commodity unfold versus where you buy it at basically. And we try to make the best prediction we can. Well, you have your futures market as one indicator. You try to sensitize to pricing etc. to make sure that you don't have some disaster
(50:59) if prices are lower than expected at the time you make the deal. But at least those technical elements are controllable, we believe they can be forecasted pretty accurately. So we don't have a disaster in our technical forecast, our controllable forecast, because really the commodity is not within our control.
(51:25) We can hedge and we did hedge for example significantly on the TEN and on the gems acquisitions, something around half of it for the first couple of years. But these are long-term projects. You can't really control the long-term pricing. What you can do over time, and a lot of companies do this very successfully in Canada and the US, can drive down your costs over time. That you can control, your unit costs >> and again it goes back to that margin statement. The higher we can make those margins in any commodity environment the
(51:56) better it is and the less risky it is, less volatile it is in terms of cash flows. So that is the way we approach these transactions. We also prefer the international market. It does have fewer participants, particularly qualified participants who are available to buy these assets as they are either made available for sale or, if we approach on an unsolicited basis, a seller.
(52:27) The fact that you have fewer participants, preferably zero additional participants, that would be your ideal case. And oftentimes in these there are pretty limited processes that end up as kind of more negotiated deals as you would have on an unsolicited basis. The fewer potential buyers you have, competitors you have buying, the better returns you get.
(52:54) This kind of gets into acquisition theory but this has been demonstrated both theoretically and empirically. Yeah, for sure. >> In historic data, when there are five or six bidders, >> it's hard to make a good deal. If there's one, us, let's say, as the winner or another bidder or maybe two others, that's when you can make a better deal.
(53:16) You can avoid winner's curse, which occurs oftentimes when you get a lot of bidders on a property. And of course, the sellers know this and the dealers who are the intermediaries in these deals, they know this as well. They want to get more bidders in. >> In that international industry, historically, I don't know how it'll be going forward exactly, you have fewer participants.
(53:37) We knew this when we put the company together. It was our experience previously. And really, there aren't as many qualified bidders that have that technical capability to run the assets, to get to closing, run the assets, meet all the regulatory requirements that occur. To be able to do this goes back to the technical capability of the company, an engineering, geoscience, production operations capability that we feel that we possessed and we of course put it together even more when we brought in the NOBV assets by having
(54:08) the NOBV team. So that's really the key and why you can make high return deals. The processes we believe were, in certain aspects, against a very limited number of competitors and this is one of the main reasons we could get to high return transactions. Also, we structured as we did to meet the objectives really of both sellers and buyers, not just us.
(54:43) And that has worked out pretty good, too. So this is my long answer to your question, but you have to go really all the way back to both theory on bidding and also to our very technical approach. I don't know if every company would focus as much on the technical eval as we did. And also given that we came out as an M&A startup >> we had better have had a great deal of emphasis on the ability to evaluate properties accurately or else we would have no business attempting to run this model >> and we got lucky as well, all these
(55:21) things, and I'd rather be lucky than good. >> It's just the way it has turned out for us. So strong technical emphasis with less competition in the market you're fishing in so to speak. But from a geological perspective, what did you see in the Dutch North Sea assets that made them different? I think they're traditional reservoirs.
(55:39) What are the geological attributes? Well, there's in the rot league, in the main producing sand, it's not the only one, there's deeper in the carboniferous, there's a few shallower horizons that produce as well. There are a number of pools that are structurally trapped.
(55:59) There probably some stratigraphic traps as well, but these are, by careful evaluation, they're pretty identifiable. They're pretty possible to evaluate on all the elements of risk that exist. It's possible in these classical pools, these conventional pools, to do pretty good classical reservoir engineering to predict how they're going to perform.
(56:24) And that is simply what we undertook in the rotan. There's good source in the rotan. There aren't very many places where you have to worry about source and timely migration. So if you can find a trap structure, in terms of the pools that are not already discovered, you've got a pretty good chance of being successful.
(56:46) Reservoir quality varies but generally it's good or good enough. A few of the wells are stimulated as well, we do some of that, most of it's unstimulated. This is the geologic characteristic. In the case of gems the same things are true. It's rotan, kind of a different sequence in the rotan than in the western part of the Dutch North Sea, but the concept, which wasn't identified let's say 25 years ago or 20 years ago, that One Dios and their predecessor as well in the area identified
(57:27) was that the structures out there weren't necessarily going to have rotan sand on the very top of the structures. Some of them are what we call bald, where the sand kind of flows in in the more topographic lows or valleys, not just necessarily the very highest part of the structure. So some of the drilling a couple of decades ago or more in the area found these bald structures, no sand, leaning sand on the top.
(57:59) Now the geological model is very well understood that the sands and their high quality are going to be in some of these, let's call them, lower topographic points. Now that that model's understood there's a lot of 3D especially, well actually on both sides of the border, and a fair amount of 2D as well on the German side and on top of a number of 3Ds.
(58:22) It's very well defined and I guess we were able to clue into that model and understand it at the time we made the gems evaluation. That's kind of the engineer's way of describing it geologically >> because the fields are fairly mature. I think they've been drilling in that area for approximately 60 years.
(58:40) So there's a lot of well control and type curve analysis you can do. >> Well it is true that there is a lot of well control. When we say 50 or 60 years that would be really not in the gems area, I'll again draw a distinction in just a second on that, but in the bulk of the area that we have with TEN, discoveries maybe 50 years ago, maybe a couple are older than that, some of the pools much much newer of course too. There is I think on our license base complete 3D coverage and in fact double coverage, and a key part
(59:16) of that, we, one of our main producing areas where not only is there the typical 3D but we also have this ocean bed node 3D where the geophones are on the seabed. You don't have this energy loss on the way down and back up, so you get a very very high quality picture [clears throat] particularly in these subsalt areas that are a little bit harder to image unless you have very good data. So that OBN seismic that we have in that area, which is really now just being evaluated, is a kind of double coverage and
(59:51) super high quality coverage in that key producing area and I think it'll yield us some very good results that really aren't in the portfolio as of today. Gems is a newer area. I don't know when the very first dry holes were drilled out there, but I bet it was 25 years ago,
(1:00:14) again going after, or maybe more, going after the tops of the structures. The success came in in the last 10 years or so when the model was recognized to drill in some of the lower areas structurally that are filled with sand and filled with gas and resulting in these ultra high rate wells. >> Budget for the year is about $300 million.
(1:00:40) So, you're drilling wells as we speak, but how many wells do you have planned for the year? >> Well, on the operated program, that would translate to about, we have one operated rig going. We're lucky to have the rig we do, the shelf winner. Quite well performing. I was just out there a couple of weeks ago. In a year, you'd drill about four wells.
(1:01:00) Actually, over time, I hope we can do it faster. We're in the early phases, second or third well depending on how you look at it right now. And third well, and we will have a learning curve in both costs and time although we did quite well I think on our drilling of the first ones. So that would be about 3 months a well. I hope we can do it faster in the future.
(1:01:21) I bet we can. We have had a non-operated well going on a rig going on ENI's operated assets earlier this year at lower interest. They're resuming drilling on some lower interest wells for us as well. And then the gems rig has been going for the whole year as well. And again that's roughly a four well program on a gross basis.
(1:01:52) That's the drilling side in Netherlands. We also have a new heavy duty barge that we've just picked up starting in Q3. The Triton 10 by Kula, an independent service company in Netherlands. A very high quality asset for us to have working for us. And it can do some of the heavier well intervention that hasn't been done for a long time in the NOM assets.
(1:02:22) And of course, when you have these workovers, typically you won't get the kind of eye popping rates that you get on your new drills. But because the well is already there and already tied in >> it doesn't have nearly the capital investment, might be a fifth or a tenth even of what it costs to drill a new well, to DCT a new well.
(1:02:47) So you make usually quite high rate of returns, especially on an overall program. Some of the wells come in better, some of them come in worse. Not every workover works out. It's not a 100% success rate kind of business. But usually it's higher rate of return even than drilling.
(1:03:04) We have that going. We also have a third vessel. This is all in our deck if you want to see pictures and descriptions of this. We call it a walk to work vessel. It's a ship, the Castleborg. I've been out there a number of times. That does lighter intervention and it does also the fabric maintenance on the platforms, integrity work, as can the cooler rig even simultaneously with the well work.
(1:03:32) So we've got a great set of services that we are employing. It's quite diversified in terms of a number of different activities. It's not like it's all focused in the same kind of thing, which I think makes it a lower risk program. So that kind of answers your question about roughly how much activity we have going. >> So, how much are the new drills? How much do they cost? >> Well, they can vary a lot.
(1:03:54) An expensive one that might require stimulation currently would be about €60 million. I think it can come down significantly. This would be gross cost. We don't own the whole thing. Our interest's usually around 50, maybe slightly less on average. I think those wells will come down a lot in cost on the stimulated ones.
(1:04:14) >> I don't know where they can get to, but 50 or 45 million, I'm hoping. The very first effort out of the chute on a brand new unstimulated well, and this will be really the mode of what we drill, much more common than a stimulation. I think that one, DCT, was like 43 million gross. I believe these can come down significantly as we move down the learning curve.
(1:04:36) We did a good job with that one. It came in on budget. But I bet we can make a 20% if not more reduction in those costs. So I don't know where they end up. 30 to 35 million I'm hoping. These would be the kind of costs that you run into. The gems wells are programmed to be about that same cost. They're unstimulated. They're super high rates.
(1:04:59) So this is where you can get a couple month payout. You can actually on the other two types I described on our operated program, we can quite readily get one-year payouts or lower depending on the price environment. I'm kind of quoting where they're at today, but if you can do that, they're high rate of return.
(1:05:16) We're not always going to have probably today's prices, but I think the program is going to be very resilient as we get back into a more typical pricing regime. And the nature of offshore wells is you have to case them. And so, but in terms of stimulation, are you acidizing or are you fracking? How does that work? >> They can be either acidized in some cases or propped stimulations.
(1:05:47) They can be high angle or horizontal wells with multiple stages. I don't want to create the idea that the stimulated completion is the most common. It is not the mode. The mode is the unstimulated. And then when I'm calling it an unstimulated well, I guess it could include >> acidization, not typically, but sometimes you can do that to have an improved near wellbore, lower skin completion.
(1:06:14) >> And are you seeing opportunity to bring in maybe multi-stage fracks into these older reservoirs like people are doing in North America? >> Well, yes. There is that kind of opportunity. They're still really conventional reservoirs. They can be slanted, as I said, kind of slanted or horizontal multi-stage, but not very many stages in comparison to North America.
(1:06:38) Three stages, five stages perhaps. Again, it's not the mode, but that opportunity does exist. It's not cheap like it is in Canada to pull off that type of completion, but nonetheless, it's economic in a number of cases to do so. But again that is not the mode. The mode is a natural completion. >> Midstream is also pretty good like you mentioned.
(1:07:04) So the lines already exist basically in the ocean to get the gas to shore. How does that work? >> Yes. There's kind of three elements in it. There's the platforms that we currently have and everything that we intend to drill for a number of years. We'd have to be many many years down the line before we would drill something that is not off an existing platform.
(1:07:27) So we're not required to set new platforms. We're using existing slots on these platforms. We can reclaim a slot from an older well in certain cases. We're using existing platforms. So that's infrastructure really in itself. People don't kind of think of that as infrastructure, but it is.
(1:07:45) The next element as you mentioned is the pipelines from the platforms to shore where the gas plants are. They are in place. They are built for higher production levels. They don't have to be replicated and they're in excellent condition. So that's a part of infrastructure that is essential and very nice to have with the ability to produce more through it.
(1:08:07) And then there's the onshore gas plants which there are two very large ones. NGT which we have a 21% equity interest in is at Utizen, kind of on the very eastern corner of the country at the coast, and then our operated Denhelder plant on the, it's really sort of in a way the northern tip of Netherlands mainland, and it's the largest actually name plate plant in Europe and we're the operator there.
(1:08:41) These are the two gas plants that are built for higher rates. I forget, but between them, I don't know, the name plates are 5 and a quarter BCFD. It's not all available today because certain of the processing trains have been mothballed over time, but nonetheless, suffice to say that the processing capacity is well in excess of what we do today, and it allows growth into it without any significant investment.
(1:09:08) But offshore wells come with a significant amount of wellbore liability. I think it's about 300 maybe $400 million of wellbore liability on the balance sheet now. So how does tenants plan to deal with that aspect of the assets? We're going to discharge every responsibility that we have offshore. It's a completely manageable level of liability.
(1:09:30) It's actually to us a pretty low level of liability in comparison to the value of the offshore assets. So there's going to be I think plenty of cash flow to fund the ultimate decommissioning. Of course it is our objective to generate as much cash as we can for as long a period as we can and to extend the producing lives of these fields.
(1:09:54) That does reduce the net present value of the abandonment. It also gives us more cash over time to discharge the decom responsibility that we have. Furthermore, this decom technology and ways of managing it is steadily progressing. Just like in the rest of the business a lot of it is about economies of scale. Analogy, original idea that we had, we get started in a certain place. Originally we did it with a couple of non-op acquisitions in Netherlands that were quite small. We got the real important operated acquisition,
(1:10:32) now we have gems as well. The whole idea really in oil and gas is to build as much scale as you can because you can drive down your unit costs. This is what we have. It's a tried and true model. It's the ultimate objective almost all the time in oil and gas because in the end it's a commodity and the only way you can ultimately differentiate yourself is by driving down costs.
(1:10:57) So the same thing applies in decommissioning. The more economies of scale that we can bring to it and the more technology, not necessarily pure R&D type of technology but just better technical practices, optimized technical practices. I've done this actually a lot in my career even in the early phases in California. There were many ways to more efficiently abandon, in that case we'd call it decommissioning typically now in the industry at least offshore, to discharge these set responsibilities, to restore it to the
(1:11:32) way it was before you got there basically. So it can be improved over time. It can definitely be reduced in cost with economies of scale. Some of these economies can be introduced by, a lot of them I think by working in concert with the other operators in the country and in the North Sea in general, to get better equipment utilization, better purchasing of services and materials, new technical approaches, and they're being developed now. The Kula company that provides our barge, we discussed with them, are
(1:12:15) experts in this as well and they think there are a variety of techniques over time, just management approaches, technical approaches to decom that will reduce costs. >> The longer we can produce the more cash flow. It does reduce the PV of the liabilities and it gives you more time to put together a, the economies and b, these better management and technical approaches to reduce decom. Canada.
(1:12:45) You've also had success in your drilling programs here. So, what are your plans for 2026 in Canada? >> We drilled three wells earlier in the year. So we've been on quite a good path in Canada. Again, it's a minor asset in a sense today in the company. We did start at 900 BOED at the time we did the recap in 21. >> Yeah. >> Our company we recaped, Alura, had found a very nice Manville pool.
(1:13:12) Rex member actually, a lot of oil in place, I think the estimates have been in the range of 400 million oip. There were just a few in a sense show wells, very low rate vertical producers. They identified it as a horizontal target. They got started on it with kind of short wells. We feel like we've optimized length, longer wells in the racks, and better staging and design on the fracks, and so results did get better over time in the racks and it's been the main source of development.
(1:13:44) We added to that a couple of other intervals, members within the Manville group, in the Eldersly in particular and also the Glock. There even some other potential targets within the Manville that might work and so we've added those additional zones. The other ones mainly have been developed through multilaterals without fracks because they were better mobilities and amenable to that kind of development whereas the sparky has been horizontal single laterals with multi-stage fracks. We also actually are
(1:14:19) pursuing the sparky as well with single lateral horizontals with fracks because it's a little bit more akin to what we have geologically in the racks. But it's been the exploitation of the big Rex pool plus the addition of these other Ellersley, Glock, now Sparky potentially, maybe Lloyd intervals within the Manville that have diversified and given us more running room on development, better capital efficiencies.
(1:14:52) The result has been that we've been able to have pretty good increases in production in Canada. We're up to, I don't know, two and a half x roughly where we started. >> Well, we've thrown off free cash from the asset. That's pretty good growth with free cash. That's what we do in the Netherlands as well.
(1:15:08) And if you can get there, it's a good way to do it in oil and gas. >> Because it's such a capital intensive business. If you can throw off free cash while you're growing, that is of course the ideal case. And that's what we've had in Canada. I think we got a great Canadian team in the field and in the office.
(1:15:26) And though it's not kind of what the company is known for, I think we've done a great job with it and it reflects the overall approach of the company. And in terms of capital allocation, last time we spoke, I think your target for debt levels was approximately one turn. So the company's just below that now if I'm correct.
(1:15:45) So how do you view debt going forward? >> We want to be underlevered. We feel like even probably today with where we're at we would qualify for that term. I think given the free cash in the company, we do have a buyback going. We don't have a dividend. We will still be bringing down debt levels.
(1:16:10) We have a Canadian note issue, 305 million principal, that is callable May 27. For sure rates in the market are lower today and Tanaz has improved I think in the market's perception of credit quality so we would be able to refinance at lower rates. I don't know what level we would refinance because actually we have quite strong liquidity just through the RBL that we now have in place. But in any case we would be headed, we're below one turn now, we would be headed for way way lower debt levels than that. Again it's
(1:16:44) fortunate, it's all come together because we didn't really finance the putting the assets in place with equity. We're able to fund the organic development within cash flow even as we grow at quite high rates. >> So this allows you to bring down the debt levels >> and I know you can't talk about, but how are you thinking about dividends going forward and share buybacks? >> Well, we have a buyback in place and >> talk about too much but dividends maybe.
(1:17:15) Yeah, we like the buyback. We think it's kind of efficient for everybody. This team used to run a couple of incarnations. We ran pretty heavy dividend models. And they had their utility at the time. I think dividends now today in the capital market and after what everybody's been through for 20 years of the volatility in commodity prices, it's not kind of the be all and end all anymore.
(1:17:50) We used to run dividend growth and organic growth models. But I don't think for the industry and I think for us it's not such a high priority to make sure that we have a dividend in place. It is possible that we would use one over the longer term. I could assure you if we had one it would start small so we could have steady increments of growth in it.
(1:18:18) But today our return of capital really occurs through the buyback which we think is pretty efficient for the owners, the shareholders in the company, and more flexible, and kind of more flexible in the perception of the capital markets. If you're actually trying to run a dividend growth model, the dividend needs to be quite reliable.
(1:18:38) >> And in our previous incarnations, I feel like we moved heaven and earth through good operating and technical work to make it funded while we grow. But it's hard to do when commodity prices are so volatile. For example, you run into the super extreme case of COVID. Under those conditions, it's pretty hard to maintain a consistent dividend.
(1:19:01) After COVID the industry kind of shifted a little bit more toward the idea that you could have a variable dividend or special dividends announced. And this is a legitimate thing too companies can employ. But for us it's not really the base case and we would prefer to have the flexibility via the buyback.
(1:19:24) We think the stock is good value. It's a good investment by the company and that's why we're really using the buyback and not a dividend at least at this point. >> You want to do the questions from Max as we get towards the end >> if we have time. We're happy to take the ones that are there on Twitter. Yeah. >> Okay. So we'll go through them.
(1:19:41) First one coming from an account titled Rhino Insights and the question was if TTF pricing remains higher for longer, what's the calculus for reinvesting the windfall, strengthening the balance sheet or buying back stock? >> Yeah. Well, I don't think it's a windfall. That's a good question. Thank you.
(1:20:01) But I don't think it's a windfall in any case. Prices may well not stay at the current level. That is very possible. Probably likely. That's one reason we have hedged. We will reduce debt in any case even at significantly lower prices than today. For sure we will at almost any price I think we'll reduce debt and at present we are having a buyback as well.
(1:20:27) Next one is an account titled M and M. Any interest in the announced BP formal sale process for its UK North Sea oil and gas business? We're not in the UK today. We have evaluated in the UK previously. It's a different industry in a number of ways even though geologically it's not, for the most part it's not so different.
(1:20:51) There's different labor rules, specialization, there's a way different fiscal regime in UK. Some companies already have a big established production base. Sure they'd have an advantage. A lot of it there is about the historic tax pools and the ring fencing of them.
(1:21:13) We don't have that kind of thing in the company. We evaluate a wide range of assets in a number of jurisdictions and there's just no doubt about it. We'd want to evaluate this set of assets. UK is not though our main area of focus. That's all I could say about this, is about all we ever say about any acquisition prospect.
(1:21:36) So there are companies in there that focus much more on the UK. Doesn't mean we wouldn't evaluate but such a big asset base. So we'd be remiss not to take a look at it. But you can make your own judgments about the relative probability of us having a deal there versus what we have already in our backyard.
(1:22:03) Next one was from an account titled barrel. When TNZ launched its strategy, the ambition was to reach 100,000 BOE a day within 5 years. Is that still the target and timeline? If so, how realistic is it today? And how much of the growth do you expect to come from acquisitions versus the existing portfolio? Yeah, a couple of answers to this.
(1:22:25) I think the first is that of course you want to build scale over time. You want to build operating scale because you can drive down unit costs when you do that and particularly in the offshore you can better utilize services as you get a bigger production base. It's not like in Canada where you can pick up a PD rig, high quality, that has become available or maybe on a window.
(1:22:52) I'm not saying that type of thing doesn't exist at all in the offshore, but really you have to make much longer term typically decisions about what kind of rigs and vessels and other services to use. So you want to build scale. It gives you flexibility in the utilization of those on various parts of the asset base.
(1:23:09) And it gets you just your economies of scale that you're after. Of course you also want capital market scale when you're a public company because we all know that it's tougher at the, we've been there at the nano end of the spectrum when we came out with Tanaz. We've also been in the midcap part of the spectrum previously and I think you get better acceptance in the midcap realm than you do at the nano or micro cap realm.
(1:23:33) So it is desirable. We do want to build significant scale from here. What we feel we have put in place, and again I just say we're lucky to have done it, is this ability to have a lot of organic growth with what we already have in the portfolio. We haven't published a detailed long range plan.
(1:23:55) At some point in the future, I'd like to do that, but we'd like to have some degree of confidence in it while properly characterizing, I think, the uncertainties around it. But we do feel that we'll have quite significant production growth. Even if we never made another acquisition, I think in our main areas of focus, we do have still a number of acquisition opportunities.
(1:24:19) We're only going to do them if they're valuable for the portfolio. We're certainly only going to do them if we think they add value for the existing shareholders in the company. Every company I think should seek to do this. I imagine they do if they make an acquisition. We really really focus on it.
(1:24:39) And so part of the growth that we have in the future I would say probably will come from acquisitions. There's no guarantee on that part of it. There's much greater certainty around the organic growth. The last one is from an account titled Max Power. Tanaz has quietly done an incredible job in the central Alberta assets.
(1:24:59) Obviously non-core asset for them. How does Tennas manage and risk putting capital to work in Canada versus Europe? >> I saw that one as well in the list on your >> Twitter X. Yeah, Twitter X site. And I appreciate the compliment there. It's super nice to hear. I think it is true.
(1:25:24) I think we have done a very good job. Again, it's credit to the team that we have in place. It's a pretty unsung part of the company. We've got pretty good pricing for oil in Canada. Diffs are quite nicely contained right now. We have a kind of weak, well, I don't know, I think kind of weak Canadian dollar at this point.
(1:25:49) And so when you got something denominated in USD, we have more Canadian dollars of revenue as a result. There's a great service industry here. Totally unsung part of the industry. I don't hear people talking about it very often, but it's a huge advantage to the operators here.
(1:26:07) The multiplicity of services available and the quality of them. Canada is actually in oil and gas such a low cost place to do business. I've worked a lot in the US as well and it's a great industry there like we were talking about before we taped I guess. But I think Canada is actually meaningfully lower cost.
(1:26:25) I've seen it on both sides of the border in North Dakota, and so this big advantage in cost gets translated into the returns for the operators. When we drill in Canada we would expect it to be very high rate of return. Is it exactly as high as it would be at today's prices in Netherlands? Not sure, but quite high rate of return, these half cycle returns that exist. So that's why we continue to develop in Canada and we like the asset moving up in production. It has free cash flow, a fair amount of it, for its size, even
(1:26:58) as it grows. That's why we invest. We've had improving technical results in general over time. And yeah, it's pretty high rate of return, reasonably rapid payouts. And it's still not a whole lot of the capital budget that goes in there. I don't know, less than 5% probably or something roughly in that range.
(1:27:20) It is 10% of the production base. So in that sense it's even a little outsized I guess, or maybe you could think of it as efficient in terms of the ratio of share of company production compared to share of company capital. It doesn't grow as fast as Netherlands and that's all this stuff has to be taken into account, but that is why we continue to develop in Canada. And as we get towards the end, like we said, European gas prices have been incredible. I think this month was approximately $25 an MCF the spot price compared to the AECO which has been sub $2,
(1:27:54) so it's at least 10 times as high in Europe. Your hedging strategy I think next year was about 50%, it tapers off the year after that and the year after that. So are you viewing higher gas prices as a possibility in Europe? >> It's always a possibility and it's a constant thing that the whole industry focuses on, both consumers and producers, and of course we do because it's 90% of our production base and even more as a percentage of revenue because of its outsized pricing today. So yeah, the
(1:28:34) question specifically, well first of all I think you're asking about what is in a way the prognosis or expectation for where prices might go. Well, we don't know, right? There's a forward curve. It has validity for the initial part of the period. Closer in, the more predictive probably it is. A year out probably isn't very good predictor even a whole year out.
(1:29:00) But in any case, you go two or three years out, it's probably not a good predictor at all. There's low liquidity and >> kind of imbalance between hedgers on the consumption side versus >> hedgers on the producer side. So prices could go higher, they could well go lower. I think it's actually, you quote the 25 per Canadian per MMBTU.
(1:29:25) To me it's actually likely that they would be lower than that over any appreciable forward period rather than higher than that. We do hedge. I think for 26 we're like 55% hedged for TTF roughly, maybe to the nearest 5%. I think we're about 45% for next year and then we have below 10 for 2028. Most of those hedges that we put in place came in at the time that we made the NOM and the gems acquisitions. With NOM of course we wanted to kind of lock in some of these first couple year returns on the asset, first couple
(1:30:05) three-year returns, cash flow on the asset. That's one of the things that helped us to reliably pay for a lot of the base consideration at 1 1 24 during the interim period. And in the case of gems, that one was done with debt, right? So it's wise I think to hedge a portion of it.
(1:30:31) It's true because prices went up a lot. We have realized losses on that hedging book. It leads to huge swings in net income under IFRS accounting, this kind of mark to market change every quarter. >> In Q1 we had a big loss because of that, drove us up in our >> profit or net income position for Q2 because prices went down, the hedge book wasn't as much in the red.
(1:31:07) So realized and unrealized losses that affect the cash flow and affect the profit calculation. They aren't really hedged at terrible prices. I mean, they're in the low 30s per euros per megawatt hour for I think all three time periods. That's pretty good hedge pricing actually. Especially because the curve is always backwardated in part because of the structural inefficiencies really of the forward market.
(1:31:35) Yet we want to lock in a portion of that pricing. We have added to some degree to the original acquisition hedges as we went along and some more actually during the war period to result in this kind of low 30s per euro per megawatt hour, which is probably in the range of 15 or something Canadian per MMBTU, book that we have through 28.
(1:31:58) There's no hedges in 29 or beyond. The way the futures market is constructed doesn't really offer you very good opportunities out there to get reasonable pricing. So we hedge for these reasons, to ensure returns on the capital program, to lock in a fair amount of revenue.
(1:32:16) GEMS had its own logic in that it was done with debt. NOM had its own logic as well. And the typical philosophy of the company is to be about half hedged for the first year looking forward and in the 30% to 50% range for the second year. You roll through the year, you start getting into 28 looking forward.
(1:32:44) And we'll go higher if we think it's justified with the prices we have available. We don't just do it through swaps. We use options as well, typically costless. We could use three ways in some cases and we try to do these at times when the market today is kind of one of these where you get a fair amount of skew that we view to be in our favor in a collar.
(1:33:06) In other words, versus the market today or the swap in the forward curve, you can get a much better ceiling sold call than you can get floor bought put even in a costless situation which is what we would typically use. And you can get even more complicated by having a three-way where you got a great deal of coverage to the downside, but then you have a sold put as well at some lower level below which you would not have any protection.
(1:33:36) So we have quite a strong risk manager in the company, our marketing VP that we've worked with for a long time, and he does great work, as does our finance group. And I think we've got a good hedging program. You're going to continue to see us hedge to some degree,
(1:33:57) not necessarily at the levels we have had coming out of these deals but they might be, depending on what we see in the market. There's always going to be some degree of hedging I think in the TANA strategy. Hopefully we do it in an intelligent way. I think we do with the people we have in place. A lot of people have said it's a fairly sophisticated program for a company your size. I feel that we have that in terms of the fundamental understanding in our marketing and finance groups and management of the company. And you
(1:34:30) know historically the team has done pretty well with these hedging strategies. You also learn from experience, cases where you're underhedged is an experience you take forward and you try to learn from to prevent problems in our current incarnation. >> It's the summer of 2026.
(1:34:51) Maybe to wrap things up, what message would you leave to shareholders? My message for the shareholders and all the stakeholders is thank you for the support you've given the company. You invest in us, you're taking risk with us. We're owners, too, right? So, we're with you, but we're working on it
(1:35:11) inside the company, you're doing it from the outside. And for us, it's an honor if somebody is willing to have that kind of confidence in the company to take risk with us. It's also a thank you not just to the shareholders but to the stakeholders in the company. Our employees are actually all shareholders in the company and that's a real positive thing.
(1:35:29) If I was an investor that's the first thing I'd want to know. >> How much do the people in the company own? And is everybody an owner? That's a philosophy we've always had and it's true for all the employees in Tanaz. So there are shareholders and another type of stakeholder, employees.
(1:35:46) We owe everything really to them. Our partners in the industry, companies like One Dios and ENI and the others in the Netherlands industry, EBN the state gas producer that has typically 40% heads up interest in all these licenses is a key partner of ours. The regulators in Netherlands, it's all these groups that have helped us along the way.
(1:36:16) They're super qualified. It's an honor actually to be in that group with them and I'm glad they're there and I really appreciate everything that they have helped us do. >> You're also willing to do podcasts like this, take questions for an hour and a half with me. So sometimes there's clues on quality management teams.
(1:36:37) So >> Trevor, it's very much fun to talk to you and I'm sure I'm very long-winded in these responses and that's why it's so long. Maybe people have trouble making it all the way through. But I got to tell you, I enjoyed it. Well, >> I appreciate your time. I know it's valuable. >> Okay.