Quarterly Activities Report
Sydney, Oct 28, 2016 AEST (ABN Newswire) - Horizon Oil Limited (
ASX:HZN) (HZNFF:OTCMKTS) is pleased to provide the company's latest Quarterly Activities Report.
HIGHLIGHTS
CORPORATE
- The Company redeemed and cancelled the remaining US$58.8 million of convertible bonds in accordance with their terms and conditions, in the quarter. The bonds were issued in 2011 to increase the Company's interest in, and provide the development funding for, the Company's core production asset - Block 22/12, offshore China.
- During the quarter, the Company finalised its previously advised refinancing and debt reduction arrangements, achieving financial close and drawdown of the US$50 million subordinated secured debt facility. The non-amortising facility which can be prepaid without penalty has been provided by IMC Investments Limited, the Company's major shareholder. Shareholders approved the loan, which involved the issue of 300 million options over shares in the Company, at a general meeting on 6 September 2016.
- The refinancing arrangements extend the maturities of the Company's senior and subordinated debt to an average of approximately three years at a volume weighted interest rate of about 6% pa, ensuring greater financial stability as the Company continues to develop its large resource base and reduce debt with revenue generated from its production assets in China and New Zealand.
- Net debt reduced to US$125.4 million, equivalent to 2.3x FY2016 EBITDAX of US$54.0 million.
- The redemption and cancellation of the bonds, together with the most recent favourable redetermination of the Company's senior debt facility, have reduced by over 90% the current liabilities for borrowings noted in the Company's accounts at 30 June 2016 from US$77 million to approximately US$6 million.
FINANCIAL
- 20% increase in oil sales over prior quarter to 403,067 bbls.
- Revenue of US$17.6 million for September quarter 2016.
- Average realised price of US$43.78/bbl including the minor effect of hedging for September quarter oil sales.
- Average operating cost US$11.40/bbl for September quarter production volumes.
- Cash at 30 September 2016: US$13.7 million.
- Continued reduction of exploration and development costs, down 29% from prior quarter to US$1.9 million.
- Progressive hedging of 1,054,000 bbls of oil implemented over the period July 2016 to March 2018 (about 40% of forecast net production over that period) at prices of US$50 to US$56 per barrel net of credit charges.
PRODUCTION AND DEVELOPMENT
- Production for quarter 308,077 bbls; calendar year to date production 0.98 million bbls.
- Current net production rate of approximately 4,000 bopd including additional priority cost recovery oil entitlement in Block 22/12, 3,300 bopd excluding cost recovery oil.
- Remaining cost recovery oil entitlement balance as at 30 September 2016 of US$110 million, with the unrecovered balance escalating at 9% pa.
- Progress on preparation of the Overall Development Plan for the WZ 12-8E field in China, with completion scheduled in early 2017.
- Progress by the PRL 21 joint venture in Papua New Guinea on feasibility studies for the prospective mid-scale Western LNG project.
CHIEF EXECUTIVE OFFICER'S COMMENTS
Completion of the refinancing arrangements during the quarter was an important achievement and has provided financial stability to Horizon Oil during a difficult - but recovering - oil price environment. Current liabilities for borrowings through 30 June 2017 have been reduced to just US$6 million and maturity of the total debt package extended to three years. The subordinated loan from IMC does come at the cost of dilution to shareholders of 18.7% - well below that experienced by many of our peers as they have restructured their debt in response to low oil prices - however this will occur only when IMC exercises the options granted to them as part of the loan, which will have the effect of reducing the amount repayable from US$50 million to around US$36 million.
Net debt today stands at a multiple of 2.3x FY2016 EBITDAX, which I expect will fall to an undemanding 2.0x by the end of calendar year 2016.
Oil production from our fields in New Zealand and China is ahead of budget and we are forecasting net operating income from production of US$50 - 60 million pa from these assets for calendar years 2016 to 2022 inclusive, using a conservative oil price assumption. This strong and consistent cash generation is underwritten by several factors:
- The most important contributor is the ongoing benefit of the increased production entitlement in China associated with cost recovery under the Petroleum Contract, which began in April 2016. This presents itself as a preferential financial entitlement, which currently stands at US$110 million. Because the unrecovered balance escalates at 9% pa, the entitlement will continue to pay out over the next 4 years or so, depending on where oil prices are.
- Our field operators continue to achieve reductions in operating costs and I expect that trend to continue through FY2017 (refer to the table in the link below).
- Our policy of oil price hedging, which protected us from the full force of the downturn in the second half of calendar year 2014, 2015 and the first half of calendar year 2016, is continuing, with currently around US$56 million in future revenue insulated from oil price fluctuations. We will continue to implement the policy of progressively hedging a prudent volume of oil to reduce financial volatility.
We have been able to achieve substantial efficiencies in the re-investment of this production income in our exploration and development capital expenditure program, partly through industry cost deflation and partly through better focus in our joint venture work programs (refer to the table in the link below).
A large part of that expenditure has been directed towards Horizon Oil's PNG assets - appropriately so, given their great potential. Pleasingly very good progress has been made over the last 12 months in planning for a mid-scale LNG project - "Western LNG" - that will be supplied by gas aggregated from several discovered fields in Western Province, with PDL 10 (Stanley) and PRL 21 (Elevala/Ketu) being the cornerstones. The gas project will enable Horizon Oil to realise considerable further value from a substantial volume of associated condensate, which assays like a good quality crude, which will be produced with the gas.
The joint ventures are working together well on the development planning. This collaboration saves money by avoiding duplication of work streams and also sets the scene for future discussions on gas aggregation.
To view the report, please visit:
http://abnnewswire.net/lnk/IMRCV54X
About Horizon Oil Ltd
Horizon Oil Limited (ASX:HZN) (OTCMKTS:HZNFF) is an ASX-listed petroleum exploration and production company, with a geographic focus on the Asia-Pacific region. The company currently produces over 4,000 barrels of oil per day net from its fields in New Zealand and China, which generated over US$80 million in net operating income after operating expense for the year ended 30 June 2015. Further development candidates remain in and around these producing fields.
Horizon Oil maintains prudent policies of oil price hedging and loss of production insurance to ensure that sufficient cash flow is generated to meet the funding requirements of its growth program.
The company holds a large undeveloped reserves and contingent resource position in Western Province, onshore Papua New Guinea. These are liquids-rich gas resources and reflect Horizon Oil’s strategy to focus on Asian gas for growth. Gas constitute about 2/3 of the reserves and resource base. Commercialisation pathways for the gas are emerging.
Although Horizon Oil anticipates continuing strong cash generation over the medium term from its existing producing fields, these developed reserves account for only 10% of total reserves and resource base. The focus going forward will be on new field development, funded largely from existing production cash flow.
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