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Edited Transcript of MTE.V earnings conference call or presentation 23-Apr-20 8:00am GMT

Apr 24, 2020 (Thomson StreetEvents) — Edited Transcript of Jadestone Energy Inc earnings conference call or presentation Thursday, April 23, 2020 at 8:00:00am GMT

* A. Paul Blakeley

Jadestone Energy Inc. – President, CEO & Executive Director

Jadestone Energy Inc. – CFO & Executive Director

Jadestone Energy Inc. – IR Manager

Good morning, ladies and gentlemen. And welcome to the Jadestone Energy, Inc. Full Year 2019 Results Conference Call. (Operator Instructions) This call is being recorded on April 23, 2020.

I would now like to turn the conference over to Paul Blakeley, President and CEO. Please go ahead.

A. Paul Blakeley, Jadestone Energy Inc. – President, CEO & Executive Director [2]

That’s great. Thank you, Joanna. Ladies and gentlemen, good morning. And welcome to Jadestone’s full year results conference call for the period ending 31st of December 2019. I’m Paul Blakeley, CEO, and I’m joined on the call today from Singapore by Dan Young, our Chief Financial Officer; and Robin Martin, Investor Relations Manager, who’s on the line from Calgary.

And while I want to say right upfront 2019 was a transformational year for Jadestone, as we will clearly demonstrate, I’m sure that the extraordinary world we find ourselves in today and the potential impact it may have on our business will likely overshadow such conversation.

Nonetheless, let’s get the admin out of the way first. In this call, I’ll be referencing slides in a presentation which you can find on our corporate website by logging on to www.jadestone-energy.com, where you’ll see it was recently uploaded under the Investor Relations section. Or if you’re using the webcast, then the slides should be available via the link on your player screen now. Additional documents such as the MD&A, financial results and press release are also already loaded on the website.

Now quickly to Slides 2 and 3, where, as usual, I’d like to point out our standard disclaimers and advisories, drawing your attention to the cautionary remarks regarding forward-looking statements and non-GAAP measures used in this discussion.

Okay. So now looking at the agenda on Slide 4, I’ll begin by providing a few introductory remarks and spend some time describing our response to COVID-19, how we’ve adjusted our capital program as recently announced and how resilient the business is today with a strong balance sheet, low debt and a low-cost operating structure. Dan will run through the full year results for 2019, outlining a slightly revised guidance for this year and an outlook that reflects a very different world from when we held our capital markets event just 2 months ago in London. And then rather than prolong our prepared remarks, we’ll summarize, provide a quick look-forward about priorities, and then with the help of the operator, take any questions you might have.

As we think about the current environment, it’s already hard to remember what normal feels like. These are unprecedented times, and we’ve witnessed the near-total collapse of global oil benchmarks as oil demand has been savaged by the extended COVID-19 pandemic during these past weeks. It’s also increasingly clear that this oversupply will likely run throughout this year and potentially well beyond. So in the face of this, Jadestone has taken a number of major steps to protect the business, which we’ll describe to you today, and to ensure that we not only maintain momentum, but that we’re one of the very strongest survivors amongst our peers. I’d also like to balance this theme by showing you the strength and quality of the portfolio we’re building and its resilience to times such as these, which will help to reinforce by picking out some highlights and key data points as we run through last year’s transformational results.

Turning to Slide 5 and the first quick overview of 2019. It shows that not only did we achieve guidance, but also delivered exceptional financial performance with record production, revenue, cash from operations and earnings. Dan will go into more detail on all this, so I won’t steal his thunder except to say we delivered a threefold increase in production and revenue, and while prices remained relatively flat, we benefited from our hedging program, from the increasing premiums on our crudes and from improving margins created by downward cost pressure. The overall result was revenue of $325 million with 4.5 million barrels lifted, a $177 million of operating cash flow and $73 million of pretax profit. As signaled, we’ve worked our operating costs lower, down from $28.72 per barrel in 2018 to $22.90 per barrel last year, a 20% improvement year-on-year. But with further efficiency and cost initiatives that we’re working right now, particularly in the face of the current environment, we expect that we can improve on this further.

In light of this and given our cash conservation strategy, which defers 80% of this year’s original capital program, our aim is to exit 2020 stronger than we entered, even allowing for continuing to pay down the small amount of RBL debt which remains, close the Maari acquisition later this year and deliver our maiden dividend.

On to Slide 6, which presents our environmental, social and governance framework for sustainability. We recognize that ensuring the sustainability of our business is not just about what we do but how we do it. And we turn this into practical solutions in a number of ways, some of which we’ve listed here. These principles form the basis of how the Jadestone organization sets its priorities, and particularly as we look to measure our performance, it also helps shape the performance measures that we will hold ourselves accountable to deliver.

It’s also worth mentioning that we will shortly publish a full annual report and our first-ever sustainability report, which is part of our commitment to provide more information and transparency in our business. These documents will give greater detail and describe our targets based on the ideas of 0 impact on the environment wherever possible and on continuous improvement in all the things we do. The targets we set will be measured in parallel with operational and financial objectives and will become a part of our core business ethos.

Our ESG performance is vitally important to us, that’s because we intend to be here for the long term, and so we’ve set a wide range of measures, which are summarized on Slide 7 and for which the business can be held accountable in the years ahead. To select just a few highlights, I’ll mention the drive to maintain a 0 total lost time injury frequency rate, 0 reportable Tier 1 environmental incidents or uncontrolled hydrocarbon releases and 0 instances of regulatory enforcement notices. We set objectives for continuous improvement in our discharges, emissions and waste management. And overall, we aim to provide a sustainable business model which reflects maximum use of existing infrastructure without building more and maximum resource recovery from existing hydrocarbon basins and reservoirs before having to explore for more.

Finally, we’ve set targets in external activities such as stakeholder engagement, support to local communities, funding employee initiatives to local causes as well as internal targets around diversity, training and recruitment. Practical examples of each are our provision of a full-time medic to indigenous communities around our airbase in northern territories, especially important during the current pandemic; and our recent recruitment of a number of national graduates in Kuala Lumpur, many more than our peers, building the best talent for the future of the company, young people who can grow with our business.

Moving to Slide 8. I’d like to spend a couple of minutes providing you some insight into the steps we’re taking to manage the impact of COVID-19 on our business, both in the general sense as well as on how we maintain safe operations.

We’ve carried out a number of risk assessments and developed action plans in all areas with a focus on the preservation of our balance sheet strength, the protection of our people and the resilience to our operations. This slide lays out some of the key areas of challenge with regards to business continuity and what we’re doing. And while I won’t talk about all these topics, you may find the detail helpful.

Preserving the balance sheet, in my mind, means we should aim to end 2020 stronger than we entered, and we need to look at the additional challenges created by COVID-19 as problems that we can readily solve. In practical terms, that means we’ve removed almost all discretionary capital and adjusted our production guidance to reflect this. This is a relatively minor impact within the calendar year, but can be turned into a positive on both the balance sheet, as Dan will show later, but can also add value when we bring the delayed infill activity into production in a higher-priced environment.

We’re also focused on the well-being of our people across the business, minimizing their exposure by work-from-home arrangements; eliminating travel and providing the IT infrastructure, which provides a high level of business continuity. The team has done a great job overall, but it’s also easier for us to implement this since we run an organizational model which is already quite distributed.

Finally, we’ve also seized the opportunity to work our cost base lower and have embarked on project Clover, which aims to further trim excess G&A, find new operating cost efficiencies and eliminate waste from our business processes.

Slide 9 gives some specific detail on how we’re ensuring operational continuity with extensive planning for reduced activity and reduced manning offshore as well as the implementation of extensive measures to maintain the good health of the workforce and plans for isolation and evacuation, should it ever be needed.

The offshore roster has been adjusted to reduce travel schedules, and I’m particularly grateful to the offshore teams, who’ve elected to support this with longer time frames away from family as we collectively look to break the cycle of infection across all the countries in which we’re active.

Moving on to Slide 10, we’ve summarized a self-assessment of the financial position that we’re in just prior to the COVID-19 lockdown being put in place. At the end of March, we had $120 million in cash on hand and outstanding debt of $37 million. With 80% of the capital spend this year now deferred, the balance sheet provides significant flexibility, and we’re forecasting to maintain this as a minimum throughout the year, even at current price forecasts.

We’ll also continue to pay down the remaining debt as planned and will support our maiden dividend, as I’ve described.

We do benefit from the hedging already in place through to the end of the third quarter this year, the hedges of a floor price of $68.45 per barrel prior to any sales premiums that we might enjoy, and help our operating cash flow breakeven to be down to $20 a barrel or free cash flow breakeven at $27 a barrel. However, we need to push the business harder, particularly given the significant and ongoing uncertainty of the current environment, and we, therefore, embarked on Project Clover to further improve our operating performance and cost base. Initial work and planning already targets an improvement in operating costs, and we anticipate that we could bake in $3 to $4 a barrel of incremental cost reduction with the possibility of finding more. This is around 15% and is in addition to the 20% operating cost improvement that we delivered between 2018 and 2019 already discussed.

Austerity measures are also included in our initiatives, and we’ve implemented a number of additional measures, including a salary freeze, reduction in pay, which starts with the Board and executive team, taking a 25% cut. We’ve made some headcount adjustments and other organizational changes. And we’ll provide more details on this in due course.

Slide 11 provides some commentary around our decision to defer spending on our Nam Du/U Minh gas development in Vietnam, a decision that we made around 5 weeks ago and announced to the market already. By way of context, this project is the largest and most extensive component of our planned 2020 capital program. We would spend a similar amount of capital next year and deliver first production at the end of 2021.

With slow progress on the FDP approval from the government and plummeting oil price, it was an easy decision to defer the spending until we see some recovery in price. While it doesn’t affect the value of the project which is linked to a fixed gas price contract, it does affect our capital flexibility and funding requirements, and we need to be prudent. We can benefit from the potential to optimize the development costs in today’s environment, and we’ll push for all approvals to be in place before recommencing activities next year.

And as we announced yesterday, Slide 12 outlines our decision to opt to take full advantage of the capital flexibility we have this year and delay our Australia infill drilling program. With prices where they are, I see little point in drilling in 2020 and producing flush production volumes into the current low-priced environment and thereby giving up some of the returns we had expected.

Deferring Montara H6 and Stag 50H infill wells together saves $50 million in 2020 CapEx.


Robin Martin, Jadestone Energy Inc. – IR Manager [3]


Sorry to interrupt you, Paul. I just want to check, operator is — do we still have sound on the presentation? Is everybody still hearing the presentation?


Operator [4]


Yes, the audio is still coming through.


Robin Martin, Jadestone Energy Inc. – IR Manager [5]


Okay. I’ve got a message from one listener that they’ve lost the sound, so I just wanted to check that from your side everything is still okay.


Operator [6]


The audio in the telephone is still coming through, perhaps it’s just something on their computer.


A. Paul Blakeley, Jadestone Energy Inc. – President, CEO & Executive Director [7]


Okay. All right. We’ll carry on. Thank you. We were talking about Australia infill drilling program. And as I was saying, with prices where they are, I see a little point in drilling in 2020 and producing flush production volumes into the current low-priced environment and giving up some of the returns.

So by deferring Montara H6 and Stag 50H infill wells, we save $50 million in 2020 CapEx, further strengthening the balance sheet, but it also helps to restore the future returns of this activity. And money spent on these wells to date has been for long-lead items only, which will sit in inventory and we can hopefully benefit next year from lower service costs and not risk any drilling impacts from COVID-19 restrictions. So while there’s no impact on 2P reserves, the immediate consequence to not drilling these wells in 2020 is a short-term production impact, which Dan can describe.

And with that, I’m going to hand over to him now to walk through 2019 results and our 2020 outlook. Dan?


Daniel Young, Jadestone Energy Inc. – CFO & Executive Director [8]


Thank you, Paul, and hello, everybody. On the left-hand side of Slide 14, you have a quick visual on how we performed in 2019 against our key guidance metrics of production, major spending and OpEx, while on the right-hand side, you see a number of other milestones that the business reached in the course of our third year.

Firstly, with respect to the 3 pillars under our guidance, as illustrated on the left-hand side, we met each of our targets across production, major spend and unit operating costs. And remembering that we included the light well intervention in the CapEx guidance bucket, if you like, and we renamed that bucket major spend, even though the light well intervention is treated largely as OpEx for accounting purposes, but we exclude it from unit OpEx to avoid double accounting.

Additionally, in Q2 last year, turning to the right-hand side, we successfully drilled the first infill well at Stag for 6 years and 49H has produced entirely in line with expectations since that time.

During the same quarter, the group went net cash positive less than 9 months after drawing down $120 million on our senior secured reserve-based loan.

Across the summer period, we successfully executed the legacy major projects at Montara, the umbilical replacement, the light well intervention and transfer of operatorship in early August.

In November, we announced the tuck-in deal in New Zealand to acquire 69%, an operated interest in Maari, a midlife producing asset that fits very well with our strategy and operating capabilities.

And also in Q4, we achieved cash payback on the Montara acquisition, less than 15 months from closing and as we had foreshadowed during the August 2018 London raise.

Turning to Slide 15. We’ve set out some of the key financial headlines from our 2019 full year performance. As Paul mentioned at the start of the call, 2019 was indeed an exceptional year for Jadestone, reporting as we have record annual production, liftings, revenue, EBITDAX, cash flow and profits. Production was up more than 3x on 2018 with the benefit of a full year’s contribution of Montara. Reminding you that we closed Montara in late ’17 — in late September 2018 and the prior year has the benefit of about 1 month’s production before we undertook the voluntary shutdown to address the inherited inspection and maintenance backlog.

We also managed to increase uptime to an average of 80% versus 68% in 2018. And this was notwithstanding experiencing significant out-of-season cyclones in Q2 as well as the greater offshore activity in the year with the umbilical replacement, the light well intervention and the 49H infill well.

We saw our pricing premia increased for both Montara and Stag. This was largely a function of increased demand for sweet crudes driven by new IMO regulations for marine fuel constituents. The spec of our Stag crude in particular is a fuel of choice under the IMO rules.

We closed out the year with premiums of around $10 for Stag and that has increased to over $20 a barrel in the first quarter of this year.

Revenue, tracking production and with robust price realizations, is also roughly 3x 2018 or $325 million.

We continue to be vigilant around our cost performance. And as Paul has mentioned, we report a more than 20% reduction in unit cash OpEx year-on-year, down to $22.85 a barrel.

All in, this made for a very cash-generative year for us. Cash generated from operations, $177 million versus effectively nil in the prior year. As I noted in February at the Capital Markets Day, this excludes a Stag lifting that would move — that we moved from late December to January 4 of this year of around $29 million which would otherwise have enabled us to comfortably surpass $200 million of operating cash generation.

We also completed the transfer of operatorship at Montara, and as a result, we’re able to get to work on our first wave of major investments, which I just recapped, and all with strong results and executed largely as expected and within guidance.

As a result of the tremendous cash generation in the business over the past 18 months, by the end of first quarter 2020, our balance sheet has around $110 million of cash, excluding the $10 million deposited in support of a bank guarantee, which, after allowing for the remaining bank debt outstanding means an equivalent net cash position of $72 million. For the avoidance of doubt, the business has no other interest-bearing debt, no prepayments, no bonds, mezz or equity-linked financing.

And we finished the year with our announced acquisition of the Maari assets in New Zealand. I’ll say a bit more about that in a few slides, but note that we’ll fund it with cash. But with an effective date of January 1, 2019, the closing adjustments are likely to cover the great majority of the cost, and we remain on track to complete the deal in the second half of this year.

Slide 16 presents our EBITDAX for the year in the format many of you will be used to seeing. All-in, a clean performance showing adjusted full year EBITDAX of nearly $190 million for the year. The adjusted number excludes the impact of hedging gains, which were significant at $14 million, but are offset by nonrecurring OpEx items related to the light well intervention program at Montara, a work that we quickly undertook in 2019 to restore gas lifts and access additional producing sands.

We also incurred transition costs during the year as we worked to complete the acceptance of our Montara safety case with NOPSEMA and to ensure the successful transfer of operatorship.

A quarterly EBITDAX slide is included in the appendix, where you’ll see we generated $60 million of EBITDAX in Q4, an even more exceptional performance.

Slide 17 presents our full year cash bridge, and again in a format that many of you will be familiar with. Our 2 producing assets collected in the operating chunk, if I can use that term, to the left of the slide show a highly cash-generative business. This includes about $10 million of net nonrecurrings between hedging receipts of $17 million; OpEx costs at Montara of $24 million, most of which is for light well intervention; and $3 million of other costs, which is the transition costs I just touched on. After changes in working capital and taxes, that’s around $145 million of cash inflow. We spent around $55 million of capital between the one-off umbilical investment at Montara, the 49H infill well at Stag and investment into the development of Nam Du/U Minh in Vietnam. We’ve also continued to quickly repay debt, paying off $53 million of principal and about $1 million of interest on the RBL while being in a position to be net cash positive within 9 months, as I mentioned. This generates the net movement in cash of the year of just under $20 million.

I’ll now move to Slide 18, which is an illustration of the performance at Montara showing production on a barrels per day basis and unit operating costs. While we only took operatorship on August 6, Jadestone had significant influence on operations initially and substantially by the summer period. You can see unit costs have performed well across the year and improved significantly in Q4, with the improvement in uptime following the completion of the legacy offshore work. We’re confident to say this reflects a step change in the cost of operating the asset on a unit basis. And really, that comes through both working the denominator and the numerator.

The spending initiatives we undertook in 2019 were really focused on ensuring reliability of production and setting the asset up to continue performing for the long term. At the same time, through correcting the organization itself, making logistics more cost efficient and getting maintenance and integrity practices to work in a more fit-for-purpose manner through campaign maintenance, we’ve managed to drive unit cash OpEx costs down to a new low of around $17 a barrel.

Slide 19 shows Stag’s performance on the same basis. Again, you can see a clear step change since Jadestone took over the asset in mid-2017. More relevant for today is the impact of adding new production wells into the mix via 49H and remaining vigilant around costs, which has led to a drop in the second half of 2019 of our unit OpEx to around $24 a barrel.

The focus at Stag is to optimize operations, 100 little things to do.

On Slide 20, and as Paul has touched on, our capped swap program provides robust protection of near-term cash flows. About half of Montara’s volume is included in the swaps or about 1/3 of group production. Meaning those barrels receive a floor Brent price of $68.45 a barrel before allowing for the premium on top of that. Based on our last lifting from 10 days ago, this implies a total average realization of about $74.50 on the swap barrels lasting through to the end of Q3 2020. We will seek to add more downside protection when we see an opportunity to do so.

On Slide 21, we’ve tried to reinforce the highly resilient position we have amidst the current external environment. At the February 25 Capital Markets Day, we showed our projection for operating cash flow in the order of around $165 million and had used all of that and a bit more predominantly for a heavy capital program for Nam Du/U Minh, in particular, and for the Australia infill program. We were planning, of course, to part debt fund a substantial portion of that via the mandated enlarged RBL. Today, with the impact of reduced cash flow due to lower oil prices, although partly sheltered as they are by our hedging program, we felt it was prudent to shore up the cash position by reducing the CapEx burden, not to mention protecting returns by doing so. You can see in the blue box in the middle of the chart the impact on 2020 cash as we defer the Vietnamese development and push back the infill wells. With the majority of our spending being entirely discretionary, we can get back to a position where we not only pay our debt down to virtually nil, but we also still generate cash.

In addition, I’ll note that many of the cost initiatives under Project Clover could potentially contribute as much as $15 million to $20 million more to the free cash flow position in 2020.

So we have a picture here that sees us ending the year with cash growing and in excess of $100 million in absolute terms and with ample dividend headroom and flexibility of fund the modest amount due at closing for Maari.

On the mandated amended and enlarged RBL, we’ve asked the 6 banks to pause on this work at no cost to the company and we will look to execute this new facility when the capital program is underway again.

On to Slide 22 and our guidance for 2020. As updated yesterday, we have reduced our CapEx now to a total around 80%, down to just $30 million to $35 million for 2020. That includes a significant portion spent in Q1, including the majority of the costs of the seismic acquisition.

Pushing back the Australian infill wells has a natural knock-on effect to production, that results in a trim of 10%, such that our 2020 production guidance range is now 12,000 to 14,000 barrels a day. Note that once the Maari acquisition is closed, this will mean production will grow by around 30% off that base.

However, despite the reduced production, we are forecasting that our unit OpEx target remains intact in the range of $20.50 to $23.50 a barrel. That’s a very good news story coming out of our ongoing OpEx reduction initiatives and implies a substantial reduction in absolute dollar OpEx for the year.

And as Paul has mentioned, guidance on our maiden dividend is unchanged.

A last word from me on Maari on Slide 23. I won’t go through all the transaction metrics except to reiterate that it’s accretive across all. Maari is a perfect example of the sort of opportunity we can seamlessly bolt on to our operating business and start to really drive value. A key part of the potential here is in the reservoir story where we see very low recovery factors from most reservoirs and indeed some reservoir [intervals] completely untouched. 2019 cash flow at Maari was very much in line with our expectations. So we’re excited to close the transaction, with all approval applications now submitted, and we continue to expect that it will be completed in the second half of 2020, as previously indicated.

I’ll now hand back to Paul.


A. Paul Blakeley, Jadestone Energy Inc. – President, CEO & Executive Director [9]


Very good. Thank you, Dan. And so on to Slide 25 and trying to move along quickly. I’ll start with a brief review of the work program. And in summary and what we’ve already heard, the Vietnam project deferred by 12 months, and the drilling of infill wells in Australia assumed also to be deferred and commencing in 2Q next year.

In the meantime, you’ll note there that we are talking about a low top size pressure optimization project which we’ve been engineering for some time at Montara with an aim to improve production reliability and increase volumes through the plant. Early tests are really encouraging, and we’re debottlenecking the system to make this reliable and permanent.

You’ll note we also confirmed the 3D seismic at Montara completed on schedule in the first quarter, with seismic data being available early next year.

And now moving to Slide 26, which summarizes our reserves and resources at year-end. We had strong reservoir performance in the subsea fields at Montara, in particular, the Skua field, and we’ve added a further infill well location there for the future.

I’d also emphasize the potential movement of resources to reserves over the next few years with Nam Du/U Minh and more volumes potentially at Montara and Maari/Manaia, in particular.

Also, the U Minh area has the potential to double reserves, and all these opportunities bring the potential for high-value reserve adds in the near to medium term.

And so now finally, Slide 27, which summarizes the top priorities that we face right now and through this year. A focus on safe operations, as always, still managing the potential threat of COVID-19 and starting to report on improving ESG performance from our assets; protection of the balance sheet, which we’ve discussed in great detail through this call, doing all we can to improve our returns while providing room for the dividend, for inorganic opportunity and for efficient capital deployment as conditions improve. The growth pipeline is strong with Maari infill drilling and Vietnam gas, and we hope we can add to this in what will become an increasingly opportunistic environment.

Ladies and gentlemen, thank you for listening, and that concludes our prepared remarks for this call, and I’ll now hand back to the conference operator to prepare for any questions that you might have.


Questions and Answers


Operator [1]


(Operator Instructions) Your first question comes from David Round at BMO.


David Matthew Round, BMO Capital Markets Equity Research – Oil and Gas Research Analyst [2]


A couple from me, please. Firstly, on the infills. Obviously, you’ve been in discussions with rig providers. Was there any discussion before you decided to defer the wells around a possible reduced rig rate there?

And in terms of timing, I think in the past you’ve latched on or at least talked about latching on to nearby drilling programs. Was that going to be the case in 2020? And do you know if that whole program has been deferred by a year? And then have you identified the program in 2021 that you would try and add a well to? I’m sorry, I know there’s a few parts there.

And one for Dan. There’s been a bit of a rush to draw down debt facilities to ensure companies have as much cash headroom as possible. So I was just wondering if you could elaborate on the thinking around not entering into the enlarged RBL and how we should think about your debt facilities going forward?


A. Paul Blakeley, Jadestone Energy Inc. – President, CEO & Executive Director [3]


Good. Thank you, David. So very quickly to the first question around drilling contractors and rig slots. We are part of a campaign with the current contractor that was planned for 2020. Our discussions to defer our drilling is recent, and it’s why we were able to announce delays of the Vietnam project ahead of, a, deciding and, b, getting comfortable with our planning around deferring the infills. Our intention is not to cancel the contract. Our intention is to work with the same contractor, drilling contractor and just to reschedule that work next year. We are and have been in close conversation around that. And that timing is coming together even as we speak. So we’ll be able to announce more clearly and with more certainty what the timing looks like.

But insofar as how it fits with the larger program, I’m not really sure what else is going on, David. In the end, this is a direct contract between ourselves and the drilling contractor, and we’re making new arrangements under the same broad structure.


Daniel Young, Jadestone Energy Inc. – CFO & Executive Director [4]


David, so on the new enlarged RBL, we took the decision that it didn’t make a lot of sense for us to proceed down that route in the end. And there’s a bunch of reasons why. The primary reason, though, is the one I touched on. We were talking about enlarged facility of around $200 million of committed capital in total which would have part debt funded the first phase of Nam Du and those infill wells. And without that, they no longer having that use of proceeds requirement, it naturally called into question a need to do that.

A facility size of that quantum would have meant some significant costs for us today for the benefit of that. And of course, we would be drawing down a lot of that capital without Nam Du/U Minh sanctioned or without the infills proceeding. It would give us some modest additional financing, but we don’t need that for the capital program, we don’t need that for the business. I think as we’ve shown in the presentation, we have a lot of cash. We have a lot of resiliency built into the business. And so I don’t think we naturally win awards for taking more debt that we don’t need. We would have also likely be forced to hedge in the short term as well if we committed with the facility, which at the current prices we see today we don’t believe that’s reflective of actual pricing that will be achieved in 2021.

So for all of those reasons, it didn’t make a lot of sense to proceed down that path. Nevertheless, we’re very grateful for all the work that’s been done by those banks, by the bank group with us. We have the facility sort of in the fridge as it were, and we’ll pull it out and look to execute it in 6, 9, 12 months when that funding is at sanction and/or crystallized and ready to move, and we’ll likely do that then.


Operator [5]


(Operator Instructions) And the next question comes from Ashley Kelty at Whitman Howard.


Ashley Kelty;Whitman Howard;Equity Research Analyst, [6]


A couple of questions. I suppose first one around Vietnam. Would it be reasonable to just assume a sort of 12-month slippage on the project? Or would we be looking at first gas slipping further into the future?

Secondly, of the discussed OpEx savings that you could achieve this year, do you think any of those will be coming from Maari in the second half of the year? Or would we be looking to see those coming through from 2021?


A. Paul Blakeley, Jadestone Energy Inc. – President, CEO & Executive Director [7]


Very good. Ashley, so with respect to Vietnam, we have made a simple assumption of a 12-month pushback on first gas at this point in time. And once we’ve made the decision that the current date was no longer — for project sanction was no longer tenable, we’ve started conversations again with PetroVietnam to look at what would be an optimum program and project schedule and first gas timing for a restructured Nam Du/U Minh project. So at this point in time, it’s really too early to say whether it means 9 months, 12 months, 15 months. It’s something that we’ll provide more clarity on through the course of this year as we start to fix firm profiles with PetroVietnam.

With respect to Project Clover and cost savings, essentially, we’ve looked at this from a number of perspectives. One are cost savings that could be implemented immediately, and they’re in one bucket; cost savings that can be implemented during the course of this year and will benefit us during the course of this year and those that will require some planning and implementation and will be benefit to the business next year and beyond.

For the purpose of those cost savings that we’ve — that Dan and I talked about, as if you like, being firm, at this stage, that does not include any savings at Maari. But that is something that we are encouraging the current operator to push on and I think we will see some benefits there. And certainly, once the deal is closed and where the operator will look for further savings in next year and beyond.


Operator [8]


There are no further questions from the phone.


A. Paul Blakeley, Jadestone Energy Inc. – President, CEO & Executive Director [9]


Okay. Very good. Well, thank you. So ladies and gentlemen, it just remains to thank you for your interest in Jadestone and for participating in the call. As we’ve discussed today, we find ourselves in fairly uncharted territory with significant uncertainty ahead. However, we will assume lower for longer and manage accordingly. We’ve made clear our intent to be prudent, to preserve what we have, to strengthen the business further when we can and benefit fully from our low cost base, our hedges and our strong cash position. If we do this, then we think that later in the year there may be a time to become more opportunistic, and we intend to exit 2020 much stronger than we entered it. So in the meantime, thank you once again. Have a great day.


Operator [10]


Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.

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