KrisEnergy Ltd. announces unaudited results for the fourth quarter (“4Q2018”) and full year periods ended 31 December 2018 (“FY2018”) and provides an operational update.

A near 40.0% increase in the average realised oil price in FY2018 resulted in the Group reporting record high revenue at US$144.8 million despite a 16.1% reduction in production volumes in the period, which was primarily due to reduced contribution from two licences in the Gulf of Thailand, G11/48 and B9A(1). EBITDAX at US$57.7 million, was the highest level since the full year 2011.

Despite the higher revenue, non-cash items stemming from write-offs, impairments and provision for assets, as well as US$49.8 million for depreciation, depletion and amortisation, led to a net loss for FY2018 of US$159.6 million (FY2017: US$139.2 million). Non-cash items included an impairment of US$18.9 million for G10/48 due to a decrease in estimates of proved plus probable (“2P”) reserves (see section Reserves & Resources); write-offs of US$33.4 million for Block 120 offshore Vietnam, which the Company intends to relinquish in 2019, and US$12.9 million associated with the expiry of the East Seruway production sharing contract (“PSC”); a provision of US$15.0 million for the Bala-Balakang PSC in accordance with IFRS accounting principles; and various finance costs related to debt servicing.

Group working interest production in 2018 averaged 10,691 barrels of oil equivalent per day (“boepd”), a decrease of 16% from 12,745 boepd in 2017. The Company ceased participation in the non-operated G11/48 licence in the Gulf of Thailand at the end of May 2018, reducing the Group’s production stream from the Nong Yao oil field by approximately 1,900 barrels of oil per day (“bopd”), and the B9A licence terminated production on 31 October 2018.

On a pro forma basis excluding the 2017 contribution from G11/48 and B9A, the Group’s remaining producing assets - Block 9, B8/32 and G10/48 - recorded working interest production of 9,921 boepd compared with 10,680 boepd in the year-ago period. The 7.1% year-on-year decrease, on a pro forma basis, was largely attributed to a 22-day scheduled maintenance shutdown in April 2018 at the main Benchamas field in B8/32 to replace the floating storage and offloading vessel (“FSO”), and prolonged adverse weather hampering maintenance at remote locations in the B8/32 fields in August 2018.

Lower annual production, coupled with higher operating expenditure in the Wassana field due to infill drilling, well workovers and equipment maintenance, increased the FY2018 average lifting cost4 to US$23.70 per barrel of oil equivalent (“boe”) versus US$19.64/boe.

Cash flow from operating activities was US$37.0 million in FY2018 compared with US$23.1 million in FY2017.

(1) The Rajpruek field in B9A terminated production in October 2017 and KrisEnergy ceased participation in the G11/48 concession on 31 May 2018

Liquidity and gearing

As at 31 December 2018, the Group’s cash and bank balances amounted to US$77.6 million. After taking into account restricted cash and amounts held under joint operations, total unused sources of liquidity for the Group were US$32.6 million.

Total debt recognised on the Group balance sheet as at 31 December 2018 amounted to US$459.1 million and the group’s gearing was 99.9%.

Although the Company benefitted from the general improvement in oil prices and therefore liquidity in 2018, its high exposure to interest-bearing debt materially and adversely impacted the Group’s results of operations and financial condition. Revenue and cash from existing production alone is insufficient to fund all the developments we have at this point in time. A material portion of available funds was allocated to debt service, which diverted capital from longer term cash-flow generating activities such as the progressing the Group’s development projects.

Capital expenditure

Total working interest capital expenditure in FY2018, excluding non-cash items, amounted to US$56.3 million compared with a mid-year forecast of US$96.8 million. The variance was attributed to deferral of infill drilling in the Wassana field to the fourth quarter 2018 and first quarter 2019, a shift in timing into 2019 of some capital expenditures for the Cambodia Block A oil development, and lower than expected costs for the 305 km2 3D seismic acquisition program in the SS-11 exploration licence in the Bay of Bengal, Bangladesh.

For the first quarter 2019, capital expenditure is estimated to be approximately US$22.4 million of which 93% is earmarked for producing and development assets and the balance is intended to be allocated to mandatory work commitments.

Reserves & Resources

Working interest 2P reserves were estimated by Netherland, Sewell & Associates, Inc. (“NSAI”) at 63.5 million barrels of oil equivalent (“mmboe”) as at 31 December 2018 versus 83.5 mmboe as at 31 December 2017. More than half of the decrease - 11.2 mmboe – resulted from the Company ceasing participation in the Block A Aceh PSC in Indonesia and the G11/48 licence in the Gulf of Thailand during the reporting period.

Reserves assigned to the G10/48 licence in the Gulf of Thailand were reduced by 53% to 5.7 mmboe due to 2018 production and lower well recovery. Assessments for 2P reserves also decreased for B8/32 and Block 9 due to 2018 production and, in the case of B8/32, assumptions of reduced future infill drilling.

NSAI recognised best estimate contingent (“2C”) resources of 64.1 mmboe as at 31 December 2018, a 27% drop from 2017 as a result of the removal of contribution from G11/48 and Block A Aceh, which in aggregate accounted for 28.3 mmboe. Gains in 2C resources of a combined 6.6 mmboe were recorded for G10/48 and G6/48, which contains the Rossukon oil development project in the Gulf of Thailand.

Production

• Average gross production at the KrisEnergy-operated Wassana oil field was 4,455 barrels of oil per day (“bopd”) in FY2018 (FY2017: 4,377 bopd) and the Group’s working interest share of production was 3,965 bopd.
• Average gross production in FY2018 in the KrisEnergy-operated Bangora gas field in Block 9, onshore Bangladesh, was 87.2 mmcfd and 260 barrels of condensate per day. KrisEnergy’s working interest for year was 4,439 boepd.
• Average gross production in FY2018 in the non-operated B8/32 oil and gas complex in the Gulf of Thailand was 18,626 bopd and 84.6 mmcfd, or the equivalent of 32,724 boepd. KrisEnergy’s working interest production for the year was 1,517 boepd.

Development

• KrisEnergy’s wholly-owned subsidiary, SJ Production Barge Ltd, contracted Keppel Shipyard Ltd (Keppel Shipyard) for the modification and upgrading of a production barge for the Apsara oil in Cambodia Block A, Gulf of Thailand.
• The Petroleum Committee of Thailand approved on 28 December 2018 an extension of the four-year period to commence petroleum production for the G6/48 licence in the Gulf of Thailand, which contains the Rossukon oil field development. The extension was granted for two years until November 2021.
• On 17 August 2018, KrisEnergy (Gulf of Thailand) Limited (“KEGOT”), a wholly-owned subsidiary and operator of the G6/48 licence issued to each of the joint venture partners, Northern Gulf Petroleum Pte Ltd (“Northern Gulf”) and MP G6 (Thailand) Limited (“MP G6”), a notice to conduct the field development plan in the Rossukon production area (“PA”) as an Exclusive Operation. All joint venture partners were given 60 days to respond to the notice. KEGOT and Northern Gulf each elected to take their pro rata share of the Exclusive Operation. On 20 October 2018, KEGOT informed the joint-venture partners, that under the Joint Operating Agreement, each of, KEGOT and Northern Gulf were taking their pro rata share of the Exclusive Operation. KEGOT’s working interest in the Rossukon PA therefore increased to 43.0% from 30.0% and Northern Gulf’s working interest increased to 57.0% from 40.0%. Working interest in the G6/48 Reservation Area remained unchanged with KEGOT holding 30.0%, Northern Gulf 40.0% and MP G6 with 30.0%. Subsequently, on 18 February 2019, KEGOT, informed Northern Gulf that it would take full 100% control of the Exclusive Operation of the G6/48 PA. Northern Gulf remains a 40.0% working interest partner in the G6/48 reservation area, where KEGOT holds 30.0% and MP G6 holds 30.0%.

Exploration

• The Montha-1 exploration well, drilled by the Mist jack-up rig, commenced drilling on 12 November 2018 in the G10/48 licence. Water depth at the well location is 172 feet (52.4 metres), approximately 15 km westnorthwest of the Wassana oil field. On 23 November 2018, the well reached total depth at 10,396 feet MD rotary kelly bushing (-9,138 feet TVDSS). No significant hydrocarbon shows were detected in the target reservoirs and the well was plugged and abandoned.
• On 30 January 2019, the Department of Mineral Fuels in Thailand approved KrisEnergy’s proposal for the relinquishment of a portion of the reservation area in the G10/48 licence. The reservation area has reduced to 114.4 km² compared with 283.6 km². The Wassana PA remains unchanged at 132.2 km².