KEYFACT Energy
Horizon Oil has reported its half-year results for the period to 31 December 2019.
Review of operations
During the period, the Group’s principal activities continued to be directed towards petroleum production, development and exploration.
The Group’s producing assets continued to perform well, with net production of 754,862 barrels of oil (2019: 801,904 barrels), a modest reduction from the prior comparative period owing to production enhancing workover activities which were undertaken during the period. Sales volumes were 770,744 bbls (2019: 1,021,218 bbls) which, as anticipated, reverted to being materially in line with the Group’s net working interest share of production owing to the recoupment of the company’s remaining Block 22/12 exploration and development cost recovery entitlement under the petroleum sharing contract. Sales volumes attributable to the cost recovery entitlement reduced to 2,474 bbls (2019: 239,213 bbls) during the half-year.
Crude oil sales revenue of US$52.7 million (2019: US$63.6 million) was generated during the half-year resulting from a net realised oil price of US$68.34 per barrel (2019: US$62.29 per barrel), inclusive of hedge settlements. Throughout the period 51% of sales were hedged (2019: 59%) with a hedging gain of US$2.8 million (2019: loss US$6.7 million) realised on 390,000 barrels of oil hedged at a weighted average price of US$69.46 per barrel (2019: 600,000 barrels at US$59.25 per barrel).
Operating costs for the period were US$32.5 million, 12% lower than the prior comparative period (2019: US$37.1 million) driven by continued cost optimisation initiatives at Maari combined with a lower amortisation charge.
Exploration expenditure increased during the period associated mainly with the Group’s China and PNG assets. During the period there was continued focus on infill, appraisal and exploration opportunities in and around the Group’s existing permit in China, in particular. The objective is to integrate any commercial discoveries, such as the recent drilling success at the WZ 6-12 M1 well, into the existing Block 22/12 development to sustain production rates late into the decade.
Included in the result was US$67.3 million of non-cash impairment expenses associated with the Group’s exploration and development assets in Papua New Guinea. The impairment assessment conducted in respect of the period considered recent challenges faced by the company in PNG, including unresolved licence tenure issues, the lack of progress in commercialisation of the discovered resources in the Western Province of PNG, and the recent shift by the PNG Government in requiring improved fiscal returns from resource projects. The company considered that recent allegations made in the media from 10 February 2020 in respect of Horizon Oil’s PNG licence interests could exacerbate these challenges faced by the company in operating in the PNG market. Reference was also made to comparable market transactions. In light of these matters and uncertainties, the Group has impaired its PNG exploration and development assets, at 31 December 2019, to a carrying amount of US$5.7 million.
The Group reported a statutory loss before tax of US$56.5 million for the half-year (2019: profit of US$26.4 million). The profit result includes non-cash impairment expense of $67.3 million associated with the Group’s PNG licence interests (2019: US$nil), non-cash financing costs of US$1.7 million (2019: gain of US$11.7 million) associated with the revaluation of the options issued under the subordinated loan facility, which once excluded results in an Underlying Profit Before Tax of US$12.5 million (2019: US$15.0 million).
Production
Block 22/12, Beibu Gulf (Horizon Oil: 26.95% production / 55% exploration)
During the half-year, the Group's working interest share of production from the Beibu Gulf fields was 444,740 barrels of oil. Crude oil sales were 410,811 barrels at an average price of US$65.19/bbl inclusive of executed hedging.
Average production over the half-year was 8,969 bopd, of which the Group's share was 2,417 bopd. The Group’s share of sales volumes over the period was an average of 2,232 bopd. A production enhancing well workover program was completed during the period, with gross daily production rates achieved shortly after 31 December 2019 in excess of 10,000 bopd.
Basic engineering for the WZ 12-8 East development has been completed with a final CNOOC technical expert review expected ahead of a final investment decision by the end of the 2020 financial year. CNOOC targets first oil in 2021. The development has been planned as an extended production test which involves a mobile offshore production platform which will be leased by the joint venture, reducing upfront capital costs.