Q3 Results 2019 Friday, 22 nd November 2019
Neptune Energy – Q3 Results 2019 Thursday, 22 nd November 2019 Jim House Chief Executive Office, Neptune Energy Introduction Thank you and good morning everyone, and welcome to our earnings call for the third quarter of 2019. I might advise upfront that both Armand and I have managed to pick up one of these early season bugs that's affecting our vocal chords so we may be a little bit challenged, but we're going to muster on and get through the call. The presentation we'll go through this morning is available to view and download on the investor section of our website, neptuneenergy.com, where you'll find the results and a results statement. As usual, I'll take you through the operational highlights before handing over to Armand who will take you through the financials before Q&A at the end. Overview Turning first to the summary on slide four, the third quarter of 2019 saw a continuation of the soft commodity prices that we witnessed for the year so far, particularly in gas where prices for the first nine months of the year were 40 per cent lower than the corresponding period in 2018. Oil prices fared better over the same period, only down 12%. As you know, while around 70% of our production by volume is gas, it's currently only 40% by revenue due to our LNG production being predominately oil-price linked. This, coupled with our active hedging programme continues to gives us protection against softer gas prices. In recent weeks, gas prices have strengthened somewhat reflecting seasonal variations in demand and inventories, and as a result, we've increased our hedge position to reflect more favourable forward prices. As prices normalise, we expect revenues linked to gas to rise to around 50% of total income. We also experienced a more challenging operating environment in the third quarter with production impacted by the slower than expected ramp up at the Touat gas plant, in Algeria, plus planned and unplanned shutdowns in Norway and the Netherlands. Much of our production of deferment in the period reflected issues with third-party operations and associated export restrictions. Where we could, we responded quickly and production in both Norway and the Netherlands have returned to normal levels. Against, this challenging backdrop, we've continued to make important strategic progress, running the business through value-accretive transactions in Indonesia, Norway and the UK, providing long-life and low-cost reserves with both near and long-term growth. Our latest agreement to acquire Edison's E&P UK and Norwegian asset from Energean Oil & Gas was announced on 14 October. This provides us with growth of 30 million barrels of oil equivalent 2
Neptune Energy – Q3 Results 2019 Thursday, 22 nd November 2019 of 2P reserves, 15,000 barrels of oil equivalent of near-term production and additional contingent resources around key hubs in the North Sea. Within our existing portfolio, we have also had some positive results with the drill bit. In early November, our partner Equinor announced that it had made an important discovery with Echino South exploration well in Norway. This discovery, which is one of the largest on the Norwegian continental shelf in 2019, has estimated growth recoverable resources of between 38 and 100 million barrels of oil equivalent. Importantly, it's located close to infrastructure and should have potential for a fast-track development. Coming back to production and our outlook, due to lower production in third quarter and a slower than planned ramp up at our plateau at Touat, we now expect to average around 145,000 barrels per day for the full year. Our pipeline and new developments will see around 110,000 barrels of oil equivalent per day coming online in the next couple of years with Merakes and Dvalin both coming online in the second half of 2020. We continue to maintain a strong balance sheet, disciplined capital allocation and healthy liquidity levels. In October, we boosted our liquidity through a $300 million additional issuance to the existing $550 million Senior Notes due in 2025. We now have $1.5 billion available under the reserve base funding facility providing total headroom of $1.7 billion. This leaves our investment plans fully funded for existing resources with a proposed development Capex from 2020 expected to increase to around $1 to 1.1 billion before declining to around current levels in 2021. Financial and Operating Results Turning to slide five, we continue to improve health and safety across the group and recorded our fourth consecutive quarter of improvement in our total recordable incident rate which stood at 1.99 for the end of the third quarter. In the period, we produced 131,000 barrels of oil equivalent per day reflecting curtailments as a result of offtake restriction and extended maintenance. Lower production per unit Opex up slightly at $11.20 per barrel of oil equivalent, but for the full year, we expect Opex to average around $10.50 per barrel which is well within our original guidance. Financially, despite softer prices and lower production, we delivered EBITDAX of $331million in the third quarter, reflecting solid revenues from our operations and our balance commodity mix. Cashflow for the period increased to $334million and we were able to invest $270million across our projects. Diverse Geographical Portfolio Turning to production performance on slide six. In Norway, we produced 63,300 barrels of oil equivalent per day, which reflected the impacts of plant shutdowns and third party curtailments 3
Neptune Energy – Q3 Results 2019 Thursday, 22 nd November 2019 of both the Gjøa and Gudrun platforms. In Gjøa, gas exports were restricted by an unplanned shutdown of the third party ethylene plant at Mossmorran plant, in Scotland. We reacted quickly and successfully mitigated part of this impact through alternative marketing arrangements. Despite lower prices, we reported higher production efficiency for the period across our operated assets and our performance for the nine months to the end of September was above plan. In the Netherlands, as reported at our first half results, production was negatively impacted by unplanned shutdowns of the L5a and Q13a platforms which reduced output in the third quarter to 18,100 barrels of oil equivalent per day. Both platforms are now back online. Following the recent start-up of E17a-A6 development well, production in the Netherlands has been around 22,000 barrels per day. We expect it to exceed 25,000 barrels per day when the recently drilled L5a-D4 well begins production towards the end of the fourth quarter. Moving on to the UK where production in the third quarter was 15,000 barrels per day, this largely reflected a planned shutdown in August, as well as pipeline capacity constraints and temporary blend gas shortage. The shutdown was completed eight days ahead of schedule and we have secured bland gas contracts for the remainder of the year, as we work towards a more permanent pipeline specification solution with the authorities. In Germany, production was broadly flat at 12,400 barrels of oil equivalent per day as higher volumes associated with our acquisition of assets from Wintershall DEA were offset by minor project delays at Rӧmerberg field. We expect production to be higher in the fourth quarter due to the full period contribution of these newly acquired assets and drilling activity. In North Africa, we produced 5,400 barrels of oil equivalent per day which reflects slightly higher production from Egypt and the first contribution from our Touat gas development, which commenced production midway through September. We expect to report higher volumes in the fourth quarter as the plant continues to ramp up. In Asia-Pacific, we produced 16,600 barrels of oil equivalent per day, which reflected offtake restrictions at Jangkrik in Indonesia. We do , however, have protection through take-or-pay provisions within our gas sales agreement. Production Update As you'll see from slide seven, given our lower than planned production for the third quarter, we now expect to average 145,000 barrels of oil per day for the full year as previously mentioned. Compared with the third quarter, production in fourth quarter is set to increase as Touat continues to ramp up, our existing assets return to normal operations and additional development wells come on stream. This will see enter a production growth phase with further projects due onstream in 2020 and through to the end of 2021, increasing daily production to 4
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