Q3 Results 2019 Friday, 22 nd November 2019 Neptune Energy Q3 - - PDF document

Q3 Results 2019

Friday, 22nd November 2019

Neptune Energy – Q3 Results 2019 Thursday, 22nd November 2019 2

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

• ur 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

Neptune Energy – Q3 Results 2019 Thursday, 22nd November 2019 3

• f 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

• ur 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

• ur 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

Neptune Energy – Q3 Results 2019 Thursday, 22nd November 2019 4

• f 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

Neptune Energy – Q3 Results 2019 Thursday, 22nd November 2019 5

more than 200,000 barrels of oil equivalent per day. We'll provide more data on our 2020 production outlook with our full year results. High Quality Growth Pipeline Turning to these growth developments in more depth on slide eight. Our recent transaction in Indonesia, includes the Merakes development, which will add 8,000 barrels of oil equivalent per day initially when it comes online in the second half of next year. Production rates will progressively increase as other discoveries in our acreage are brought onstream and additional capacity becomes available in the Jangkrik FPU. As part of the Energean transaction, we will acquire the Dvalin and Nova developments, which together add 23 million barrels of oil equivalent 2P reserves, in Norway. Dvalin is due to come

• nstream in the fourth quarter in the will add 5,000 barrels of oil equivalent per day, whereas

first production from Nova is expected in 2021, adding a further 7000 barrels per day. Nova is a tieback to our operated Gjøa platform. The Energean transaction also includes 3,000 barrels per day of existing production in the UK and a 25% working interest in the important Glengorm discovery. While Glengorm is still in appraisal phase, we have higher expectations for this project going forward. In 2020, we expect appraisal activities to continue with the aim of derisking significant additional resources. We are also drilling the high impact Isabella prospect with both Glengorm and Isabella located close to our Seagull development, which continues on plan. In Norway, we have successfully completed the offshore installation campaign at Fenja and the Snøhvit Nord well has come onstream. All three Fram wells are now online and performing ahead

• f expectations. The new Troll C gas module is close to completion and expected to be
• perational in the first quarter of next year, which will further increase volumes from the Fram

field. In the fourth quarter, we expect to commence drilling at Gudrun, Duva and Askaladd near Snøhvit. Development drilling is also underway at Merakes and Dvalin. All other projects are progressing to plan. Delivering Low-Cost Growth Through Organic and Inorganic Projects Turning to slide nine, reflecting lower production in the period, unit Opex was marginally higher in the third quarter at $11.20 per barrel of oil equivalent. However, as we have stated, we expect full Opex to return within original guidance at $10.50 a barrel. We are continuing to make good progress with our cost efficiency programmes and have already removed roles in both the Netherlands and Germany. We have also made progress with our proposal to close our Paris office and signed a collective agreement with the unions at the beginning of October. We've already talked about our acquisition strategy in the quality and fit of

Neptune Energy – Q3 Results 2019 Thursday, 22nd November 2019 6

the new developments required. It's also important to highlight that these new developments are highly competitive on the cost curve with an average Opex of around $5 per barrel of oil equivalent at plateau production levels. On a full cost basis, a similar picture is evident with our existing portfolio having an all-in, pre-tax break-even cost $27 per barrel of oil equivalent, including Capex of $13 per barrel. For acquisitions, the equivalent all-in cost is $26 per barrel at plateau production, including acquisition costs of $7 per barrel. Environmental, Social and Governance Turning finally to slide 10, we're making progress with developing our environmental strategy and are committed to a production profile that is weighted more towards gas than oil, due to its vital role in the transition to a lower carbon energy mix and stronger demand growth fundamentals. As a result, we have one of the lowest CO2 emission intensities in the sector as independently verified by the International Association of Oil and Gas Producers in 2017, which is the latest available data. As of 2018, 60% of our operated production has a carbon intensity of less than 4kgs of CO2 per barrel of oil equivalent produced, and this is significantly lower than the big oil majors. We are making progress with our pilot project in the Netherlands to create the world's first

• ffshore hydrogen plant where Gjøa field in Norway continues to operate with hydroelectric

power from shore, which reduces CO2 emissions by around 200,000 tonnes per year. In developing our new environmental policy, we will detail our commitment to reduce emissions, improve energy efficiency and achieve a long-term intensity target, and this will be set out in our ESG strategy published as part of our 2019 annual report and accounts. With that, I'll hand over to Armand to take you through the financials. Armand Lumens Chief Finance Officer Financial Highlights Thank you Jim and good morning everyone. Despite lower production and soft commodity prices, Neptune delivered a strong operating cashflow during the first nine months of 2019. This performance was underpinned by good hedging and risk management cost control across the group and lower cash taxes. Post period end, we were pleased to close at $300 million Senior Notes offering, which was issued as an additional, listing to our existing $550 million Senior Notes due in 2025.

Neptune Energy – Q3 Results 2019 Thursday, 22nd November 2019 7

Turning to the numbers now, revenues for the first nine months of 2019 were $1.7 billion on production of 38.8 million barrels of oil equivalent, compared with $1.8 billion in 2018 on production of 36.6 million barrels of oil equivalent. Despite our hedging activities, revenues were negatively impacted by softer commodity prices in 2019 and lower average oil and gas realisations. Moving on to operating costs now, year-to-date, we have achieved a strong performance on cost control, with Opex averaging $10.6 a barrel, compared to $11.2 a barrel in the same period of

• 2018. During the third quarter, operating costs were marginally higher reflecting the lower

production in the period, but are expected to remain within guidance for the full year, equalling $10.5 a barrel. As a result, EBITDAX for the period was $1.2 billion compared to $1.3 billion in the first nine months of 2018. We report EBITDAX as defined by our reserve based lending agreement which excludes earnings and debt related to our equity accounted affiliates to us. Pre-tax profits for the nine months of 2019 was $445 million and net income was $83 million, reflecting a higher tax rate and further restructuring costs in the third quarter. On a cash basis, we performed strongly, reporting post-tax operating cashflows of $947 million, which was $334 million higher than reported at our first half results. Capex for the period was $631 million which as we gathered at our first half results would present a step-up on expenditure. We also invested $50 million in our Touat project. Net debt at the end of September 2019 was $1.1 billion and this excludes a subordinated debt and the vendor loan associated with Touat and aligns with our net debt calculation in our RBL

• agreement. This results in a net debt to EBITDAX ratio of 0.62 which remains well below the 3.5

times RBL covenant. We are committed to a fiscally prudent strategy with modest levels of leverage. We may temporarily exceed the net debt to EBITDAX ratio of more than 1.5 times in 2020, but aim to return below this level in 2021 when cash flows from our new projects come on stream and will be partly used to deleverage the balance sheet again. Commodity Prices in Q3 2019 Moving on to slide 13, and as Jim has already mentioned, commodity prices were softer in the first nine months of 2019 than in 2018. Neptune's oil price realisation start from $70.7 a barrel to $62.1 a barrel before hedging and $61.3 after hedging. Gas prices were weaker falling from $7.8 per mcf to $5.0 per mcf before hedging and $5.5 per mcf after hedging. This represents a favourable outcome compared to Dutch TTF gas prices which have averaged at $4.7 mcf in the first nine months of 2019. LNG realisations remain strong at $8.4 per mcf, reflecting the lag effect in our offtake contracts.

Neptune Energy – Q3 Results 2019 Thursday, 22nd November 2019 8

Key Financials – Income Statement Moving onto the income statement on slide 14 now, we reported a pre-tax profit of $445 million for the first nine months of 2019 with a net profit after tax of $83 million. Our group tax was unusually high at 81.3 per cent caused by a decline in earnings in lower tax regions during Q3. Restructuring costs increased from $48 million at our first half results to $68 million for the first nine months and net interest cost rose from $103 million to $161 million. To provide additional insight into our interest expense, the current charge include $90 million in net interest, $9 million in amortisation of transaction costs, $32 million for the unwinding of abandonment provisions and lease provisions and $29 million for foreign exchange movements. Sweeping out the non-cash items, our net cash interest charge for the first nine months of 2019 was $79 million. Key Financials – Cash Flows Turning to slide 15 for further details on cash flows now. In the first nine months of 2019, we generated strong post-tax operating cashflows of $947 million after cash taxes of $261 million. We continue to expect cash taxes for the year in the range of $340 to 400 million. During the period, Capex excluding acquisitions was $630 million, including $601 million on development and $29 million on exploration. Our full year development Capex guidance is still $750 million excluding acquisitions and acquisition associated Capex. Acquisition spend including associated Capex for 2019 is expected to be around $640million subject to final completion adjustments. Key Financials – Balance Sheet On slide 16, we show a balance sheet, strong cashflow generation year-to-date left us with $1.1 billion of net debt excluding subordinated and affiliated loans at the end of September 2019. Post period end we completed the $300 million Senior Notes offering with the net proceeds used to partially repay the RBL in October. Importantly, we have not cancelled our RBL commitments, leaving us with $1.5 billion currently available and undrawn under the RBL and a total headroom

• f $1.7 billion, including cash.

Financial Position Our pro forma financial position is shown on slide 17. We expect to draw down some of the RBL to fund the cost of our two recent acquisitions leaving sufficient headroom for our 2020 Capex programme which will predominately be funded by operating cash flows. We do not anticipate utilising the accordion feature of the RBL to increase the size of the facility.

Neptune Energy – Q3 Results 2019 Thursday, 22nd November 2019 9

Development Capex is expected to increase to around $1 to 1.1 billion in 2020 as we fund our growth programme, before returning to levels in 2021 that we currently see. Our 2020 investment plans remain subject to final board approvals later in December. In summary, despite softer commodity prices and lower production, we have achieved a strong financial performance in the first nine months of 2019. We have a robust balance sheet and sufficient available liquidity to meet our investment programme, which we expect will deliver a significant increase in cash flows from 2021 onwards. With that, I'll hand you back to Jim for some closing remarks. Jim House Group Chief Executive Overview

• Right. Thank you, Armand. I'm pleased to highlight that the business has made significant

strategic progress so far in 2019, as shown on slide 19. We have announced important acquisitions in Indonesia and the North Sea offering scale, near-term growth and production and an excellent fit with our existing assets. The cost of these new assets are similar or even lower to

• ur existing portfolio and underlining on the quality of these new projects.

Operationally, we have successfully brought our Touat project onstream. We've had some issues during the ramp up phase with shaking out the plant, but it's important to do things in the right way to have safe and efficient operations. Including Touat, we have approximately 110,000 barrels of oil equivalent of new production sanctioned in development and we're now entering a phase of substantial production growth. As discussed earlier our operating costs remain under control and we're making progress to delivering on our cost efficiency programmes. This not only takes cost out of the business but also helps identify incremental revenue opportunities. Finally, while our cashflow generation remains very healthy, we have taken steps to enhance our liquidity position and have a fully-funded investment program. The increase in investment next year will see our leverage ratios rise. However, they expect to remain at prudent levels and will fall sharply as new projects come onstream in 2021, underlying our conservative financial

• strategy. With that, I'll hand back to the operator to open the lines for questions.

Neptune Energy – Q3 Results 2019 Thursday, 22nd November 2019 10

Q&A Session Emily Morris - Numis Securities Hi, good morning guys. Jim, I hope you feel better soon. Just a quick question on the Touat ramp

• up. Could you talk a little bit more about what sort of challenges that it's been facing? I'm

assuming from your comments that you have no concerns about the actual reservoir, but just a little bit more detail on perhaps the above surface issues. Jim House Okay, thank you Emily. Fair question. Just to put things in perspective, our plan for 2019, we have a plant coming online in July. Mechanically, we were there and early in July we had all the systems commissioned with our joint venture company GTG and Sonatrach and the regulator. We did find - and this is more to the initial delay to the start-up, that it took a little longer than we anticipated with the Algerian regulators to give the full seal of approval for the plant and export system, as well as the metering and fiscal systems. But we got there. We finally got full approval and we can meet pipeline specifications for the gas that's going to transit 1,500 kilometres north up to the coast. But once we got to that point, I think you can appreciate these large plants that are built out in the middle of the desert, you've got to go through a bit of ramp up, start-up type shake out, and we had some logic issues with the turbo compressor, we’ve had some issues getting the compression, the booster compressors working right. We did have some vibration issues with some of the pipework that we've now sorted. We've had some process stability issues with the amine system that takes the CO2 out of the gas and we've had to repair the H2S. Although we don’t have much of it, they're these tall columns and we had a failure in that in the tray system, they've had it open it up and put it all back together. So, we've had a number of starts and stops over the last couple of months, but we've got enough for 10 million cubic metres per day which is about 350 million a day. Our plateau, or the plant, main plant, the nameplate capacity of the plant is about 13 million cubic metres a day, or 450 million standard cubic feet a day. We're back online as of yesterday and the plan is to get up to 10 million a day, 10 million cubic metres per day, by December, and then we'll have a clearance to walk it up to 13. So, we expect to be at plateau, end December. Also, it's way too early to comment on the performance of the reservoirs, but what I can say is while the plant was being put together, the group was doing extensive well testing in the 19 wells that have been drilled in phase one. Phase one was intended to give a plateau of four to five years or more. The well testing showed that we had 50% better deliverability, as well as, better

Neptune Energy – Q3 Results 2019 Thursday, 22nd November 2019 11

connectivity in the reservoir which tells us a few things, 1) you probably don’t have to drill phase two wells as early and 2) we may be draining more effective areas with existing wells. So, it's early days. We haven’t had enough time to get enough up performance and withdrawals from the reservoir to give you a clear indication that all the signs that we see, there are zero

• concerns. If anything, we see more upside in existing development reservoirs that have been

drilled so far. Emily Morris - Numis Securities Thank you. Jim House All right. Sebastian Kaufman - Tresidor Investment Management Hi there guys. Sorry, I was on mute. Thanks for taking my question. I know it's very early days, but is it possible for you to give some indication in terms of how you're thinking about production levels for 2020? Jim House

• Sure. We intend to give more detailed guidance with full year report, but we're in the middle of

doing our budgets and we're well past the middle of the budget. Actually, it's been put together and it's in front of the Board and I have a call with the Board next week, but a formal meeting in December to ratify the budget. For 2020, the numbers look like it's going to return somewhere in the range of what we produced in 2018. We’re going to see a significant ramp up in '21 as the various new projects are coming

• nline. The outlook for '21, we're going to be above 200,000 barrels a day during the year. The

question is, will we be able to average 200 for the year. But we've got the means to do that if all the projects do come online as currently scheduled. Sebastian Kaufman - Tresidor Investment Management Okay, all right, thanks very much. Nikolay Menteshashvili - Insight Investments Hi, many thanks for the presentation. I just wanted to check regarding the capital structure with the high yield bond issue, issued less insight than expected before. Do you need additional funds to increase the liquidity further in the RBL or not really?

Neptune Energy – Q3 Results 2019 Thursday, 22nd November 2019 12

Then, more in the longer term, is the idea still to IPO the company potentially in 2021 when you see the step up in free cash flow production and how do you see risk appetite or IPO in the energy sector? Thank you. Jim House Yeah, thanks. Armand, you cover the first part of it and I'll answer a few bits on the end. Armand Lumens

• Okay. Nikolay, thanks for the question. Indeed, we had the intent to do a bond for $500 million.

We noticed during the bond process that in order to get that level, we would probably have to

• ffer a coupon that was above what we were willing to offer and therefore we decided to limit

the bonds to a size of $300 million and basically do a tap-on on the existing one. That was the reason of our decision. In terms of your question on liquidity, we believe that we have enough liquidity and flexibility of the capital structure to fund the Capex program and the acquisitions that we've recently announced, and therefore we have no further plans at this moment to do any other bonds or anything else to increase liquidity further. On the IPO side, we have always stated that we would get ready internally to do an IPO as from April next year onwards, and that was really reflecting a lot of the internal preparations that we're doing in terms of capital structure and in terms of financial reporting, annual reports, ESG strategy, systems, governance, and we're working on all of these fronts to get to the levels that we believe that oil companies should be working towards. But I think the likelihood that we would do an IPO in the next year in 2020 is very small, for a number of reasons. The key reason actually being that in order to position as good for that, it's important to show a good track record, and I think we are only one-and-a-half years old and we are keen to show a good track record, not just on M&A but also on production, exploration and show that we can successfully do all of these things before going into an IPO. Secondly, as Jim pointed out, about 10 projects kicking off and bringing in production by the end

• f 2020 and the beginning of 2021. So, we believe it's good to deliver at first before going into an

IPO mode. So, that's the key reason for, let's say, the IPO being probably more in 2021 than in 2020. As you mentioned in your question, there is not much of an IPO market there at the moment in 2019 and that's obviously - we know that a number of factors need to be reunited to successfully go into an IPO mode. So, that we'll take into account.

Neptune Energy – Q3 Results 2019 Thursday, 22nd November 2019 13

Jim House To build quickly on Armand's comments, we felt like if we could get at least three cycles of annual plan deliveries in a number of these big projects across the line as we're entering the growth phase with more growth beyond it, as well gives a chance to drill more exploration wells and develop a track record there that would be more favourably positioned as a company. Now, you asked about the appetite for an IPO, we're seeing a lot of - we're doing early engagements with energy related equity type analysts, and they like our story. They like who we

• are. I think it's a matter of timing, but we look out to 2021 or perhaps beyond, we do believe

there will be an appetite for a company like Neptune because of the fact that we differentiate

• urselves from the currently listed and unlisted companies in the fact that we've got a global

portfolio, we're diversified, we're 70% gas, we've got great ESG type fundamentals and low cost type structures. The feedback we're getting from the market right now is they like our story, and it's all a matter

• f timing it right and getting enough track record to demonstrate that we're the kind of company

we say we are. Nikolay Menteshashvili - Insight Investments Great, that's a fair point. Just a quick follow-up, any plans on additional acquisitions? Are you

• pen to any more deals given there's no plan to raise more liquidity?

Jim House That's a great question and there's probably more opportunities on the market right now than we've seen of late, the different sizes and scale and quality. As we mentioned, we've now - there's now four different transactions since Neptune came into existence in February 2018. The two in 2018 were VNG and Apache and now the two that we've announced in '19 with ENI and the Energean Edison back to back transaction. We've got plenty of growth and we've got plenty

• f things to actually pursue. We've got - there's pipelines we're showing and talking to that could

add 100,000 barrels a day. So, quite frankly, we don't need to. We're not having to go out and do something to add to be able to grow. So, we're in a very privileged position so to speak that we do not have to do a transaction. So, the short answer is not likely. It would have to be something very, very special and very strategic for us to consider doing mor,e at least through 2020. Then once we turn the corner in 2020 and our cashflows ramp up and our capital requirements go down, we'll be positioned if we need to, to do something perhaps '21 or later. That doesn’t mean we won’t, but I'd say the odds were fairly low that we'll go out and actually do something.

Neptune Energy – Q3 Results 2019 Thursday, 22nd November 2019 14

Armand Lumens It's not impossible for a specific deal. That would be appetite for investors to put in some extra equity as well. Again, it all depends on the opportunity and timing of it. Nikolay Menteshashvili - Insight Investments All right, many thanks. Tom Hemmant - Invesco

• Hi. Sorry, if I missed it on the presentation, but in terms of the hedging you have in place for

2020, have you provided any colour on what you've done so far? Armand Lumens Yeah, as we mentioned earlier, we actually took a little bit more hedging on the gas side over the end of 2019 and let's say the first three months of 2020. We are close to 70% on gas hedging for the next 12 months rolling forward. On the oil side, we're at lower levels of hedging. The market has been in backwardation for a while and we've not been able to pick up the right opportunities to increase our hedging positions. But we felt that with the Capex programme that we are launching for 2020, it will be prudent and safe to increase the hedging on the gas side, which we have done. Tom Hemmant - Invesco Sorry, on the gas side, you said 70% over the next 12 months. Armand Lumens Yep, approximately, yep. Jim House Those are all net after tax volumes. I'm sure if you're familiar, hedge 50% of our net after tax volumes for the first 12 months, 30% and then 15% for the subsequent twelves. I'm sure you're familiar with the commodity markets. Oil has been slightly backwardated, so it's harder to make a forward bet too long on that. Although we have been opportunistic through the balance of the

• year. I think the gas has remained somewhat resilient going forwards so it's given us a chance and

the means to hedge more gas at favourable type prices. Tom Hemmant - Invesco You don’t like the look of the oil market, but as you say in your RBL, there's a commitment to

• hedge. Are you deviating from policy to take a view on prices, or are you going as low as you can

under the policy?

Neptune Energy – Q3 Results 2019 Thursday, 22nd November 2019 15

Armand Lumens No, we obviously stick to what we need to do under the RBL agreement and we are actually above those requirements at the moment. It's just that the ratios that Jim was referring to, the 50% for the first 12 months, the 30% for the next 12 months and the 15% for the 12 months thereafter, they both include oil and gas for the - oil and gas. I was just giving you the detail on the fact that we have actually taken much more gas and lower oil, but we still get to an average above the mixed levels of hedging. Tom Hemmant - Invesco Okay, brilliant. Have you given any indication of that, the 70% gas in the next 12 months, what levels that's as compared to what you have been doing? Jim House Well, it's up a bit but it's just because the market fundamentals in the forward curves were flat and increasing, and we were able to get better prices and that's why we walked it out to 70% to get to the right kind of ratios that we need to meet our coverage within RBL. Tom Hemmant - Invesco Okay I've understood that, right. But, I mean, the 70%, are we talking about the price level the 70% is at? Jim House No, 70% of our actual net gas volumes are now hedged for the next 12 months. Armand Lumens They're around the same level as we've done recently at the end of '19. Tom Hemmant - Invesco Okay, so the hedged prices you achieve at the end of '19 are going to be similar to the hedged prices you achieved throughout '20. Jim House Yes. Armand Lumens Yes, for the reason that we have locked in gas.

Neptune Energy – Q3 Results 2019 Thursday, 22nd November 2019 16

Tom Hemmant - Invesco Okay, Sorry, I'm labouring it a bit, but you said the price levels you achieved at the end of '19, I mean compared to when we look back - compared to prices you've been earning over the first nine months, is it a similar level to that? Or are we talking about going lower? Armand Lumens It's slightly lower… Tom Hemmant - Invesco Okay. Armand Lumens …reflecting a more general let's say a reduction of gas prices. But still above our business plan

• values. That's why we're locking in the gas prices because basically it locks in the prices above the

business level and therefore our EBITDAX that we have planned for. Tom Hemmant - Invesco Okay, great, thank you for the colour. Sebastian Potocean - Barings Hi Jim, good morning. Just had a question regarding dividends. Can you just confirm that no dividends have been paid on a year to date basis through Q3? I think last time you were in the market, you were looking about paying a dividend of up to, I think it was 350 or 380 by the end of the year. Can you just refresh us on where you are on that, especially given that the size of the tap you’ve done was lower than previously envisaged? Jim House Great question and it's one that we do field from time to time. I can't confirm that there's been no dividends paid so far in 2019, but the outlook is we're not going to pay a dividend anything like what was paid in 2018. There is discussions around what would be appropriate and our shareholders do expect some kind of a return. But it's not going to be anywhere in the range at least based on current discussions of what was paid in '18, which was 60% of a share capital reduction element tied to it. But we're looking obviously at our full liquidity, we've got to make sure we've got plenty of headroom, we want to be able to fund our capital programmes in '20 through cashflow. So, we are going to take the conservative approach. I wouldn’t be surprised if we do pay a dividend, but it's going to be - it'll be modest.

Neptune Energy – Q3 Results 2019 Thursday, 22nd November 2019 17

Sebastian Potocean - Barings That's something to be paid in the next five weeks of the year or in terms of cash out of the door in 2020? Jim House Most likely it will be later part of December. Sebastian Potocean - Barings Thank you for - okay, thank you. Jim House All right, thank you to everyone taking the time to dial in to our results call today. If we don’t see you before, talk to you before, have a great winter and we look forward to speaking with you in the new year with our full year results. All the best. [End]