bc4131a54efe1cbebbf1c3.pdf
AWE LIMITED ANNUAL REPORT 2015
TAKING THE INITIATIVE
Our strategy of building a portfolio of assets with diversity of product and geography provides us with a level of resilience and flexibility to manage change in volatile markets.
Bruce Clement
Managing Director
ABOUT AWE
AWE is a dynamic Australian energy company focused on upstream oil and gas opportunities. Its diverse portfolio of exploration, development and production assets in Australia, New Zealand, Indonesia, China and the USA provides a solid production base with good cash flows and significant growth opportunities.
Established in 1997 and listed on the Australian Securities Exchange (ASX), the company has its head office in Sydney and project offices in Perth and New Plymouth. The company's substantial portfolio of 2P Reserves includes a range of projects that, when fully developed, will see company's annual production base exceed 10 million BOE.
With strong technical foundations and disciplined financial management, AWE remains focused on delivering controlled growth that will generate long- term shareholder value.
INSIDE
3
6
STRATEGY FROM THE CHAIRMAN
10
MANAGING DIRECTOR'S REVIEW
18
MAJOR PROJECTS
24
BOARD AND SENIOR EXECUTIVES
96
100 102 104
ADDITIONAL INFORMATION PRODUCTION AND EXPLORATION PERMITS
1
GLOSSARY CORPORATE DIRECTORY
4
HIGHLIGHTS
8
OPERATIONAL OVERVIEW
16
FINANCIAL MANAGEMENT
22 25
EXPLORATION
AWE LIMITED ANNUAL REPORT 2015
FINANCIAL REPORT
97 101 103
RESERVES AND RESOURCES
STOCK EXCHANGE AND SHAREHOLDER INFORMATION FIVE YEAR FINANCIAL SUMMARY
2
AWE LIMITED ANNUAL REPORT 2015
STRATEGY
AWE's strategy of diversity and flexibility has it well positioned to adapt to a lower oil price environment:
3 Core Products
To manage price volatility and optimise margins, AWE is targeting High Value Gas, Oil, and Unconventional Liquids and Gas.
Geographic Diversity
AWE's portfolio of exploration, development and production assets - located in Australia, New Zealand, Indonesia, China and the USA - is focused on proven petroleum basins.
Lifecycle Exposure
AWE's asset portfolio spans the full upstream lifecycle: Exploration, Appraisal, Development and Production.
The company is an active manager of assets and aims to ensure that AWE's equity interest reflects the appropriate balance between risk and reward at every stage of an asset's lifecycle. AWE prefers to have involvement at early stages in projects where it can add substantial value.
3
Financial Strength
A sound balance sheet and good operating cash flows allow the company to stay in control of its exploration and development agenda and deliver growth.
IMAGE
Drilling operations at the Senecio-3 well, onshore Perth Basin
4
HIGHLIGHTS
AWE LIMITED ANNUAL REPORT 2015
59%
increase in 2C Resources
to 122 mmboe
$143M
Field EBITDAX
25%
increase in 2P Reserves
to 114 mmboe
$284M
Sales revenue
5.1 MMBOE
Total production
5
484
Bcf gross* estimated
for Waitsia discovery
*484 Bcf gross comprises 178 Bcf 2P Reserves and 306 Bcf 2C Resources
54%
increase in Sugarloaf production
$400M
4-year debt facility in place
FROM THE CHAIRMAN
6 Fellow AWE shareholders
A year ago, at the Annual General Meeting (AGM), I spoke about the remarkable success of the US shale gas and liquids sector and the powerful forces it had unleashed within the international energy community.
Those same forces which drove rapid growth in the US economy - a resurgence in
manufacturing, falling unemployment and strong GDP growth driven by low gas prices - have also had other, dramatic side effects.
The forces that lifted US oil production to record levels last year also unleashed a powerful response from Middle East oil producers, which has driven oil prices to decade lows.
Few forecasted the severity and duration of the oil price decline in the past year and this clearly has affected markets and changed the world in which your company operates.
Despite the challenges, AWE has continued to deliver on its objectives and hit its production, development and exploration targets while also delivering a revenue result that was only 2 per cent below our full year guidance - a remarkable effort given the severity of the fall in oil prices.
However, now we are forced to confront an oil industry outlook in which prices may remain at low levels for much longer than most people expected.
I am pleased to report that AWE has responded well to this challenge by reshaping our business to operate in the new world order. We are doing that by reducing costs, including operating expenses and corporate overheads, reprioritising our development projects, looking at asset divestments, and realigning our corporate resources to match.
For example we are closing our office in Jakarta, reducing and reassigning headcount, and we have significantly reduced development and exploration spending in the current financial year.
AWE is still targeting growth - albeit in a tightly controlled and disciplined manner.
Your company is in the enviable position of having an excellent book of high quality, project-ready growth opportunities such as the Ande Ande Lumut (AAL) oil project and the Lengo gas project in Indonesia, and the Waitsia gas project in Western Australia's Perth Basin.
But in the current environment it would be unwise to develop all these projects at once. Our short-term priority will be pursuit of the development of the Waitsia gas field where we expect growing demand and elevated gas prices over the medium term.
'AWE HAS
RESPONDED WELL TO THIS CHALLENGE
BY RESHAPING OUR BUSINESS.'
120
100
80
60
40
20
0
BRENT / WTI OIL PRICES (US$BBL)
Brent WTI
Last year I suggested that shareholders should watch activity on this project with keen interest. Since our last AGM, shareholders have benefited from excellent production test results, successful follow-up appraisal drilling, and booking of substantial 2P Reserves and 2C Resources.
Waitsia looks like delivering on its potential to be the biggest conventional gas field discovery onshore Australia since the mid 1980s, with gas production from stage one of the development due by the middle of 2016.
Irrespective of such success, in response to the low oil price environment we need to manage our capital and maintain a strong balance sheet.
The company has a solid production base which generates substantial cash flows,
even at reduced crude oil prices, underpinned by long-term CPI-linked gas contracts in south- eastern Australia.
AWE remains focused on growing the company, in line with our long-term strategy, albeit at
a necessarily slower pace in line with current market conditions.
We have four high quality growth assets in BassGas, Sugarloaf, Waitsia and Ande Ande Lumut as well as other pre-development projects, such as the Lengo and Trefoil gas fields, along with numerous exploration assets.
Within all these projects and opportunities, AWE retains substantial flexibility and optionality in terms of managing scheduling and development costs, from a corporate balance sheet perspective and within the assets themselves. These diverse assets also offer AWE a good mix of both oil and gas reserves and production.
Our goal to double annual production to 10 mmboe from current reserves remains
achievable, but of course the speed and timing of reaching that target is heavily leveraged to global oil prices.
While working to realise these growth ambitions, AWE will continue to maintain very strict financial and operational discipline. In the past year, AWE increased the amount and extended the term
of its bank debt facility to A$400 million over four years. Where prudent, the board will also consider hedging future production to underpin cash flow.
In summary, AWE remains well positioned to navigate these troubled waters thanks to
a diverse suite of high quality assets, a solid 7
production base and prudent management
through what has been, and will continue to be, a very challenging period.
The company's board and management remain focused on delivering controlled growth with a strong emphasis on financial discipline while maintaining a safe and sustainable business.
I would like to acknowledge the strong contribution made by Dr Vijoleta Braach- Maksvytis, a non-executive director since 2010, who is retiring at this year's AGM to pursue her growing business interests. Her insights in the area of innovation and her commitment, as chair of the People Committee, to the development of leadership skills and mentoring within AWE have been invaluable.
On behalf of shareholders I thank my colleagues on the board, along with Bruce Clement and his management team for their hard work over the past, very challenging year.
Bruce Phillips
Chairman
8
OPERATIONAL OVERVIEW
Region And Assets
FY2014-15
Production
Percentage
of total
NET 2P RESERVES AND 2C RESOURCES
AS AT 30 JUNE 2015
Australia
'000 BOE %
140
114.4
Bass Basin, Australia Otway Basin, Australia
Bass Basin (BassGas) 1,093 21.5%
Otway Basin (Casino) 1,072 21.0% Perth Basin (Cliff Head, onshore*) 766 15.0%
New Zealand
Taranaki Basin (Tui*) 836 16.4%
USA
Eagle Ford, Texas (Sugarloaf) 1,327 26.1%
Total production 5,094
*Denotes Operatorship (not all Perth Basin assets Operated by AWE)
121.9
120
100
million BOE
80
60
40
Perth Basin, Australia
Taranaki Basin, New Zealand Eagle Ford, Texas, USA Natuna Sea, Indonesia
East Java Sea, Indonesia
20
0
2P RESERVES
2C RESOURCES
Ratio of gas to liquids in 2P Reserves is 42:58
Ratio of gas to liquids in 2C Resources is 71:29
8
5
6
7
3
2 14
9
-
BASS BASIN, AUSTRALIA
BassGas Project (AWE 35%)
13.4 MMBOE
2P RESERVES
30.8 MMBOE
2C RESOURCES
-
OTWAY BASIN, AUSTRALIA
Casino Gas Project (AWE 25%)
8.2 MMBOE
2P RESERVES
1.3 MMBOE
2C RESOURCES
-
PERTH BASIN, AUSTRALIA
Cliff Head Oil Project (AWE 57.5%) Waitsia Gas Project (AWE 50%, Operator) Onshore Perth Basin (AWE 33-100%, some Operated)
19 MMBOE
2P RESERVES
53.6 MMBOE
2C RESOURCES
-
TARANKI BASIN, NEW ZEALAND
Tui Oil Project (AWE 57.5%, Operator)
3 MMBOE
2P RESERVES
-
EAGLE FORD, TEXAS, USA Sugarloaf AMI (~10% working interest, ~7.5% net revenue interest)
47.8 MMBOE
2P RESERVES
17.1 MMBOE
2C RESOURCES
-
NATUNA SEA, INDONESIA
Ande Ande Lumut Oil Project (AWE 50%)
23 MMBOE
2P RESERVES
9.6 MMBOE
2C RESOURCES
-
EAST JAVA SEA, INDONESIA
Lengo Gas Project (AWE 42.5%)
-
BOHAI BAY BASIN, CHINA
Block 09 / 05 (AWE 40%)
9.5 MMBOE
2C RESOURCES
MANAGING DIRECTOR'S REVIEW
The 2014-15 financial year proved to be extremely challenging for the oil and gas industry, as companies, commodity markets and investors were required to adjust to significantly lower oil prices.
From an operational perspective AWE achieved a number of major successes during the year, including a significant gas discovery in the Perth Basin and substantial Reserves growth, which further enhanced the company's future prospects.
However, AWE was not immune to market forces and our financial results were negatively impacted by lower oil prices, reduced revenues, and asset impairments.
Full year production of 5.1 mmboe was at the top end of our forecast range, while sales revenue of $284 million was down due to the lower realised average oil price during the
year. The company reported a statutory net loss after tax of $230 million, including non-cash impairments after tax of $158 million, and an underlying net loss after tax of $52 million.
10 2014-15 was a peak year for AWE's development and exploration activity, with drilling operations undertaken at BassGas, Sugarloaf, Tui, onshore Perth Basin and China. Development and exploration expenditure is forecast to reduce significantly in 2015-16 and again in 2016-17.
Operating Highlights
By far the biggest highlight of the year for AWE was the exploration and appraisal success in the Perth Basin, where AWE now estimates more than 700 Bcf gross recoverable gas can be developed with further upside potential.
The Waitsia field is believed to be the biggest onshore conventional gas discovery in Australia in 30 years and Australia's fourth largest onshore gas field based on remaining conventional 2P Reserves.
The Sugarloaf project in the US performed very well - production increased 54% to 1.3 mmboe, drilling costs reduced further and 2P Reserves were doubled. Sugarloaf is a substantial project with combined 2P Reserves and 2C Resources of 65 mmboe net to AWE and up to a decade
of drilling remaining before peak production is achieved.
At BassGas we drilled two development wells, Yolla-5 and Yolla-6, which were brought online in July bringing field production to around
64 TJ/day gross. The new wells provide the BassGas project with increased stable longer term production capability and a greater level of well redundancy.
The Pateke-4H well was tied-in to the Tui oil field in April. Early production was better than anticipated and contributed to a significant increase in fourth quarter production and revenues.
In Indonesia, the Lengo gas project made rapid progress following government approval of
the Plan of Development. The project is now well advanced with FEED work for the offshore facilities and pipeline completed in September 2015 and gas sales negotiations well advanced.
Reserves and Resources
The value of AWE lies in our Reserves and Resources, which at year end had increased to 236 mmboe. Net 2P Reserves increased by 25% to 114 mmboe, which equates to 22 years of production at current rates, and net 2C Resources were up 59% to 122 mmboe.
During the year there were two significant increases in 2P Reserves. Sugarloaf Reserves increased by 100% to 47.8 mmboe following an independent review and further drilling, and the onshore Perth Basin Reserves increased by more than 700% to 17.4 mmboe after a successful exploration and appraisal drilling program. Partially offsetting this, BassGas Reserves decreased by 48% to 13.4 mmboe
after the sale of an 11.25% interest in the project and a 5.5 mmboe reduction in net 2P Reserves following the drilling of two development wells.
Sugarloaf and the onshore Perth Basin also generated substantial increases in 2C
Resources during the year. We see significant opportunity over the next few years to transfer over two thirds of our 2C Resources into 2P Reserves through appraisal and development, which would further strengthen the company's long-term production base.
Taking the Initiative
AWE is well positioned to transition to the new, low oil price environment. We continue to benefit from our underlying strategy of asset diversity, which creates considerable flexibility within our portfolio.
This strategy gives us the capacity to respond to the oil price challenge by prioritising production growth while at the same time minimising the impact on the company's financial position.