Microsoft Word - 160129 December 2015 AWE Quarterly Report
Issued by AWE Limited on 29 January 2016
Quarterly Report
For the 3 months to 31 December 2015
HIGHLIGHTS
PRODUCTION AND DEVELOPMENT
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Total production of 1.5 mmboe for the December quarter, up 7% over the previous quarter, with Sugarloaf up 30% and BassGas up 27%.
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YTD production of 2.9 mmboe, up 12% over the previous corresponding six months, with BassGas up 22%, Sugarloaf up 44% and Tui up 33%.
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FID for Waitsia Stage 1A achieved in early January 2016 following a gas sales agreement with Alinta for 10 TJ/day over a 2.5 year period.
EXPLORATION AND APPRAISAL
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Excellent flow test results from Waitsia-1 achieved in October 2015 with a combined rate in excess of 50 mmscf/d from the conventional Kingia and High Cliff Sandstone formations.
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Offshore Indonesia, the Operator of the AAL oil project is planning to drill an appraisal well on the underlying G-Sand, targeting an additional 36 mmbbl gross 2C Resource to the established 101 mmbbl gross 2P Reserves.
FINANCIAL AND CORPORATE
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AWE to sell its 10% interest in the Sugarloaf AMI for US$190 million (A$271 million). At anticipated completion in March 2016, AWE estimates a net cash position of approximately A$60 million.
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Revenue of $63 million for the December quarter, up 7% over the previous quarter. Total revenue for the six months to 31 December 2015 was $122 million, down 24% over the previous corresponding six months and Field EBITDAX was $53 million.
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The average realised oil and condensate price for the December quarter, inclusive of hedging, was A$67.66 per barrel.
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At 31 December 2015, prior to the Sugarloaf sale, AWE had net debt of $197 million and undrawn facilities of $173 million.
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No Lost Time Injuries (LTIs) or reportable environmental incidents during the quarter.
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QUARTERLY PRODUCTION BY PRODUCT '000 BOE
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QUARTERLY REVENUE BY PRODUCT $'000
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OIL
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275
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17,624
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CONDENSATE
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303
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19,331
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LPG
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175
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6,536
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GAS
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728
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19,100
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TOTAL
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1,481
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62,591
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Note: Numbers may not add due to rounding. Revenue includes effective hedging where applicable.
AWE LIMITED LEVEL 16, 40 MOUNT STREET NORTH SYDNEY NSW 2060 AUSTRALIA
P +61 2 8912 8000 F +61 2 9460 0176 E [email protected] ABN 70 077 897 440 www.awexplore.com
MANAGING DIRECTOR'S COMMENTS
AWE performed well in the second quarter of the 2015-16 financial year, improving production and revenue and significantly reducing expenditure. Production and revenue increased by 7% over the previous quarter, to
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mmboe and $63 million respectively, while combined development and exploration expenditure was down by a substantial 56%.
Strategically, we have worked hard to reshape the company and adapt to the low oil price environment, with a number of key initiatives delivering positive results:
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The recently announced divestment of Sugarloaf for US$190 million (A$271 million) is an excellent outcome that will allow us to strengthen the balance sheet by repaying all debt drawn under the Company's debt facility and recycle capital.
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The Waitsia gas project achieved FID for Stage 1A and first gas is scheduled for August 2016.
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Hedged oil revenues in Australia, New Zealand and the USA are well in the money at current oil prices and will underpin certainty of cash flow for the remainder of the financial year.
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Cost reduction activities are gaining traction, including closure of our Indonesian project office, reduced staff numbers, deferral of exploration commitments, and reduced development expenditure and operating costs.
The sale of Sugarloaf is significant on a number of levels. Apart from ensuring AWE maintains a robust balance sheet through a low oil price environment, we will have removed substantial recurring development expenditure and refocused the Company in the near term on high value gas assets, particularly in Australia where we have exposure to anticipated price increases for AWE's gas production in the east coast and west coast markets over the next two to three years.
Development approval for the first stage of the Waitsia gas project was particularly pleasing. Waitsia is an AWE discovery and the company has added significant value through the appraisal process with the potential for further upside in Reserves and Resources. Being a conventional onshore development with proximity to established infrastructure, we also have the ability to position AWE as the low cost producer in the west coast gas market.
On the east coast, the BassGas and Casino gas projects will be negotiating new gas contracts in the near term for delivery from 2018. Domestic gas prices have strengthened considerably over the last few years, and we anticipate significant price improvement over the $4-5 per GJ contract prices currently in place.
In recent years, around 25% of AWE's cash flows have been derived from domestic CPI-linked sales from gas-producing assets. With the divestment of Sugarloaf and FID for Waitsia Stage 1A, this core cash flow base will increase over coming years and continue to provide substantial protection against oil price volatility.
AWE's balanced portfolio of assets provides substantial reserves growth potential and exposure to increases in both domestic gas and international oil markets. In Australia, the full field Waitsia gas project represents a significant opportunity for increasing gas production in an historically strong gas market, while the Ande Ande Lumut ("AAL") oil project in Indonesia provides exposure to upside in oil prices. AWE holds a 50% interest in the AAL project, potentially a 101 million barrel (gross 2P Reserves) oil field offshore Indonesia, where the Operator is planning to drill an appraisal well targeting an additional 36 million barrels (gross 2C Resources) volume in the deeper G-sand reservoir.
Looking ahead, AWE is tracking well against guidance which will be restated at our half year result in February to accommodate the divestment of Sugarloaf. Exploration and development costs are planned to reduce further during the remainder of 2015-16 and we will continue to manage our asset portfolio and costs to ensure a strong and robust balance sheet so that we can pursue significant value-adding projects.
Bruce Clement
Managing Director and CEO
FINANCIAL & CORPORATE
FINANCIAL
December quarter production was 1.5 mmboe, 7% higher than the September quarter. Production increases at BassGas, up 27%, and Sugarloaf, up 30%, were the key drivers of growth during the period. Liquids comprised 51% of quarterly production with gas providing 49%.
For the six months to 31 December 2015, total production of 2.9 mmboe represents a 12% increase over the previous corresponding period. The main contributors were Tui, up 33%, BassGas, up 22%, and Sugarloaf, up 44%.
Total revenue, including the impact of hedging, for the December quarter was $63 million, up 7% from the $59 million recorded in the September quarter. One lifting was undertaken at Tui with AWE's oil hedging program offsetting the impact of lower oil prices. The average realised price for oil and condensate during the quarter was A$67.66 per barrel.
The mark to market value of unutilised hedging at 31 December 2015 was $11.3 million, comprising:
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371,000 barrels of oil hedged for the 6 months to June 2016 at a weighted average WTI price of US$46.65 per barrel in relation to the Sugarloaf asset; and
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480,000 barrels of oil hedged for the 6 months to June 2016 at a weighted average Brent price of US$50.85 per barrel in relation to Australian and New Zealand production assets.
Field opex increased slightly to $36 million, in line with higher production, and Field EBITDAX for the period was steady at $26 million.
Development expenditure for the quarter was reduced by 66% to $18 million, compared to the previous quarter. Exploration expenditure was $9 million, up 7%, largely due to drilling activity in China's Bohai Basin and flow testing operations in the Perth Basin of Western Australia.
At the end of December 2015, AWE's financial position comprised cash of $30 million, $227 million of drawn debt and undrawn facilities of $173 million. Net debt was $197 million.
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FINANCIAL HIGHLIGHTS
Exploration expenditure
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3 months to
December 2015
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3 months to
September 2015
$'000
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6 months to
December 2015
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$'000
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$'000
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South East Australia
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145
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291
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436
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Western Australia
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3,304
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1,311
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4,615
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New Zealand
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157
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(503)
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(346)
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Indonesia
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498
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827
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1,325
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Yemen
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(25)
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(387)
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(412)
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China
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4,320
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6,292
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10,612
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Other
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376
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391
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767
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Total
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8,775
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8,222
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16,997
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Development expenditure
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3 months to
December 2015
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3 months to
September 2015
$'000
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6 months to
December 2015
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$'000
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$'000
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South East Australia
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11,142
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23,483
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34,625
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Western Australia
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2,446
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5,857
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8,303
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New Zealand
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(24)
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(2,425)
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(2,449)
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USA
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(1,767)
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20,011
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18,244
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Indonesia
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6,103
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5,128
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11,231
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Total
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17,900
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52,054
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69,954
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Note: Financial highlights are preliminary and unaudited. Numbers may not add due to rounding.
FINANCIAL HIGHLIGHTS (continued)
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3 months to
December 2015
$ million
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3 months to
September 2015
$ million
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6 months to
December 2015
$ million
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Revenue Field Opex
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63
36
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59
33
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122
69
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Field EBITDAX
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26
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27
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53
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Note: Financial highlights are preliminary and unaudited. Numbers may not add due to rounding. Revenue includes effective hedging where applicable.
At each reporting date AWE carries out an assessment of the carrying values of its oil and gas assets based on a range of assumptions and inputs. One of the key inputs that impact on the carrying value is an estimate of the future oil and gas prices. In the six months to 31 December 2015 oil price forecasts have continued to decline both in respect of the near term and long term forecasts from independent sources. AWE is currently undertaking a review of the carrying value of its oil and gas assets as at 31 December 2015 and expects further non-cash impairments will be charged against the carrying value of the Company's oil price linked assets in the half year report.
CORPORATE
The AWE Limited Annual General Meeting was held in Sydney on Friday, 20 November 2015. All resolutions were carried. Further details are available on the company's website www.awexplore.com.
In January 2016, AWE announced the sale of its 10% working interest in the Sugarloaf AMI to Carrier Energy Partners II for US$190 million (A$271 million). The sale agreement has an effective date of 1 January 2016 and is subject to purchase price adjustments at closing, including a payment to AWE of US$9 million (A$13 million) for drilling costs incurred prior to the effective date. The sale proceeds of A$271 million will be used to repay drawn debt under the Company's debt facility and will substantially strengthen the Company's balance sheet, leaving AWE in a net cash position of approximately A$60 million at the anticipated March 2016 close. AWE will continue to book production, revenue and development expenditure associated with the project until completion with the final purchase price adjustments to be recognised through the P&L.
AWE continues to work with Elixir Petroleum Limited in relation to the sale of its 57.5% interest in Cliff Head. The parties have agreed an extension to the exclusivity period to 15 February to complete negotiations on a sale and purchase agreement. The sale is conditional on the purchaser securing funding for the acquisition.
PRODUCTION & DEVELOPMENT
SOUTH EAST AUSTRALIA
BassGas Project (35%)
Gross production for the September quarter was up 27% over the previous quarter and comprised 5.2 PJ of gas, 173,000 barrels of condensate and 15,400 tonnes of LPG. The average gross daily rate for the quarter was approximately 56 TJ/day. AWE's share of production was approximately 1.8 PJ of gas, 61,000 barrels of condensate and 5,400 tonnes of LPG.
On a year to date basis, total production from BassGas is up 22% compared with the previous corresponding period. AWE's share at 31 December 2015 was 756,000 boe.
Work to complete the final stage of the MLE project, the hook-up and commissioning of the gas compression and condensate pumping modules, has commenced. The cost to AWE for the final stage of the MLE project is expected to be approximately $20 million spread over 2015-16 and 2016-17. The Operator has also commenced an operating cost reduction program.