Neptune Energy announced operational and financial guidance for 2021, ahead of its full year 2020 results on 11 March.
Despite a reduction in planned activity related to COVID-19 restrictions and extended unplanned shutdowns at both Snohvit (Norway) and Touat (Algeria), Neptune delivered a resilient performance in 2020. Before financing costs, the company was cash flow positive in 2020.
Neptune’s total Group production for 2020 averaged 142.4 kboepd, within its revised guidance range of 140-145 kboepd. Including production-equivalent loss of production insurance payments, production was 143.8 kboepd, which was unchanged on 2019.
As previously announced, the outages at Snohvit and Touat will continue to have an impact on Neptune’s production in 2021. Based on the expected restart of Touat at the end of Q1 2021 and Snohvit in early Q4 2021, along with scheduled start-up dates for our projects at Gjøa P1 (Norway), Duva (Norway) and Merakes (Indonesia), we expect Group production to average 130-145 kboepd in 2021. Including production-equivalent loss of production insurance payments, production is expected to be 140-155 kboepd.
New projects coming online during 2021, coupled with the resumption in production from Snohvit and Touat, will result in significantly higher volumes and operating cash flows at the end of the year. Longer term, additional organic production from sanctioned projects in Norway and the UK will increase production further to around 200 kboepd in 2023, delivering material growth from Neptune’s low-cost, lower carbon portfolio.
Following organisational changes in 2020 and reflecting its development schedule, Neptune is targeting a further reduction in expenditure in 2021. Development capex, including investment at Touat, is expected to be around $700 million and will be weighted towards the first half of the year, leading to higher expected free cash flow in the second half of 2021 as production also increases. Development capex at Neptune’s sanctioned projects will decline further in 2022 and 2023 as projects are completed and brought onstream.
Exploration and appraisal spend is expected to remain around $150 million in 2021, with up to 11 wells to be drilled. Neptune’s drilling programme in 2021 includes important appraisal wells on the Dugong and Maha discoveries and an exploration well targeting the Dugong Tail prospect.
Neptune retains a high hedge ratio in 2021 providing ongoing protection against downside commodity price risk, while it continues to benefit from tax refunds from temporary changes to the upstream fiscal regime in Norway as a result of continuing high levels of investment in the country.
Due to the actions taken in 2020, Neptune remains fully funded from projected operating cash flow, supported by significant available liquidity. While leverage will increase in the first quarter of 2021, it is expected to decline to around 1.5x in the second half of the year as EBITDAX increases and net debt falls. For the full year, higher commodity prices will lead to an increase in EBITDAX compared with 2020.
Neptune retains a disciplined and focused approach to capital allocation and will invest selectively in new opportunities, including through M&A, where it makes strategic sense and delivers strong returns.
Given the improving commodity markets and economic outlook, the Board of Directors of Neptune Energy Group Limited have declared a $200 million interim dividend for the financial year 2021. The interim dividend was paid to shareholders on 25 February 2021. No dividend was paid in 2020.
Jim House, CEO of Neptune Energy, said: “Following a resilient performance in 2020, Neptune is set for a period of growth towards production of around 200 kboepd in 2023. With these higher production volumes and lower capital expenditure on sanctioned projects, we expect to generate higher cash flows that will support our longer term growth opportunities”.
Neptune’s full year results for the period ended 31 December 2020 will be announced on Thursday, 11 March 2021.