Neptune Energy announced its financial results for the 12 months ended 31 December 2020.
Large-scale and diversified
• Continued improvement in health and safety, with our total recordable injury rate down to 1.4 per million hours worked in 2020.
• Full year production of 142.4 kboepd, within revised guidance range (143.8 kboepd including production-equivalent insurance receipts).
• 2021 production guidance of 130-145 kboepd, reflecting outages at non-operated assets in Norway and Algeria (140-155 kboepd including production-equivalent insurance receipts). Expect to exit 2021 at materially higher production rates with new projects online in Norway and Indonesia and production restarts.
• Entering a period of growth, targeting production of close to 200 kboepd in 2023, with all existing sanctioned projects onstream.
Long-life, low-cost and lower carbon
• 2P reserves of 601 mmboe and 1P reserves of 392 mmboe. Three-year reserves replacement ratio of 128%. Significant ~50% increase in 2C resources to 452 mmboe, providing material future growth potential. Targeting medium-term 2P reserves of ~800 mmboe, supported by organic and inorganic growth.
• Delivered cost savings and deferrals on target of $350 million and reduced opex to $9.5/boe. Breakeven price of $29.8/boe.
• Carbon intensity from managed production stable at 6.3 kg CO2/boe, on-track to hit 2030 target of 6 kg CO2/boe. Methane intensity from managed production of 0.01%, with 2030 net zero methane emissions target also on track.
• Project pipeline to deliver a medium-term reduction in opex, to <$9/boe, and carbon intensity.
Gas-weighted and well-positioned for the energy transition
• 75% of 2020 production volume was gas, 72% of reserves. Revenue exposure of 47% gas, 18% LNG and 35% oil diversifies risk.
• Commenced feasibility study into CCS plan for the Netherlands, progressing with PosHYdon green hydrogen pilot project and Gudrun electrification project approved. Evaluating further electrification opportunities in Norway and the UK.
• Developed ESG roadmap, aligned with UN Sustainable Development Goals and the Financial Stability Board Task Force on Climate-related Financial Disclosures, to drive improvements in the business.
• European activities supported some 11,400 jobs and contributed an estimated $2.1 billion gross value added in 2020.
Significant cash flow generation and strong balance sheet
• Operating cash flow of $915 million despite lower commodity prices, supported by hedging gains and Norwegian tax refunds. EBITDAX of $940 million and an underlying operating profit of $287 million.
• Total available liquidity of $1.3 billion at the end of the period. Development projects fully funded from operating cash flow.
• Net debt to EBITDAX of 1.94x at 31 December 2020. Expect leverage to slightly increase in H1 2021 due to capex phasing, before declining in H2 2021. Aim to maintain ratio of <1.5x through the cycle.
Disciplined and focused capital allocation
• Development capex of ~$700 million to support project pipeline, with new projects in 2021 to add 27 kboepd at plateau.
• Exploration spend of ~$150 million in 2021 targeting appraisal of high-value prospects, including Dugong (Norway). Targeting FID for Dugong in 2022 to submit PDO to benefit from enhanced tax regime in Norway.
• Fully-funded investment programme within operating cash flow in 2021 to support sanctioned projects and high-value exploration prospects.
Growing free cash flow
• Positive free cash flow generation in 2020, despite weaker prices and lower production. $775 million FCF since EPI acquisition.
• Expect to generate materially higher free cash flow in 2021, with increasing production supporting future revenues.
• Higher commodity prices to lead to an increase in EBITDAX compared to 2020.
• Given the improving commodity and economic outlook for the financial year 2021, the Board of Directors of Neptune Energy Group Limited declared a $200 million interim dividend on 24 February 2021.
Neptune Energy’s Executive Chairman, Sam Laidlaw, said: “Despite the significant challenges presented by the COVID-19 pandemic and lower commodity prices, Neptune delivered a resilient operational and financial performance in 2020, generating an underlying operating profit.
“I am proud of the way we responded, swiftly and decisively, to protect our people, our contractors and suppliers, the communities in which we work and our assets and the environment.
“As we progress through 2021, we are a stronger business, generating free cash flow at all points of the commodity cycle. Our recent exploration results, together with a pipeline of near-term opportunities, provide strong growth for the future.”
Neptune Energy’s Chief Executive Officer, Jim House, said: “The diversity of our portfolio, balanced commodity price exposure and active hedging programme helped de-risk Neptune’s revenue streams in 2020 against volatile prices, while we also took the opportunity to increase liquidity that will provide additional headroom to support value-accretive growth opportunities.
“Our swift action to reduce costs, defer capital expenditure and optimise work plans protected our balance sheet and ensured operational continuity. While our production volume in 2020 was impacted by outages at non-operated assets in Norway and Algeria, our operated production performed well with high levels of production efficiency.
“With new projects coming online in Norway and Indonesia during 2021, coupled with the resumption in production from Snøhvit and Touat, we expect to be producing significantly higher volumes at the end of the year. Longer term, additional organic production from new projects in Norway and the UK will take us to close to 200 kboepd in 2023, delivering material growth from our low-cost, lower carbon portfolio.”