Jadestone Energy plc ("Jadestone" or the "Company"), an independent oil and gas production company and its subsidiaries (the "Group"), focused on the Asia-Pacific region, reports today its preliminary1 unaudited consolidated financial statements (the "Financial Statements"), as at and for the financial year ended 31 December 2022. Management will host a conference call today at 9:00 a.m. UK time, details of which can be found in the release below.
Paul Blakeley, President and CEO commented:
"2022 was an extremely frustrating year operationally, one which largely overshadowed the underlying progress made in a number of key strategic areas. The first half of the year validated our strategy at work, as we generated significant operating cash flow, building our cash balance to a record high of US$162 million by mid-year. The second half however highlighted the over-reliance on Montara for operational and financial performance, highlighting that we are vulnerable to single events on this asset.
Since we became operator of Montara in 2019, we have been undertaking an ongoing programme to revitalise the asset through a systematic process of inspection, remediation and repair. Progress has been impacted by COVID-related manning restrictions over the past 18 months, that caused delays to this programme, and which frustratingly contributed to the unplanned event in July when a small hole in storage tank 2C was detected, a tank that was scheduled to be next in the inspection programme.
We have since undertaken an extensive 8-month shutdown, which has allowed us to address required regulatory actions, and carried out a detailed inspection of critical areas of the FPSO and the necessary repairs and maintenance to restart production. This was the right thing to do notwithstanding the major short-term impact on the business, and our clear focus from now on is to ensure to the best of our ability that there will be no further unplanned events of this nature at Montara. Since restarting production in March 2023, Montara has performed in line with expectations, producing from three wells at c.4,700 bbls/d, with additional wells becoming available for production in the coming weeks and more cargo tanks being returned to service in due course.
Over the past eight months, Montara has stress tested our resilience, and I am very proud of the way in which the whole team has responded in these difficult circumstances to work through the issues and bring the asset back on stream.
However, the past 8 months, although challenging, has also demonstrated that we have the right strategy, highly cash generative with quick pay-back, adding to our production portfolio in a disciplined way. In doing this, we are repositioning the portfolio to ensure this won't be repeated, so while Montara was 80% of our production in mid-2021, it is expected to be 20% of our production by mid-2024. Over the same period, we will have expanded the business from just two producing assets to seven in multiple countries and jurisdictions, providing the portfolio diversity that will insulate the company from the impact of such events in the future, a benefit usually exclusive to the majors and one that will differentiate us from our peers.
Despite the hiatus at Montara, our robust business model allowed us to end 2022 with an increased cash balance over the 12-month period and a US$9 million profit for the year. This was delivered against a backdrop of an extensive capital programme, a share buy-back of approximately US$18 million, completion of two acquisitions including BP's interest in the highly attractive CWLH assets on the North West shelf, and commencement of the Akatara gas field development, our largest ever organic project, onshore Indonesia.
Due to a combination of first quarter 2023 liftings being back-end loaded and high activity levels throughout our portfolio, cash available by end March 2023 had reduced to US$64 million, with US$29m of debt drawn from the Interim Facility to fund the Sinphuhorm acquisition.
With respect to the RBL, we have one international bank credit approved and three others in the credit approval process, and expect the facility to close in May 2023 once customary conditions precedent are satisfied. We also anticipate approval from NOPTA on the CWLH title transfer to Jadestone in May, which is required to draw down the RBL. The RBL would restore our capital flexibility and even though we maintain a high level of reinvestment in the business, the highly cash generative nature of our portfolio, particularly after Akatara comes onstream, should see us approaching a net cash position around the end of 2024 based on expected operating performance and current oil prices. Importantly, the RBL will also facilitate the funding of further acquisitions of producing assets. Our intention as previously, will be to utilise some hedging to help secure the RBL repayment schedule, while still retaining a significant exposure to oil price upside. In line with our approach to the final 2021 dividend, a recommendation on the final dividend for 2022 will be made when our audited accounts are released in late-May 2023.
In addition to the recently acquired gas production at Sinphuhorm, we will add the fixed price gas that is expected onstream at Akatara in the first half of next year, both of which give increased reliability to future cash flows.
Strong growth in the business is emphasised by the 45% increase in 2P reserves at year-end, circa six times production replacement, and it is worth recognising, that we have maintained asset reserves at Montara, reinforcing the principle that despite the shut-down, reserves and cash flows have been deferred and not lost. This provides a lot of encouragement for the future; our company has been proven to be resilient through the challenges we have faced and we have strengthened the business through both product and portfolio diversification, a strategy we will continue to pursue.
2023 should be a promising year for Jadestone with the Akatara project in the Lemang PSC on schedule and within budget, an exciting four well programme at East Belumut, closing of Sinphuhorm and the potential to add to the portfolio through further acquisitions.
I'm extremely grateful to the people within Jadestone who have worked tirelessly across the business to get us back on track, and despite a period of significant challenge imposed by the events of the past several months, have never wavered from doing the right thing. It has been a challenging year, lessons have been learned and implemented, but we look forward with renewed confidence to the future"
Operational and financial summary
· Proven and probable reserves at year-end 2022 totalled 64.8 mmboe, a 45% increase compared to the reserves at year-end 2021 of 44.7 mmbbls, representing a reserves replacement of 579%, reflecting the conversion of Akatara gas field contingent resources to reserves and addition of the non-operating working interest in the Cossack, Wanaea, Lambert and Hermes ("CWLH") Assets, offset by production and modest technical revisions during the year;
· Full year production decreased by 8% to 11,487 boe/d (2021: 12,545 bbls/d), due to Montara being shut-in for tank repairs from August 2022 and the FPSO class suspension at the non-operated Peninsular Malaysia ("PenMal") Assets. This was offset by higher annualised production at the operated PenMal Assets due to a full year of operations in 2022 and two months' contribution from the CWLH Assets;
· Total lifted volumes in 2022 decreased 7% to 4.3 mmboe (included lifted volumes of 0.7 mmbbls from the CWLH Assets), compared to 4.7 mmboe in 2021, reflecting lower production at Montara and the non-operated PenMal Assets;
· Total revenue increased 24% to US$421.6 million (2021: US$340.2 million) due to a 40% increase in realised prices, partly offset by a 7% reduction in lifted volumes;
· The average realised price for the year was US$103.85/bbl in 2022 (2021: US$74.34/bbl), a 40% increase year-on-year. The average realised price premium was US$7.81/bbl for 2022 (2021: US$3.39/bbl);
· Total production costs of US$250.7 million, compared to US$211.9 million in 2021, due to:
o The inclusion of US$37.8 million in 2022 associated with the CWLH Assets acquired in November 2022, consisting of US$3.7 million cash operating costs and an additional US$34.1 million of non-cash inventory movements, relating to moving from a significant underlift position to an overlift position following the lifting which occurred in mid-November 2022;
o A full year of operations and supplementary payments at the PenMal Assets following their acquisition in August 2021, whereby the supplementary payment also increased due to higher realised oil prices;
o Reduced production costs at Montara reflecting the shut-in from August 2022 through the end of 2022; and
o Lower Stag production costs due to reduced workover activities in 2022 compared to the previous year.
· In line with previous disclosures, adjusted annualised unit operating costs2 for 2022 were US$37.49/boe, compared to US$26.22/bbl in 2021, primarily due to the lower production from Montara and the non-operated PenMal Assets;
· Adjusted EBITDAX increased by 14% to US$161.9 million compared to US$142.2 million in 2021, predominately due to higher oil prices driving higher revenues party offset by lower adjustments for one-off expenditures;
· Net profit after tax of US$8.5 million (2021: US$17.1 million loss after tax);
· Operating cash flow generation in 2022 of US$158.1 million, before movements in working capital, up 73% compared to 2021 of US$91.2 million ;
· Capital expenditure of US$82.9 million (2021: US$56.0 million), a 48% increase from 2021, primarily due to the Stag infill drilling programme completed in 2022 and the Akatara gas development at the Lemang PSC. The administration expenses related to the Lemang PSC are accounted for as operating expenditures (as Administrative Staff Costs and Other Expenses) of approximately US$2.0 million in 2022;
· Cash balances of US$123.3 million at 2022-year end, 5% higher compared to 2021 at US$117.9 million.
· The share buyback programme acquired 18.2 million shares in 2022, at an average cost of US$0.88 (0.76 GBp) per share for a total cost of US$16.2 million; and
· On 20 September 2022, the Directors declared a 2022 interim dividend of 0.65 US cents/share, equivalent to a total distribution of US$3.0 million. In line with the approach taken in respect of the final 2021 dividend in June 2022, a recommendation on the final dividend for 2022 will be made when the Group's audited accounts are released in late-May 2023.
· On 6 June 2022, the Group took the final investment decision to develop the Akatara gas field, onshore Indonesia, with project completion and first gas scheduled in the first half of 2024;
· On 27 October 2022, the Group announced the termination of the Maari acquisition due to a lack of progress on regulatory approvals and resultant uncertainty over the timing for the transfer of interest and operatorship;
· On 28 July 2022, the Group executed a sale and purchase agreement with BP Developments Australia Pty Ltd ("BP") to acquire BP's non-operated 16.67% working interest in the CWLH oil field development, offshore Western Australia; and
· On 24 November 2021, the Group executed a settlement and transfer agreement with PT Hexindo Gemilang Jaya ("Hexindo") to acquire the remaining 10% interest in the Lemang PSC.
Significant and subsequent events
· On 7 February 2022, the Bunga Kertas FPSO, deployed at the non-operated PenMal Assets, had its class suspended, resulting in operations being shut-in and production suspended. Jadestone has assumed operatorship of the non-operated licences following the decision of the previous operator to withdraw. Jadestone looks forward to evaluating redevelopment options for the fields;
· On 17 June 2022, the Montara FPSO released between three to five cubic metres of crude oil to sea during a routine oil transfer between storage tanks. As a precaution, production was shut in and the relevant authorities were notified. Following a temporary repair and isolation of the tank where the leak originated, production restarted while a permanent repair was developed. On 12 August 2022, an additional defect was identified in a ballast water tank, after which the Group took the decision to shut in production and prioritise permanent repairs. In response to the new defect, the regulator issued a General Direction requiring an independent assessment of the storage tanks before restarting production. Following the submission of the independent review of the Group's remediation plans and operational readiness for the Montara Venture FPSO on 8 February 2023, the local regulator lifted the General Direction on 27 February 2023 and Montara production resumed on 21 March 2023;
· On 19 January 2023, the Group executed a sale and purchase agreement with Salamander Energy (S.E. Asia) Limited (the "Seller"), an affiliate of PT Medco Energi Internasional Tbk to acquire the Seller's interest in three legal entities, which collectively own a 9.52% non-operated interest in the producing Sinphuhorm gas field and a 27.2% interest in the Dong Mun gas discovery onshore northeast Thailand; and
· On 17 February 2023, the Group closed a US$50.0 million debt facility ("Interim Facility") with two international banks. The closing of the Interim Facility forms part of the previously announced plan to arrange a reserves-based lending facility ("RBL"), which is a key element of the Group's medium-term financing strategy to fund development capital at the Indonesian Akatara Gas Project and enable further inorganic growth of the Group. US$28.5 million of the Interim Facility was drawn to fund the acquisition of a 9.52% interest in the Sinphuhorm gas field, with Group cash balances of US$63.9 million as at 31 March 2023. The Group continues to make good progress on the RBL workstreams, with one international bank credit approved and three others in the credit approval process, with signing of the RBL facility agreement targeted for May 2023. Once signed, the RBL is expected to close shortly thereafter once all customary conditions precedent are satisfied. It is expected that approval from the National Offshore Petroleum Titles Administrator ("NOPTA") of the transfer of titles relating to the acquisition for the CWLH fields interest will be required prior to drawing down the RBL.
· Production for the first three months of 2023 averaged just over 10,000 boe/d, reflecting tank repair and scheduled maintenance activities at Montara. Production for the nine months ending 31 December 2023 is expected to average 13,500-17,000 boe/d;
· Underlying operating costs in 2023 are expected to total US$180.0-210.0 million. When adjusted for a full-year of operating costs associated with the CWLH Assets acquisition, higher tanker costs at Stag and higher logistics costs at Montara in 2023, underlying operating costs are expected to be c.6% higher year-on-year, demonstrating cost control in an inflationary environment; and
· Capital expenditure guidance for 2023 is expected to total US$110.0-140.0 million, the largest investment programme in the Group's history. This is allocated primarily to the Akatara gas development project (c.70%), which is progressing well and remains on budget and schedule for first gas in H1 2024. A further 15% will be spent on the PM323 PSC infill drilling campaign offshore Malaysia.