After recently delaying projects in Vietnam, London-listed oil company Jadestone Energy has decided to postpone infill drilling programs at its Stag and Montara offshore fields in Australia, in a move to reduce cash spending due to the oil price rout. The move, the company said, will not affect its maiden dividend in 2020.
"Jadestone Energy...notes the collapse of global crude oil benchmarks, with oil demand significantly impacted by the extended COVID-19 pandemic and the potential for prolonged oversupply. Against this backdrop, the Company believes it is prudent to implement stringent capital reductions across its portfolio and is therefore further reducing its 2020 capital expenditure guidance," Jadestone said.
The company on March 19, 2020 announced that it would defer the Nam Du and U Minh development project. Further, Jadestone on Wednesday said it would defer its offshore Australia infill drilling campaign into 2021.
"This delay aims to best align capital spending with a strengthening oil price environment, maximising potential future returns, while preserving the Company's balance sheet and net cash position," Jadestone said.
"Collectively, these measures represent a reduction of 80% of the Company's originally planned 2020 spending, resulting in anticipated total capex of US$30-35 million in 2020, of which approximately US$15.5 million has already been spent in Q1 2020, including completing the Montara seismic campaign," the company added.
Jadestone said its total cash balance was US$109.4 million (excluding restricted cash of US$10.0 million) as at March 31, 2020, or a net cash position of US$72.1 million, and about a third of the company's production was hedged at US$68.45/bbl through to September 30, 2020, and excluding incremental oil price premia.
No need for high volume of production in low oil price world
Paul Blakeley, President and CEO said: "Five weeks ago, we announced a 50% reduction in capital spending by delaying the Nam Du and U Minh project in Vietnam, a relatively easy decision in today's unprecedented environment, particularly amidst delays in the Vietnam Government approvals. With the potential for significant longer-term demand destruction for crude oil due to the COVID-19 pandemic, as well as over-supply following a lack of cohesion around OPEC+ production quotas, we have elected to take the most conservative measures possible by eliminating almost all of our discretionary capital spending for the remainder of the year.
"We are fortunate to have this flexibility, and will therefore defer the Stag and Montara infill wells until next year, rather than investing into new wells which will deliver a high volume of production into a low oil price world. Whilst we remain operating cash flow positive, we see no point in eroding value in these investments and prefer to protect our balance sheet throughout this market turmoil, and come out the other side as one of the strongest survivors."
Notwithstanding the delays, Jadestone said production is still expected to grow by circa 25% in 2021 with the addition of the Maari project, offshore New Zealand, which remains accretive to the portfolio and which continues through the transition process.
"With the delay in the Australian infill wells, the company is now targeting a 2020 average production range of 12,000-14,000 bbls/d." Jadestone said.
The company also said it remained committed to returning capital to shareholders and, even in this extreme environment, is on track to deliver its maiden dividend in 2020.
Blakeley said: "Deferring the two infill wells not only sets us up to remain more resilient during this uncertain time, but also allows us to potentially lock-in lower service costs next year, ahead of what we anticipate will be a recovering oil price environment, and achieve a better return for investors."
"By protecting the balance sheet, we not only protect the integrity of the business and shareholders' capital, but we also create additional financial flexibility to pursue opportunities, in addition to Maari, for further accretive, inorganic growth, that this oil price environment will undoubtedly present."