Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Successful acquisition of the Mereenie asset, adding a third production asset to Horizon Oil Ltd (HZNFF, Financial)'s portfolio.
- Strong financial performance with $26.2 million in net cash and substantial free cash flow generation.
- Continued focus on ESG initiatives, including emission reductions and safety improvements.
- Strategic gas sales agreement with the Northern Territory government, enhancing long-term production stability.
- Significant increase in 2P reserves, more than doubling to 9.9 million barrels of oil equivalent.
Negative Points
- Sales volumes and revenue were lower for the year due to the expected decline of Block 22/12 fields.
- Production rates from Block 22/12 naturally declined, impacting overall production levels.
- Higher cash operating costs due to the expected decline in Block 22/12 production and higher cost structure for the 12-8 East development.
- Dependence on regulatory approvals for future infill drilling and water handling upgrades.
- Potential risks associated with the change of government in New Zealand affecting the Maari license extension.
Q & A Highlights
Q: What is the expected capital cost and capital quote from China to fund the water handling upgrades and workover program?
A: Both activities are indicative at this stage and subject to further technical and economic evaluation. Historically, we spend between USD10 million to USD15 million to unlock value in China. The water handling upgrade will incur no material incremental cost as it is linked to production.
Q: With the change of government in New Zealand, what is the likelihood Maari will get a license extension out to 2031, noting the FPSO can operate until April 2028? And secondly, the potential for extending production post 2031?
A: We are reasonably confident about the license extension. The change in government is positive, and there is internal support to extract more resources. However, we can't guarantee it. Extending production beyond 2031 depends on oil prices and production levels in the future.
Q: What is the opportunity at Mereenie, given that the field has been on production for some time?
A: Mereenie is a large structure, about 40 kilometers long, initially developed for oil. Gas became a focus only after the Northern Gas Pipeline came online in 2019. There are significant opportunities for infill wells, particularly at the crest of the structure.
Q: Can you provide more details on the financial performance of the Mereenie acquisition?
A: The financial performance from the Mereenie interest has only been consolidated from June 11, 2024. Cash flows from the effective date to the completion date reduced the purchase price by approximately AUD3 million after covering CapEx and transactional costs.
Q: How did Horizon Oil manage to maintain a strong balance sheet despite significant dividend payouts?
A: The company generated strong free cash flow of $54 million, which offset the $37 million in shareholder distributions and $8 million for debt settlement. This ensured a strong balance sheet with cash reserves exceeding USD52 million.
Q: What are the future plans for production growth at Block 22/12?
A: We have a significant water handling capacity upgrade project expected to be online by early 2026. Further infill well opportunities are being matured, with plans for a 2025 program.
Q: How does Horizon Oil plan to sustain production levels in the coming years?
A: The three assets—Mereenie, Maari, and Block 22/12—provide the potential to sustain production at around 4,000 to 5,000 barrels of oil equivalent per day for the next four years. This ensures continued strong free cash flow generation and potential dividend payments.
Q: What are the strategic benefits of the Mereenie acquisition?
A: The acquisition provides a low-risk entry into the domestic gas market, diversifies the production base, and adds gas to the product mix. It also offers infrastructure-led opportunities for further growth.
Q: How does Horizon Oil plan to balance shareholder returns and future investments?
A: The company prioritizes distributions, with a final dividend of AUD0.015 per share declared. This follows an interim dividend of the same amount, resulting in a total dividend yield of over 15% for the year. The strategy balances shareholder returns, future commitments, and liquidity levels.
Q: What are the key achievements for Horizon Oil in the financial year 2024?
A: Despite paying $37 million in dividends, cash reserves increased by over 20% to $52.6 million. The company added around AUD120 million of shareholder value through dividends and capital growth, achieving a total shareholder return of about 50%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
