Neptune Energy Q1 2020 Results Wednesday, 27 th May 2020
Neptune Energy Q1 2020 Results Wednesday, 27 th May 2020 Opening Remarks Sam Laidlaw Executive Chairman, Neptune Energy Welcome Good morning everybody. This is Sam Laidlaw and welcome to our earnings call for the first quarter of 2020 for the period ended 31 st March. In these unusual times we hope that you and your families are healthy wherever you are. Clearly, the combination of Covid-19 and the sharp fall in commodity prices represent a unique challenge for our industry. Safety Paramount Resilient performance with growth in the portfolio If you turn to slide four you will see that we have responded decisively to protect our people, our operations and our projects. We have changed both what we are doing and the way we do things. I am very grateful for the huge efforts and sacrifices made by our teams in the field, in the office and for those working at home. The result has been the production year- to-date has been consistently strong and indeed well-above last year’s levels. Our focus on safety remains resolute and we have moved quickly to curtail non-critical offshore and field activities. More recently we have introduced programmes to support employees, contractors, suppliers and local communities and are now looking at the opportunity to re-engineer the business for a very different price environment. So far the greater impact from Covid-19 has been on our construction activity, which has clearly been disrupted by travel restrictions and dislocations in the global supply chain, while the reduction in manning levels at host platform facilities has slowed topside construction schedules. Already, however, we are seeing some of these disruptions beginning to ease and Jim will talk about the new project schedules in detail. At our full-year results we outlined cost reduction measures amounting to operating cost savings of $50 million and capex deferrals of some $250-£350 million. I am pleased by the response throughout our organisation and I am confident that we can exceed the operating cost target. We have already grounded more than $300 million of the 2020 capex reduction target. However, it is important to highlight that as we prioritise value over volume there will be some impact on production volumes. This will be very limited this year but will lower our production profile for the next two years. Focusing on value, we announced on 19 th May our agreement with Energean to terminate the proposed acquisition of Edison’s Norwegian and UK subsidiaries. Whilst this reduces our 2020 capex by some $460 million and significantly enhances our liquidity, it will also reduce our planned production output in 2021 and 2022. Despite these significant reductions in investment, we still expect production growth from existing projects out to 2023. Importantly, we have enhanced our liquidity profile and now expect to be free cash flow positive after capex in 2020. Neptune remains a cash flow and growth story with significant opportunities throughout our business. However, as demonstrated by the upsizing of our RBL, our business is financially robust and continues to generate significant operating cash flow even in a low price 2
Neptune Energy Q1 2020 Results Wednesday, 27 th May 2020 environment. With that, I will hand over to Jim to take you through the operational highlights before Armand will talk to the financial highlights. Then we will open it up to questions. Operational Update Jim House Chief Executive Officer, Neptune Energy Good morning to you all. I would like to reiterate the hopes that you and your families wherever you are remain safe and healthy through this timeframe. Although we could not anticipate the magnitude of the current circumstances, we reacted swiftly to the early signs that were emerging and initiated the first steps of our resilience plan during February. These early decisions helped us prepare and respond well and to-date have seen minimal impact from Covid-19 on our operations. As Sam has said, our cost reduction plan has progressed quickly and it is likely that we will exceed our initial guidance. The agreement to terminate the Energean transaction demonstrates our disciplined approach to capital allocation and focus on value over volume. Our liquidity position is substantially enhanced. While our production outlook is lower, we retain significant opportunities throughout our business. Financial and Operating Results Strong operating and robust financial performance In the first quarter of 2020 our lost time injury frequency rate remained low at 0.7 per million working hours. However, our total recordable injury rate increased slightly to 2.3 per million working hours compared to 2.1 in the fourth quarter of 2019. The measure is higher than what we would like and we have taken steps to re-emphasise the importance of health and safety throughout our organisation. While we are still a young company, our aim is for our safety performance to demonstrate top quartile performance relative to our peers. Our process safety event rate metric which we introduced in 2019 has continued to improve and is below target at 2.1. Turning to our operating KPIs, production in the first quarter of 2020 averaged 162,100 barrels of oil equivalent per day, which was 10% higher than in the fourth quarter of 2019. During the period we have benefitted from higher production efficiency in our key operated assets in Norway and the UK, and the front-loading of production and the completion of the Saka development carry in Indonesia as well. Meanwhile, production at Touat also continued to ramp up. Reported volumes in the quarter were further enhanced by the change to the gas conversion factor we highlighted in our full-year results, which added about 6,000 barrel of equivalents to the figure. Production efficiency and the operated assets improved 86% in the first quarter from 85%. Excluding third party curtailments, production efficiency at out operated assets was actually 88%. In a challenging environment our financial performance in Q1 2020 was robust. Operating cost declined to $8.90 per barrel, down from $9.20 per barrel in the final quarter of 2019 and $10.10 per barrel in Q1 of 2019. Due to our cost production measures opex is currently trending well-below guidance and we now expect operating costs to average less than $10 per barrel in 2020. Operating cash flows in the first quarter declined marginally to $355 million that were robust considering lower commodity prices. Our cash flows in the first quarter benefitted from hedging gains, cost reductions, lower taxes and a working capital 3
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