Hi All, Summarised the HZN December quarterly with a few thoughts. Feel free to add anything I've missed or that is worth highlighting Cheers
HZN Dec-13 quarterly report
Overview
A reasonably benign quarterly report – no earth-movers and no show stoppers. Beibu is clearly the standout on production, and has carried the company through the Maari downtime, as Beibu ramps up to capacity. The Tingu-1 gas discovery in PNG sounds material and a resource update would be imminent based on the commentary in the quarterly. HZN is growing its position in PNG, picking up more in PPL 259. Cash is drawing down ~US$30m/quarter and will continue to do so, even with Maari back on - capex presently ~US$30m/quarter and expected to grow substantially with Stanley, Maari development, PRL 21 development, China option potential. Osaka farm-in cash clearly will alleviate some of the stress, but IMO funding pressures will re-emerge at some point – be good to see some of that debt paid down. Stanley PDL commentary includes “immediate term” and “negotiations finalised”, so HZN seem to think it’s near term. I have some small concern that the Landholder Development Forum hasn’t started, but HZN states it thinks the PDL will be issued before the Forum is concluded. Watch the cash/debt, and capex in my view.
Near term catalysts: Stanley PDL/Osaka payment (imminent?), PRL 21 2C resource upgrade (March quarter?), Whio exploration well NZ (March 2014), OSH PNG LNG startup and regional gas aggregation developments (eg Pandora Gas field) in 2014.
Production
Beibu (HZN 26.95%, CNOOC operator) China -Total production was 385 kbbls +35% qoq. The growth is the result of Beibu Gulf ramp-up currently at 4 kbopd net to HZN with 15 wells operating which is broadly in line with guidance I think -10 wells at Beibu are produced with electronic pump lift, 5 are under natural reservoir pressure. -Development at Beibu now finalised -The schematic in the qtly includes a dotted line between WZ 12-8E/12-3 and the existing 12-8W development, suggesting HZNstill thinks that development option can be evaluated, but there is no commentary – perhaps the “now finalised” comment means its off the table. I had heard the oil is very waxy a bit further to the east.
Maari (HZN 10%, OMV operator) NZ -Dec qtr obviously impacted by Maari down for most of the quarter (no sales or revenue). HZN reports its back online as of 12 Dec and currently producing at 11.6 kbopd (1.16 kbopd net HZN) -HZN reports all 6 production wells online -HZN reports its share of the capex for FPSO refurb was ~US$8m, with “a portion” of those amounts expected to be recovered through insurance -Ensco 107 jack-up rig for expansion project expected in March 2014
Development/exploration
Stanley (HZN ~30% and operator) PNG -HZN announces negotiations with PNG Govt over PDL issuance concluded during dec qtr and the Gas Agreement has been submitted to Govt Solicitor -HZN expects PDL, “subject to Cabinet Approval....development licence will be offered in the immediate term” -Preparations underway for Landholder Development Forum. HZN comments that it expects PDL to be issued at about the same time the forum begins – interesting that HZN thinks the PDL won’t be held back until the landholder development forum completed -HZN announces negotiations with Eaglewood over Stanley/PPL 259 unitisation concluded. Tone is playing down the importance: “small portion of the Stanley gas field that possibly encroaches into PPL259” and “will be immaterial given company’s near equivalent participation in each licence”. -Stanley condensate vessel launched in December 2013 and fit-out has commenced -Negotiations over Ok Tedi sales agreement continue – with price the main issue to be resolved
PRL 21 (HZN 18% and operator) PNG -Tingu-1 successful liquids-rich gas discovery, similarities in geology and gas-water contact suggest the Tingu reservoir may be continuous with Elevala/Ketu and therefore part of a larger pool of gas/liquids. -Tingu-1 flowed at 48 mmscf/d across a 7m interval in the Elevala Sandstone, with 65 bbls/mmscf liquids (liquids-rich) -Flow-testing of Ketu-2 yielded consistent flow rates of 35-40 mmscf/d and 50-60 bbls/mmscf condensate -HZN flags Tingu is a gas field of similar size to Elevala (400 bcf, 22 mmbo condens) and HZN confirms a resource upgrade for PRL 21 (not released yet)
PMP38160 (HZN 10%, OMV operator) NZ -Manaia-2/2A – not a commercial discovery
PEP 51313 (HZN 21% reduces to 10% if Whio successful, OMV operator) NZ -Whio exploration well expected to spud with Kan Tan IV rig in March 2014 -Total cost expected US$56m fully carried by OMV
PPL 259 (HZN 35%, Eaglewood operator) PNG -HZN is acquiring a further 20% from Eaglewood to bring to 35%, subject to Government approval -Farm-in includes reimbursement of past costs -New drilling targets identified off 2D seismic acquired in 2013
Block 09/05 Bohai Bay (40% option, ROC operator) China -HZN has option to farm-in to 40% -162 sqkm 3D seismic has been completed
Financial -Cash receipts US$35.8m (all from Beibu, so no Maari revenue – assume if Mar qtr Maari 1.1 kbopd (net) x 90 days x US$100/bbl = + ~US$10m additional revenue) -Opex US$21m, D&A US$9m = US$30m, hedging losses US$1.7m -Capex US$31.8m -Cash on hand US$37m down from US$65m = US$27m drawdown -Bank debt unchanged at US$134m, CB’s US$80m -Gearing est (net debt/(net debt +equity) = ~30-35% assume market cap $400m -HZN to be in receipt of US$74m (inc initial deposit – how much?) plus US$20m “completion adjustments” from Osaka Gas as first payment in US$204m for 40% of HZN’s PNG interests, upon receipt of Stanley PDL.
HZN Price at posting:
32.7¢ Sentiment: Hold Disclosure: Held
(20min delay)