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An other new update from Morgan Stanley

Research Publication Date:29 Feb 2012

Horizon Oil: Projects move forward
Quick Comment: HZN reported a 1H12 ‘clean’ NPAT figure of US$8.5m (MS US$4m). High oil prices smoothed over the production issues experienced at Maari oil field (NZ) during the half, boosting sales revenue by 13% on the pcp. Cash has drawn down from US$64.6m to US$34.8m, reflecting HZN’s exploration activities in PNG and participation in the Beibu Gulf project. Gross debt is US$69.5m (net debt US$34.7m, gearing 17.7%). The prime objective of HZN is to sustain its existing business and produce cash flows, as HZN moves towards first production from its expansion projects: Beibu Gulf (China), anticipated end of 2012, and the Stanley condensate project (PNG), for end 2013. US$160m reserves-based facility. HZN advises it has mandated a group of four banks, including two Australian banks, to finance its participation in Stanley and Beibu Gulf. The finance facility is believed to be backed by HZN’s development and production assets. According to HZN, facility documentation and due diligence are at advanced stages. Stanley FID will be formalized on financial close of the above facility. Next step is to secure a production license from the PNG government, a process expected to take place in 3Q12. This month, HZN’s PNG partner Talisman announced that it had formed a strategic JV with Mitsubishi, worth US$280m, to aggregate PNG gas from Talisman’s nine permits, into a potential LNG project. The acreage concerned includes PRL4, (Stanley) and PRL 21 (Ketu/Elevala). More PNG news. HZN has extended its PNG acreage by farming into 25% of Eaglewood’s PPL 259 permit in PNG. In terms of exploration and appraisal, HZN is preparing to drill the Ketu-2 well for gas/condensate in PRL 21 in March 2012. Beibu Gulf has achieved environmental approval from the Chinese government, and the operator, CNOOC, reports the project is on track for end 2012 startup. We retain our Overweight rating on HZN.