Neptune Hedges Protect in Q1
UK independent explorer Neptune reported May 27 a strong Q1 with only a limited impact from the headwinds of Covid-19. But it lowered expectations for the second quarter onwards: the full extent of the lockdowns did not start until the end of the quarter.
Pre-tax and exploration expenses, its earnings (Ebitdax) were about a third down year on year: $322.9mn, compared with $451,0mn. That excludes the income from its share of the output from the Algerian Touat field, which reached plateau in April at about 450mn ft³/day. First exports started in September.
Neptune's production globally averaged 162,1000 barrels of oil equivalent (boe)/day, slightly above full-year guidance of 145-160,000 boe/d and Q1 2019's 151,800 boe/d. It noted exploration success in Norway, UK and Germany.
Cash flow was $355mn for the period, down from $362mn in Q1 2019. thanks to hedging and its resilience plan which will give full year cost reductions of $300mn-$400mn. Including hedging its average gas sales price was under two thirds of last year's at $4.10/'000 ft³, versus $6.5/'000 ft³: without hedging, it was $2.90/'000 ft³. Operating costs were lower at $8.9/boe (Q1 2019: $10.1/boe) and full year guidance has been reduced to below $10/boe.
Following the upwards redetermination of its reserves based loan it has total available liquidity of $1.7bn, although it has agreed to terminate the agreement to acquire Edison E&P’s UK and Norwegian subsidiaries from Energean Oil & Gas, a decision that will cost it $5mn.
Project development schedules have however been deferred, meaning a capital expenditure (capex) cut of over $300mn; full year development capex guidance has fallen to $700-800mn and near-term exploration activity reduced.
Some production cuts have been outside its control, such as the Norwegian government curtailments, shut-ins of some higher cost production and extended maintenance programs, but these have had modest impact on near-term production.
CEO Jim House said: “Despite the challenges posed by the COVID-19 pandemic, Neptune’s operational performance in the first quarter of the year was strong. Our resilience plan and hedging activity mitigated weaker commodity prices, resulting in a robust financial performance.
“The second quarter of the year is likely to be more challenging and we expect production to be lower, reflecting planned maintenance and development-related shutdowns and weaker commodity prices.
“We remain mindful of the impact of the pandemic and have put in place measures to support our people, our suppliers and the communities in which we operate.”