Operations and Trading Update

Ophir provides the following update on its trading and operations for the period ending 30 June 2017.

Key Points:

  • A cost saving initiative, focused on London and expatriate roles, has been initiated which is expected to deliver annual cost savings of $10-12 million
  • Fortuna FID is expected to be delivered in 2H 2017 as the remaining milestones are closed out with the multiple stakeholders
  • Ophir’s financing position was further strengthened by the signing of a new $250 million Reserve Based Lending Facility, with a further $100 million available through an uncommitted Accordion facility
  • Production in 1H averaged 11.3 Mboepd, FY 2017 guidance is lowered to 12.0 Mboepd
  • Net cash at the period end is estimated at $130 million; with gross cash and undrawn debt of $412 million

Nick Cooper, CEO of Ophir, commented:

“We have taken certain difficult but necessary decisions to further reduce our cost base. This is now right-sized to maximise the value of our core assets in the period before the Fortuna FLNG Project is on-stream. As part of the cost reduction exercise, Dr Bill Higgs will be stepping down as COO and I would like to thank Bill for his outstanding contribution to Ophir since 2014. We are closing in on the Fortuna Project FID which will start the monetisation of a substantial portion of Ophir’s resource base.”

Cost Reductions

Ophir’s Board has recently moved to further reduce the company’s underlying cost base in recognition of limited signs of an oil price recovery, and of lower exploration activity. Ophir’s goal of becoming a sustainable exploration company remains in place and it is forecast that Ophir’s cash flow generation will support the drilling of 2-3 exploration wells per annum when the Fortuna FLNG project is on-stream in 2020. Prior to that, Ophir’s discretionary spend will be paced in order to preserve balance sheet capacity, thereby prioritising the Fortuna FLNG project and the expansion of Ophir’s Asian producing assets.

To decrease running costs, corporate roles in the London office and expatriate positions will be reduced by approximately 50% (equating to around 15% of the global workforce). These actions are estimated to result in annual cost savings of $10-12 million (after one-off restructuring costs of $7 million). The company will, nevertheless, retain all competencies essential to the delivery of its core projects, including the remaining workstreams required to secure the Final Investment Decision (“FID”) of Fortuna, to undertake the expansion of the Asian production base and to operate Ophir’s exploration portfolio.

Production

Production during the first half of 2017 averaged 11.3 Mboepd. This is 1.2 Mboepd below budget due to temporarily lower than expected production on the two gas assets. Production from the Kerendan gas field averaged 12.3 MMscfd as the field ramped-up through the second quarter of 2017 to the full daily contract quantity of 19.2 MMscfd at a slower rate than expected. Gross production from the Sinphuhorm gas field was forecast at 94.0 MMscfd for the half-year, as the off-taker EGAT temporarily reduced its offtake nominations. The nominations have recently returned to normal levels.

Gross production at the Bualuang oil field was 8.0 Mbopd in the period. An infill drilling programme on the Bualuang field commenced in May which will deliver increased production in the second half of the year. With the lower Group production achieved in 1H 2017, and allowing for the increase of Bualuang production in 2H 2017, the forecast full year production for 2017 is lowered to 12.0 Mboepd.

Equatorial Guinea Monetisation – the Fortuna FLNG Project

Significant steps were accomplished in the first half of 2017 towards the FID of the Fortuna FLNG Project. Given that the remaining milestones are dependent on multiple stakeholders, it has proven difficult to precisely forecast FID timing. However with the strong progress seen in the first half of 2017 and the current intensive effort from all parties, we currently expect FID of the Fortuna Project to be achieved in the second half of 2017.

At present, the project has two milestones outstanding prior to FID: (i) the awarding of the offtake agreements and (ii) the closing out the project debt facility. Both of these workstreams are currently being progressed with continual contact between the stakeholders to finalise the details of coordination along the value chain.

Final terms have now been agreed with a shortlist of off-takers and the project stakeholders are currently evaluating which of these offers to accept. These offers comprise Brent linked contracts. Principle commercial terms have been agreed with a consortium of three China-based banks for the debt facility and documentation is being completed.

Once the offtake decision and debt facility have been agreed, the Board of Ophir will be in the position to take the FID, which will also be subject to approval by Ophir’s shareholders and the President of Equatorial Guinea.

Resource Monetisation

In June 2017, an investment decision was taken to commence the fourth development phase of the Bualuang oil field. The capital cost of Phase Four is expected to be $145 million. This investment will convert 9.2 MMboe of contingent resource into proved and probable reserves and will deliver incremental first oil in 2H 2018. This investment is expected to commence towards the end of 2017 with the majority of the expenditure occurring in 2018.

At the Kerendan gas field the focus is now on monetising further gas from the asset beyond the first contracted amount. A 560 sq km onshore 3D seismic survey in the Bangkanai PSC and West Bangkanai PSCs commenced early in 2017 and is expected to complete during 4Q 2017. The seismic data, in combination with the data from the West Kerendan-1 (“WK-1”) well and the WK-1 drill stem test, will provide assurance to SKK Migas (the state regulator) for approval of the next tranche of gas sales from the 450 bcf of discovered but uncontracted 2C gross resource associated with the Kerendan field.

Exploration Update

As part of the rationalisation and renewal of its exploration portfolio, Ophir exited four PSCs in the first half of 2017: the DW2A PSC in Malaysia and the Mbeli, Ntsina and Gnondo PSCs in Gabon. On the renewal side of the equation the licence was signed for Block 5 in Mexico and Block 24 was awarded (subject to negotiation of PSC terms) by the Government of Equatorial Guinea.

Financial Update

Revenue for 1H 2017 is forecast at $88 million with Bualuang production realising $50/bbl and Kerendan gas $5.22/Mscf. In addition, Sinphuhorm generated net investment income $2.6 million (at an average gas price of $4.36/Mscf).

Operating cash flow (post-tax, pre-working capital) for 1H 2017 is forecast at $40 million and for the full year at $85 million with lower production and commodity prices. Capital expenditure for 1H 2017 is forecast at $60 million and included the drilling of the Ayame-1 exploration well, the continued spend on progressing Fortuna to FID and the current Bualuang infill drilling campaign. Capital expenditure for the full year is forecast at $160 million and includes Mexico seismic, completion of Bualuang infill drilling and phase IV planning and FID of Fortuna.

Following the recent refinancing of the Reserve Based Lending Facility, the liquidity position remains strong with forecast year end 2017 cash and undrawn debt facilities of approximately $390 million. The Group elected not to draw on the new RBL facility having repaid the previous facility in full.

Guidance is therefore provided in relation to the reporting period to 30 June 2017 in advance of the Group’s Half Year Results release on 14 September 2017 and guidance for the full year. Guidance figures are all subject to change.

 HY 2017 (E)  FY 2017 (E)
 Production  (Mboepd) 11.3 12.0
 Operating cash flow  ($’millions) 40 85
 Capital expenditure  ($’millions)  60 160
 Net cash  ($’millions) 130 85
 Liquidity (cash and undrawn debt facility)  ($’millions)  412 390

     

The information contained within this announcement is deemed by the Company to constitute inside information for the purposes of the Market Abuse Regulations (EU) No. 596/2014 (“MAR”).

Downloads

Press release is available to download