Report - Horizon Oil
Transcription
Report - Horizon Oil
Equity Research Horizon Oil Ltd. BUY HZN-ASX A$0.12 A$0.25 Last: Target: April 30, 2015 Update for the March 2015 Q report Bucks trend, with production and revenue up for the Q HZN has outperformed its peers, delivering an increase in both production and revenue (inclusive of hedging) for the Dec Q. Production of 324.5kbbls was a 6% increase on the Dec Q, with all 15 wells now online in the Beibu Gulf and start-up of the MR6A well at Maari. Oil sales of 327kbbls were up 23% due predominantly to the timing of offtakes at Maari. HZN reported sales revenue of $15.87m, down 17% due to lower realised oil prices but together with hedging revenues of $9.86m, resulted in an 8.1% increase in total revenue to $25.7m. HZN reported solid operating margins with an average realised oil price of $78.52/bbl (including hedging) vs. cash costs of $15.02/bbl. After a significant reduction in capex to $8.9m (Dec Q of $28.2m) HZN finished the period with cash of $39.4m and $110m drawn on its RBL facility. Revised refinancing arrangements, to be completed this Q HZN announced that it has reached an agreement with the ANZ for the refinancing of its current US$110m facility, which was required due to the amortisation profile over the coming 15-months and considering the redemption of its US$80m convertible note in June 2016. The terms of the new facility reportedly provide greater flexibility with an increased US$120m base, a $50m accordion facility and increased tenor to 2019. The facility is expected to be finalised in May. Importantly, HZN has confirmed that it is in good standing to meet redemption of the notes in June 2016, given the revised facility, existing cash of $40m, plus forecast net income of $110m and reduced capex of $50m through to mid-2016. Maari development works, China ramp-up key highlights Production averaged 7,699bopd at Maari but was at 13kbopd at Q-end following start-up of the MR6A development well. The forward program will see completion of the MR7A and MR10 wells, targeting plateau at 15kbopd. In China production increased 4.2% will all 15 development wells now on ESP. What's Changed Rating Target Production 2014A (boe/d) Production 2015E (boe/d) CFPS 2014A CFPS 2015E Old BUY A$0.25 3,857 3,467 0.05 0.03 Share Data Share o/s (mm, basic/f.d.) 52-week high/low Market cap (mm) EV (mm) Dividend yield Projected return Financial Data YE June. 30 Oil and NGLs (b/d) Natural gas (mmcf/d) Total (boe/d) 6:1 Equivalent growth Brent Oil (US$b) East Coast Gas (US$/mmbtu) FX rate (USD/AUD) EPS (f.d) CFPS (f.d) Net debt (mm) Net debt/CF Annual dividend ($/sh) Valuation P/CF EV/DACF EV/boe/d ($k) EV/2P reserves (Proforma) P/(2P) NAV P/Risked upside NAV New n.c. n.c. n.c. 3,647 n.c. n.c. 1302/1310.2 0.385/0.11 A$150 A$350 0% 117% 2014A 2015E 2016E 3,857 3,647 3,985 0 0 0 3,857 3,647 3,985 180% -5% 9% $109.08 $72.11 $66.25 $0.00 $0.00 $0.00 $0.92 $0.84 $0.80 $0.01 $0.01 $0.01 $0.05 $0.04 $0.04 $100 $137 $113 1.5x 2.8x 2.0x 0.00 0.00 0.00 2.1x 8.5x $61.6 2.6x 10.7x $72.0 2.2x 9.7x $58.4 $18.6 0.4x 0.4x All figures in US$ unless otherwise noted Maintain BUY recommendation with a price target of $0.25/sh. We maintain our BUY recommendation with a price target of $0.25/sh, which is set below our NAV of $0.29/sh. Looking ahead key catalysts will include further ramp-up at Maari, planning for Beibu Phase II and PRL 21. Prepared by GMP Securities Australia Pty Limited Scott Simpson (+61) 8 6141 6320 [email protected] See important disclosures on the last two pages of this report Equity Research Production and revenue up for the Q HZN has outperformed its peers, delivering an increase in both production and revenue (inclusive of hedging) for the Dec Q. Production of 324.5kbbls was a 6% increase on the Dec Q, with all 15 wells now online in the Beibu Gulf and start-up of the MR6A well at Maari. Oil sales of 327.6kbbls were up 23% due predominantly to the timing of offtakes at Maari. HZN reported sales revenue of $15.87m, down 17% due to lower realised oil prices, but together with hedging revenues of $9.86m, resulted in an 8.1% increase in total revenue to $25.7m. HZN reported solid operating margins with an average realised oil price of $78.52/bbl (including hedging) vs. cash costs of $15.02/bbl. After a significant reduction in capex to $8.9m (Dec Q of $28.2m) HZN finished the period with cash of $39.4m and $110m drawn on its RBL facility. Capex was materially lower for the period due to the completion of development works in China and a delay in Stanley development activity pending a value engineering process. Revised refinancing arrangements, to be completed this Q HZN announced that it has reached an agreement with the ANZ for the refinancing of its current US$110m facility, which was required due to the amortisation profile over the coming 15-months and considering the redemption of its US$80m convertible notes in June 2016. The terms of the new facility reportedly provide greater flexibility with an increased US$120m base, a $50m accordion facility and increased tenor to 2019. The facility is expected to be finalised in May and completed shortly thereafter. Importantly, HZN has confirmed that it is in good standing to meet redemption of the notes in June 2016, given the revised facility, existing cash of $40m, plus forecast net income of $110m and reduced capex of $50m through to mid-2016. Maari development works progressing Production averaged 7,699bopd at Maari over the March Q but was at a gross rate if 13kbopd at Q-end following start-up of the MR6A development well on the 21st of March. The forward program will see completion of the MR7A and MR10 wells, targeting plateau at 15kbopd. The MR7A well is currently drilling ahead at 800m of a planned 1200m reservoir section. Beibu Gulf wells all on pump, potential appraisal drilling at recent discovery In China production increased 4.2% to a gross average rate of 10,533bopd, will all 15 development wells now on ESP. Evaluation of the 2 recent successful exploration wells continued during the Q together with planning for a potential appraisal well at W 12-10-2 to appraise the southern extent of the discovery. If successful HZN suggest that this well could be readily tied back to the WZ -8W platform. Stanley on hold, PRL 21 planning continues As previously announced, development activity at the Stanley field has been halted pending the outcome of a value engineering process, aimed at reducing remaining capital costs in light of the current market. As a result we previously pushed back our Stanley start-up some 18-months into CY2018. In PRL 21 work continued on pre-development planning, also taking into account the ongoing value engineering process to optimise the design and configuration of the project. During the period HZN, together with Osaka Gas, completed a prefeasibility study a Western Forelands 2 Equity Research greenfield mid-scale LNG project, with the shortlisted options to progress to a feasibility study which should be completed in late 2015. The project provides an alternate development scenario to the potential aggregation of Western province gas volumes into a PNG LNG Train 3 development underpinned by the nearby P’nyang resource. The potential for 3 rd party volumes to be incorporated into this project will largely depend on appraisal activities to be completed through the 2H 2015. Valuation and recommendation We maintain our BUY recommendation with a price target of $0.25/sh which is set below our NAV of $0.29/sh. Figure 1. HZN’s NAV and target price Target Price Calculation Horizon Oil Ltd A$ A$/sh 362 49 185 -9 -250 338 0.28 0.04 0.14 -0.01 -0.19 0.26 $ 12 12 $/sh 0.01 0.01 0 33 383 TARGET PRICE 0.00 0.02 0.29 0.25 Share Price 0.12 Expected Return 117% Production Assets Cash Undeveloped Assets Other Items incl G&A, Hedging Debt - RBL plus Notes Core NAV Risked Upside - Included from EMV Sheet NZ , Greater Maari exploration upside (30% POS) Other Unpaid Capital Osaka Tranche 2 payment - 20% POS Total NAV Notes: All asset values are NPV10 After Tax and in AUD unless noted. Five years of G&A NPV 10 are deducted to ensure 'going concern' costs are captured. Source: HZN, GMP Estimates Our valuation highlights that HZN is currently trading well below core value for its production and development assets likely as a result of concerns regarding the refinancing of its debt and redemption of its $80m convertible notes; plus delays in the commercialisation of its PNG condensate resources. Hence the completion of this refinancing and further progress towards development at Stanley and at the early stage PRL 21 project will should see a steady de-risking towards our target. The potential commercialisation of its gas resources provides longer term upside. Further details of our valuation are provided in the following EMV table. 3 Equity Research Figure 2. HZN’s EMV Gross Resource (mmboe) Working Int. (%) Overall POS (%) Maari Beibu Gulf - Wei 6-12, Wei 12-8W 58.0 21.5 10.0% 27% 90% 100% Undeveloped assets PNG PNG PNG PNG China PDL-10 - Stanley cond, Local gas PRL 21 - Elevala/Ketu Condensate PRL 21 - Gas Resource PDL 10 - Remaining Gas Resource Beibu Gulf - Wei 12-8E 18.5 49.6 164.0 49.4 5.6 23% 21% 21% 23% 27% 75% 50% 40% 40% 50% $2.40 $2.40 $10.90 Exploration NZ PNG Greater Maari exploration upside PRL 21 - Elevala Toro 20.0 74.6 10.0% 21% 30% 30% $16.53 $0.00 Country Producing Assets NZ China Property/Prospect Net Risked Value/BOE Resources (US$) (mmboe) Risked NAV ($A mm) Risked A$/sh (FD) Unrisked NAV (A$/sh) 5.2 5.8 11.0 152.68 209.20 361.9 0.12 0.16 0.28 0.13 0.16 0.29 3.2 5.2 13.7 4.6 1.5 29.8 37.83 72.13 41.18 13.78 20.44 185.4 0.03 0.06 0.03 0.01 0.02 0.14 0.04 0.11 0.08 0.03 0.03 0.29 0.6 4.7 6.88 12.40 0.00 19.93 0.01 0.00 0.02 0.03 0.00 0.09 47.7 567.2 0.44 0.38 1,301.98 1.25 Fully Diluted Shares Outstanding (mm) AUD:USD Exchange Rate Source: HZN, GMP Estimates Looking ahead, the following items present the key catalysts over the coming 12 months: Completion of Maari development wells – MR7A, 10 Ramp-up of Maari production towards 15kbopd target Finalisation of debt facilities Progress towards FID of Beibu Gulf Phase II Progress towards FID of Beibu Gulf Phase II 4 June Q June Q June Q through 2015 through 2015 Equity Research Horizon Oil Ltd. Year-end 30th June Valuation A$m A$/sh Forecast Assumptions 2014A 2015E 2016E 2017E Production Assets 362 0.28 Crude Oil - Brent (USD/bbl) 109.08 72.11 66.25 85.00 Exploration and Appraisal 198 0.15 A$:US$ 0.92 0.84 0.80 0.80 Cash 49 0.04 Production Summary (mmboe) 2014A 2015E 2016E 2017E Debt (250) (0.19) Maari 0.2 0.3 0.5 0.5 Corporate (9) (0.01) Beibu Gulf 1.2 1.0 0.9 0.8 Other 33 0.02 Stanley 0.0 0.0 0.0 0.0 Total NAV 383 0.29 Total 1.4 1.3 1.5 1.3 0.25 Total (kbbl/day) 3.9 3.6 4.0 3.6 Price Target Valuation Sensitivity -10% 0% +10% PROFIT & LOSS (US$m) 2014A 2015E 2016E 2017E Oil Price Sensitivity (A$/sh) 0.24 0.29 0.34 Sales Revenue 138.5 103.8 109.8 110.4 Exchange Rate Sensitivity (A$/sh) 0.34 0.29 0.25 Other Income 24.5 0.2 0.1 0.0 Operating Costs 31.1 17.1 19.5 24.4 Royalties 22.3 9.7 10.7 6.7 Corporate & Admin 8.2 8.2 8.1 8.3 Other 2.6 0.0 0.0 0.0 EBITDAX 98.8 68.9 71.5 71.0 Exploration Expensed 10.5 11.4 2.0 4.2 EBITDA 88.3 57.5 69.4 66.8 Depn & Amort 39.4 37.1 40.0 35.5 EBIT 48.9 20.4 29.4 31.3 Interest 18.9 13.9 10.9 8.7 Operating Profit 30.0 6.5 18.5 22.6 Tax expense 17.2 1.4 6.8 19.9 Minorites 0.0 0.0 0.0 0.0 Abnormals - Post Tax 0.0 0.0 0.0 0.0 NPAT 12.8 5.1 11.7 2.7 Normalised NPAT 12.8 13.6 11.7 2.7 EPS (basic) - A¢ 1.00 1.24 1.12 0.26 Asset Valuation Summary Production Assets 33% 8% Exploration and Appraisal 59% Cash Production Summary (mmboe) 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 120.00 100.00 80.00 EPS (diluted) - A¢s 1.00 1.23 1.11 0.26 60.00 CASH FLOW (US$m) 2014A 2015E 2016E 2017E Adjusted Net Profit 12.8 13.6 11.7 2.7 + Interest/Tax/Expl Exp 46.6 26.7 19.8 32.7 20.00 - Interest & Tax 18.6 16.3 15.9 25.6 0.00 + Depn/Amort 39.4 37.1 40.0 35.5 +/- Other (15.3) (12.5) 0.0 0.0 Operating Cashflow 65.0 48.6 55.5 45.4 - Capex (Exp. and Dev.) 92.1 80.9 31.9 62.6 - Other Investments (76.0) 4.4 0.0 0.0 Free Cashflow 48.9 (36.6) 23.7 (17.1) - Dividends 0.0 0.0 0.0 0.0 + Equity raised 46.8 0.0 0.0 0.0 + Debt drawdown (repaid) (15.2) (9.2) (70.0) 30.0 40.00 2014A Stanley 2015E Beibu Gulf 2016E 2017E Maari Crude Oil - Brent (USD/bbl) Reserves & Resources As at July 2014 Oil Gas Total Reserves - 2P (mmbbls) (bcf) (mboe) Maari 5.8 5.8 + Other (0.6) 0.2 0.0 0.0 Beibu Gulf 5.8 5.8 Net Change in Cash 79.9 (45.6) (46.3) 12.9 3.5 Cash at End Period 98.9 53.3 7.0 19.8 15.1 Net Cash/(Debt) (100.3) (136.7) (113.0) (130.2) BALANCE SHEET (US$m) 2017E Stanley 3.5 Total 15.1 0.0 Directors Name Fraser Ainsworth Position Non-Executive Chairman 2014A 2015E 2016E Cash 98.9 53.3 7.0 19.8 Total Assets 514.9 526.8 474.7 510.2 Brent Emmett Chief Executive Officer Total Debt 187.4 190.0 120.0 150.0 John Humphrey Non-Executive Director Total Liabilities 292.3 264.1 200.4 233.1 Andrew Stock Non-Executive Director Shareholders Funds 222.6 262.7 274.3 277.1 Gerrit de Nys Non-Executive Director Micahel Sheridan Substantial Shareholders Company Secretary and CFO Shares (m) % RATIOS AND PROFITABILITY EBIT Margin, % 35.3% 19.7% 26.8% 28.4% Austral Asia Energy Pty Ltd Tribecca Investment Partners Pty Ltd 319.7 68.4 24.6 5.3 ROA, (%) Net Debt/Equity, (%) 2.6% 45.0 2.6% 52.1 2.3% 41.2 0.6% 47.0 CBA 137.8 10.6 EV/EBITDA, X 2.7 4.6 3.4 3.7 5 Equity Research Disclosures The information contained in this report is drawn from sources believed to be reliable but the accuracy or completeness of the information is not guaranteed, nor in providing it do GMP Securities L.P., GMP Securities Europe LLP or GMP Securities Australia Pty Limited (collectively referred to as “GMP”) assume any responsibility or liability whatsoever. 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