Thursday 28 November 2019

CNSL acquisition efficiently completed and activities underway to deliver a successful transformation

Taking into account the interim period cashflows generated by CNSL since the transaction effective date of 1 January 2019 (“Effective Date”), the $200 million deposit paid at signing of the transaction and conventional working capital adjustments, the price payable at completion of the acquisition was $1.5 billion

The acquisition transition and integration programme was completed in under six months and all personnel (onshore) are now located in one office

The focus over the coming months turns to the transformation programme, which is centred on process simplification, operational efficiencies and value creation

2019 has marked a significant year of operational activities, with investment programmes centred on quick payback infill drilling and subsea tieback development activities

On a pro-forma basis, taking into account the Chevron acquisition from the transaction Effective Date, full year 2019 production is expected to average approximately 75,000 barrels of oil equivalent per day (boepd), approximately 60% liquids. Given the ultimate schedule of drilling activities completed over the course of the year, the Company is forecast to exit 2019 with average production over the final quarter of the year of approximately 80,000 boepd

The 2019 drilling campaign on the Ithaca-operated Captain field, which involved the drilling of five infill wells and two well workovers, was completed in November. This concludes the first of the two planned well campaigns that encompass the Phase 1 enhanced oil recovery programme on the platform area of the main field, with the second campaign scheduled to commence at the start of 2021. The production performance of the field resulting from the injection of polymerised water to enhance reserves recovery continues to be in line with expectations

On the Vorlich development, which represents the third satellite field tieback to the Ithaca-operated Greater Stella Area (“GSA”) production hub, the two planned production wells on the field have been successfully drilled, tested and suspended ready for start-up of the field in the second half of 2020. The risers connecting the subsea infrastructure to the “FPF-1” floating production facility have been installed and the pre-assembled units for enhanced recovery of natural gas liquids that are being installed on the FPF-1 as part of the development have been lifted on to the vessel. The main outstanding activities to be completed prior to start-up of the field involve the tie-in of the additional FPF-1 processing facilities and installation of the approximately 10-kilometre infield flowline between the wells and the vessel

Drilling of an infill well on the Stella field has been successfully completed as planned during the year and the well was brought onstream in August. Additionally, execution of the water injection project on the Ithaca-operated Cook field, which involved drilling of a well and installation of the associated subsea infrastructure, has been successfully completed and water injection into the field commenced in October 2019. The well is scheduled to boost reservoir pressure and maximise long term reserves recovery

Various infill drilling activities have also been taking place on the Company’s non-operated asset portfolio. An infill well on the Brodgar field was brought onstream in October and production from the first of two planned infill wells on the Elgin / Franklin field started up in August, with operations on the second well nearing completion

Continued strategic focus on delivering high-value incremental production and reserves

With the CNSL acquisition now completed, work is underway to finalise the 2020 operational and capital investment work programmes and budgets. The 2020 investment programme will involve infill drilling activities on the Ithaca-operated Alba field, with the drilling crew currently being mobilised following completion of the Captain drilling programme, along with a further infill well on the Elgin / Franklin field and a well on the Callanish field

Seven licence applications have been submitted as part of the 32nd UK Offshore Licensing Round, with an announcement on the results of the licence awards expected from the Oil & Gas Authority in the first half of 2020. The licence applications made by the Company relate to a range of undeveloped discoveries and near-field exploration targets in the vicinity of the Company’s existing portfolio. The work programmes associated with the applications relate predominantly to the performance of subsurface and technical studies in order to make “drill or drop” decisions within a period of two to four years

Strong balance sheet, underpinned by commodity hedging and UK tax allowances

Cashflow from operations in the nine months to the end of Q3-2019, excluding any contribution from the CNSL portfolio, was $148 million

Net debt at completion of the acquisition was $1.6 billion. In addition to the $500 million senior notes, the total net debt reflects utilisation of $1.1 billion of the Company’s $1.65 billion reserves based lending facility

The Company continues to steadily build its commodity hedging book, with over 70% of 2020 oil production from currently producing fields now hedged and providing a floor price of $64/bbl. Combined oil and gas hedging is over 66% of forecast production in 2020 and over 50% in 2021. The Company continues to seek optimal value through its hedging programme via a combination of swaps and put options

The Company had a UK tax allowances pool of approximately $2.4 billion carried forward as of 30 September 2019