Transcription of Finance News Network interview with Horizon Oil Limited (ASX:HZN) CEO, Brent Emmett.
Horizon Oil is a Sydney-based, ASX-listed public company. We have a market cap of about $80 million. Our largest shareholder is IMC, a Singapore family company who have a 30% interest. We have a mix of exploration, producing and development assets in Southeast Asia – that’s our geographic focus area.
Our producing assets deliver about 4,000 barrels of oil a day net to the company. In addition to those, we have a very large oil and gas play onshore Papua New Guinea.
In China, we have two producing fields in the Beibu Gulf. These fields produce about 3,000 barrels of oil a day net to Horizon Oil. We have a 27% interest in the project. Our operator there is CNOOC (China National Offshore Oil Corporation). And the production from those fields really drives our cash flow. The production is enhanced by the terms of the petroleum contract which provides for cost recovery – this really underwrites Horizon Oil’s production. In addition to the producing fields, we have a field we’re developing called the WZ 12-8 East field and we’re working on that now. We intend to have it on production in early 2019.
In New Zealand, we have the Maari and Manaia fields offshore the North Island. We have a 10% interest in those fields. We developed the fields and they came on-stream in 2009. And these fields produce about 10,000 barrels of oil per day (1000 barrels of oil per day net to Horizon Oil).
Combined with our producing reserves in China and New Zealand, we have a total of about 116 million barrels of oil equivalent. Two-thirds of this is gas, and the gas lies in Papua New Guinea. We consider this to be a very important focus and balance for us going forward.
In 1H17, we reported a continuation of the strong cash flows that we have been reporting for the last several years. In fact we generated US$53.5 million in CY16 of net operating cash flow and production of about 1.4 million barrels of oil which was flat with last year. We also achieved further cost reductions in our capital expenditure, and also in our per barrel operating costs – which over the year averaged $US12 to $US13 per barrel.
On the operational side, planning for the development of the Weizhou 12-8 East field continued and we’re on track to bring that on-stream in early 2019. And also we made very good progress with our planning for the western LNG project in Papua New Guinea. Our priorities for the next 12 months are to continue optimising our production and maintaining the level of production and cash flow. We’ll continue our focus on maintaining costs. Also, because of the high profitability of our production, we’re able to continue paying down debt at a fairly good rate. We expect to pay down debt at the rate of $US20-25 million per annum and be debt free within 4 years. We also, of course, will focus on bringing our Papua New Guinea project closer to development. This is a large project. It has the capacity to produce $US20-30 billion of revenue in total over its life, and this is something really worth focusing on.
What differentiates Horizon Oil, I believe, from our peers is that we have a combination of strong cash flow and large upside potential. Our cash flows are currently $US50-60 million per annum in net operating cash flow – and I except those cash flows to continue well into the 2020s (2022 or beyond). In combination with that cash flow, we have a large project, as I‘ve said, in Papua New Guinea with tremendous upside potential, good partners, and with a milestone payment due to us of about $130 million when we get to financial investment decision on that project. So I think this is something not all of our peers have – a combination of very strong long life cash flows and a big upside potential project.