Half Year 2022 Jadestone Energy PLC Earnings Call Sep 20, 2022 (Thomson StreetEvents) -- Edited Transcript of Jadestone Energy PLC earnings conference call or presentation Tuesday, September 20, 2022 at 8:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Alexander Paul Blakeley Jadestone Energy plc - President, CEO & Executive Director * Bert-Jaap Dijkstra Jadestone Energy plc - CFO & Director ================================================================================ Conference Call Participants ================================================================================ * Ashley Keith Kelty Panmure Gordon (UK) Limited, Research Division - Research Analyst * David Matthew Round Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst * Mark Wilson Jefferies LLC, Research Division - Oil and Gas Equity Analyst * Matthew Cooper Peel Hunt LLP, Research Division - Analyst * Nathan Piper Investec Bank plc, Research Division - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, ladies and gentlemen. Welcome to the Jadestone Energy Plc First Half of 2022 Results Conference Call. (Operator Instructions) I'd like to remind everyone, today's call is being recorded, September 20, 2022. And I would now like to turn the conference over to Mr. Paul Blakeley. Please go ahead, sir. -------------------------------------------------------------------------------- Alexander Paul Blakeley, Jadestone Energy plc - President, CEO & Executive Director [2] -------------------------------------------------------------------------------- Very good. Thank you very much, indeed. Good morning, ladies and gentlemen. Welcome to you all to Jadestone Energy's first half 2022 results conference call, and I hope you can hear me clearly. So, I'm Paul Blakeley, Jadestone's Chief Executive Officer, and I'm joined on the call today from Singapore by our new CFO, Bert-Jaap Dijkstra; and alongside him, Darren Parsons, Group Finance Manager; and in London by Phil Corbett, Investor Relations Manager. In this call, we'll take you through a presentation which was recently uploaded on our website at www.jadestone-energy.com. It's in the Investor Relations section, or you can view it via the link on the webcast. And then after that, let's open the call for a Q&A discussion. So, to Slide 2, which just outlines our standard disclaimers, in particular, the cautionary remarks regarding forward-looking statements and non-IFRS measures used in this presentation. And now Slide 3, which summarizes our first half performance and outlines recent developments in the business. The key headline is that we delivered record operational and financial performance in the first half of the year. Production increased by 51% compared to the first half 2021, driven by a full period of the Peninsula Malaysia assets acquired in August 2021 as well as the positive impact of the Montara Wells activity program from the second half of last year. Combined with record realizations driven by both strength in oil prices and in premiums, this delivered our highest ever half year revenues, adjusted EBITDAX and profit after tax. As a result, we built an even stronger end-of-period cash position of USD 162 million, up 51% from the end of 2021. We made good progress on our growth strategy, too, with FID of the Akatara gas project in Indonesia, shareholder approval from the seller of our acquisition of the final 10% in the Lemang asset which contains Akatara, and an announced deal to acquire BP's 16.67% in the Cossack, Wanaea, Lambert and Hermes fields in the North West Shelf Oil assets in Australia. But, while our first half was strong, recent operational performance at Montara has been disappointing, with the field currently shut-in, as we progress the remediation plan to restore the condition of the FPSO's hull and tanks to the level required to ensure safe and reliable production. And I'll talk more about Montara and the way forward later in this presentation. But finally, from this introduction slide, and notwithstanding the current Montara shut-in, our strong debt-free balance sheet and growth profile have allowed us to increase the interim dividend by 10% to $3 million. In addition, we're executing the $25 million buyback program, which we discussed in our May conference. This program started in August, and we intend to complete it, market conditions permitting. And so, with that introduction, I'll introduce you to Bert-Jaap Dijkstra, who has now been on board almost a month. Welcome, Bert, and I'm going to let him take you through the financial review starting on Slide 4. -------------------------------------------------------------------------------- Bert-Jaap Dijkstra, Jadestone Energy plc - CFO & Director [3] -------------------------------------------------------------------------------- Thank you, Paul, and good morning or afternoon to all of you. I'm very pleased to be speaking with you for the first time today. And of course, I'm looking forward to meeting all of you in person over the coming months. As Paul said, the first half of the year delivered record financial performance for Jadestone, which is illustrated by the 4 charts on this slide. Performance was underpinned by our highest ever half year production, combined with strong realized oil prices. The increase in production during the first half of 2022 compared to the same period last year was mostly driven by the addition of the PenMal assets, which were acquired in August 2021. The record revenue of $226 million is the driver of the increase in operating cash flow before working capital movement, which more than doubled when comparing to the first half of 2021 to a total of $126 million. Our net cash position increased with $44 million to a total of $162 million at the end of June. We highlighted our combined inventory and underlift position at the end of June with a total of almost 550,000 barrels. As the inventory is valued at cost in our financial statements, we wanted to provide a more realistic estimate of its value. Based on actual liftings since the end of June, we estimate the combined value of this inventory and underlift position at around $62 million. Finally, our OpEx per barrel for the first half of 2022 has decreased by 9% compared to the first half of 2021, due to the addition of the PenMal production, which has a lower operating cost than our Australian assets. As you know, we adjust our unit operating costs to exclude certain items to provide better comparability from period to period. Moving to Slide 5. These charts illustrate how the strength in global crude benchmarks translated into the earlier mentioned record realizations for Jadestone in the first half. Average for the first half of 2022, we realized total prices of almost $110 per barrel of oil. Basis was average Dated Brent of $102 per barrel. In addition, we realized a strong average premium of $7 per barrel, which was mostly driven by the Tapis premium to Brent, which forms a pricing basis for Montara and PenMal liftings. Tapis premium has increased due to strong crack spreads for jet oil and gas oil in Asia. Tank crude oil also continues to realize a strong premium, which is driven by high demand from the marine fuels industry, given the crude's low sulphur content, which makes it an attractive blending fuel. Recently sold cargo for a provisional premium of $22.5 per barrel confirmed this. On Slide 6, you can see our usual cash waterfall, setting out the main drivers of the increase in cash from the beginning of the year to 30 June, 2022. Revenue net of OpEx was the main contributor where the addition of the PenMal assets combined with better realized pricing, drove the increase compared to the first half last year. Acquisition of PenMal was also the reason for slightly higher staff cost this first half compared to the first half of 2021. G&A and other costs for this period decreased compared to the same period last year, mostly due to lower one-off project-related expenditure. Capital expenditure in the first half of 2022 totaled $14 million, mainly on the Stag infill drilling program. As previously mentioned, and as our full year guidance implies, our investment activity is weighted towards the second half of 2022 due to the timing of the Stag infill drilling and ramp-up in activity on the Akatara development. Tax paid in the period totaled $34 million, primarily reflecting higher taxable profits in Australia on the back of higher revenues, as well as a full period of payments of Malaysian petroleum income tax following the PenMal acquisition. Dividend reflects the final 2021 dividend. Working capital outflow compared to year-end 2021 position reflects the aggregate effect of higher inventory and underlift, offset by lower receivables, combined with a significant decrease in trade payables. In aggregate, cash balances increased with $44 million to a total of $162 million at the end of June 2022. The company remained debt free. For [registration] purposes, we added the earlier mentioned estimate for the value of the period end inventory and underlift position of $62 million. Turning to Slide 7 on shareholder returns. Notwithstanding our current challenges, we wanted to take a step back and show the shareholder value that Jadestone has delivered since we listed on the AIM back in 2018. The execution of our growth strategy, and in particular, the acquisition of Montara, we have generated a top quartile shareholder return of 109%. And looking at this year's shareholder returns, to date, we have paid a final 2021 dividend of $6 million. We have announced today an interim 2022 dividend of $3 million, and we have completed around 20% of our $25 million share buyback program that we announced in August this year. Market conditions permitting, we're also looking to complete the remaining part of the program, which will return another $20 million to our shareholders. In total, based on our market capitalization on Friday's close, the shareholder returns just discussed, generate a yield of around 9% in aggregate. Any additional shareholder returns on top of our dividend and the buyback program will be determined by the timing of production restart at Montara, wider operational performance, realized oil prices, and the timing and scale of inorganic growth opportunities going forward. Finally, we wanted to highlight the significance of our current share buyback program based on the shares repurchased to date, and using the current sterling dollar rate and Friday's closing share price. Our share buyback program has the potential to repurchase around 6% of the total issued share capital. On that, let me hand back to Paul to take you through the operating -- operational update. -------------------------------------------------------------------------------- Alexander Paul Blakeley, Jadestone Energy plc - President, CEO & Executive Director [4] -------------------------------------------------------------------------------- That's great. Well done, Bert-Jaap. Thank you. And so now we're on Slide 8 where I'll get into an operational update, starting with Montara. As I highlighted, the year started strongly with production up following on from the drilling of Montara H6 and the subsea well activity on Skua 10 and 11. And then, after the change out of the compressor motor in February-March, operations were again steady until June when a leak of oil during a tank-to-tank transfer required a shutdown, and temporary repair to small hole in the bottom of tank 2C. A subsequent defect in water ballast tank for [starboard] necessitated us to step back. And once again, we recognize the need for a wider assessment in whole condition on the Montara Venture. This can only really be achieved with more personnel offshore dedicated to repair and maintenance, and therefore, it required us to demobilize production operations teams to make bed space available, and hence, production had to remain shut in. This is deeply frustrating for us. And I recognize that, that is how our shareholders must feel too. But as much as we've done over the last 3 years to restore the FPSO to a condition which we expect and which we want, we have now recognized the 5-yearly tank and hull inspection process which we conduct under our class certification process, needs to be redefined to ensure we stay ahead of the corrosion issues. We've also learned that operating practices can be improved as a part of increasing uptime and providing long-term reliability, and assessing all these things as part of the GAAP analysis, which we'll now conduct with an independent party reviewer. So, while this slide sets out the time frame of events over recent months, I'd actually really like to focus on the forward remediation plans which are part of the broader activity set to get Montara back to normal production operations. The immediate key activities are to carry out a permanent repair to tank 2C, which I'll describe in a moment, to understand and correct the defect found in ballast Tank for starboard , and we will and have reentered adjacent tank 5C to help understand the root cause. While we'll also correct a couple of other known defects such as some cargo lines that pass through tank 6C. Working through these activities, as well as inspecting a number of other additional tanks, will help the store our own confidence in the work we've already done, the work we need to do, and to be sure that our operating practices with respect to the hull and tanks meet good industry practice. Now, turn to Slide 9, which is busy, but it sets out at a high level the work streams and sequencing of events, which I just outlined, and which we're implementing in our goal to achieve a safe and reliable restart of production at Montara. There is a lot of information here. But the key point is that we're aiming to progress several work streams in parallel, both procedural desktop work as well as physical activity offshore, and we now have sufficient offshore maintenance crew that we can do all this. We can now access and work productively on at least 3 work fronts simultaneously to ensure that we can get back to production operations as soon as possible, subject only to assurance and confirmation from the independent reviewer, and of course, our regulator, NOPSEMA. One key activity right now is to finalize the work scope which will be given to an independent reviewer as a minimum requirement, and this is being finalized for an NOPSEMA acceptance. We shortlisted at least 2 candidates to perform the independent reviewer role, both well-known and respected industry names, who can start immediately, and the work will begin with a GAAP analysis, followed by a review of processes and systems. But while this is ongoing, we will continue to progress the hull and tank inspections and repair program in parallel. Applying a risk-based inspection assessment of the FPSO's hull and tanks is now a key consideration for us, as opposed to the more standard time-based approach involving periodic surveys, which we and the bulk of industry currently adopt. The risk-based method is both a qualitative and quantitative assessment, and is the approach we already use for the topsides and key production infrastructure on the FPSO. Now, the lower half of this slide sets out the likely near-term and prioritize tank inspection and maintenance activity, some of which I've already outlined. This work scope with some additional tank inspections, is likely the minimum requirement to restarting production, but until agreed, makes timing predictions very difficult. And so, while this is frustrating, a broad range of outcomes is best defined by a broad range in production guidance, which we've now given, and which we'll update as the scope of the work plan becomes clearer. Moving to Slide 10. I wanted to give you some additional detail on the tank 2C permanent repair. On the left-hand side is an illustration of how hull repairs offshore can be carried out using a cofferdam, which is essentially a metal box fixed to the hull externally and which provides a watertight seal around an area of the hull, allowing a safe working environment internally to execute hull repairs. On the right-hand side, you can see a picture of the actual cofferdam we manufactured onshore and have mobilized offshore for the permanent repair. This image was taken just yesterday and shows the round cofferdam, which is about 1 meter or slightly more in diameter, having just been installed over the temporary plug in the hull. It's common practice to install the cofferdam with divers, but we've devised a scheme with guidewires and an ROV to do this diverless. This is a much safer process, and also successful, having carried out 3 practice rows, to ensure a smooth operation. The next steps for 2C will now be tanker entry and cleaning followed by inspection and then remedial work, starting with a full well repair and a new steel plate at the point of failure in the bottom of the hull. And while this latter piece of work is an important part of our remediation program to get to first production, the full refurbishment of this tank to see, will not be a part of the requirement to restart production. Slide 11 gives a good sense of the scale of the tank repair and maintenance activity. The image on the left is the interior of crude oil tank 5C, which has been drained and cleaned and currently undergoing inspection. This tank has already been subject to the Jadestone repair program as part of the 5-year class inspection cycle, but reentry now was purely precautionary to confirm no additional issues within this tank, given the defect that was found in the adjacent tank for starboard . In the middle of the image, you can see one of the crew upsailing down the wall of the tank at the point where the 4 starboard defect occurred, giving good context on the scale of this work. But importantly, what we have now confirmed is there are no new corrosion issues emerging. Frankly, this is an important verification process to our own work standards, and certainly improves our confidence in the approach we've been taking so far. The right-hand side of the slide shows before and after images of the renewal of the steel support on the interior of the tank. The integrity of the support has been fully restored, coating applied to protect against future corrosion. And it's an example to show how our overall maintenance strategy is not to take shortcuts, and we replace rather than fill and repair where necessary. This is our philosophy around full field life integrity because our business model almost always sees us extend field life through investments to add reserves and so on. And so, this, in turn, relies on facility maintenance with the same approach to longevity. In the appendix to this presentation and when you have a moment, I recommend you take a look at what we've provided, which is a small sample of additional images showcasing this approach more broadly across the FPSO and the resulting turnaround in condition. We've made good progress in the 3 years as operator, notwithstanding the impact of travel restrictions due to COVID and especially the limitations on bed space at Montara. This makes it difficult to work on a large number of work faces in parallel, but with careful planning has been manageable to date. To help in this regard, we also take advantage of new technology where applicable, one example being the use of drones for quicker and safer inspection, even internally within the tanks, and the ability to provide baseline surveys and records in support of a risk-based approach to maintenance. You'll see this example in the images in the appendix. And now Slide 12 which reinforces the key point about how significant the amount of value-creating activity there has been on Montara since operatorship transfer. The investment can be placed into a variety of buckets, including capital for reserves growth and production, such as seismic and drilling activity, facility upgrade capital such as umbilical replacement, new control systems, et cetera, and finally, the ongoing maintenance and repair activity year in, year out. Assets like Montara can be transformed through investment, and we always view the ideal acquisition is likely to offer multiples of reinvestment dollars versus the acquisition cost to create the incremental value for shareholders. This is what sets our strategy apart in the region, and it leads to share price growth and returns, as highlighted by Bert-Jaap in the discussion on longer-term shareholder value creation. I think it's important to now put in context, the current perspective of Montara today as compared to the original view we took at the point of acquisition. Slide 13 sets out the net present value that we identified at acquisition set against the cumulative cash flow and value generation from Montara, which has been delivered since, by a combination of the investments we've made to date, plus future value, which is projected from analyst consensus, which, by the way, in my view, is conservative. Reservoir performance and reserves have exceeded our original view, which is helpful since this is usually the most significant driver to value creation, and progress on costs, uptime and outlook are broadly in line, with the exception, of course, of the recent events. And though the past 3 months are disappointing, and there are many lessons for us here, we are nonetheless on track to significantly exceed the original value proposition at Montara. Since the acquisition, the field has already generated nearly 2x the adjusted purchase price and free cash flow, and there's much more to come with planned wells at Skua, further subsea tieback opportunity being evaluated post-seismic, and gas cap slowdown and the development of other discovered gas on the license via the Crux project. So, while I won't shy away from the disappointment of the current situation, what I do want is for investors to at least be reminded that Montara remains an excellent value accretive deal in our portfolio, and our job is now to put this behind us through focus on remediation and restoration of production. I'm sure there'll be some questions around the situation at Montara, which we can try to address later. But let's now move on to a quick review of the other assets, and so turn to Slide 14. Year-to-date, the Peninsula Malaysia operated assets have averaged approximately 4,900 BOEs a day, over 20% ahead of expectations at the beginning of the year. This outperformance is a result of an extensive program of well reactivations workovers, wireline interventions repairs and topside modifications. It's what we always hope to achieve. And at the point of acquisition, with this asset, this is exactly what we've done, and as a credit, I think, to the team in Kuala Lumpur. Looking forward, we continue to progress planning for the 2023 East Belamut infill campaign on the PM323 license. And of course, we'll provide more detail on this early next year. As previously announced, the non-operated Peninsula Malaysia assets have been offline since February this year due to a class suspension on the Bunga Kertas FPSO. A subsequent serious safety incident led to the operator to pause its repair program, and it is now assessing the full range of alternatives which includes continuing with a comprehensive program of repairs and option of asset disposition, or given that the OBO licenses expire in 2024 anyway, a potential move towards decommissioning the asset. At the end of '21, the non-operated assets accounted for less than 1 million BOEs reserves and less than 10% of the booked 2P reserves for the Peninsula Malaysia acquisition. So, while unplanned, it has an immaterial impact to us and reinforces our original thesis of actually only wanting the operated assets, but, of course, having to take the whole package as part of the deal with SapuraOMV. Slide 15 provides a brief update on the North West Shelf Oil acquisition, which we announced in late July. We're making good progress on the approvals and processes required to complete the transaction in the fourth quarter this year. The assets have also outperformed so far this year with average first half production of 13,300 barrels a day, a 30% increase year-on-year, and a 10% improvement on 2021 as a whole. This has been achieved from high well uptime and an optimization of production, focusing on wells with lower water cuts. This positive performance likely means that the next equity lifting for the stake we're acquiring has moved forward significantly and will have a material positive impact on closing adjustments. So now, turning to the Akatara gas project, onshore Indonesia, where Slide 16 provides an update on the civil works at the site, following a final investment decision which we took earlier this year. An aerial shot of the site shows the progress made to establish a solid foundation for the production equipment which will be installed next year. This site sits on peak land, barely 4 meters above sea level, and shows a labor-intensive operation of layering [elates] of wood covered by a geotextile drainage membrane, which is then filled with soil. Progress is ahead of plan with over 200 workers on site, of which 60% are local, carrying out a fairly manual initial phase of activity prior to the commencement of piling to support the heavy equipment. Slide 17 shows the preexisting well sites which we plan to reutilize, and sets out some high-level information on the well operations program planned for next year, which, again, will maximize use of existing well stock. Additional well intervention work on 4 of the existing wells has been identified to help increase reserves at very low incremental cost, and is in addition to the planned 2 well workover, with only 2 new wells required. We'll define this more fully in the future, but it's exciting to know that what we see here is potential reserves upside. Safety performance has been good. Our environmental footprint is being minimized, and we're investing in maintaining the local environment with a program of mangrove replanting, whilst also investing in local labor for the production phase. And finally, the acquisition of the remaining 10% stake in the Lemang PSC has progressed with the sale of shareholders approving the land -- approving the sale, and with government approval pending, is expected to complete in the fourth quarter this year. Slide 17 provides a brief roundup of activity on the other assets in our portfolio. The Valaris-107 rig arrived at the Stag platform in August with initial activity centered on the abandonment of the 2 donor wells whose slots on the Stag platform will be utilized for the 50H and 51H wells. We currently expect that the drilling activity will complete in November, followed by running the electric submersible pumps with the workover unit so that we can release the rig early and reduce costs. If successful, each of the wells will have initial capacity approaching 1,000 barrels a day, but will be placed on production at a more sustainable rate in the range of around 500 to 800 barrels per day. In recent months, there's been more positive news flow from Vietnam where we've been engaging in early discussions with a potential end-user of gas from the Nam Du and U Minh fields. However, being realistic about progress here, it will take some time for the buyer to reach a settlement on the gas sales agreement, given this is a new process for them. However, the initial interaction is good, and the first face-to-face negotiations are progressing well. Clear logic for the development of our gas discoveries remains strong, underpinned by Vietnam's current energy shortfall and lack of options to deliver into a growing economy. And finally, on the acquisition of the Maari field offshore New Zealand. Since the legislative changes to New Zealand's upstream regulatory framework were implemented at the end of 2021, we've been engaged with the New Zealand government and with OMV to see clarity on the processes, terms and timelines that are needed to complete the Maari transaction. Despite these efforts with the government, there is still no clarity on under what circumstances and time frame the completion of the transaction and transfer can occur. This is a growing source of frustration for us, but we're leaving no stone unturned in an attempt to get this deal over the line. And so now, Slide 19, to just recap on guidance, where we lay out the potential range for production this year, especially given what's going on at Montara. While this is not what we planned, there are no lost barrels from Montara. They are only deferred, and we do expect to pick them back up again next year. Further clarity on the production outlook and narrowing this range, even though it's late in the year, will be provided as soon as the remediation plan at Montara is better defined, and we can then determine more clearly the actions required prior to restart. [Usage] OpEx guidance for the year has been adjusted up simply as a direct impact of the reduced production from Montara, which is then divided into a relatively fixed operating expense. Total or absolute group OpEx actually hasn't changed materially at all, and at half year was running slightly lower than we'd planned. So, this is purely an arithmetic result of lower production. We've chosen not to change the capital guidance at all with the majority of CapEx being incurred now in the second half of the year and, of course, primarily on the Stag infill program and the Akatara gas development. And with that, I'll now pause. And while I know this has been a long call with a lot of detail, we felt it was important for investors to have this detail. And so, I'd like to thank you for staying with us. And operator, we can please now open for Q&A. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question will come from David Round of Stifel. -------------------------------------------------------------------------------- David Matthew Round, Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst [2] -------------------------------------------------------------------------------- On the review phase at Montara -- I know you've said exact timing is hard to pin down, and I think that's probably understandable. But can you say what the next few months could look like? And I suppose I'm thinking if further items are identified, for example, will you be able to fix things as you go? Can you bring forward any other maintenance during this time? Or would you just have to wait for the outcome of the review and then potentially fix it? And secondly, on financing, you've talked in the past about potentially up to 2/3 of Lemang CapEx being debt funded. So, can we just get an update there, please, and whether that could free you up to expand your buyback program at all? -------------------------------------------------------------------------------- Alexander Paul Blakeley, Jadestone Energy plc - President, CEO & Executive Director [3] -------------------------------------------------------------------------------- So I'll touch a little on your question around the review phase and remediation at Montara, and then I'm going to ask Bert-Jaap if he'll provide a brief update on where we are with potential debt financing, not least, of course, for Lemang. So, first of all, the principle around a restart of Montara is broadly 2 strands of activity. There is a sort of a desktop phase which will be the focus of the independent reviewer, and that really is around an assessment of our current processes, practices with respect to ensuring tank and hull integrity at Montara. And, of course, it is underpinned currently by processes that have been established over the long term, and supported by the class -- Lloyd's Register, who are chosen to verify -- have been chosen to verify vessel and hull integrity. And so, that process which will start with a definition of gap analysis and an agreed set of terms, is now just underway. That will be agreed with NOPSEMA in parallel with selecting an independent reviewer, and that process can move forward. Separately and in parallel along the lines that you've asked, David, is this whole business of what about integrity and tank acceptance, if you like, ready for reuse and reintroduction of hydrocarbons. Well, of course, many of the tanks currently in service have been inspected and verified by Jadestone during the sort of second half of the 5-year period of the current class inspection process. And one example of that is 5C. And it's a really important example because, in reentering it -- and you can see from the photograph, actually, first of all, condition, excellence, and secondly, on deeper inspection, particularly around the anomaly that was found in for starboard, there appears to be nothing here which signals the processes that we've adopted and carried out are in any way flawed. The tank condition is excellent. What we have to do to get this tank back in service relatively simply, it is to take care of the defect in for starboard, a tank which Jadestone has not been into up to this point. So, what we've identified in for starboard is a defect that goes back -- all the way back to the shipyard conversion. And so it is, on the one hand, disappointing that it hasn't been picked up to date. But on the other hand, it's encouraging because it represents an isolated example and something that we know we can easily fix. So, this gives a perspective that the tanks that we have already, if you like, recertified for the period, are not going to need very much, if any work, and perhaps only a visual inspection to reconfirm condition. And so, with that in mind, there's quite a lot of readiness that won't take very long at all. And what we're working on is a small number of tanks, an appropriate number. And that doesn't mean just oil storage. That also means ballast and water storage and so on, [slobs] tanks. We need a relatively small number to get back into operation, and that will be a key focus for us. And how many, I simply can't answer, because that will be an interactive process with the independent review and with NOPSEMA, and will require some acceptance by them. But it has the potential not to be so extensive. And how extensive, we're just not yet in a position to be prepared to say. So, be patient, if possible, and we'll fill the gap in that as soon as we possibly can. And there are things that -- there are many things that we can do operationally that can limit the amount of tank storage. We can short load offloads. Currently, we look to offload 400,000 to 450,000 barrels in a parcel. We can do half-sized parcels and so on. So, there are many actions we can take to improve and potentially to shorten the time taken in the physical reassurance of the whole condition. But more broadly, we do have to satisfy ourselves that there is nothing more materially, at least visually available to us. And so, a lot of the next few weeks will be around accessing multiple tanks and just reassuring that the work we've done is holding up. Does that make sense? -------------------------------------------------------------------------------- David Matthew Round, Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst [4] -------------------------------------------------------------------------------- Yes. And I suppose I'm just thinking there's nothing elsewhere on the vessel that you can be using your time. It sounds like you're happy with the tanks, or we'll get to a position where you're quite happy with the tanks? Is there anything else you can look at on the vessel just to make good use of your time over the next few weeks? -------------------------------------------------------------------------------- Alexander Paul Blakeley, Jadestone Energy plc - President, CEO & Executive Director [5] -------------------------------------------------------------------------------- Well, I mean all I can say, David, is, so far, there's nothing that causes us alarm. So far. And one hopes that all the tanks that we've seen are representative of what we will see. To the other question, given that the limited really bed space -- and it's one of the key reasons why we can't simultaneously take on this work and produce -- we're really focusing the use of those beds for crews to work on tank inspection and restoration. And whereas during normal production operations, we're typically only able to access one tank at a time because of limited numbers of people. We now have at least 3 available for activity at any given time because we have so much more crew available. Having said all of that, there is still some capacity to do more. And yes, in short, we've taken care of a number of shutdown activities that were planned for the end of this year, early next year, standard things that need to be done, and are being done, and will help for the future. -------------------------------------------------------------------------------- Bert-Jaap Dijkstra, Jadestone Energy plc - CFO & Director [6] -------------------------------------------------------------------------------- So, first of all, it's, of course, it's -- it would be good to create a facility to support our current investment phase that the company is running through. You mentioned that we have a pretty significant CapEx in front of us, and that facility would bring, of course, flexibility. The team has looked at the Lemang facility only, but there is various advantages amongst which size -- facility size and flexibility to create a broader portfolio of assets and create a bit of a borrowing base. So, we're working with 4 international reputable banks at the moment. We're making good progress. We're trying to create a relatively flexible reserve base facility with a decent size while making good progress on all of that. With respect to the buyback program, so of course, we will let you know if and when we can do further announcements around this. We're working hard to, of course, create this structure because it's logical given the phase the company is in. It would create more flexibility around our liquidity position, of course. At the same time, we won't be saying anything around taking further steps in shareholder returns. We're executing today the $25 million interim dividend with an increase. We're sitting at a 9% yield today, as we presented earlier. And as I said in the script, I won't repeat it, but further shareholder returns really depends on the Montara restart, and of course, macro realized oil prices, and the inorganic growth opportunity we have in front of us. But we all agree that a loan facility in place would certainly help us creating flexibility for base claim [implementing] and executing on our strategy. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- Your next question comes from Nathan Piper of Investec. -------------------------------------------------------------------------------- Nathan Piper, Investec Bank plc, Research Division - Research Analyst [8] -------------------------------------------------------------------------------- 3 questions from me. Fairly straight ones, hopefully. How much of a distraction has this Montara issue been from a management point of view? So, you've obviously got sort of a subcommittee within the Board to look at this. But given the context of Jadestone and where multiple deals were highlighted earlier this year, how much management time has this absorbed where you perhaps could have been spent building out the portfolio and executing this in a more longer-term business plan? And second question is -- and will we look back in last in January when you restate 2023 guidance, which will be along the lines of where guidance was at the start of this year? In the sense, is this a fairly short-lived phenomenon, do you think, although you don't know precisely? And then last one is, does your enthusiasm for the subsurface at Montara remain just as high as it was before these incidents happened? -------------------------------------------------------------------------------- Alexander Paul Blakeley, Jadestone Energy plc - President, CEO & Executive Director [9] -------------------------------------------------------------------------------- Let's work our way through the questions. The first point about management attention. Of course, make no mistake, we are absolutely focused as a team, first and foremost, on a restoration of Montara to a safe and reliable producer. And that has the focus of everybody who can provide support to that issue. And as you point out, and as we said in our note, including key members of the Board to make sure that we're challenging ourselves to do all the right things and only the right things. Having said that, the M&A activity sits largely outside of the operating teams. And so, I would say that we are -- we continue to be very active, and haven't felt that this has taken away from the things that we want to do with respect to inorganic growth. I think we have to be honest about the broader question of how does this impact on the view of regulators around our capacity as an operator. And perhaps, that's a more valid point to make. And whilst it's impossible to be definitive around that, at the end of the day, what we are -- what we have done and are doing at Montara, I think, represents a very significant turnaround to what was an asset with significant challenges. I mean, you'll recall at the point of deal closing, we shut down for 2.5 months to start the remediation process seriously. So, I think on the whole, in answer to your question, we're very focused on this. It has all the attention of all the right people, but M&A continues. Is it short lived? The principle here -- and this is a judgment. In a simple sense, we could look to a process where we do just that amount of work which is required to regain confidence in production, get the operating crews back on board, and then continue to work through one work phase at a time and maintain the Montara hull and tank conditions, as we have done in the last 3 years. And it has worked over the last 3 years, but what we've discovered is, when something goes wrong, there isn't sufficient bed space to do anything extra. And so, to some extent, our judgment now is, how far do we go to get ahead of the maintenance and remediation program here while we can and before we restart production. And that's a live discussion right now, and I don't have the answer because, of course, ultimately, the idea of, if you like, deep remediation, the work that we're doing on the tanks and have them over the last 3 years, will ultimately lead to a period of time when, on every new tank inspection, less remedial work is required because the condition has been created for it to hold up in far better shape than it has in the past. So, I mean that's the way we want to take it, and that's the outlook of the processes that we're going through. I'd like to think that's where we'll end up. And so, as a result, higher uptime, less impact on cost -- on remediation because we've done a lot first time around, and we've done it right. On the subsurface, Montara has outperformed from a reserves point of view. H6 delivered what we expected. The evidence from the subsea fields, Swift, Skua, Swallow, it is -- there is more upside here, particularly Skua where we're planning 2 more infill wells. Significant upside. And it's one of the reasons why the value creation is looking so strong and better than at the point of acquisition. So we're very happy with the reservoir story so far. And, of course, something that wasn't planned originally is now the potential for value creation from the gas in the license as well, with the Crux development being FID close by. So, I think that part of the story is still really appealing. -------------------------------------------------------------------------------- Nathan Piper, Investec Bank plc, Research Division - Research Analyst [10] -------------------------------------------------------------------------------- Just one slight follow-up, I suppose. So, from the sounds of things, your M&A activity remains relatively high level, in the sense that the Board is not considering anything in the short term? Is that the right way to think about how you answered that? You're continuing to look at lots of M&A, but yes, it's in a separate team. Is that the right way to think about how you answered that? -------------------------------------------------------------------------------- Alexander Paul Blakeley, Jadestone Energy plc - President, CEO & Executive Director [11] -------------------------------------------------------------------------------- The way we carry M&A is, we use skills drawn from across the whole organization. But the biggest part of the value story in M&A is still reserves, as it is with everything we do. And, of course, the reservoir teams, the subsurface teams are not really engaged at all in what we're working on at the Montara FPSO right now. So, we haven't changed either our strategy our modus operandi around M&A, and there's a lot of things to be looking at. But I'm not going to offer any predictions about when and what we might bring to the market in the fullness of time. We're really busy and we're keen to grow. And notwithstanding the incident at Montara and the impact on the short-term cash flow, we put ourselves in a strong financial position, and it should not impact on our ability to do the things that we'd like to do. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Your next question comes from Matt Cooper of Peel Hunt. -------------------------------------------------------------------------------- Matthew Cooper, Peel Hunt LLP, Research Division - Analyst [13] -------------------------------------------------------------------------------- 2 questions from me. First one is, when is the 2C tank repair expected to be completed? And also, how long have similar third-party GAAP reviews and sign off by NOPSEMA taken in the past? And then second question is, I wonder if you could talk through the options to increase bed space on the vessel, including the likely cost and timing of these? -------------------------------------------------------------------------------- Alexander Paul Blakeley, Jadestone Energy plc - President, CEO & Executive Director [14] -------------------------------------------------------------------------------- The 2C tank repair -- the [done] repair is now -- I almost hate to say, but a reasonably straightforward operation, because we now have the cofferdam in place, and it appears to be holding well. And therefore, that now allows us to enter the tank and start cleaning it in preparation for that permanent repair. The permanent repair itself is a relatively straightforward and simple task once the cofferdam is in place. You identify location, you cut out a piece of steel and you replace it with a new, and you weld it and you're done. So, that aspect of it isn't really going to determine schedule at all. The real determinant about when that is completed is the amount of cleaning that's required within tanks to see -- get to the place where we need to do the repair. And that we just simply don't know right now, because this is a tank that we have never been into. And whilst we expect the condition to look rather similar to the other tanks which we have been into, that is a bit of an unknown still. And so, we'll get to the point where we can speak more intelligently about the time frame. But I expect this is weak. It will take a while to get the tank in a clean condition. The team is getting pretty good at it, nonetheless. And then, it will take a few days for the actual permanent repair. And thereafter, a remediation of the tank across the board, in order for it to be brought fully back into service, that will take longer, but it's not required to restart production. What we really only need, and need and want is a permanent repair, so that the whole condition can be declared sound. On your question on the GAAP reviews and the third-party assessment, this -- the nature of this is really hard to define. And until we, first of all, agree the scope -- discuss, agree and awarded to an independent third party and then sit down and work through the schedule, until we've done that, Matt, it really is hard to predict. And whilst your leading question was, well, give us some examples elsewhere, tell me what the scope is first, and then I might give you an answer. So, it could take a few weeks, it could take a month, it could take longer. We need to just get -- we need to get that initial work done, and we'll keep the market informed. But it is being done in parallel with the offshore activities physically on tank inspection. And so, at this point in time, I can't predict whether or not it will be a critical path. It may not be. In terms of bed space, and what we could do in the future, of course, for 3 years, we've been working with the current number of bed space and managing the -- a very significant -- and you can see that from the photographs -- a very significant remediation program across the whole of the FPSO. And whilst carrying out an elevated amount of work over the last 3 years, it hasn't been, therefore, seen as an absolute priority to do any more with respect to increasing accommodation. I think this incident sort of implies that, for logical reasons, it would be good to take this action more seriously, and to look at the potential and the options for increased accommodation, for both short term, i.e., during major planned outages or maintenance programs, and/or for long term, simply being able to have more bodies applied to activities on the FPSO. And with that in mind, for the short term, we can apply the principles of floating accommodation, flotels and that sort of thing, and it's certainly one of the things that we are looking at right now. And for the longer term, we can and will look at the different ways in which we can expand the current accommodation unit, which, of course, is essentially a tanker accommodation. Hence, why I have the numbers are perhaps smaller than you would expect in a different type of production facility. It's not as straightforward as one would imagine because, not only is it about expanding the accommodation unit with some extra bedrooms and so on, but it also extends to life-saving appliances. And the vessel was designed and built with life-saving appliances for the amount of people on the facility. So, we have to expand both. All can be done, and the project is being kicked off to look at what are the options and the best ways to do it. And I think long term, it's in our interest to find a way of expanding the accommodation, and it's quite likely that we'll do that. -------------------------------------------------------------------------------- Matthew Cooper, Peel Hunt LLP, Research Division - Analyst [15] -------------------------------------------------------------------------------- And is it too early to give a kind of high-level estimate of likely cost and earliest timing you could bring in that short-term option in floating accommodation? -------------------------------------------------------------------------------- Alexander Paul Blakeley, Jadestone Energy plc - President, CEO & Executive Director [16] -------------------------------------------------------------------------------- I mean, certainly, in looking at a small amount of floating accommodation that might be available, you could charter for $20,000 to $40,000 a day. You can access much larger flotels with walk-to-work facility for 2x or 3x that amount. So, it's a very broad range. It all depends on what your work scope is and the number of people that you want on site. There is a limit to the amount of work that we can carry out practically and efficiently. So, it's a broad spectrum. And in terms of expanded accommodation for permanent purposes, I don't have a cost estimate right now, Matt. -------------------------------------------------------------------------------- Matthew Cooper, Peel Hunt LLP, Research Division - Analyst [17] -------------------------------------------------------------------------------- And sorry, just in terms of how quickly you could bring in that floating accommodation? Months, years? -------------------------------------------------------------------------------- Alexander Paul Blakeley, Jadestone Energy plc - President, CEO & Executive Director [18] -------------------------------------------------------------------------------- Months. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Your next question comes from Mark Wilson of Jefferies. -------------------------------------------------------------------------------- Mark Wilson, Jefferies LLC, Research Division - Oil and Gas Equity Analyst [20] -------------------------------------------------------------------------------- I am not going to ask you about Montara inspection radiation. I think we've done that to death, and good luck with the program there. However, what I would like to ask about, on Slide 6, you gave the usual clear cash bridge for the first half. And if we include inventory, it looks like cash actually built by about $130 million in the first half of the year. And so, what's interesting me is looking forward for the second half. Immediately, you've got most of your CapEx, $90 million, to come in the second half of the year, arguably. But production, until Montara comes back on, is about half of what it would be. So we can assume that cash -- if we just take a rough like-for-like cash build to be about half and has to cover the CapEx in the second half, with the variables being completion of the North West Shelf acquisition, which had an effective date of the 1st of January, 2020, and any remaining share buyback you do in the second half of the year. So, could I ask, therefore, is there a possibility of remaining cash neutral through to the end of the year with those variables I've just mentioned? -------------------------------------------------------------------------------- Alexander Paul Blakeley, Jadestone Energy plc - President, CEO & Executive Director [21] -------------------------------------------------------------------------------- And so, it's a complex question given there are so many variables to reflect. And the simple and short answer to the question is, is there -- are there a set of circumstances where that could be the case? There are, but that might be unlikely. And because of the wide range of variables, I'm not going to predict where we are. I mean, there is still a broad range of outcomes. Perhaps some of the things that we can rely on with reasonable certainty would be the amount of CapEx, which you've highlighted and is about right, the production, and therefore, revenue is the big variable on the positive side, which we just simply cannot assess since it's all about when Montara restarts. But the third significant one which you touched on is the closing of CWLH acquisition. And as we touched on in our notes, given the production over performance, we are seeing an advanced lifting for this interest. On CWLH, there are no shared liftings. They're all done individually for the participants. And so, the nomination of the lifting for notionally BP share, let's call it, has come forward quite a lot, and that has a material short-term cash flow impact to the positive. And so, the end of the year is just a single data point in time. Over the course of the next 2 or 3 quarters,, we'll be looking at all of these things carefully. That's certainly a big positive. The introduction of the RBL, which that a talked about earlier is another factor that plays. But my overriding comment to all of this, Mark, is, notwithstanding what we're seeing at Montara, and all of those variables that we've touched on, we're not yet seeing the need to think any differently about our strategy in terms of investment, M&A, or indeed shareholder returns. I think at this stage, will remain on course to the path that we established at the outset of the year. -------------------------------------------------------------------------------- Mark Wilson, Jefferies LLC, Research Division - Oil and Gas Equity Analyst [22] -------------------------------------------------------------------------------- Just a few other points, if I may then. The remaining share buyback, which you said you're going to complete, is there a time line we should consider like before the end of the year? Or is it as you see fit? -------------------------------------------------------------------------------- Alexander Paul Blakeley, Jadestone Energy plc - President, CEO & Executive Director [23] -------------------------------------------------------------------------------- It's driven by the trading volume, to be honest, Mark. We'll -- we're -- it's fairly clearly defined, the volume that we purchase, and we're planning to continue as we have done since it started. -------------------------------------------------------------------------------- Mark Wilson, Jefferies LLC, Research Division - Oil and Gas Equity Analyst [24] -------------------------------------------------------------------------------- And then one last point. So, clearly, production facilities, and FPSOs in particular, are things that one imagines we're all going to be paying more mine to, in M&A, for the longer-term performance, Montara. Obviously, a situation but also the Peninsula Malaysia non-operated FPSO. Could you remind us about the production facilities of the North West Shelf Oil project? Clearly, integrated oil company operated, but just remind us what those facilities are just in the context of what we've seen obviously with Montara? -------------------------------------------------------------------------------- Alexander Paul Blakeley, Jadestone Energy plc - President, CEO & Executive Director [25] -------------------------------------------------------------------------------- So, unlike Montara, the North West Shelf asset is an entirely subsea development. So there's no wellhead platform. All the wells are subsea and tied back through flow lines to the FPSO, which is a replacement. This field has been in production for a long time. I mean, bear in mind, Montara has only been in production for 10 years, whereas the North West shelf asset is more approaching 20. And so, the original FPSO at the point of first production on these licenses has been retired, and a more modern FPSO was built -- designed and built -- or converted, I should say, specifically for an asset which was moving past peak production. Which is interesting because its capacities are more fit for a field that is in midlife, and that's particularly around water handling, which is a really important feature. And so, condition wise, it's a much younger hull. It's a much newer facility. We have not been allowed offshore at some point in time. Once we're on license, we will, but from all of the assessments and third-party information and historical evidence, this is a facility that's in good condition. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- Your next question comes from Ashley Kelty of Panmure Gordon. -------------------------------------------------------------------------------- Ashley Keith Kelty, Panmure Gordon (UK) Limited, Research Division - Research Analyst [27] -------------------------------------------------------------------------------- Just a couple of things. One was in the North West Shelf. Do you have any sort of details that you can give us on what the activity is going to be next year in terms of infill drilling? Or is it really going to be a case of an update next year once the deal is completed? And secondly, in terms of the debt negotiations, are you looking into sizing those so that you could actually include funding for Vietnam in the event that you get a GSA signed sooner rather than later? -------------------------------------------------------------------------------- Alexander Paul Blakeley, Jadestone Energy plc - President, CEO & Executive Director [28] -------------------------------------------------------------------------------- So I'm going to have -- again, I'm going to have -- answer the question on our debt funding opportunity. And I think to your question, importantly, Ashley, flexibility, I'm going to have Bert-Jaap speak to that. The answer to the first part around North West Shelf, we don't anticipate, we don't believe, and we haven't seen any evidence that there will be any significant capital activity on the North West Shelf Oil assets next year. So, yes, capital spend is very low over the next couple of years. So, we'll see. And we want to get on to the license and then see how and what we can do to influence the thinking of the group. And, of course, as you know, we have an aspiration to enlarge our stake there, if possible, for philosophies. We like the asset a lot. We think there's a lot of upside. And therefore, there are wells to be drilled. But the current partnership is not planning anything next year. Bert-Jaap? -------------------------------------------------------------------------------- Bert-Jaap Dijkstra, Jadestone Energy plc - CFO & Director [29] -------------------------------------------------------------------------------- Yes, sure. So, on the loan facility, I mean, in effect, how we look at our current work and hopefully the end result, if and when it comes in, is that, it would be a strategic stepping stone. It should really be a facility that enables us to fulfill our strategy for organic and inorganic growth. So what we're looking at, I mean, first things first. We need to have, of course, Montara starting up. We need to have the first facility, or actually the second because we have one already -- the second RBL that we put in place, after which we can take a look at the -- for example, in the [ODN] auction, and see how additional reserves through inorganic growth will come in. And, of course, right in front of us, I would say, CWLH, so the North West Shelf acquisition which is, of course, as I said, right in front of us. So we're trying to feature that already in the current structure. Vietnam would be a logical next step. So of course, we keep a very close eye, especially on the gas sales agreement because, obviously, that is going to be the key driver for any reserves to be added, and any cash flow forecast to be having, let's say, the reliability of -- required for a banking model. So, we do see it as a strategic stepping stone. We are building the flexibility to increase. And of course, we're trying to have this instrumental, what is tool, supporting the Jadestone strategy going forward. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- At this time, there are no further questions. I would like to turn the conference back to your host for closing remarks. -------------------------------------------------------------------------------- Alexander Paul Blakeley, Jadestone Energy plc - President, CEO & Executive Director [31] -------------------------------------------------------------------------------- Very good. Thank you very much, indeed. Ladies and gentlemen, thanks for the questions. Of course, it has been a difficult couple of months for us, and the events at Montara have overshadowed the progress that we've made with the business to date. While the scope and timing of the remediation plan is still uncertain, our #1 priority is the remediation of known defects at the FPSO and the reestablishment of reliable and safe production operations, with an ongoing plan for the integrity of the facilities through to the end of field life. Teams both onshore and offshore are working tirelessly to get us where we want to be. And I'm really, really proud of what's been achieved in difficult circumstances, working on multiple fronts with limited accommodation and with remote limited access. This has undoubtedly overshadowed progress that we've made on the Akatara development, the operated assets in Malaysia, the newly announced acquisition from BP, and even some steps forward in Vietnam. Our balance sheet has grown impressively, and we're giving back to shareholders, even while we push organic investments and work on a number of inorganic options which are under consideration. But we recognize the over-importance of Montara on the business currently. And everything else that I've just described and that we're doing, will reduce that dependency over time. Our strategy of the mid to long term works well, as we've demonstrated through our returns since 2018, and there's no oil-focused peer that's close to matching that. But we also know that greater reliability is fundamental to business success. And for us, that will come through improved facility uptime, and also through more portfolio diversification, and we're working hard on both. This has been an especially disappointing period for me and for the team, but we're resolute. We're going to get back on top, and the opportunity to do so lies in front of us. So, I'd just like to say thank you once again for participating in the call, for your patience, and we hope we can fully restore your confidence in short order. Thank you very much. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank you all for participating, and you may now disconnect your lines.