Horizon sees output rise but Covid-19 crisis weighs on revenues

Horizon Oil has seen its production remain uninterrupted by the Covid-19 pandemic, but the dramatic fall in oil demand has hit the Australian junior’s revenues.

Horizon produced 391,887 barrels of oil in the March quarter, up 4.8% on the 374,005 barrels produced during the December quarter.

Production at the CNOOC-operated Block 22/12 in China’s Beibu Gulf, where Horizon holds a 26.95% stake, was up 6.4%, while production from the OMV-operated Maari-Manaia fields off New Zealand, where Horizon has a 26% share, was up 2.2%.

Horizon attributed the rise in output to "production enhancing workover activities" carried out in the previous quarter.

It also noted that operating costs had been materially reduced at both fields during the recent quarter, with average field cash operating costs maintained below US$15 per barrel produced.

However these factors were not enough to offset a 17.5% decline in oil sales, to 305,590 barrels, which, combined with a drop in oil prices, saw Horizon’s overall production revenue slide 24.9%, to US$19.2 million.

The company has maintained its production guidance for the current financial year, which ends 30 June, of 1.4 million - 1.5 million barrels.

However, it has reduced its forecast sales volumes to 1.3 million - 1.4 million barrels, from a previous range of 1.4 million - 1.5 million barrels, while revenue for the 12 months to 30 June is expected to range between US$75 million and US$85 million, down from a previous guidance of US$90 million - US$100 million.

Covid-19

With the global Covid-19 pandemic impacting prices and demand, Horizon has implemented a number of cost saving initiatives, including the redundancy of roughly 20% of the company’s workforce

“The collapse in oil prices has tempered our immediate growth ambitions, however it provides additional time to refine our strategic direction, and to thoroughly evaluate and assess opportunities,” Horizon chief executive Chris Hodge said.

“An ongoing key element of our strategy is to protect the group’s strong liquidity position to ensure the company is well placed to seize opportunities as the oil and gas sector recovers. To this end the company executed additional hedging during the quarter to protect a material portion of the group’s revenue over the remainder of this calendar year.”

He added the hedging was concentrated over the next two quarters, with more than 50% of forecast production hedged during the period.

“This provides confidence that the group can continue with its modest planned capital expenditure program, primarily focussed on unlocking the remaining potential in Block 22/12, China, where average field cash operating costs have remained consistently below US$10 per barrel during the financial year,” Hodge said.

Chinese development pressing ahead

Horizon revealed that basic engineering for the WZ 12-8 East development in the Beibu Gulf had been completed.

However, it said the final CNOOC technical expert review had been delayed due to the Covid-19 restrictions within China, but was expected to be completed in the current quarter.

Horizon noted the delay meant its share of costs in the 2020 calendar year related to the development were now expected to be just US$2 million, while the capital costs and platform lease costs are linked to the oil price providing the project with a natural hedge to the commodity price.

Based on current oil prices, Horizon’s share of capital costs for the entire project are forecast to be less than US$12 million, which is about 40% lower than if oil prices were around US$60 per barrel.

The development has been planned as an extended production test which involves a mobile offshore production platform which will be leased by the joint venture, with first oil anticipated in late 2021.