adestone Energy has decided to delay its gas development project offshore Vietnam due to the current market situation and as a result of a decision to reduce its 2020 capital expenditure guidance.
In light of current market conditions, and in order to continue to maintain the company’s strong balance sheet in these uncertain times, Jadestone said on Thursday it was reviewing its 2020 capital program.
In the absence of the receipt of the Vietnamese Government approvals of the field development plan (FDP) for the Nam Du and U Minh gas field developments, Jadestone has decided to delay this project.
The Nam Du discovery is located within the Block 46/07 PSC on the north-eastern margin of the Malay-Tho Chu Basin, approximately 200 kilometers offshore Vietnam in a water depth of 47.9 meters.
Back in February 2020, Jadestone was expecting the approval for the Vietnamese project to happen shortly, but that has not happened.
Jadestone said on Thursday it would remove substantially all capital spending which had been planned for the project in 2020, resulting in a 50%, or circa $90m reduction to its 2020 capex guidance for the year, which is now expected to be $80-95m.
This decision is not just a recognition of the impact of new measures to conserve the company’s capital resources but focuses on the largest and longest element of the company’s 2020 capital program, and one which would not have contributed cash flow before 4Q 2021. This had assumed receipt of Vietnamese Government approvals in 1Q 2020, and as this has not been forthcoming, the expected first gas date for the project will be no earlier than late 2022.
Remaining capital reserved for Australian ops
The remaining 2020 capital program largely comprises infill drilling at Montara and Stag in Australia and remains entirely discretionary. The company will continue to evaluate all capital investments, including potential inorganic growth opportunities, based on anticipated accretive value add for shareholders while maintaining balance sheet strength.
As of January 31, 2020, Jadestone had an unaudited cash balance of $116 m, including restricted cash of $10m and gross outstanding interest-bearing debt of $50.1m. The company expects to remain operating cash flow positive even at oil prices below $30/bbl, owing largely to downside price protection through hedging and significant pricing premia on oil from its producing assets in Australia. The mark-to-market value of the hedge as at February 28, 2020, was over $18m in favor of the company.
Paul Blakeley, President and CEO commented: “We are committed to maintaining capital discipline through the current uncertain environment. While the level of economic turmoil is unprecedented, I am pleased that we retain substantial flexibility and will remain nimble, and course-correct as necessary, to ensure ongoing value add to our shareholders.
“Nam Du and U Minh are an important domestic gas resource for Vietnam, which will ultimately contribute to generating clean power and essential fertilizer for the ongoing development of the Southwest Vietnam economy. But, with ongoing Vietnamese Government delays to the FDP approval process, there is a short-term option for us to defer our spending commitments on the project, which we’ve decided to take.
“Vietnam currently has the potential to take temporarily cheap competitor piped gas, which is oil price linked and benefitting from the current market dislocation, and the Nam Du and U Minh fields can be developed when investment conditions improve.”