Report - Horizon Oil

Equity Research
Horizon Oil Ltd.
BUY
HZN-ASX
A$0.12
A$0.25
Last:
Target:
April 30, 2015
Update for the March 2015 Q report
Bucks trend, with production and revenue up for the Q
HZN has outperformed its peers, delivering an increase in both production
and revenue (inclusive of hedging) for the Dec Q. Production of 324.5kbbls
was a 6% increase on the Dec Q, with all 15 wells now online in the Beibu Gulf
and start-up of the MR6A well at Maari. Oil sales of 327kbbls were up 23%
due predominantly to the timing of offtakes at Maari. HZN reported sales
revenue of $15.87m, down 17% due to lower realised oil prices but together
with hedging revenues of $9.86m, resulted in an 8.1% increase in total
revenue to $25.7m. HZN reported solid operating margins with an average
realised oil price of $78.52/bbl (including hedging) vs. cash costs of
$15.02/bbl. After a significant reduction in capex to $8.9m (Dec Q of $28.2m)
HZN finished the period with cash of $39.4m and $110m drawn on its RBL
facility.
Revised refinancing arrangements, to be completed this Q
HZN announced that it has reached an agreement with the ANZ for the
refinancing of its current US$110m facility, which was required due to the
amortisation profile over the coming 15-months and considering the
redemption of its US$80m convertible note in June 2016. The terms of the
new facility reportedly provide greater flexibility with an increased US$120m
base, a $50m accordion facility and increased tenor to 2019. The facility is
expected to be finalised in May. Importantly, HZN has confirmed that it is in
good standing to meet redemption of the notes in June 2016, given the
revised facility, existing cash of $40m, plus forecast net income of $110m and
reduced capex of $50m through to mid-2016.
Maari development works, China ramp-up key highlights
Production averaged 7,699bopd at Maari but was at 13kbopd at Q-end
following start-up of the MR6A development well. The forward program will
see completion of the MR7A and MR10 wells, targeting plateau at 15kbopd. In
China production increased 4.2% will all 15 development wells now on ESP.
What's Changed
Rating
Target
Production 2014A (boe/d)
Production 2015E (boe/d)
CFPS 2014A
CFPS 2015E
Old
BUY
A$0.25
3,857
3,467
0.05
0.03
Share Data
Share o/s (mm, basic/f.d.)
52-week high/low
Market cap (mm)
EV (mm)
Dividend yield
Projected return
Financial Data
YE June. 30
Oil and NGLs (b/d)
Natural gas (mmcf/d)
Total (boe/d) 6:1
Equivalent growth
Brent Oil (US$b)
East Coast Gas (US$/mmbtu)
FX rate (USD/AUD)
EPS (f.d)
CFPS (f.d)
Net debt (mm)
Net debt/CF
Annual dividend ($/sh)
Valuation
P/CF
EV/DACF
EV/boe/d ($k)
EV/2P reserves (Proforma)
P/(2P) NAV
P/Risked upside NAV
New
n.c.
n.c.
n.c.
3,647
n.c.
n.c.
1302/1310.2
0.385/0.11
A$150
A$350
0%
117%
2014A
2015E
2016E
3,857 3,647 3,985
0
0
0
3,857 3,647 3,985
180%
-5%
9%
$109.08 $72.11 $66.25
$0.00 $0.00 $0.00
$0.92 $0.84 $0.80
$0.01 $0.01 $0.01
$0.05 $0.04 $0.04
$100
$137
$113
1.5x
2.8x
2.0x
0.00
0.00
0.00
2.1x
8.5x
$61.6
2.6x
10.7x
$72.0
2.2x
9.7x
$58.4
$18.6
0.4x
0.4x
All figures in US$ unless otherwise noted
Maintain BUY recommendation with a price target of $0.25/sh.
We maintain our BUY recommendation with a price target of $0.25/sh, which
is set below our NAV of $0.29/sh. Looking ahead key catalysts will include
further ramp-up at Maari, planning for Beibu Phase II and PRL 21.
Prepared by GMP Securities Australia Pty Limited
Scott Simpson
(+61) 8 6141 6320
ssimpson@gmpsecurities.com
See important disclosures on the last two pages of this report
Equity Research
Production and revenue up for the Q
HZN has outperformed its peers, delivering an increase in both production and revenue (inclusive
of hedging) for the Dec Q. Production of 324.5kbbls was a 6% increase on the Dec Q, with all 15
wells now online in the Beibu Gulf and start-up of the MR6A well at Maari. Oil sales of 327.6kbbls
were up 23% due predominantly to the timing of offtakes at Maari. HZN reported sales revenue
of $15.87m, down 17% due to lower realised oil prices, but together with hedging revenues of
$9.86m, resulted in an 8.1% increase in total revenue to $25.7m. HZN reported solid operating
margins with an average realised oil price of $78.52/bbl (including hedging) vs. cash costs of
$15.02/bbl.
After a significant reduction in capex to $8.9m (Dec Q of $28.2m) HZN finished the period with
cash of $39.4m and $110m drawn on its RBL facility. Capex was materially lower for the period
due to the completion of development works in China and a delay in Stanley development
activity pending a value engineering process.
Revised refinancing arrangements, to be completed this Q
HZN announced that it has reached an agreement with the ANZ for the refinancing of its current
US$110m facility, which was required due to the amortisation profile over the coming 15-months
and considering the redemption of its US$80m convertible notes in June 2016. The terms of the
new facility reportedly provide greater flexibility with an increased US$120m base, a $50m
accordion facility and increased tenor to 2019. The facility is expected to be finalised in May and
completed shortly thereafter. Importantly, HZN has confirmed that it is in good standing to meet
redemption of the notes in June 2016, given the revised facility, existing cash of $40m, plus
forecast net income of $110m and reduced capex of $50m through to mid-2016.
Maari development works progressing
Production averaged 7,699bopd at Maari over the March Q but was at a gross rate if 13kbopd at
Q-end following start-up of the MR6A development well on the 21st of March. The forward
program will see completion of the MR7A and MR10 wells, targeting plateau at 15kbopd. The
MR7A well is currently drilling ahead at 800m of a planned 1200m reservoir section.
Beibu Gulf wells all on pump, potential appraisal drilling at recent discovery
In China production increased 4.2% to a gross average rate of 10,533bopd, will all 15
development wells now on ESP. Evaluation of the 2 recent successful exploration wells continued
during the Q together with planning for a potential appraisal well at W 12-10-2 to appraise the
southern extent of the discovery. If successful HZN suggest that this well could be readily tied
back to the WZ -8W platform.
Stanley on hold, PRL 21 planning continues
As previously announced, development activity at the Stanley field has been halted pending the
outcome of a value engineering process, aimed at reducing remaining capital costs in light of the
current market. As a result we previously pushed back our Stanley start-up some 18-months into
CY2018.
In PRL 21 work continued on pre-development planning, also taking into account the ongoing
value engineering process to optimise the design and configuration of the project. During the
period HZN, together with Osaka Gas, completed a prefeasibility study a Western Forelands
2
Equity Research
greenfield mid-scale LNG project, with the shortlisted options to progress to a feasibility study
which should be completed in late 2015. The project provides an alternate development scenario
to the potential aggregation of Western province gas volumes into a PNG LNG Train 3
development underpinned by the nearby P’nyang resource. The potential for 3 rd party volumes to
be incorporated into this project will largely depend on appraisal activities to be completed
through the 2H 2015.
Valuation and recommendation
We maintain our BUY recommendation with a price target of $0.25/sh which is set below our
NAV of $0.29/sh.
Figure 1. HZN’s NAV and target price
Target Price Calculation
Horizon Oil Ltd
A$
A$/sh
362
49
185
-9
-250
338
0.28
0.04
0.14
-0.01
-0.19
0.26
$
12
12
$/sh
0.01
0.01
0
33
383
TARGET PRICE
0.00
0.02
0.29
0.25
Share Price
0.12
Expected Return
117%
Production Assets
Cash
Undeveloped Assets
Other Items incl G&A, Hedging
Debt - RBL plus Notes
Core NAV
Risked Upside - Included from EMV Sheet
NZ , Greater Maari exploration upside (30% POS)
Other
Unpaid Capital
Osaka Tranche 2 payment - 20% POS
Total NAV
Notes:
All asset values are NPV10 After Tax and in AUD unless noted.
Five years of G&A NPV 10 are deducted to ensure 'going concern' costs are
captured.
Source: HZN, GMP Estimates
Our valuation highlights that HZN is currently trading well below core value for its production and
development assets likely as a result of concerns regarding the refinancing of its debt and
redemption of its $80m convertible notes; plus delays in the commercialisation of its PNG
condensate resources. Hence the completion of this refinancing and further progress towards
development at Stanley and at the early stage PRL 21 project will should see a steady de-risking
towards our target. The potential commercialisation of its gas resources provides longer term
upside.
Further details of our valuation are provided in the following EMV table.
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Equity Research
Figure 2. HZN’s EMV
Gross
Resource
(mmboe)
Working
Int. (%)
Overall
POS (%)
Maari
Beibu Gulf - Wei 6-12, Wei 12-8W
58.0
21.5
10.0%
27%
90%
100%
Undeveloped assets
PNG
PNG
PNG
PNG
China
PDL-10 - Stanley cond, Local gas
PRL 21 - Elevala/Ketu Condensate
PRL 21 - Gas Resource
PDL 10 - Remaining Gas Resource
Beibu Gulf - Wei 12-8E
18.5
49.6
164.0
49.4
5.6
23%
21%
21%
23%
27%
75%
50%
40%
40%
50%
$2.40
$2.40
$10.90
Exploration
NZ
PNG
Greater Maari exploration upside
PRL 21 - Elevala Toro
20.0
74.6
10.0%
21%
30%
30%
$16.53
$0.00
Country
Producing Assets
NZ
China
Property/Prospect
Net Risked
Value/BOE Resources
(US$)
(mmboe)
Risked
NAV
($A mm)
Risked
A$/sh (FD)
Unrisked
NAV
(A$/sh)
5.2
5.8
11.0
152.68
209.20
361.9
0.12
0.16
0.28
0.13
0.16
0.29
3.2
5.2
13.7
4.6
1.5
29.8
37.83
72.13
41.18
13.78
20.44
185.4
0.03
0.06
0.03
0.01
0.02
0.14
0.04
0.11
0.08
0.03
0.03
0.29
0.6
4.7
6.88
12.40
0.00
19.93
0.01
0.00
0.02
0.03
0.00
0.09
47.7
567.2
0.44
0.38
1,301.98
1.25
Fully Diluted Shares Outstanding (mm)
AUD:USD Exchange Rate
Source: HZN, GMP Estimates
Looking ahead, the following items present the key catalysts over the coming 12 months:





Completion of Maari development wells – MR7A, 10
Ramp-up of Maari production towards 15kbopd target
Finalisation of debt facilities
Progress towards FID of Beibu Gulf Phase II
Progress towards FID of Beibu Gulf Phase II
4
June Q
June Q
June Q
through 2015
through 2015
Equity Research
Horizon Oil Ltd.
Year-end 30th June
Valuation
A$m
A$/sh
Forecast Assumptions
2014A
2015E
2016E
2017E
Production Assets
362
0.28
Crude Oil - Brent (USD/bbl)
109.08
72.11
66.25
85.00
Exploration and Appraisal
198
0.15
A$:US$
0.92
0.84
0.80
0.80
Cash
49
0.04
Production Summary (mmboe)
2014A
2015E
2016E
2017E
Debt
(250)
(0.19)
Maari
0.2
0.3
0.5
0.5
Corporate
(9)
(0.01)
Beibu Gulf
1.2
1.0
0.9
0.8
Other
33
0.02
Stanley
0.0
0.0
0.0
0.0
Total NAV
383
0.29
Total
1.4
1.3
1.5
1.3
0.25
Total (kbbl/day)
3.9
3.6
4.0
3.6
Price Target
Valuation Sensitivity
-10%
0%
+10%
PROFIT & LOSS (US$m)
2014A
2015E
2016E
2017E
Oil Price Sensitivity (A$/sh)
0.24
0.29
0.34
Sales Revenue
138.5
103.8
109.8
110.4
Exchange Rate Sensitivity (A$/sh)
0.34
0.29
0.25
Other Income
24.5
0.2
0.1
0.0
Operating Costs
31.1
17.1
19.5
24.4
Royalties
22.3
9.7
10.7
6.7
Corporate & Admin
8.2
8.2
8.1
8.3
Other
2.6
0.0
0.0
0.0
EBITDAX
98.8
68.9
71.5
71.0
Exploration Expensed
10.5
11.4
2.0
4.2
EBITDA
88.3
57.5
69.4
66.8
Depn & Amort
39.4
37.1
40.0
35.5
EBIT
48.9
20.4
29.4
31.3
Interest
18.9
13.9
10.9
8.7
Operating Profit
30.0
6.5
18.5
22.6
Tax expense
17.2
1.4
6.8
19.9
Minorites
0.0
0.0
0.0
0.0
Abnormals - Post Tax
0.0
0.0
0.0
0.0
NPAT
12.8
5.1
11.7
2.7
Normalised NPAT
12.8
13.6
11.7
2.7
EPS (basic) - A¢
1.00
1.24
1.12
0.26
Asset Valuation Summary
Production Assets
33%
8%
Exploration and Appraisal
59%
Cash
Production Summary (mmboe)
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
120.00
100.00
80.00
EPS (diluted) - A¢s
1.00
1.23
1.11
0.26
60.00
CASH FLOW (US$m)
2014A
2015E
2016E
2017E
Adjusted Net Profit
12.8
13.6
11.7
2.7
+ Interest/Tax/Expl Exp
46.6
26.7
19.8
32.7
20.00
- Interest & Tax
18.6
16.3
15.9
25.6
0.00
+ Depn/Amort
39.4
37.1
40.0
35.5
+/- Other
(15.3)
(12.5)
0.0
0.0
Operating Cashflow
65.0
48.6
55.5
45.4
- Capex (Exp. and Dev.)
92.1
80.9
31.9
62.6
- Other Investments
(76.0)
4.4
0.0
0.0
Free Cashflow
48.9
(36.6)
23.7
(17.1)
- Dividends
0.0
0.0
0.0
0.0
+ Equity raised
46.8
0.0
0.0
0.0
+ Debt drawdown (repaid)
(15.2)
(9.2)
(70.0)
30.0
40.00
2014A
Stanley
2015E
Beibu Gulf
2016E
2017E
Maari
Crude Oil - Brent (USD/bbl)
Reserves & Resources
As at July 2014
Oil
Gas
Total
Reserves - 2P
(mmbbls)
(bcf)
(mboe)
Maari
5.8
5.8
+ Other
(0.6)
0.2
0.0
0.0
Beibu Gulf
5.8
5.8
Net Change in Cash
79.9
(45.6)
(46.3)
12.9
3.5
Cash at End Period
98.9
53.3
7.0
19.8
15.1
Net Cash/(Debt)
(100.3)
(136.7)
(113.0)
(130.2)
BALANCE SHEET (US$m)
2017E
Stanley
3.5
Total
15.1
0.0
Directors
Name
Fraser Ainsworth
Position
Non-Executive Chairman
2014A
2015E
2016E
Cash
98.9
53.3
7.0
19.8
Total Assets
514.9
526.8
474.7
510.2
Brent Emmett
Chief Executive Officer
Total Debt
187.4
190.0
120.0
150.0
John Humphrey
Non-Executive Director
Total Liabilities
292.3
264.1
200.4
233.1
Andrew Stock
Non-Executive Director
Shareholders Funds
222.6
262.7
274.3
277.1
Gerrit de Nys
Non-Executive Director
Micahel Sheridan
Substantial Shareholders
Company Secretary and CFO
Shares (m)
%
RATIOS AND PROFITABILITY
EBIT Margin, %
35.3%
19.7%
26.8%
28.4%
Austral Asia Energy Pty Ltd
Tribecca Investment Partners Pty Ltd
319.7
68.4
24.6
5.3
ROA, (%)
Net Debt/Equity, (%)
2.6%
45.0
2.6%
52.1
2.3%
41.2
0.6%
47.0
CBA
137.8
10.6
EV/EBITDA, X
2.7
4.6
3.4
3.7
5
Equity Research
Disclosures
The information contained in this report is drawn from sources believed to be reliable but the accuracy or completeness of the information is not
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assume any responsibility or liability whatsoever. Information on which this report is based is available upon request. This report is not to be construed as a
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herein, including options, futures or other derivative instruments thereon. Griffiths McBurney Corp. (“GM Corp.”), an affiliate of GMP accepts responsibility
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GM Corp. GMP Securities L.P. will provide upon request a statement of its financial condition and a list of the names of its Directors and senior officers.
Company-Specific Disclosures:
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4 GMP Securities, LLC, an affiliate of GMP, discloses the following in relation to this issuer as required by the Financial Industry Regulatory Authority
(“FINRA”) Rule 2711: as applicable.
5 The analyst is related to an officer, director or advisory board member of the issuer, but that individual has no influence in the preparation of this report.
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9 RESERVED
10 RESERVED
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The GMP research recommendation structure consists of the following ratings:
Buy: A Buy rating reflects 1) bullish conviction on the part of the analyst; and 2) typically a 15% or greater return to target.
Speculative Buy: A Speculative Buy rating reflects 1) bullish conviction on the part of the analyst accompanied by a substantially higher than normal risk,
including the possibility of a binary outcome; and 2) typically a 30% or greater return to target.
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Tender: Clients are advised to tender their shares to a takeover bid or similar offer.
6
Equity Research
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