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Ladies and gentlemen, thank you for standing by, and welcome to the Senex Energy Q1 FY '19 Quarterly Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, October 24, 2018. I'd now like to hand the conference over to your first speaker today, Mr. Ian Davies, Managing Director and CEO. Please go ahead.
Thank you, Edison. Good morning all, and welcome to the Senex Energy First Quarter FY '19 Conference Call and Webcast. I'm here with Gary Mallett, our CFO.
Good morning.
And we're looking forward to providing an overview of what is a very active and successful quarter for Senex. And look, before we begin, a quick update on the status of our ANZ debt facilities. In short, all is on track and financial close is imminent. Would have liked to have had it for today. But we're working through, methodically, all of the things that we need to close the transaction, and we expect that shortly. A tremendous amount of work has gone into turning our initial term share into a fully documented debt facility agreement. Numerous independent expert reports, financial model audits, agreement of work plans and negotiation of documentation are just some examples of the condition precedent to financial close. And as I said, they are near complete. It's also worth bearing in mind this is the first senior reserve-based lending facility for a natural gas project in Australia not backed by LNG. So Senex is, once again, showing innovation in project execution. Related to our debt facility is our FY '19 guidance and outlook statements. We stated previously that FY '19 guidance and further details in relation to our Surat Basin work progress will be released on financial close of the debt facility, and that's exactly what we will do.Turning now to the quarter's results. It was a strong performance across all aspects of the business as we continued our momentum from FY '18. We made 2 oil discoveries in the Cooper Basin; recorded further production growth; achieved a number of significant project milestones in the Surat Basin; and maintained a robust liquidity position. I'll touch briefly on these highlights. Firstly, oil discoveries. We had a great start to the FY '19 drilling campaign in the Cooper Basin. Three wells were drilled, which resulted in 2 new commercial discoveries and validation of future horizontal development drilling plans in our Growler oil field. Our new discoveries, Breguet-1 and Snatcher North-1 will soon be tied into existing infrastructure and brought online later this quarter. In addition to incremental production, these wells provide opportunity for follow-on appraisal and development activity. And our team is identifying these opportunities as we speak. Growler Northeast-1 was another exciting result, despite being the well that reported as plugged and abandoned. It's intersected movable hydrocarbon with potentially material volumes and validated applying horizontal well through the reservoir. We're currently analyzing these results and look forward to providing further updates in due course. It's also worth reiterating, of course, the free-carry associated with our Cooper Basin drilling campaign. As announced previously, we are benefiting from a free-carry of up to $43 million for our drilling completions and connections in the western flank of the Cooper Basin. This effectively means that Senex will not spend cash for its 60% share of the next $43 million of capital expenditure. It's a great outcome obviously, particularly, as we head into a period of increased development activity and expenditure in the Surat Basin. Secondly, production. We achieved a 4% increase from the prior quarter with 291,000 barrels of oil equivalent; increased gas volumes due to the Vanessa Field coming online; and the continuing ramp-up of Roma North in the Surat Basin more than offset natural field decline in our oilfields. With regards to Roma North, we continue to see production ramp up, and our longer-term expectations for the acreage remain unchanged. A number of wells were offline this quarter as workover operations continued. However, despite this, overall production continue to increase. We reached daily production rates in excess of 4 terajoules, and since quarter end, daily rates have increased further to more than 4.5 terajoules per day. It's important to emphasize these workover operations not only optimize existing well performance, but they also provide valuable insights and learning for future well design and which, of course, is a feature of coal seam gas throughout the last 10 years, which is, of course, a nice segue into the third highlight being the Surat Basin milestones. In August, we were granted development approval under the commonwealth government Environment Protection Biodiversity Conservation Act, it's a mouthful, EPBC approval. This was the final regulatory hurdle, so a big accomplishment by our team. We have now received all necessary approvals for development of the acreage. We also announced separation of our gas sales arrangements for the Western Surat Gas Project total area. This has allowed us to accelerate development of the Roma North acreage while providing more time to properly appraise the remaining acreage to ensure it is developed at appropriate commercial rates. In relation to Project Atlas, our environmental assessment is nearing completion, which will support our environment approval submissions. Although early days, we certainly remain on track for first gas sales by the end of 2019 with approvals expected in mid-2019. The last highlight I've mentioned was financial strength. Senex has earned a reputation for disciplined fiscal management, and we continue to demonstrate this. As we embark on a period of elevated activity in capital expenditure on our growth projects, we are in financially great shape. We have $58 million in cash reserves; a highly cash-generative Cooper Basin oil business; and a great $150 million debt facility, which is nearing completion; a free-carried Cooper Basin; our drilling campaign and a funding solution for our Project Atlas gas infrastructure. This is a solid foundation to pursue our target of a fourfold increase in production over the next few years. So having stolen most of Gary's thunder, I'll now hand over to him to talk a little more around the financials.
Thanks, Ian, and good morning again. It is a relatively straightforward set of figures to talk to you this quarter. Sales volumes were the same as last quarter at 270,000 barrels of oil equivalent, as was the average realized Aussie dollar oil price at $114 per barrel. The slight decline in sales revenue to $25.6 million was driven by more gas in the sales mix due to the increased gas volumes, which Ian discussed. Capital expenditure was also in line with the prior quarter, and we are benefiting from a $43 million of Cooper Basin free-carry. Total expenditure of $24 million was incurred, which includes $5 million of Cooper Basin free-carry. On a net to Senex basis, we therefore incurred $19 million of capital expenditure predominantly in the Surat Basin.Turning to liquidity. We finished the quarter with $58 million of cash reserves, which compares to the $60 million at the end of the prior quarter or 30 June. Operating cash flow of $12 million and capital expenditure were the key components of movements in cash. Lastly, a quick mention of our debt facility. Ian provided an update on the status, so just to reiterate, we are very close to financial close. We have fantastic achievements for Senex. The facility provides low-cost capital to fund our Surat Basin natural gas development program over the coming years. The facility has a cost of approximately 6%, a 7-year tenor and will be drawn as required to fund the projects. When those projects have been completed and our cash flow generation has increased materially, there'll be no penalty for early repayment or refinance if this is considered optimal. On that note, I'll hand back to Ian to conclude the formal part of the conference call.
Thanks, Gary. So to reiterate, it was a great start to this financial year. Production growth, oil discoveries, project milestones and a strong financial position set the foundation for not only an active FY '19, but an exciting multi-year growth trajectory, which will set us on the path for a step change in production and earnings. So with that, I'd be happy to open the call now to questions.
[Operator Instructions] We have our first question from Adrian Prendergast from Morgans.
Just a quick question, just on the Cooper Basin exploration. So obviously it's great to get 2 out of the first 3 wells for this campaign being successful. Just trying to get an idea just for the timing of -- I guess, the other 7 in FY '19. And also then any thoughts or discussions, even at this early stage, on what can happen FY '20 and beyond or if there are further cooperation?
Yes, Adrian. So a couple of things around your question. So let me answer the 7 well bit first, and then I'll come back to the couple other things. So the remaining wells, we're on our fourth well as we speak, and that's drilling ahead. So no news there. And the next 6 wells, the plan is basically to continue them back-to-back. So in the order of -- depending on the type of well, it's 15 to 20 days a well broadly plus completion time and moving. So that will take fundamentally the rest of the financial year, give or take, for those wells to be done. So what that means then for FY '19, Breguet and Snatcher North will be tied in over the next month or so. So obviously, it'll contribute a small amount to Q2, but then will be ramping up for Q3 and q4. Can I just touch on Growler Northeast quickly? Although it's a P&A well, it actually was always meant to be P&A as part of the program. It was drilled as a vertical well in what we knew was a low permeability area in what we call the halo of Growler. So it's -- there's a large area of low-quality reservoir above the Growler field, which contains, in our view, millions and millions and millions of barrels in place. So this well was designed to not only confirm the reservoir quality -- and we've gotten free flow on the DST also, so it's actually a pretty good result. But importantly, the reason we drilled it was to create a landing place for a large horizontal well going from the Growler field out to it. So actually pretty exciting from that point of view.
Your next question is from Andrew Hodge from Macquarie.
I just had 3 questions I wanted to ask. The first was just on the financing side. Just wanted to see -- I mean, when we had originally talked about it at July 31, you'd announced it, you were saying you'd be getting pretty close to now. So I just want to check to see how much longer you think it will be before we actually get to close and I guess, like just what that means in terms of overall capital program. The second was just we'd looked before about some of the new CSG acreage that have come online and just wanted to see whether or not -- I know it was being offered, sorry. I'm just checking to see if you guys would be interested. And then I've got a third one afterwards.
Okay. So why don't I ask Gary to tackle the financing, and then I'll talk about sort of capital program and CSG acreage.
Yes. So financing, we're really pleased with the progress that we've made so far. And it's nearly there. So everything's going pretty much according to plan. There's a lot of independent experts, model audits, lots of documentation. As Ian mentioned earlier, it's the first time sort of done, so trailblazing a bit. But we're really happy with how the progress has gone so far, and we expect it to be very soon. Can't give you an exact date, but we expect it to be very soon. That will inform the CapEx program, but clearly the $125 million plus the $25 million working capital facility has been sized for that CapEx development in the Surat Basin projects, and we'll give some more detail of that upon financial close.
Yes, so -- and just to add a little bit to that. Clearly, on what we've been open about in terms of the target of where the CapEx is going: 16 terajoules a day processing plant in plateau in Roma North; 32 terajoules a day plant in plateau in Project Atlas, ramping up now through FY '21. So a very material change in the profile of Senex. And the -- both the cash flow and debt facility has been sized to achieve that position. So that's -- I think that actually will sort of speak for itself when we give guidance. In relation to new CSG, there are a number of blocks that have been released from the Queensland government. Our team and I'm sure every other companies' subsurface team are looking through it. And look, there are -- we're sort of getting down to smaller blocks. When I say smaller, probably 1/4 the size of, let's say, one particular block sort of size, which is some good quality, some less so. We'd have let the team do the work. I think the time table from the website is around Christmas or so. So look, I don't think we're going to be hearing anything on those as an industry for a while anyway.
Okay. The next one is just I just wanted to check to see about how the discussions have gone with some gas partners and well, like, how you guys are thinking about agreements around Project Atlas and then separately, like what you guys think that -- potentially, if Labor does start to win next year, what that could mean for East Coast gas pricing.
Yes, all very good questions. Let me start on the domestic customers. So we heard sort of probably one of the largest pieces of fiction in the paper the last couple of days from Incitec Pivot saying that they'd put a tender out for what would be well and truly a several hundred million dollar gas contract and expect answers in 2 weeks, and trying to fool the government to thinking that the gas market is not supporting them, which is just completely false. So we have engaged with a number of customers. We'll be going out with our own tender program over the coming months. And ultimately, our view is we'll support the domestic market from Project Atlas. We would expect a number of customers over time. Obviously, the ramp-up profile from Project Atlas, we would expect to have some sort of foundation contract to support both the customer and the ramp-up profile of the field. And we'll expect a number of tranches over time. But look, it's early days. We've got -- so it will be the start of next year before we're really having a formal engagement. But we have, obviously, had a lot of conversations with a lot of customers already because it's new gas into the domestic market. Getting into your question around if Labor wins federally, I think ultimately, energy policy is one of those things that has been devoid of logic over the last decade, and it doesn't appear to be making a huge amount of headway in the current political climate either. We've had Bill Shorten come out and say he's going to cut price at some point. I don't even know what that means. The market operates on a basis of capital going into the ground to both maintain a plateau of production and increase production. And Queensland is doing a huge amount of heavy lifting for the entire domestic market. And there's some 400 terajoules a day, which is going into -- from Queensland. You've got New South Wales and Victoria onshore actively stopping any potential supply coming on to market and the answer is supply. And I think as you wrote through your research around input terminals, I think they're inevitable, and actually, I think it's actually required. And the -- I note Victoria is doing another wonderful piece of work by delaying AGL's project by a further year or 2. So I think, ultimately, the more that the industry and government and customers permanently can do to get more supply into the market, the better. But just by saying we're going to cut price, what that will do is starve the investment, which will reduce supply and thereby causing further degradation of the market, and it's a pretty dire situation. I think, ultimately, the LNG industry, Queensland and South Australia are doing an amazing job to get the supply positioned where it is.
[Operator Instructions] We don't have any additional questions as of the moment. Presenters, please continue.
Thank you, Edison. Ladies and gentlemen, thank you very much for tuning in. Look forward to updating you on what will be material progress over the coming months. Thank you, and good morning.
Ladies and gentlemen, that does conclude our call for today. Thank you for participating. You may all disconnect.
Thank you.