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Thank you, Ashley. Good morning. Welcome to Senex Energy's Quarterly Results Conference Call for the Fourth Quarter of FY '19. I am Ian Davies, Managing Director and CEO, and with me today is our CFO, Gary Mallett.
Good morning.
We have a terrific quarterly report to talk to you today and in particular, excellent progress at Roma North and Project Atlas. I'll give you an overview of recent activity, and Gary will talk to our financial results. This last quarter was one where a lot of planning and hard work from the Senex team over a number of years is really coming to fruition. We achieved a number of significant milestones for our Surat Basin natural gas development projects and are now firmly in execution mode. In summary, we reached mechanical completion of the Roma North gas compressor station. We then started commissioning of the facility and now producing sales specification gas. With commissioning underway, we started to see the benefits of compression with Roma North daily production hitting more than 8 terajoules a day late in the quarter. We also agreed the sale of the Roma North facility to Jemena with a cash of $50 million with facility expansion mechanisms built into the agreement, which I'll come back to. At Project Atlas, we've built the first of 12 well pads in readiness for drilling with more underway, and Jemena commenced construction of the gas compressor station and began laying the export gas pipeline. We also executed 3 Project Atlas gas sale agreements for supply of up to 24 petajoules of gas. In the Cooper Basin, we're finalizing plans for the remainder of the free-carry program with Beach for FY '20. And on a full year results basis for FY '19, we achieved a 43% increase in production to 1.2 million barrels of oil equivalent on the back of higher oil production and a step change in gas production. And lastly, very pleasing to be awarded what we call the Artemis gas block in the Surat Basin from the Queensland government, which provides more diversification and optionality to our gas portfolio. So I'll hope you agree it's a reasonably impressive list of accomplishments for a quarter and is the result of executing a vision for building a gas business in the Surat.So I'll just now step through each of these briefly. Let me talk -- let me start by talking through the Roma North gas facility. In May, we successfully completed mechanical construction -- or mechanical completion of the gas compressor station. We've initially constructed a facility comprising 2 gas compressor trains to produce approximately 6 petajoules of gas a year or 16 terajoules per day and a 6-kilometer pipeline connection to the GLNG Comet Ridge to Wallumbilla Pipeline. As you can see from the side note in the quarterly, the site has been sized to allow for future expansions with up to 18 petajoules of production per year possible at this site. This will allow us -- and this is very, very important point and quite by design, this will allow us to commercialize our gas acreage beyond the initial Roma North blocks of Glenora and Eos. And we've already got the piles in place to allow rapid expansion to 8 terajoules a day of compression infrastructure. So I mean really this is the hub, if you like, to what will be the spokes coming from that hub in future years into other areas outside of Glenora and Eos. So with mechanical completion achieved, we began commissioning. Commissioning is now in the final stages before start-up and steady state operations and involves rigorous safety and quality checks along with system stability tuning and performance testing. With commissioning underway, gas is flowing through the facility, and we're now producing sales gas. We expect to complete commissioning during the current quarter.So this milestone interestingly makes Senex the first independent Queensland natural gas company in recent years to start commissioning a greenfield gas facility, which is a great achievement. With commissioning now underway, we've started to see the benefits of this commissioning in our production rates. The facility's compression system allows the gas-gathering network to be operated at a much lower pressure again by design, thus providing significant improvement in both the rate and total volume of gas able to be dieseled from the coals. As the benefits of compression began, we saw production rates increase in daily rate of over 8 terajoules late in the quarter. For the full quarter, production increased 8% to approximately 600 terajoules or around 100,000 barrels of oil equivalent. So we expect the Roma North gas production to continue to increase as the gas compression facility completes the commissioning process and, of course, additional wells are tied in.Still on production for the full year '19, we achieved growth of 43% from the prior year with oil and gas production totaling 1.2 million barrels of oil equivalent. We've more than offset natural field decline in the Cooper Basin thanks to successful exploration development activities, and we achieved a near fivefold increase in gas production as Roma North continued to ramp up.With new well connections to commence this quarter and continue throughout the current drilling program, our Surat Basin gas production has clearly commenced its trajectory to achieve our initial production target of 3 million barrels of oil equivalent a year or around 18 petajoules a year over the next 18 to 24 months.Lastly, on Roma North, another important milestone was reaching agreement to sell the gas compression station and pipeline to Jemena for $50 million cash. Jemena will take ownership once agreed performance tests and steady-state operations are satisfied, which is expected in September. The agreement comprises an attractive long-term gas tolling agreement, where we will pay a capacity-based tariff in accordance with an agreed production profile. Also part of the agreement are provisions for processing capacity expansions. As we -- as I said earlier on, the facility has been designed to allow for rapid expansion at low cost as we seek to maximize the efficient recovery of our gas reserves not just from the Glenora and Eos blocks in Roma North but also in areas outside of that.The facility's initial capacity of 6 petajoules per annum can easily be expanded to 9, and we've already laid the piles ready, as I said earlier. From there, modular design allows for a further doubling capacity to 18 petajoules per annum. While this activity was underway at Roma North, we also made great strides at Project Atlas towards the delivery of first sales gas by the end of this calendar year. Early in the quarter, Jemena commenced construction of the gas compressor station in Atlas and also construct -- started constructing the 60-kilometer pipeline. The pipeline will transport Project Atlas gas to the Darling Downs Pipeline, which they also own, and then on to customers of the Wallumbilla hub.As a reminder, the gas processing facility at Project Atlas is being constructed with an initial processing capacity of 12 petajoules per annum or 32 terajoules per day with an additional 3 petajoules per annum of installed redundant capacity, which is available to be used on an as-available basis. We're also ready for drilling with 12 well pads constructed and more underway, and the rig will be moving to Project Atlas next week.Still on Project Atlas, we made tangible progress in derisking the future revenue stream by locking in gas sales with high-quality commercial and industrial customers. During the quarter, we signed gas sale agreements with CSR, Orora and O-I, which represent 10 petajoules of firm offtake over coming years and up to 24 petajoules if all extensions and expansions are exercised.Obviously, we are continuing to negotiate sales agreements with a range of customers, and we'll have more to talk about when these are agreed. Now turning to drilling. In April, we awarded the drilling contract for the 110 wells Surat Basin campaign to Easternwell, which is an experienced oil and gas service provider. Campaign start-up is typically the highest risk period of a drilling program, and our start-up operations were undertaken successfully and without incident. The first well spudded on the 5th of June, and 9 wells have subsequently been drilled with 4 completed and awaiting connection. These will be connected and brought online during the current quarter.The program sees an initial 10 wells drilled at Roma North prior to mobilization of the rig to Project Atlas later this month with drilling commencing in August. So as well as progress at Roma North and Atlas, our teams have been very busy also with submissions for acreage in the Queensland government's domestic gas acreage tender process. In May, we were very pleased to be one of the -- to be awarded one of the gas blocks in the Surat Basin, which we now call the Artemis block to continue our Greek god theme.Artemis is a 153-square kilometer block located 11 kilometers south of Miles and right next to the Condabri development operated by APLNG. The exploration acreage has large, very large actually, estimated volumes of gas in place in the Walloon and the Permian coals, which we will work to unlock over the next few years. And it's important to note, only minimal capital expenditure is planned now before the third year of the license. This award aligns perfectly with our strategy to grow our position as an important East Coast gas provider, and many thanks to the team who've put a lot of time putting this submission in. It's a lot of work.So that's a reasonably comprehensive overview of the quarter. And with that, I'll hand over to Gary.
Thanks, Ian, and good morning again. Turning firstly to our headline numbers. We recorded a slight decrease of 6% in total sales volumes for the fourth quarter mainly due to lower oil production. With a 10% reduction in our average realized sales price and a higher proportion of gas sales, our quarterly sales revenue was down 15% to $24 million. Our results for the full year FY '19 were pleasing, higher production underpinned a 47% increase in sales volumes to 1.2 million barrels of oil equivalent, and sales revenue increased 34% to $94 million.We recorded a 6% increase in our average realized oil price. However, more gas in the sales mix is the reason for the lower increase in sales revenue relative to total sales volumes. As mentioned last quarter, in April, we placed an additional 262,000 barrels of oil swaps at a weighted average price of AUD 90 per barrel. We now have locked in pricing for a reasonable portion of our oil-linked production to the end of FY '21. This provides cash flow certainty during the current period of heightened capital expenditure in the Surat Basin.On capital expenditure, spend increased in the fourth quarter as activity in the Surat Basin accelerated. Total capital expenditure of $37 million for the quarter was incurred, which mainly reflects spend on construction and commissioning activities to the Roma North gas compression station, construction of the Roma North gathering network, commencement of the drilling program at Roma North and civil works and the purchase of long-lead items for drilling at Project Atlas.Lastly, our liquidity position remains sound. At the end of June, we had gross cash reserves of $63 million and drawn debt of $50 million. We'll continue to draw down our debt facilities as activities in the Surat Basin continue. In closing, Senex has recorded a strong financial performance for the financial year-ended 30 June 2019. We look forward to providing more detail when we release our full year results during August.On that note, I'll hand back to Ian to conclude the formal part of the conference call.
Thank you, Gary. So I think that wraps up a really busy and successful quarter for Senex. We are continuing the strong momentum into the new financial year as we successfully deliver our Surat Basin gas development projects and with them will come large increases in production, cash flow and earnings in future years. So with that, I'll conclude the formal part of the call, and we'll now open the lines to questions and answers. Thank you.
[Operator Instructions] Your first question comes from Mark Samter, MST Marquee.
A couple of questions if I can. Just on the GSAs with Atlas just obviously -- I don't know if it's increasing but still inordinate amounts of nonsense spoken about East Coast gas market in the press and in politics. And just curious to see, is any of that concern filtering into the ongoing negotiations with the gas sales agreement? Or is there a level of pragmatism from gas [ players ] that they realize the realities of life?
Well, I think it's the latter. There is -- look, there's lots of conversation that goes on around this coincidentally as we approach November each year with the ADGSM conversation that the government put in place a few years ago. And the reality is we're having great conversations with sophisticated buyers other -- as are other sellers. And I think there have been 20 GSAs announced in the last 18 months, and some for quite material volumes, and there are buyers in the market, as we speak, for 2020 and 2021 volumes. And pragmatism, I think, is the right word because, I mean, deals are getting done and people understand the pricing ex Wallumbilla. They understand the cost pressures on the marginal LNG volumes. They understand the shortage of gas to some LNG projects. They understand the transportation challenges into southern markets. So in consequence, we're just getting on with the job as are the buyers.
Perfect. And then just -- I don't know if you'd be willing to just give us some guidance with -- I mean I've seen its totality, we should rather be happy with the ramp-up of Roma North. Can you give us some insights into the variability from well to well that we're seeing?
Yes. I can. I mean I think there's a general rule in CSG that your top 20% of your wells does 80% of your production, give or take. I mean we've got some wells. I think our highest-performing well, our best-performing well, is doing about 0.8 terajoules a day or 800,000 scuffs a day. And our poorer-performing wells are doing in the order of 50,000 to 100,000 a day. Now the thing that is complicated with CSG that frankly people just need to get their head around is it's a resource play and a statistical play. We will get variability over time, but the quantity of gas you get out of the ground is actually quite certain or quite low range of uncertainty for lack of -- the other way of putting it. And so the higher-rate wells, you'll still get a similar EUR per well. The lower-rate wells, you'll get the same EUR per well just over time. So your paybacks will be less on those lower-performing wells. So it's fair to say we've got a fair range. It's almost uniform actually across the fields in the ranges, but then you get critical desorption in a lower-rate well, and it will kick up by 100,000 or 200,000 scuffs a day. And this is the issue with -- well, this is actually the opportunity with the early phase of CSG. It's actually quite robust. And perversely, from a risk point of view, as you drill, the more the time goes on, the lower risk everything becomes. And it's a little bit of a different way of thinking about it, but that's the reality of the cash flows.
Your next question comes from Chris Morbey from Macquarie.
Congratulations on the results today. Just a couple of questions. One for me was just on the spud-to-spud date. You just talked about you're sort of improving in line with targets on that. Just wondering if you can provide any clarity on sort of how you compare to peers instead of in line with sort of spud to spud as well as cost. And then the other one was just regarding Artemis and obviously sort of the northeast of that acreage sits pretty close to the border of the Condabri asset, which is sort of a well-known asset. And I know you've got a bit of lead time to future development, but is there any sort of ability to sort of fast track that if you are confident with the gas resource there?
Yes. So thanks, Chris. Let me answer Artemis first. You're right. There is a fault that runs through from the southeast through to the northwest in about 3/4 away up the block, which is quite a well-known fault, and we knew it when we’re bidding for it. But what that means is the top right-hand corner is basically the extension of Condabri, and we do see opportunity to fast track -- and when I say fast track, we're still talking 2 or 3 years, but fast track that opportunity for a small portion of gas and a small portion, 20, 30, 40 Bcf recoverable sort of rough numbers. The real opportunity -- so that's good, number one. That sort of underpins the bid, if you like. The real opportunity lies in -- we've got around -- we calculate internally around 1.8 Tcf of gas in place in the Permian and Walloon coals that are on the other side of that fault, and some of them are quite deep because they do -- they're deep into the southwest. But that's actually quite an opportunity for a technical play and can be a very material source of gas especially in a higher-priced market. So that's Artemis. The -- your other question on spud to spud. Like all of these things, not everything is created equal, and you've got to measure oranges and oranges. When the industry typically talks spud to spud, they say drilling well to drilling well as opposed to drilling and completion to drilling and completion because obviously you're at 1 day or 1.5 days to your completion. So our best well thus far drilled spud to spud from a drilling perspective is about 3.4 days. So the 5.2 average I think you recognized in your release is correct, and we're -- I think we're a little less than that on a drill and complete basis. And this is with a standard small CSG rig as opposed to coiled tubing, which I think was the other basis that you quoted in your report, was on a coiled tubing rig. When you got a lot of land access ahead of you, you can get faster. You pay a slightly higher dayrate, but you do obviously save some time. But look, we're really happy with our performance to date. We deliberately started slow because from a safety and management perspective, the start-up of operations, especially new rig operations, is the highest risk component of operations. And we're now through that and operating well.
[Operator Instructions] Your next question comes from James Bullen, Canaccord Genuity.
Congratulations on the results. Just a question around the royalty. Just wanted to confirm that you are able to pass the increase in royalty through to customers. And also wondering whether this change has had any impact on your plans particularly around Roma North and WSGP.
Yes. So it's a good question. So for those that aren't entirely familiar, the Queensland government in their latest budget unilaterally increased royalties by 2.5% or 25% gross but 2.5% from 10% to 12.5% on all gas sales. And obviously, the vast majority of that will come from the LNG production.As James alluded to, and as you alluded to, James, the vast majority of domestic GSAs have pass-through change of law clauses in them including ours. We are hoping that we won't be required to use it. We are hoping that given the jobs push from the Queensland government, given the true leadership they've shown in providing extra supply for the domestic gas market, that this will be resolved. But look, we'll see that over time. But to bluntly answer your question, yes, we have pass-through clauses on our domestic GSAs. We're hoping to not have to trigger them.
There are no further questions at this time. I'll now hand back to Mr. Davies for closing remarks.
Ladies and gentlemen, thank you for listening. It's been a great quarter, and the activity is just ramping up from here. So the next year is going to be extremely exciting for us. Again, thank you for your time, and good morning.