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Thank you for standing by. And welcome to the Senex Energy Q4 FY '20 Quarterly Report Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Ian Davies, Managing Director and CEO. Please go ahead.
Thank you, Eric. Good morning, and welcome to Senex Energy's Quarterly Results Conference Call for the Fourth Quarter of FY '20. I'm Ian Davies, Managing Director and CEO; and with me is our Chief Financial Officer, Mark McCabe.
Good morning, everyone.
Firstly, thank you for joining us. We do appreciate that one of our larger industry peers has brought forward their investor call to this morning. But we thought out of respect for people's diaries, we would keep the time as it is. So thank you again. We have another great set of results to talk to today, including our reserves upgrade from yesterday, progress with our Roma North expansion and continued great performance in the field. It really has been a fantastic end to the financial year for us, and Senex's value drivers are now clearly evident. We have a large and growing reserves base. Our infrastructure platform is established and scalable. We have begun the journey of material gas production and free cash flow generation and are in an excellent financial position with a resilient business model. And more on these value drivers a little later. I'll first talk to our reserves upgrade. This really was a tremendous outcome for our shareholders and all our stakeholders. You hopefully saw that yesterday, we announced major reserve upgrades in the Surat Basin, in particular. This was a culmination of flawless execution on our work programs, exceptional operational performance and continued improvement in reservoir deliverability. Firstly, we recorded a 108% increase in Surat Basin proved or 1P gas reserves for 210 petajoules. 1P often doesn't get the focus it deserves. However, they are proved reserves of the highest order and are akin to cash in the bank, so it's certainly worthy of mention. We also recorded a 21% increase in Surat Basin proved and probable or 2P gas reserves to 739 petajoules, and we now have over 1 Tcf or almost 1,000 petajoules of proved, probable and possible or 3P reserves. So very material indeed. In the Cooper Basin, we also achieved a 100% reserves replacement ratio with upgrade from the Gemba gas field offsetting production and revisions in the Snatcher North oilfield. So a solid result from not a lot of CapEx in the Cooper. Senex's total 2P reserves increased overall, 19% to 781 petajoules equivalent or 134 million barrels of oil equivalent. Fantastic result after an important period of heightened investment. When you look to the underlying drivers for these upgrades, we can point to the following: drilling results at Atlas, where coal intersections were larger than originally estimated; successful appraisal drilling in the southeast of the Atlas block, in particular, the Atlas 60 appraisal well, which confirmed continuity of high permeability across the acreage including better-than-expected permeability from the deeper [ Tirum's ] formation; continued production outperformance both at Atlas and Roma North; and at Roma North, exceptional operational performance for our infrastructure partner, Jemena, where they achieved higher uptimes and less fuel usage than we had also originally estimated. We again had our reserves, and this is important, we again had our reserves and resources position independently assessed by Netherland Sewell & Associates, or NSAI, for the Surat Basin and DeGolyer & MacNaughton, or D&M, for the Cooper Basin with the usual rigor that you would expect from such an assessment. So what does all this mean for Senex? In short, it means we have proven that our acreage position is extensive, high-quality, low-cost and long-life, producing natural gas for decades to come. For example, at Atlas, 2P reserves of 234 petajoules represents over 20 years of production at the initial target rate of 32 terajoules a day. At Roma North, 2P gas reserves of 283 petajoules represents almost 50 years of production at the initial rate of 16 terajoules a day and over 30 years, following expansion of the gas processing facility to 24 TJs today. With such large and long-dated reserves positions, we have enormous running room to pursue acceleration and expansion opportunities in our existing portfolio.And speaking of acceleration opportunities, this is a nice lead into the Roma North 24 terajoule a day expansion project. As we mentioned back in March, front-end engineering design commenced for an 8 terajoule-a-day expansion of that facility to 24 terajoules a day. The expansion is low-risk, is fast cash returns given the facility's modular processing design and the established infrastructure footprint, which is ready for quick installation of the new compressor train. Early works have now commenced -- and this is new. Early works have now commenced on the expansion projects, with contractual terms agreed for Jemena to procure long-lead items including the compression equipment. We are now working through all the other aspects of the expansion. We'll keep you updated with progress. Turning now to other highlights from the quarter. Firstly, production. And it was yet another quarter of strong growth with quarterly production up 20% to 711,000 barrels of oil equivalent and includes, obviously, a 43% increase in Surat Basin gas production to 518,000 barrels of oil equivalent. So very strong indeed. At Atlas, production continues to ramp up strongly. We're close to hitting -- in fact, we hit it today, a daily production of 18 terajoules and well on the way to our initial target of 32. So halfway there.At Roma North, we successfully debottlenecked throughout to allow more than 18 terajoules a day of production, and we consistently achieved this level throughout the quarter, which is another good result. In the Cooper, oil and gas production was 146,000 barrels of oil equivalent, down 12% due to natural decline and shutting of some wells.For the full year, we produced 2.1 million barrels of oil equivalent, which was at the top end of our already upgraded guidance. And this was a 73% increase from the prior year. So again, a very, very good result. We'll have more to say on the outlook for production in FY '21 at our full year results in August.Turning to the development work programs in the Surat Basin. It was more good news with our announcement in June confirming successful completion of the projects. The final well of the Surat Basin campaign, the Atlas 60 appraisal well, was drilled, and all development wells at Atlas and Roma North were brought into production by the end of June. As we have mentioned before, it was a highly successful drilling campaign. The 110 wells that we originally planned were reduced to 80 due to continued production outperformance at both fields. The campaign was also completed ahead of schedule, below budget, without safety or environmental incidents and with industry-leading cycle times and well costs achieved. An outstanding effort, and my thanks very much, my sincere thanks go to our staff, our partner Easternwell and obviously, the local communities in which we operate, which have been very supportive for us.With all wells online and gas processing facilities commissioned, all that remains is completion of water management facilities at Atlas, and there's a great picture in the quarterly, actually. The initial facilities were commissioned during the quarter and final commissioning of facilities will be undertaken this quarter.A quick update now on Atlas gas contracting. We announced another material contract during the quarter with 2.25 petajoules (sic) [ 2.55 petajoules ] to be supplied to CleanCo Queensland throughout 2021. We are in a strong position with our contract in Atlas with more than 37 petajoules of gas locked away at actually good, very good pricing, with calendar year 2020 fully contracted. Last week, we were very pleased to announce that Glenda McLoughlin has joined the Board as an independent nonexecutive director. She brings a very extensive energy experience to Senex, and will complement and strengthen our Board, and I welcome her.On that note, I'll hand over to Mark to talk through our financials.
Thanks, Ian, and good morning again, everyone. I'll start with quarterly sales volumes, which saw an increase of 21% in our own product volumes to 654,000 barrels of oil equivalent. So it excludes third-party purchase volumes. This included a 36% increase in gas and gas liquids sales volumes in line with high gas production and partially offset by lower oil sales volumes. Our full year FY '20 sales volume of 2 million barrels of oil equivalent is around 74% higher than the prior year. This is a great achievement, both because our Surat Basin gas production ramped up, but also because natural oil production decline in the Cooper was mitigated through various successful development initiatives.Our total sales revenue was broadly in line with the prior quarter at $33.7 million. Despite higher gas sales volumes, gas revenue was down 4% as lower oil prices impacted oil-linked revenue at Roma North combined with some lower revenue from the deferred volumes that would otherwise have gone to GLNG.Oil prices strengthened during the quarter with an average realized price of AUD 79 per barrel, up 25% from the prior quarter. The rising oil price contributed to a 10% increase in oil sales revenue. That included the impact on our closing oil receivable, which you'll recall, took a significant hit at the time of our March quarterly. Our full year FY '20 revenue of $120 million was 28% higher than the prior year, with increasing gas production flowing through to our financial results. Oil revenue was also achieved on a lower realized oil price, which was 11% down this year at AUD 89 per barrel.The resilience we've talked about for a number of months now. We're in a strong financial position with our revenue streams diversified and well protected from oil price declines. We say this for a number of reasons. All Atlas gas production is contracted for calendar year 2020, and Roma North gas production is sold exclusively to GLNG as we go forward. Approximately 80% of total expected Surat Basin gas production through to the end of calendar year '22 is contracted, with a larger uncontracted position opening up in 2023 when pricing is expected to recover.At Roma North, the oil-linked gas sales agreement with GLNG has downside price protection built into the contract. It delivers positive operating cash flow below USD 15 a barrel, and gas revenue of more than $5 a gigajoule at an oil price of USD 27 and an exchange rate of $0.60. And then in the Cooper Basin, we've got 317,000 barrels of oil production hedged for this current fiscal year through 30 June 2021 at an average swap price of AUD 90 a barrel. So based on all of those outcomes, and subject to the conclusion of our year-end audit, we can confirm today that FY '20 full year EBITDA will be towards the top end of our previous guidance of $45 million to $55 million EBITDA.Turning to the balance sheet. Our overall liquidity position also remains healthy. We closed the quarter with net debt of $45 million, cash reserves of $80 million, and our Surat Basin capital expenditure spend -- capital expenditure largely behind us. Following the execution of our Surat Basin work programs, which Ian mentioned earlier, and that included the 30 well reduction in drilling, our peak net debt for FY '21 is now expected to be approximately $60 million, subject to commodity prices, of course. This represents a 25% reduction from our previous estimate of below $80 million net debt. That was based on higher commodity prices than we've seen today. So lastly, capital expenditure of $35 million was 16% lower than the prior quarter. It included the final expenditure for the Surat Basin drilling campaign and associated well completions and gathering networks. Also included the initial expenditure on the construction of our Atlas water management infrastructure. As we announced in June, with the Surat Basin development projects largely done, we only -- the only remaining expenditure for us is the final commissioning of that Atlas order management infrastructure through Q1 FY '21. That's all for me. So I'll hand back to Ian to wrap up the formal part of the call.
Thanks, Mark. That ends another very successful quarter and financial year for Senex. I guess, 3 key takeaways from our call that I'd like to close on. Firstly, Senex has now begun the journey of material gas production and free cash flow generation, as promised. Secondly, we have high-quality acreage positions in the Surat Basin with a growing reserve base for long life, and that is multi-decade. It's a long-life, low-cost natural gas production, as promised. Within this acreage, we have many acceleration and expansion opportunities to pursue for further organic growth, and our infrastructure platform is established and scalable, as promised. The Roma North 24 TJ-a-day expansion is a prime example of this. Lastly, we're in an excellent position of financial strength with our capital program -- our capital expenditure program almost complete, and a resilient and diversified earnings base to drive free cash flow generation, as promised. This affords us the ability to continue to pursue growth opportunities in a disciplined manner as well as consider capital management at an appropriate time.So with that, I'll conclude the formal part of the conference call and hand the line back to Eric for Q&A. Thank you.
[Operator Instructions] Our first question today comes from Adrian Prendergast of Morgans Financial.
And I have to say congratulations on another great consistent result, Ian and the team. Just -- I guess the biggest question for me is just on the impairments. Just kind of get your comments from a Senex perspective, given how much write-downs we're seeing across the industry at the moment. I just wonder just to whatever capacity you can, just get an update on Senex.
Yes. Okay. Adrian, thank you very much. It has been quite a June for us and a great end of the year. Look, on impairments, I mean, clearly, every oil and gas company around the world, we're seeing lots and lots and lots of impairments. We -- I'll hand over to Mark in a sec, actually, to continue the answer. But clearly, we're going through our own processes. What I would say is where there's infrastructure connected to our resource base, so we've got a fantastic position in the western flank that's extremely resilient. And obviously, the Surat just continues to knock the ball out of the park. It wouldn't surprise you though that lower quality, non-connected oil fields, such as in the southeast of the Cooper, they do struggle at very low oil prices. And it's a portfolio effect that we have that only makes up sort of 5% of production reserves. So it's not exactly material, but we're certainly working through that now. Mark, do you want to add to that?
Not too much to add. I mean we're working through that process at the moment. We're conscious of that. It provides outlook for oil. And as part of our normal year-end process, we're just getting through that now.
Great. And just one quick follow-up question, if I -- I don't know if it's quick but I -- yes, anyway, another follow-up question. Obviously, you're at that real growth point in terms of production really ramping up. You've derisked beautifully the Surat operations, and you've still got Cooper Basin ticking away. You're going to quickly get into a position where you're accumulating quite a large amount of free cash flow. On our estimates, free cash flow yield above 20% for FY '21. Does your medium-term focus beyond Roma North expansion, then start to shift to things like even capital management? Or just what do you do with that really fast building amount of capital resources?
Yes. Thanks, Adrian. It's a good question because, I mean, we are trading at about a 20% free cash flow yield, which is pretty incredible in the current yield environment. And we've just knocked the ball out of the park on every promise. So I think, ultimately, if you go back to our Investor Day presentation on the 11th of March, we said pretty clearly that we're focused on debt reduction. And debt, we've said today, will be less than forecast regardless. We're focused on looking after our shareholders who supported us. And we are very focused on that. We're focused on organic growth opportunities. And if the right opportunity arrives, we're focused on inorganic growth opportunities. I have to say the inorganic piece would have to be -- it's a pretty high bar. So to reiterate, we've always been focused on balance sheet. We have a very strong risk focus and have done [ fairly well ]. And that's -- we sailed through -- oh it was rocky, obviously. But we sailed through from a balance sheet perspective, 2015 and '16 very unscathed from a balance sheet perspective. And this time around, we've got a far more resilient business than we did in '16. So very focused on balance sheet, very focused on looking after our shareholders through capital management initiatives.
Our next question is from Stuart Howe of Bell Potter Securities.
Great quarter. I guess just following on from Adrian's question with respect to growth. And you mentioned for inorganic growth, a very high bar. I was wondering if you could just perhaps put some more thoughts around that. But also I understand there were further tenders last week for ground in Queensland. Any comments you can make on ground that could have been, I guess, close to your assets?
Yes. So I'll start with the -- well I'll start with tenders first because it ties in with, I guess, organic growth more than anything else. We're very clearly moving towards a position where I think it's around 86% of static FY '22, i.e. foundation case we call it, FY '22 production is Surat Basin gas. And that's a mixture of oil-linked and term contract fixed prices. So we had very clearly had a strategy of diversifying into east coast gas and have done it very successfully. And I should say, from a strategy point of view, diversification actually is very, very important for an oil and gas company, product, geography. When I say geography, I mean Australia for us, we're not sort of going overseas. But product mix and geography is actually quite an important risk management tool as well as hold levels in particular assets. So over time, you can expect to see a diversification strategy play out. How and when, we don't know. That's the point of strategy. You have a long-term strategy and you pursue your portfolio according to that strategy. So from a tender's point of view, we've been in a couple of the blocks that are interesting. We're hopeful. But again, with all these things, you put your best foot forward and see how it goes. And that really ties into our core sort of comparative advantage, if you like, around Surat. We've got an exceptional team here that's done an exceptional job developing, and we do see it as a comparative advantage, not competitive, very difficult to do in oil and gas but certainly comparative. Inorganic growth, that then leads to, which is the first part of your question, really just ties into that -- the strategy question, the diversification and growing both the scale and quality of the portfolio. And when you're an E&P, it's all about scale, which is got -- more volume is good and quality, more margin is good. So increasing those margins over time. And the capital-intensive nature of greenfield development in CSG weigh on that. And we're obviously through that with the initial projects that we've done as well as free cash flow generation we're very focused on. So when I say there's a high bar, we've come through it and we've come over a quite a large barrier to entry called CSG in Queensland, and we're not about to give that up.
And just a second quick question on the -- on your debt facility. Obviously, that was negotiated some time ago. Reserves have increased materially, you developed the assets. Renegotiating that, I believe, was sort of part of the next part of the financing strategy. Do you look for a bigger facility so you can potentially draw down more on to undertake an acquisition or something like that? Can you perhaps talk a little bit around that issue?
Yes. So why don't I hand to Mark for that?
Yes. Sure. So you're right. That facility was negotiated a couple of years back. It was fit-for-purpose for the expansion process we've just been through. It is a typical reserve-based lending facility. So it does get reopened or revisited pretty frequently. And you're also right that our -- the predictability of our revenue makes that an easier activity. But we have just been through that recently. And obviously, in pretty difficult economic times, to get through that is a good indicator. There is a possibility that we could look at it differently, particularly if there was some sort of a transaction around it. At the moment, we think having got through the last review in the current economic circumstances, we are pretty comfortable with it that there won't be any significant constraints for us. So it's probably something we'd look at if there was another catalyst.
And it is extendable, right?
There is the ability to extend within, yes, that's right, within that -- within the current arrangements. Yes.
[Operator Instructions] Our next question comes from Peter Liu of Crédit Suisse.
Ian, thanks very much for the conference today. Just a few questions. The first one on Roma North expansion FEED. The management talked about it in the last quarterly, promised to finish or finalize that FEED by end of FY '20, but now we haven't heard anything. So what's causing the delay there? Does that indicate any change of your development priority given that significant reserve upgrade in Atlas?
Sorry. Just to be clear, you mean the 2014 data expansion I spent a couple of minutes talking about? Is that the one we haven't updated?
Yes. The expansion, the Roma North expansion FEED.
Right. Okay. So just to be really, really clear, we have a contract with Jemena to expand the facility. So I'm not sure how much clearer we could be.
Right. But the timing of that, you've given that in the last quarterly report. You said you're going to finalize the FEED. So what's the current status there?
FEED's done. The front -- so we know what needs to be done. And the bulk of the FEED was actually done in the initial design. Now that we have an understanding of the details that needs to be completed, we've ordered the long-lead items from Jemena. The final component of that is an FID for the actual expansion, which means we've got to tie in a whole lot of other commercial arrangements such as our financing because lenders are obviously important to this. We don't actually need borrowings for the expansion. But obviously, when you have a facility in place, it's a good idea to talk to your lenders, and clearly, things around land access and the like that allow us to drill extra wells. So we sort of see this as business as usual. And the milestone that we are referred to -- and apologies if we didn't say specifically FEED is done. But I thought the fact that we've ordered compressors might give that away. But yes, no we're done.
Sure. Sure. My next question is, do you see the possibility that Roma North will start contracting domestic gas contracts to sell the medium term or long term? Or most of the gas will still be exclusively sold to GLNG?
So Roma North, which is the 4 blocks at the bottom of that line, the Western Australia area, which is Glenora, Eos, Mimas and Tethys, we have a long-term exclusive contract with GLNG. And the reason we have that, I should say, is because GLNG were the only ones who would underwrite the initial development. So we're very grateful for that initial contract. It is a very, very robust contract with very significant downside protection. The area outside of Roma North, however, which is all the blocks to the north and west, we have an arrangement whereby the end of -- around September 2022, the bulk of the arrangements with GLNG, if we haven't reached an FID decision, fall away, and we are able to contract that gas to the domestic market. And in gas terms, the end of '22 is tomorrow. So we're pretty pleased with that position as well.
Right. And my last question, given the significant upgrade of the reserve in Atlas, what's your thought about the future CapEx investment in potentially even exceeding that 32 TJ target by the end of FY '21? Like how much additional investment do you see yourself putting into Atlas?
Yes. So we -- that's going into the thinking now because we have actually 40 terajoules a day of capacity at the plant at Atlas. The reason for that is so that we could contract very strongly. And what I mean about strongly is from a risk position, we could guarantee firm volumes to our customers for higher prices. Because obviously, that's the risk transfer that one takes in these financial contracts. So there's an as available for the extra 8 terajoules a day in the plant. And we also have expansion rights under our agreement with Jemena. So all those things go into the mix. For those who know me, I don't mind a bit of optionality, and optionality is in our favor in this regard and with the reserves upgrade of the magnitude that we've achieved. But obviously, the economics are extremely favorable for acceleration and expansion. So that will go into the mix this year.
Our next question comes from [ Scott Ashton ] of [ SHA Energy Consulting ].
Ian and Mark, look, just a quick question. I just want to sort of tie in the announcement that you made on the 26th of May and then the comment in the quarterly. So when you look at the data, there's a lot of gas swapping around in Queensland, and hence, this weak gas prices. So under that GLNG contract, are they actually taking the molecules? Or I just want to get an understanding of whether you're actually selling that into the spot or it's actually being redirected back into the domestic market. I suppose, in a nutshell, is GLNG actually taking those molecules at the moment?
So good guess. So the announcement that we made about this was that the -- under the terms of the agreement with GLNG, they've requested we divert the cargoes into Wallumbilla, which we have done and we have taken effectively into our own portfolio and sold them in addition to our own portfolio. So whether it's spot or term is within our marketing portfolio, but we're basically done. So the volume is currently being diverted per the announcement. And it will un-divert, for lack of better term, when GLNG -- when those arrangements with GLNG come to an end. And I think we said we expected months with -- as a duration, but nothing's changed.
That's great. And I appreciate that. And just there was an earlier question. When I just sort of -- again, sometimes you don't let a crisis go to waste when you see oil prices crash like this. You talk about growing organically, but surely, there must be some attractive opportunities over and above not only your own portfolio and, say, new [ gas sales ]. Are you looking at sort of growing aggressively when you see undervalued opportunities out there?
Yes. Look, it's a good question. And I guess my answer to it is it just goes into the mix. And we've got a Tcf of 3P reserves. That's a lot of gas. And we see a very short market from '23 onwards, and we're seeing that play out in the market today. And obviously, a lot of -- it's a very complicated formula from there. So from that point of view, we're in a very strong position with our existing portfolio. In saying that, to your point, if there are underpriced opportunities around, we will look at it, and we've looked at -- I'd hazard a guess we've looked at every asset or opportunity that's within our grade strategy. I suspect we've looked at every single one of them. And given nothing's happened, then it hasn't passed either the ability for us to transact or the hurdle rates that we set ourselves. And with the organic position that we have, as I said, it's a high bar. And to put a probably more fine point of scale, I'm not sure there are that many truly underpriced opportunities around because low-yield environment, short market, asset prices tend to get inflamed and there's many floating around and you need to be disciplined.
There are no further questions at this time. I'd like to hand the call back to Mr. Davies for any closing comments.
Eric, thank you. Ladies and gentlemen, thank you very much for taking time to listen to our Q4 results. I think I can say that we're very pleased with the way the last $400 million program that Surat has gone, certainly the way the quarter has gone, and we're shaping up for a very bright period from here. So with that, I wish you a very, very good morning.
Thank you. The call has concluded. Please disconnect your lines.
Thank you.