Horizon Oil Limited

Thank you very much and a very good morning to everyone. I'm very grateful of you all joining us today. With me today is the group's CFO, Kyle Keane, and also the company's secretary, Vazmagi Nkakos. What a tremendous year we've had. Record production levels, revenue and earnings, with further significant returns generated for shareholders. This morning I'll make some introductory comments covering the full year ended 30 June 2023 before handing over to Kyle to go through the results in a bit more detail. I'll then cover the operational performance, highlighting the upcoming activity for what is again shaping up to be a very busy year. We'll then open up for some questions. During the course of this presentation, we will be making some forward-looking statements, and while we take every care in the preparation of these statements, actual results may materially differ depending on a variety of factors, so I would encourage you to read the disclaimer in full. Now, before I get into the numbers, please note that all references to dollars are US dollars unless otherwise stated. Now, as mentioned, financial year 23 was a year in which we achieved record-breaking results, primarily due to the tremendous drilling and production success we've had at our Block 2212 fields in China. Earlier in the year, we reached an all-time high production rate of over 20,000 barrels of oil per day gross at Block 2212, which represented an almost doubling of production rates from the asset against the long-term average. Whilst production levels naturally declined, they still remain above the long-term average, with a pipeline of short- and longer-term infill opportunities being matured to further boost production levels. It was the production success of Block 2212, combined with continued strong oil prices, which drove the outperformance of the key metric shown on this slide, with almost 1.8 million barrels of oil sold during the period, 47% higher than the prior year. When combined with the mildly lower realized oil price, this success translated into an 80% increase in statutory profit for the year to $43.9 million. EBITDAX was 42% higher at $103.5 million and revenues were over 41% higher at $152.1 million. Importantly, the continued strong free cash flow generation has enabled us to declare a final dividend for FY23 of two Australian cents per share which builds on the interim distribution paid earlier in the year of 1.5 Australian cents per share. Following the payment of the interim dividend during the year, we ended up with a healthy net cash balance of $35.7 million, providing the liquidity to continue paying significant distributions. Our results for the full year are a further demonstration of the success and focus of our strategy. We remained focused on maximising free cash flow generation, which was driven by the production success from our Block 2212 asset in China. The development of the 12-8 East field in Block 2212 played a pivotal role in significantly enhancing production rates and was also supported by infield drilling and workovers carried out in the legacy Weizhao 612 fields. Oil prices remained robust with revenues also supported by strong premiums received on Mari crude oil. We were very pleased to restore production at Mari back above 5000 barrels of oil per day gross by year end through successful work over operations. Importantly, and notwithstanding a period of significant inflationary pressures, cash operating costs continued to be maintained below $20 a barrel produced. The strong cash flow has allowed us to continue to prioritise distributions to shareholders, with FY23 distributions totalling three and a half Australian cents per share, comprising of the one and a half cent per share interim dividend, followed by the announced full year dividend of two cents per share. These distributions amount to a total return of over 56 million Australian dollars, well over a 20% dividend yield for the year. Importantly, distributions over the past three years now total over $150 million Australian dollars or nine and a half cents per share. And we've provided these returns while still investing in production growth within our asset portfolio. The final FY23 dividend was determined balancing shareholder returns, future commitments and maintenance of the group's liquidity levels. Prioritising such returns to shareholders remains a key pillar of our strategy. Our capacity to generate substantial returns is attributed in part to the robust cash flow produced by our low-cost production assets, as well as the strategic investments made in expanding production across the portfolio. In Block 2212, we invested around US$30 million in Phases 1 and 2 of the 12-8 East project, which was fully recouped within a mere 12 months from the commencement of production. This investment drove production to record levels of Block 2212 and resulted in a material reserves upgrade given the strong production performance and accelerated infill drilling. The Weijiao 612 infill and workover program was also a great success. Our pipeline of opportunities for further infill wells within Block 2212 is considerable. and the reserves and contingent resources upgrade underscores the untapped potential remaining within the asset, a topic I'll delve into a little more later. MARI also has some incremental high-value opportunities, with the most accretive project likely to be through life extension, which is a core focus of the joint venture. And whilst not our primary focus, we also continue to keep an eye out for exceptional new business opportunities which might complement the existing asset portfolio with a view to enhancing shareholder returns. Now, I've touched on some of the full year highlights already. However, some additional key achievements were as follows. The combined daily production rate from Horizon's share of both Block 2212 and MARI averaged over 5,000 barrels of oil per day for the full year, an increase of 44% from the average achieved during FY22. We had approximately 55% 2P reserves replacement And on shareholder returns, we added over 80 million Australian dollars of shareholder value through a combination of distributions paid and capital growth with an FY23 total shareholder return of around 40%. On ESG, despite the elevated activity levels, we've continued to uphold a strong safety record significantly better than industry benchmarks. And specifically on climate change, we made a modest investment of seed capital in a carbon removal credit developer, Nobrac Limited, to aid with the group's longer-term decarbonisation ambitions and to act as a natural hedge against the growing carbon emission costs incurred at Maree. Importantly, this investment presents a potential opportunity to deliver an additional cash flow stream and provide further value for shareholders. The project's progressing very well, and we're looking forward to seeing the first biochar production from a pilot plant later this year. Presented here is a summary of Horizon's 2023 reserves and resources statement. As mentioned, we achieved 55% 2P reserves replacement, with an additional 1 million barrels of 2p reserves generated, mainly from reserves revisions associated with the successful infill drilling and favourable production trends of Block 2212. These incremental reserves help to offset the reduction in reserves associated with the record production levels achieved during the year. Importantly, our portfolio of contingent resources also increased materially, by approximately 40% during the year as production trends at block 2212 and further technical analysis help to identify further opportunities within the asset. Our focus continues on developing the substantial inventory of contingent resources. Look, I'll now pass over to Kyle to run through the financial results in a little bit more detail. Thanks, Richard.

Before I go through the results, I'd like to emphasize that all references to dollars are to United States dollars, as this is a group's functional currency, since all revenues are generated and received in United States dollars. The table on the right of this slide summarizes the 2023 financial year results with a comparison against the prior year. As Richard has mentioned, the results were strong, with records achieved in a number of key metrics. due to both production growth and a strong realized oil price during the year. Production volumes increased 43% as a result of the successful execution of both Phase 1 and Phase 2 of the 12-bit East development, as well as two InfoWales and a multi-wale workover program in the 612 fields in Block 2212. Revenue increased 41% to $152.1 million. The higher revenue was of course driven by the 44% increase in production, The increased revenue, combined with the maintenance of cash operating costs below $20 a barrel, led to an increase in EBITDAX to $103.5 million. This cash flow helped to rebuild the company's cash position to just under $44 million at year-end, following the substantial $46 million distributed to shareholders during the year. Pleasingly, we exited the period with a strong balance sheet, with net cash of just under $36 million. In this next slide, we dissect cash flow. The strong net cash inflows from operating activities of $72 million largely helped to rebuild the cash position, following this $46 million distributed to shareholders during the year, and the $32 million of investment in the 12 at East development. This cash flow chart further highlights the rapid repayment of the 12 at East development and the importance of progressing further investments in Block 2212. With a closing cash balance of approximately $43.6 million, the group has the necessary liquidity to cover the repayment of our debt facility, sitting aside funds of Mori decommissioning, funding of production growth opportunities in our assets, the maintenance of appropriate working capital balance, and finally, the payment of the distribution of two cents per share. To help dissect the financial year result further, the next chart shows the key elements which have driven the 80% increase in statutory profit to $43.9 million, and clearly shows in the blue bar the significant impact of the production growth from Block 2212. Despite cost pressures and a high inflationary environment, all controllable costs were largely maintained during the year, with the expected increase in operating costs and amortization expense driven by the commencement of production from the 1280s development. noting that cash operating costs per barrel were still maintained below $20 a barrel produced. Turning over to the next slide, we can take a look at the full year results compared against the previous four years. This slide highlights the significant growth in both production and sales volumes. And as I've mentioned, the production levels increased owing to the successful execution of both phase one and phase two of the 12 at Easter developments, as well as two in-for-walls and a multi-wall workover program in the 612 fields in Block 2212. The ability of the Block 2212 joint venture to enhance production levels through infill drilling and other initiatives and continue to maintain low operating costs have been the predominant driver of Ryzen's cash flow over recent years and provided the confidence to further invest in infill drilling, workovers and the 12IDs development, which have been so successful this year. The revenue chart shows the contribution to revenue of the 47% higher sales volumes during the financial year, with the average realized oil price being materially aligned to the prior financial year. Pleasingly, oil prices continue to trade above $80 a barrel, which notably bodes well for ongoing revenue and cash flow generation. The next slide again shows the relative impact of the higher production and the robust oil price on the group's profitability for the year. with a 42% increase in EBITDAX and a dramatic increase in statutory profit from $24.3 million to $43.9 million. EBITDAX over the past two financial years has amounted to approximately $176 million, or 1.6 times the enterprise value of Verizon at 30 June 2023, an incredible result. The strong EBITDAX and profit results were further aided by the group's continued low cash operating costs and the maintenance of low general and administrative costs despite the inflationary pressures. The next slide shows the continued strong free cash flow generation, with the green line in the chart on the left normalized to exclude cost recovery cash flows in earlier years. This again shows the impact of the high production and robust oil price and cash flow generation. The strong operational cash flow allowed for the rapid repayment of the Talbot East development and resulted in free cash flow of $39.7 million for the financial year. Pleasingly, Ryzen has distributed approximately 90% of the financial year free cash flow to shareholders through the combination of the interim and final dividends amounting to 3.5 Australian cents per share. Yet again, I have saved the best chart to last with the net cash net debt chart in the right. Here we can see strong and sustained free cash flow generation from the group's assets, with cash generated over a four-year period of approximately $145 million or $220 million Australian dollars, notwithstanding the depressed oil price in 2020. Our focus is to continue to drive this cash flow generation by extracting maximum value from these assets. The resilience of this cash flow, high oil prices and a strong production result of 3.5 Australian cents for the financial year, thereby delivering on our strategy of continuing to return significant value to our shareholders. I will now pass over to Richard to provide an update of our asset portfolio and the outlook for the company.

Thanks, Kyle. Look, I'll now provide an update regarding the assets, starting with the group's flagship asset, Block 2212 in China. This has been a standout year for the asset, with the recent addition of the 12-8 East field development indicated at the bottom of the graphic. The year was a period of significant activity, which commenced with a five-well workover program, which was followed up by two wells drilled at 6-12 and a further four wells drilled at the 12-8 East field. The result of all this activity was a dramatic boost in block 2212 production to peak rates of around 20,000 barrels of oil per day gross in December, which represented an approximate doubling of production rates from early 2022. The additional production and cash flow generation during the year took Block 2212 cash flow to around 80% of Horizon's overall cash flow, aided by the very low cash operating costs, which were less than $12 per barrel produced during the year. We commemorated some significant milestones in FY23, most notably 10 years since first oil from Block 2212 and the one-year anniversary following first oil from the successful 12A East development. It is particularly pleasing to see that we achieved peak production from Block 2212 10 years after first oil from the fields. And that really underscores the quality of the asset and the tremendous potential opportunities within the block. As expected, field production rates have naturally declined at Block 2212 since drilling activity was completed in January, with exit rates for June around about 13,000 barrels of oil per day gross. The joint venture is actively evaluating further infill well opportunities, which aim to support material reserves replacement over the longer term, which I'll cover in a little more detail on the next slide. As mentioned, Block 2212 has a large portfolio of future opportunities, which can add reserves and boost production rates, comprising infill and appraisal wells and facility upgrades. On this slide, we have highlighted the locations of the various opportunities, all of which are being actively evaluated and matured by the joint venture. The immediate focus is on maturing an infill well program, most likely targeting wells in the 612 and 1280 production areas, with a view to drilling between two to five wells, most likely in the second half of FY24, subject, of course, to the necessary regulatory and joint venture approvals. Water handling upgrades at the facilities is a constant focus. And following the success of the 12-8 East development drilling, the joint venture is turning its focus to a subsequent phase of development drilling over the next few years. This chart has now become a common feature of our presentations. And there are some key changes in the chart which I want to highlight. As a reminder, our current 2P reserves forecast is shown in the dark green. which has been updated to reflect the Block 2212 reserves upgrade. This has had the effect of bulking up and lifting the 2P forecast curve when compared to this time last year. As mentioned previously, production rates from Block 2212 are expected to naturally decline, as you can see in the chart. The light blue sawtooth profile is the additional production potential to be unlocked from future activities. You will note that we've added additional indicative production increases in the chart, which aim to represent additional potential infill well opportunities, which continue to be matured, a number of which were added largely as a result of the success at 12 8 East. I'd like to emphasise that all indicative future activities remain subject to further technical and economic evaluation and subject to joint venture and regulatory approvals. As previously stated, the indicative cost of unlocking the blue area shaded in the chart is in the order of 10 to 15 million US dollars net to horizon per annum over the next three to five years. We've also extended the chart until the end of the petroleum contract in 2030, as well as the legacy 6-12-12-8 Westfields are contractually due to be handed over to CNOOC in August 2028. the 12-8 East field can run through to the end of the petroleum contract in 2030 and possibly beyond by agreement. Turning now to New Zealand and Māori, where we've seen continued stable reservoir performance. Successful work over operations in conjunction with sustained water injection into the field during the year, restored production rates back above 5,000 barrels of oil per day grossed by year end, with the near-term focus on low-cost, high-value workovers of two other wells. The first of these involves working over the MR2 well to convert it to a permanent water injection well, as well as reinstating production from the MR6A well. With sustained production performance and ongoing workover efforts over the next 12 months, we anticipate that Māori production will remain robust thereby providing confidence to pursue an extension to the permit beyond the December 27 licence expiry. Operating costs are still modest in the context of the current oil price, but were impacted by the shut-in of some wells for workovers during the year to mainly replace broken pumps. Cash flow from MARI was enhanced during the year from strong premiums being received on oil sales, with premiums averaging around about $10 a barrel during the year. At the end of the year, the operator completed and lodged with the regulator an updated MARI decommissioning plan and cost estimate, which will be evaluated for the purpose of determining the level of financial security which will likely be needed to be provided by the MARI joint venture over the coming years. And whilst the regulations surrounding security are still being finalised, it will be necessary for Horizon to set aside funds judiciously over the coming years to ensure it can meet these obligations. Now, the chart on this slide reflects our current MARI forecast in the dark green, which, as you can see, is expected to exhibit a more modest decline when compared to that of block 2212. Whilst we've also included indicative future activities in light blue, the main activities post-2027 would require both a significant capex expenditure commitment and permit extension to be commercially viable. Most of our current efforts are focused on lower cost production optimization works and work over activity with the objective of maintaining current production rates. We see significant value in simply extending the permit by up to five years to maximize value from the current well stock. That is unlocking the dark blue profile on the slide. As I mentioned, the immediate focus is on workovers to reinstate production from currently shut-in wells, as well as to enhance rates through the conversion of a third well to a permanent water injector. This table sets out the timing of possible operational activity over the period until late 2024. Please note that the timetable is indicative and most of the activities remain subject to further technical and economic evaluation joint venture and regulatory approvals. In total, we have between two and five infill wells in block 2212, which are being matured, with the possibility of some or all of these being drilled during the second half of the year. Upgrades to produce water handling capacity at block 2212 is also being prioritised, as the more liquid we can manage, the higher the oil production rates we can sustain. Further infill well opportunities in a possible 12-8 East Phase 3 drilling program are also being considered, with the possibility of drilling these in future years. And as mentioned, at Māori we have two immediate workover priorities. The first is the permanent conversion of the MR2A well to a water injector, which should aid in sustaining production levels from the main Māori Moki reservoir. which will be followed up by the work over of the MR6A well, which is aimed at reinstating production. Other activity at MARI is focused on life extension with the venture evaluating options to extend the licence beyond 2027, progressing decommissioning studies and examining other value accretive opportunities. In looking forward and keeping with the key elements of our strategy, We plan to capitalise on our recent production growth to maximise free cash flow generation and shareholder returns. And to ensure these can be sustained, we'll continue to invest in further production growth within our asset portfolio, whilst also looking out for new business opportunities. And with that, Kyle and I will be pleased to answer any questions that you may have.

Thank you. If you wish to ask a question, please type it into the ask a question box and click submit.

I will now hand over to the speakers to manage the Q&A session.

Okay, so the first question we have here is, can we have a guidance of what do we expect moving forward? DNA, are you expecting it to be roughly in line with historicals, a little below $20 a barrel produced? With the onset of block 2212, are you looking at structurally higher DNA per barrel moving forward?

Look, I'll take this one. It's a bit premature for us to provide any guidance at this particular time. I mean, we generally give guidance at the half year. So we'll look to issue guidance again at the half year results presentation. Thanks for that.

The next question we have is, what is the estimate of net capex to horizon for the indicative future activities for Bebu and Mari? And what is the likelihood of the indicative future activity for Mari in 27-28? Is that conditional on a license extension?

Look, I can probably take that one. As I alluded to, our expectation is that we will spend between 10 and 15 million US dollars per annum over the next three to five years to unlock that blue profile. It's really going to be concentrated on block 2212 at this stage. Even with a modest life extension at Maree, those indicative future activities would require substantial capex and a fairly protracted extension really to to warrant investing significant amounts of capex there post-27, and we don't consider that likely at this stage. Thank you, Richard.

The next question we have is, have you started putting cash aside for MARI abandonment? I'll take that one. Look, as I mentioned in my speech, we have started setting aside funds for the MARI decommissioning. I'll just note that despite having commenced setting aside funds for MARI decommissioning, we've still managed to distribute approximately 90% of our free cash flow generated during the financial year to our shareholders.

Yeah, and I'd just note it's really just tied up within our overall working capital assumption. And as I noted in the discussion, the regulator in New Zealand has issued guidelines around putting down financial security. It'll take some time for that to to mature, but we'd expect greater clarity on what's required by when over the next sort of 12 to 18 months. Great.

Thank you, Paul. We have another question here regarding the future production profile for Bebu. Can you explain within the indicative future activities how much is attributable to liquids handling upgrades and how much is attributable to appraisal slash infill drilling?

Oh, look, we probably don't go into that much specifics. It's probably fair to say most of it is associated with infill drilling, but there is a reasonable amount attributable to water handling upgrades as well, but couldn't tell you the exact split. It's probably 70-30 or something like that towards infill wells.

We're just filtering through the questions for a second. Another question we have here is, what is the pipeline of reserves for the future?

We probably covered that reasonably well in some of the slides, but you can see in the reserves and resources statement, we have just under 5 million barrels of reserves, roughly sort of split half-half between Maori and Block 2212. And we've got just under 7 million barrels of 2C contingent resources, mostly weighted towards China. And we see that the pipeline of those China contingent resources is the predominant driver of the indicative future activities that you'll see in the in that forecast production slide, and we're actively pursuing that. So, you know, as I alluded to, we would hope that we can convert those contingent resources into reserves over the next three to five years, particularly at block 2212, to effectively replace our block 2212 reserves.

Thank you, Richard. Another question we have is regarding Māori decommissioning and what is the expected liability to Horizon and how will the company account for this? For example, will cash be built up on the balance sheet or park in the JV?

Thanks, Vassal. I'll take this one. The company has recorded $52.5 million on its balance sheet as the restoration provision for Māori. And as I've mentioned, we have commenced sitting aside funds for former AD commissioning. Richard mentioned it forms part of our working capital balance. So those funds are sitting on our balance sheet. They're not sitting in the joint venture.

I think we'll just give it a few more, a minute or so for any further questions. We'll just wait at this point in time. I think that concludes the questions that were received. Thank you all for joining the webcast. You may now disconnect.