AWE swings to loss

AWE’s half-yearly report contained a familiar refrain to many Australian oil and gas producers this week: production is up, revenues are down and a loss was the inevitable result.
AWE swings to loss AWE swings to loss AWE swings to loss AWE swings to loss AWE swings to loss

Haydn Black


The Sydney-based oil and gas concern produced 2.9 million barrels of oil equivalent for the six months to December 31, up 12% over previous corresponding half year, however revenue of $122 million was down 24%, including realised oil hedge gains.

The result was an after-tax loss of $274 million, which included $191 million of asset impairments, based on the expectation that Brent crude will not top $US52/bbl through to 2018-19.

The after-tax writedowns were for BassGas ($88.5 million) in Tasmania, Tui Area ($54 million) in New Zealand, Cliff Head offshore Western Australia ($14.6 million), Lengo in Indonesia ($13.4 million) and the company's exploration assets ($18.6 million).

AWE is hoping to sell the Lengo gas development (42.5%) and its interest in Cliff Head (57.5%), as well as exiting from the North Madura PSC, offshore Indonesia, and Yemen.

After adjusting for non-recurring items, AWE's underlying net loss after tax was $63 million.

Managing director Bruce Clement stressed that AWE's assets were performing well, cash costs were down 11% and the company is about to wipe out its debt with the sale of its Eagle Ford Shale assets in the US for $190 million, and it will merge with $60 million in cash.

Sugarloaf represents almost one third (875,000boe) of AWE's total production, and almost half of its 2P reserves.

"From a financial perspective, the half year proved to be challenging with sustained lower oil prices leading to a review of asset carrying values and subsequent non-cash impairment of a number of assets," Clement said.

"Revenue and cash flow, although down on the previous corresponding period, remained stable due to oil hedging put in place in October 2015."

Operationally, AWE grew production by 12% over the half year with the BassGas project up 22%, Tui Area up 33% and Sugarloaf up 44% over the previous corresponding period.

Development expenditure was down 26% and exploration expenditure was down 57%, and Clement said that trend would continue this year, as the company reduced its workforce and commitments.

Despite that, he said the priority development of the new Waitsia gas project in the northern Perth Basin, Western Australia, has made excellent progress, off the back of some of the highest onshore flow rates observed in decades.

The first stage of the field was approved in January and will see AWE and Origin Energy selling 10 terajoules per day to Alinta for 30 months under a take-or-pay contract that should help fund the scale-up of the project.

The company's reserves dropped from 114MMboe to 109MMboe, thanks to production and a 2.5MMboe reduction in BassGas, and will reduce further once the Sugarloaf transaction is complete, but Clement highlighted the upside that could come from an independent review of Waitsia/Senecio/Irwin/Synaphea gas fields in Western Australia.

Onshore Perth Basin net 2P reserves and 2C resources now total 70MMboe, with 67MMboe in those four fields.

He said the company was focused on reshaping itself into a lean and mean company that could deliver sustainable growth in a low oil price environment

"Although these are tough times for the oil and gas industry, AWE's portfolio of quality assets has the potential to deliver sustainable growth and value for shareholders," Clement said.

The company has revised its guidance for the full 2015-16 financial year to take into account the sale of Sugarloaf.

Production for 2015-16 is now expected to be 4/9-5.1MMboe with revenue of $210-220 million.

The company will spend up to $135 million on developments, and $25 million on exploration, with $17 million already spent.

Beyond Waitsia's expected first gas in the September quarter are a well in the Ande Ande Lumut project with Santos to appraise the G-Sand, the hook-up of gas compression and condensate pumping modules at BassGas and Trefoil development feasibility studies.

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