Horizon Oil Under Spotlight Over PNG Bribery Scandal; Stock loses 27.5% in Single Day

  • Feb 10, 2020 AEDT
  • Team Kalkine
Horizon Oil Under Spotlight Over PNG Bribery Scandal; Stock loses 27.5% in Single Day

 One of Australia’s leading newspaper has released an article wherein it has stated that Horizon Oil (ASX: HZN), ASX-listed oil and gas exploration company, has repeatedly ignored corruption warnings and has paid around $15.4 million to an unknown shell company to acquire an interest in Petroleum Retention Licence 21 (PRL 21) in the Western Province of Papua New Guinea.

After getting temporarily paused from trading on ASX today, the shares resumed trading and witnessed a fall of 27.5% in the share price. In response to the media article, Horizon Oil released a response statement on ASX in which it confirmed that it has no actual knowledge of any wrongdoing regarding that transaction.

The company also clarified that in August 2009, it had applied for renewal of Petroleum Retention Licence 5 (PRL 5) in PNG, but then Minister for Petroleum and Energy rejected the renewal.

Following this, the company started a judicial review proceedings in relation to the Minister’s decision to protect its commercial interests and the proceedings were settled including on terms providing for Horizon Oil to be granted a 70 percent interest in a new PRL 21, covering the same area as the former PRL 5. After this, the Minister awarded PRL 21 to three parties: Horizon Oil, and two local PNG companies:

  • Elevala Energy Limited
  • Dabajodi International Energy Limited

 

As per Horizon’s 2011 PRELIMINARY FINAL REPORT

“On 14 September 2009, the Group entered into a sale agreement with a subsidiary of Talisman Energy Inc. to dispose of a 22.05% working interest in PRL 4 and all of the shares in a wholly-owned subsidiary, Horizon Oil (Kanau) Limited. Total consideration for the transaction amounted to US$60 million, of which the company received US$38 million (US$29 million net - 3 - of intercompany loan repayments and discounting of deferred consideration) in proceeds during the year ended 30 June 2010 including US$30 million cash and US$8 million work carry. The remaining US$22 million was deferred pending receipt of PNG ministerial consent to the working interest transfers required by the transaction. Due to the uncertainty at the time regarding PNG ministerial consent, the deferred consideration was recorded as a contingent asset in the 2010 financial statements. During 2011 the required PNG ministerial approvals were received and accordingly, the US$22 million received during the current year was booked as revenue.”

As per the pre-existing contractual arrangements, the company transferred a 35% interest in PRL 21 to a subsidiary of Canadian multinational oil and gas company Talisman Energy, Inc. Horizon Oil acquired a 10% interest in PRL 21 from Elevala Energy for USD 10.3 million, and Talisman acquired a further 5% interest in PRL 21 from Dabajodi. Following these transactions in 2011, PRL 21 was held Horizon Oil - 45%, Talisman - 40% and Kina Petroleum Limited (formerly Dabajodi) - 15%.

The USD 10.3 million transaction was brought into notice last year when Repsol, a Spanish oil company, decided to sell out of its PNG joint venture with Horizon. The media article has called transactions “illicit payments” and “bribes”. Given the seriousness of these allegations, the company’s Board has initiated an investigation into this matter.

Horizon Oil – Operational Summary

Horizon Oil is an oil and gas exploration, development and production company which has a substantial acreage holding of around 8,000 sq km in the forelands of Western Province of PNG, which contain material, appraised and independently certified gas-condensate resources.

PNG is a jurisdiction that presents great opportunity and some challenges. The company’s PNG resources constitute a large stake in substantial condensate rich gas resources on the pipeline route of ExxonMobil, Oil Search and Santos’ planned PNG LNG expansion infrastructure.

The company completed CY2019 strongly with production of 1.6 million barrels, resulting in revenue, inclusive of hedge settlements, in excess of USD 111 million (~A$161 million). During the last quarter of the year, the company’s production was 0.4 million barrels at an average of 4,065 barrels per day net to Horizon Oil. Following further well enhancing activity and workovers recently completed, production is currently around 4,500 barrels per day net to Horizon Oil.

Horizon’s FY19 Highlights

  • a 13% increase in oil sales to a record 1.87 million barrels
  • a 22% increase in net revenues to US$122 million
  • average operating costs below US$20/bbl, leading to a 36% increase in EBITDAX to US$93 million
  • 95% 2P oil reserves replacement
  • a 68% reduction in net debt to US$28 million at 30 June 2019

 

Forward Plan

The company apply excess cash reserves against the debt facility with US$55.2 million having been repaid during the 2019 calendar year, including a further US$10 million voluntary prepayment made during the December quarter, resulting in net debt of US$7.4 million at the end of the December. The company has done this while retaining appropriate liquidity levels of US$22 million in cash together with undrawn debt capacity.

Recently, the executed hedging of a further 180,000 bbls of the company’s oil production has resulted in aggregate oil swaps of 270,000 bbls covering the 6-month period to June 2020 at a weighted average price of US$68.35/bbl, enhancing revenue certainty. At the recently released quarter report, the company stated that its strengthened balance sheet and sustained cashflow from its high margin, conventional oil fields put in in a favourable position as it evaluates prospective and appropriate growth opportunities. The company is targeting growth opportunities in its focus area of Asia Pacific to complement its conventional oil production assets. Strong production and cashflow from its existing assets provide a sound platform for future growth.

At the end of 10 February 2019, HZN’s stock was trading at a price of $0.084, near to its 52 weeks low price.


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