Cost-Cutting, Cash Preservation, Revenue Hedge- New Drilling Tools of Woodside and Senex

  • Mar 30, 2020 AEDT
  • Team Kalkine
Cost-Cutting, Cash Preservation, Revenue Hedge- New Drilling Tools of Woodside and Senex

The global oil & gas market has been currently hit with double whammy- the coronavirus outbreak and oversupplied conditions, leading to a fall in oil & gas price to near-record levels, which in turn, is calling-out for prudent and unprecedented actions from the ASX-listed oil & gas exploration companies and their global peers.

Most of the ASX-listed oil & gas exploration companies are now diverting their attention towards the cost reduction and cash preservation. ASX-listed oil & gas explorers like Beach Energy Limited (ASX:BPT), Woodside Petroleum Limited (ASX:WPL), Senex Energy Limited (ASX:SXY), are taking some unparalleled measures to sail through the strong market headwinds.

Also Read:Beach Trims Costs, Lowers All Guidance; U.S. Operations Under Pressure of ASX-Listed Oil Producers FPL, ATS, 88E, BYE

ASX-listed Oil & Gas Exploration Companies

  • Woodside Petroleum Limited (ASX:WPL)

WPL recently suggested that it is taking a prudent approach to cash flow management amid considerable uncertainty concerning the near-term investment environment along with the magnitude of forward capital investment decisions.

  • WPL suggested that it is presently implementing various strategies to lower the risk of COVID-19 spread to its working force, contractors, and surrounding communities.
  • The Company is bringing forth some changes in its 2020 work plan, which is anticipated to reduce the forecasted capital expenditure by ~ 50 per cent for 2020. Apart from that, WPL also aims at ~ 60 per cent reduction in its planned investment expenditurethat was announced in the previous 2020 guidance commentary.
  • Woodside has also decided to defer the FID on its Scarborough, Pluto Train 2 and Browse prospects; however, the explorer would continue progressing the investment in Sangomar Field Development Phase 1 prospect, Pyxis Hub, and Julimar-Brunello Phase 2.

 

Despite several changes from previous plans, WPL reaffirms that its 2020 production guidance would yet remain unchanged at 97-103 million barrels of oil equivalent.

Focusing on active revenue management

The business of the Company contains low-cost and high-margin operations, and WPL reaffirms that the production for both LNG and oil has not been reduced, and deliveries to customers have continued.

  • The contracted arrangements of WPL have not been considerably impacted due to the recent events, and the customer base of the Company remains of high-quality and investment-grade. The demand for WPL’s product in north Asian markets is resilient, and the Company’s trading team has recently begun placing some spot production back into China as industrial output and demand restarts.

 

However, the impact of lower oil price would not be realised by the Company till the late second-quarter 2020 due to the lag between the oil price and the realised LNG price. 

WPL expects the oil price to remain volatile for some time over the near-term, and to prevent exposure to further potential downside; the Company has bagged a hedge of 11.85 million barrels of oil for delivery in April and December 2020 at an average realised price of $33.47 per barrel.

To increase the revenue certainty further, WPL has agreed to deliver 2.4 million barrels of oil equivalent of LNG for the same period.

Adopting cost-cutting measures

The Company has either cancelled or deferred non-essential activities and anticipates a ~ 50 per cent reduction in the total expenditure for 2020 to stand at $2.4 billion, including ~ $100 million reduction in operating expenditure along with a ~ 60 per cent decline in investment expenditure to stand at $1.7 – 1.9 billion.

 

              

 

The stock of the company last traded at $17.19, up by 2.1 per cent against its previous close on ASX (as on 30 March 2020, AEDT: 2:40 PM).

SXY recently announced to the shareholders that the Company is in a strong financial position with resilient cashflows from its low-cost oil and gas operations. SXY also suggested that the work program at its transformational Surat Basin would be completed over the coming months.

The oil and gas portfolio of SXY generates revenue through fixed-price gas contracts from the domestic market, oil-linked gas contracts, and considerably downside hedged oil production.

Downside protection for future revenue

In the Cooper Basin, SXY has hedged over 500 thousand barrels of oil production for an 18-month period to 30 June 2021 in a price range of $90 to $95 a barrel.

  • At Roma North, the oil-linked gas agreement of the Company with GLNG has in-built downside protection, which would deliver a positive operating cash flow at or below USD 15 a barrel, generating a gas revenue of over $5 per gigajoules at current spot of USD 27 per barrel with an exchange rate of USD 0.60 per AUD.
  • At Atlas, more than 60 per cent of expected gas production (till CY2022) is contracted at strong fixed prices, while 95 per cent of Surat Basin gas production is contracted for CY2020.

 

Decent Balance Sheet

  • As at 29 February 2020, the Company held cash of $105 million with a drawn debt of $125 million, and the debt facility was sized to deliver Surat Basin gas project with a peak net debt of less than $80 million expected in the first quarter of the financial year 2021, post the completion of the work programs along with the generation of free cash flow.

 

            

 

SXY last traded at $0.160, down by 3 per cent against its previous close on ASX(as on 30 March 2020, AEDT: 2:40 PM).


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