Neptune Results Slip Year on Year (Correction)

(Deletes 2020 date for production target)

UK independent Neptune produced less oil and gas last year and at higher cost than in 2018 and it sold both at lower average prices; but it reported March 31 a rise in free cash flow. Pre-tax earnings (Ebitdax) were down at $1.60bn from 2018's $1.88bn but operating cash flow was up 8% at $1.32bn.

The company is aiming for 200,000 barrels of oil equivalent (boe)/day in the medium term, which is roughly half as much again as last year's 144,000 boe/d. In 2018 it produced 162,000 boe/d, but last year it was affected by problems in many jurisdictions which it said were largely beyond its control. However this year production has got off to a better start, it said.

CEO Jim House said: “We made progress developing our projects and remain on course to achieve a 200,000 boe/d milestone. We have also demonstrated good exploration success, with discoveries at Echino South and Sigrun East in Norway and Isabella in the UK, which provide us with longer-term development options."

Including the Algerian Touat gas field, which was part of its upstream deal with Engie in 2018, Neptune has nine sanctioned projects in development. Together, these projects are expected to contribute around 110,000 boe/d of new production, enabling it to achieve its target.

Although plant availability was generally good in 2019, production levels were impacted by the delayed start-up and a slower than expected ramp-up at Touat project, along with a number of unplanned curtailments related to export systems.

These curtailments reduced output in Norway, the Netherlands, the UK and Indonesia and largely reflected third party issues, it said.

Touat was "mechanically completed in the first half of 2019. However, a longer than expected commissioning and regulatory approval process delayed first gas until September 2019. The ramp-up to plateau was subsequently slowed by a number of technical and operational start-up issues with the plant facilities, which have now been resolved."

Excluding these third-party curtailments, reservoir performance across the group’s assets was strong and production efficiency high, averaging 88% (85% including third party curtailments). There are further operational improvements to make and we have restructured our global operations function to enhance focus and delivery of our key projects. 

From January 2020, Neptune changed its barrel of oil equivalent conversion factor to a standard 5,600 ft³/boe across the group from its previous approach, which aggregated and converted volumes on a field by field basis. This will flatter German production, where the gas is low-calorie but overall the effect will be roughly neutral. The use of a single standard conversion factor for the entire group is now consistent with other major oil and gas companies with a large number of assets, it said.

Chairman Sam Laidlaw said Neptune would cope with the "rapid deterioration in oil prices in 2020," as while the "outlook is unclear, we are prepared for prices to be lower for longer. We have built Neptune to be a resilient business, with a low-cost base, relatively low leverage, a robust balance sheet and a fully-funded development programme. While we have been quick to identify further cost and capital reductions across the business, we will not do so at the expense of long-term value."