Jadestone delays Australia infill wells following fresh capex cuts
Oil and gas company Jadestone Energy is further reducing its 2020 capital expenditure guidance due to the collapse of the global crude oil benchmarks and the impact of the coronavirus crisis on global oil demand and potential for prolonged oversupply.
As a result, Jadestone’s infill drilling campaign in Australia has been delayed.
Jadestone said on Wednesday that, against this backdrop, it believes it is prudent to implement stringent capital reductions across its portfolio and is therefore further reducing its 2020 capital expenditure guidance.
Jadestone’s 2020 capital programme is almost entirely discretionary, and on 19 March 2020, the company announced that it would defer the Nam Du and U Minh development project.
Infill drilling delay
Further, the company on Wednesday announced that is has opted to defer its Australia infill drilling campaign at Montara and Stag into 2021.
This delay aims to best align capital spending with a strengthening oil price environment, maximising potential future returns, while preserving the company’s balance sheet and net cash position.
Collectively, these measures represent a reduction of 80% of the company’s originally planned 2020 spending. This will result in anticipated total capex of $30-35 million in 2020, of which approximately $15.5 million has already been spent in 1Q 2020, including completing the Montara seismic campaign.
These measures further add to Jadestone’s resiliency in the current environment, with a total cash balance of $109.4 million (excluding restricted cash of $10 million) as at 31 March 2020, or a net cash position of $72.1 million, and about a third of the company’s production hedged at $68.45/bbl through to 30 September 2020, and excluding incremental oil price premia.
Notwithstanding these changes, production is still expected to grow by circa 25% in 2021 with the addition of the Maari project, offshore New Zealand, which remains accretive to the portfolio and which continues through the transition process.
With the delay in the Australian infill wells, the company is now targeting a 2020 average production range of 12,000-14,000 bbls/d.
The Company is on track to deliver its maiden dividend in 2020.
Paul Blakeley, Jadestone President and CEO, commented: “With the potential for significant longer-term demand destruction for crude oil due to the COVID-19 pandemic, as well as over-supply following a lack of cohesion around OPEC+ production quotas, we have elected to take the most conservative measures possible by eliminating almost all of our discretionary capital spending for the remainder of the year.
“We are fortunate to have this flexibility, and will, therefore, defer the Stag and Montara infill wells until next year, rather than investing into new wells which will deliver a high volume of production into a low oil price world”.
Blakeley added: “Deferring the two infill wells not only sets us up to remain more resilient during this uncertain time, but also allows us to potentially lock-in lower service costs next year, ahead of what we anticipate will be a recovering oil price environment, and achieve a better return for investors”.