Acquisition of Interest in North West Shelf Oil Producing Fields

Source Press Release
Company Jadestone Energy plcBP Plc. 
Tags Asset Deals, Deals, Upstream Activities
Date July 28, 2022

Jadestone Energy plc ("Jadestone", or the "Company") an independent oil and gas production company focused on the Asia-Pacific region, is pleased to announce that it has executed a sale and purchase agreement (the "Agreement") with BP Developments Australia Pty Ltd ("BP", or the "Seller"), to acquire the Seller's non-operated 16.67% working interest in the Cossack, Wanaea, Lambert, and Hermes oil fields development (the "North West Shelf Oil Project"), offshore Western Australia, for a total initial headline cash consideration of US$20 million, to be funded from the Company's cash resources, and certain subsequent contingent and decommissioning payments (the "Acquisition").

Paul Blakeley, President and CEO commented:"

This acquisition is another example of our strategy in action, acquiring low-cost barrels at less than US$3/bbl, while establishing an entry position into a very high-quality long-life asset with very low decline rates.  We believe that over time we can exercise increasing influence and deploy our skills in mid-life oil field management.  In particular we see material upside potential through infill drilling into reservoirs with very significant oil-in-place and, together with optimisation of operating costs, the life of the producing fields can be extended for several years.  In the near to mid-term, further interests in the asset may become available, over which we would have pre-emption rights.  We will initially participate in the joint venture without any incremental headcount or cost and will fund the acquisition through existing cash resources.

"The acquisition also fits well with our sustainability principles and climate strategy with flaring minimised due to available gas export infrastructure, and we look forward to working with the joint venture partners to further minimise the greenhouse gas footprint of the acquired assets.  We also believe recovery from existing upstream assets should be maximised to provide the resources required to support near-term transition towards a low-carbon future.  In addition, we will fund our share of the forecast decommissioning costs for the assets through early payments, demonstrating our commitment to providing clarity on this important issue for all our stakeholders."

Highlights

·    A tuck-in acquisition, within Jadestone's Asia-Pacific core area;

·    Jadestone is acquiring 10.4 mmbbls[1] as at an effective date of 1 January 2020, comprising 1.5 mmbbls of production since the effective date, 5.1 mmbbls of 2P reserves and a further 3.9 mmbbls of 2C resource. Based on a consideration of US$24 million[2], this represents an acquisition cost of ~ US$2.30/bbl. The transaction includes the Seller's entire 16.67% working interest in the CWLH fields, subsea infrastructure, FPSO, and full abandonment liabilities estimated at US$82 million;

¡ In addition to the consideration, Jadestone will also pay US$41 million upfront into the decommissioning trust fund for the assets.

¡ It is anticipated that, due to an effective date of 1 January 2020, any closing adjustment will significantly offset the initial headline cash consideration and US$41 million decommissioning payment.

¡ Jadestone will make further payments to the decommissioning trust fund via two equal instalments of US$20.5 million payable on or about 31 December 2022 and 31 December 2023.

·    A recent independent expert report1 prepared for the operator of the North West Shelf Oil Project valued a 16.67% stake at approximately US$80 million, based on an effective date of 1 January 2022;

·    Cash flow positive oil production of approximately 2,100 bbls/d net to Jadestone, based on average production from the North West Shelf Oil Project in 2021; 

·    Oil production from the North West Shelf Oil Project is low-sulphur, low-density and commands a premium to Brent;

·    Unit operating costs for the Seller's interest are estimated at US$22-23/bbl, and would be accretive to the Company's current unit operating cost guidance for 2022 of US$23-28/bbl;

·    The acquired assets are expected to generate EBITDA of approximately US$40 million in 2023 at a realised oil price of US$100/bbl;

·    Potential to add incremental reserves through infill drilling, targeting unswept oil across all four fields; and

·    Opportunity to extend asset life beyond 2031 (the initial design life of the Okha FPSO).

Overview of the North West Shelf Oil Project

Jadestone will acquire the Seller's entire 16.67% working interest in the Cossack, Wanaea, Lambert and Hermes ("CWLH") oil fields which are located within four production licences (WA-3-L, WA-11-L, WA-13-L and WA-16-L) in the North Carnarvon basin offshore north-west Australia, known as the North West Shelf Oil Project and operated by Woodside Energy Group Ltd[3]. 

The project comprises 13 subsea wells producing through the Ohka floating production, storage and offloading vessel ("FPSO").  The Okha FPSO was installed at the fields in 2011 and has 60,000 bbls/d of oil processing capacity, along with water handling and gas processing/reinjection facilities.

The Cossack, Wanaea and Hermes fields are currently in production and are estimated to contain aggregate gross 2P reserves of 30.3 mmbbls (5.1 mmbbls net) at 31 December 2021.  Gross average production from the fields in 2021 was 12,461 bbls/d (2,077 bbls/d net) with Q1 2022 production averaging 14,178 bbls/d gross (2,363 bbls/d net). 

The CWLH fields also produce associated gas, with the partners in the North West Shelf Oil Project having the rights to the gas required to fuel the Okha FPSO, with the remainder being used as feedstock in the North West Shelf liquefied natural gas project.  The CWLH fields are considered to be mid-life producing assets with significant original oil in place, which Jadestone estimates at approximately 890 mmbbls, and which provides the opportunity for further investment to increase recovery factors. 

CWLH fields 2P reserves at 31 December 2021

Licences  Fields  2P Gross Reserves (mmbbls)  Working interest in the CWLH fields[4]  Net 2P reserves attributable to Jadestone (mmbbls)  Operator 
WA-3-L WA-9-L WA-11-L WA-16-L  Cossack Wanaea Lambert Hermes  30.3  16.67%  5.1  Woodside Energy Group Ltd

CWLH fields 2C resources at 31 December 2021

Licences  Fields  2C Gross Resources (mmbbls)  Working interest  Net 2C Resources attributable to Jadestone (mmbbls)  Operator 
WA-3-L WA-9-L WA-11-L WA-16-L  Cossack Wanaea Lambert Hermes  23.2  16.67%  3.9  Woodside Energy Group Ltd

Overview of the Acquisition

The transaction is structured as an asset purchase, which includes the Seller's 16.67% working interest in the CWLH fields, subsea infrastructure, FPSO, and abandonment liabilities. 

Jadestone will pay the Seller an initial headline cash consideration of US$20 million, based on an economic effective date of 1 January 2020. This will result in the Company receiving all economic benefits from the production since that date, which will be structured as an adjustment on closing of the transaction.  Further consideration of up to US$4 million in aggregate is payable to the Seller upon certain upside scenarios, which are tied to potential full year oil price outcomes in 2022 and 2023.[5]  

On completion of the transaction, Jadestone will make a payment of US$41 million to the North West Shelf Oil Project's decommissioning trust fund.  It is anticipated that, due to the cash flow generation of the acquired interests from the effective date of 1 January 2020, that the closing adjustment will significantly offset the sum of the initial headline cash consideration and initial decommissioning payment. 

Jadestone will make further payments to the decommissioning trust fund via two equal instalments of US$20.5 million payable on or about 31 December 2022 and 31 December 2023. 

Oil is sold from the North West Shelf Oil Project on an equity basis with a typical parcel size of 650,000 bbls.  The most recent cargo of oil sold attributable to the Seller's interest was in January 2022.

The acquired assets generated EBITDA of approximately US$20 million in the year ended 31 December 2021, based on a realised oil price of US$56.28/bbl.  The acquired assets are expected to generate EBITDA of approximately US$40 million in 2023, based on a realised oil price of US$100/bbl. 

The Acquisition will be funded from the Company's on-hand cash resources, and will not impact the Company's ability to fund planned capital spending or shareholder returns.  

The Seller's interest includes Petroleum Resource Rent Tax ("PRRT") credits.  Jadestone anticipates that these credits will offset any PRRT payable on the acquired interest through to the end of the asset's life.  Jadestone has, and will continue to pay, Australian PRRT and corporate income tax on its Australian operations where applicable. 

The North West Shelf Oil Project joint venture partners have waived their pre-emption rights and given their in principle consent to the Acquisition, thus reducing the conditionality of the transaction. 

Completion of the Acquisition is subject to customary closing conditions, including regulatory approvals from the National Offshore Petroleum Titles Administrator ("NOPTA") and the Foreign Investment Review Board ("FIRB").  The Company anticipates completion of the transaction during the fourth quarter of 2022. 

Conference call 

Jadestone's management team will host an investor and analyst conference call at 09:00 (UK) / 16:00 (Singapore) today, including a question and answer session. 

Dial-in details are provided below, in addition to a link to a live webcast of the call.  The Company has posted a new presentation to its website, at . 

Webcast link: https://app.webinar.net/KAlyaPmjEB9

Event title: Jadestone Energy Management Briefing

Start time: 09:00 (UK) / 16:00 (Singapore)

Date: 28 July 2022

Conference ID: 13076170 

Dial-in number details:

Country  Dial-In Numbers 
United Kingdom  08006522435 
Australia  1800076068 
Canada (Toll free)  888-390-0546 
France  0800916834 
Germany  08007240293 
Hong Kong  800962712 
Indonesia  0078030208221 
Japan  006633812569 
Malaysia  1800817426 
Netherlands  08000227908 
New Zealand  0800453421 
Singapore  8001013217 
Spain  900834776 
Sweden  0200899189 
Switzerland  0800312635 
United States (Toll free)  888-390-0546 
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