It is hard to see why the share price of Jadestone Energy (JSE) has dropped recently as there seems to be little reason for it to have done so, and on that basis it definitely deserves closer attention. Shares in this Australian and South East Asia focussed oil and gas production and exploration company are currently trading at around 49p, but have dropped back by around 10% in the past couple of weeks and are down around 20% from their peak in July, meaning that the company is now valued at around £225 million. There hasn’t really been much in the way of significant news during that period, and if anything the financial results which it published at the end of last month were good, but yet it has continued to decline on low volume. This does make me wonder if maybe there is a seller in the background, although there haven’t been any holdings notifications to that effect.
Last year the company completed the acquisition of the offshore producing Montara field for $195 million, with $120 million of that coming from a reserves based lending facility, and it has already generated enough cashflow from the asset for its balance sheet to show that the net debt generated as a result of this has already been wiped out. Official transfer of operatorship is still to happen, but the recent safety case was the final hurdle that needed to be negotiated and operatorship should transfer to Jadestone soon. In addition to Montara, the company also has production from its other Australian asset, Stag, and combined production for Q2 2019 averaged 13,315bbls/d – down 8% on Q1 but up nearly 300% on Q1 2018, and the slight drop in production for this quarter was due to work, plus the weather. Guidance for the full year remains at 13,500-14,500bbls/d, with the bulk of that coming from Montara, which produced an average of 10,700bbls/d for Q2. Revenue has also been very strong, with $171.7 million generated in H1 2019, and that resulted in free cash flow of $96.4 million, and a net profit of $30.9 million.
During H1 the company managed to reduce its overall debt from $86.6 million to $73.4 million, and full year capex is expected to be in the $73-88 million range. Everything points to Australia, and Montara in particular, proving to be very profitable for Jadestone for quite a few more years to come, especially with Opex down in the $21-24 range. Anyone who has taken a detailed look at the balance sheet will have noticed a provision for nearly $300 million listed under liabilities, but this relates to the eventual decommissioning of Montara and Stag, and isn’t expected to be incurred until 2032 onwards. In addition, the company also has the Nam Du and U Minh gas and oil fields in Vietnam, where a final investment decision is expected to be taken at the back end of this year, and combined 2C contingent resources currently stand at more than 31mmboe. Longer term, further upside could come from the Tho Chu block in Vietnam, which has 2C of nearly 64 million boe, but a decision on its development isn’t likely any time soon, as the development of the other assets is a priority first. There is also potential in the Phillipines at its 25% owned SC56 block, but Total, which farmed in for 75% in 2012, didn’t drill an exploration well under the terms of the agreement, and arbitration is ongoing. Previous discoveries at this block attribute 2C of 21mmboe to it. The company could also re-enter a production sharing agreement with Pertamina in Indonesia for up to 40% of the Ogan Komering block – it previously had a 50% interest in 1,500boe/d up until the PSC expired in May 2018.
Given the current market cap and everything that it has going on, as well as expansion potential in the future, I’ve found it hard to find anything about the company that I don’t like, which is rare on AIM. There are of course risks relating to commodity prices, as there are with any company in this sector, but given the opex cost per barrel and the fact that the Australian oil trades at a significant premium to Brent, I wouldn’t anticipate that being a problem, other than with a complete crash in the oil market. This looks one that is being overlooked by many people – it doesn’t provide the huge share price swings that many of the AIM gamblers are looking for, but looks to offer a lot of upside potential as a longer term investment.
Filed under: Jadestone Energy, Carson Block, Muddy Waters, Burford, Woodford, I3 Energy
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