Horizon Oil Limited (HZN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Mike Harding, and I'm the Chairman of Horizon Oil Limited. Before beginning the meeting, we acknowledge the traditional owners of the country on which the Board is present today, the Gadigal people of the Eora Nation. We pay our respects to their Elders past and present. I would like to welcome you and officially open our Virtual Annual General Meeting for 2020. Based on the numbers of the members attending online, I declare a quorum for this meeting. The business for today's meeting will begin with an address by myself, followed by your CEO, Chris Hodge. We will then conduct the formal business of the meeting with a live vote by poll. I would now like to introduce my fellow directors. Your Chief Executive Officer, Chris Hodge; Greg Bittar and Bruce Clement are present with me in Horizon's office. I'll ask Bruce to say a few words when he stands for election. I also introduce Gerrit de Nys and Sandra Birkensleigh who are joining remotely from Queensland. Our Company Secretary, Kylie Quinlivan, is also present. And I note that Sean Rugers, representing our auditors, PwC, is available today to answer questions on the auditor's report later in the meeting. Before beginning the formal business of the meeting, I would like to outline today's procedures and protocols. We've received some questions before the meeting. Questions can also be submitted at any time during the meeting. [Operator Instructions] Please note that while you can submit questions from now onwards, I will not address them until the relevant time in the meeting. Please also note that your questions may be moderated if we receive multiple questions on one topic. Only those persons registered as shareholders or duly appointed representatives or proxies are eligible to ask questions. Voting today will be conducted by the way of a poll on all items of business. In order to provide you with enough time to vote, I will shortly open the voting for all resolutions. At that time, if you're eligible to vote at this meeting, a new polling icon will appear. Select this icon, will bring a list of resolutions and present you with the voting options. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. You do, however, have the ability to change your vote until the time I declare the voting is closed. Maria Dzopalic of Computershare has been appointed as our returning officer. Following confirmation by Computershare, final [ proxies ] voting resolution results will be announced to the ASX later today. I now declare voting on all the items of business open. The polling icon will soon appear. Please submit your votes at any time, and I will give you a warning before I move to close the voting. The meeting will consider the items of business outlined in the Notice of the Meeting. A notice advising how to address the access to the meeting documents included in the Notice of the Meeting were sent to all shareholders on the 19th of October. Any undirected proxies in my favor as Chairman will be voted in favor of the resolutions. Ladies and gentlemen, it will be an understatement for me to say that this has not been an interesting year. But despite the challenges presented by COVID restrictions and a 20-year low oil price, we were successful in generating strong levels of free cash flow, which allow the repayment of $24 million of debt and for the first time in over 10 years, returned the company to a net cash position. As a result of our low cash operating costs, currently less than $15 a barrel coupled with modest hedge position, we were able to weather a period of sub-$30 oil to post an underlying profit before tax of $15 million. Looking forward, we can expect recently sanctioned project, 12-8 East project, to produce first oil early in calendar year 2022. And together with 2 development wells to be drilled later this year, we can target substantially flat production volumes for the next 3 years. These short-term capital expenditures will be funded out of cash flow, together with our $23 million of debt to be repaid over the next 18 months. We are listening to our shareholders, and a return to shareholders is a high priority. The Board reviews this important topic regularly, and we are looking to balance capital expenditure, growth aspirations and liquidity to deliver a return either in the form of share buyback or dividend. We are pleased now that we have substantially put the allegations of 2011 corruption in PNG behind us. The Board, back in February, reacted rapidly and appropriately by setting up an Independent Board Committee, which then commissioned a thorough investigation conducted by Herbert Smith Freehills and assisted by Deloitte. The investigation, which reviewed nearly a million documents as well as forensic analysis of all our electronic devices, failed to establish any breach of Australian foreign bribery laws. Keeping with PNG, last month we announced that Horizon sold its PNG assets for $3.5 million, a clean exit. This decision was a tough one for the Board considering that PNG has been a pivotal part of the fabric of Horizon over the last 15 years. But it was the right decision. PNG for us had become commercially more and more challenging. Volatile commodity prices, remote location, lack of infrastructure and political uncertainty were all factors as well as the significant cash drain by simply putting the licenses on care and maintenance. The exit of PNG now allows us to devote company resources to refocus and deliver its growth objectives. Over the course of the year, we've increased our focus on sustainability and for the first time are reporting against the recommendation of the Task Force on Climate change-related Financial Disclosures, TCFD. We firmly recognize the responsibility and the role that Horizon must play to support the lower emissions future, and Horizon's growth strategy will take into account climate change. I will now ask Chris to provide an update on the group's operations and most importantly, its growth strategy before returning to the items outlined in the Notice of the Meeting.

Okay. Thank you, Mike. I propose initially to talk about the rationale for the PNG sale, and then I will say some words about the macro energy environment and our response; then the company, its 2020 results, asset performance and outlook; and finally, I will present our growth strategy and lastly, our plan to create shareholder value. So last month, Horizon announced that it agreed to sell its PNG portfolio of contingent resources for USD 3.5 million. We anticipate the transaction will complete early next month. I want to address our PNG sale upfront because as the Chairman noted, PNG has been an important part of the fabric of Horizon for the last 15 years. Shareholders' response to the PNG sale has been mixed. We have received some considerable support from shareholders and analysts that saw PNG as causing an overhang to our share price. But in contrast, however, some shareholders have been concerned that the price agreed for our PNG assets does not appropriately reflect the option value for these assets. So my intention here is to give you a sense of the very real challenges we face in PNG and why we consider the decision to divest PNG assets now as the right one for Horizon. There have been a number of questions, quite understandably, very reasonable questions from some of our shareholders about the PNG transaction, and we'll be addressing those in detail during the Q&A session later today. Firstly, though, some background. The key point to understand about our PNG portfolio is that it contains contingent resources. And in order for those contingent resources to have value and be commercialized, 2 essential criteria must be satisfied. The first is a pathway to commercialization, and the second is sound fiscal conditions. Our PNG assets were primarily wet gas fields with a large aerial extent, particularly in the case of Elevala and Ketu. These fields are located in the Western Province. For those not familiar, the Western Province of PNG has very few roads. It is a low-lying virgin rainforest traversed by waterways in a tropical, high rainfall climate. Access for people and supplies is challenging, and ultimately, this brings cost and time uncertainties to a major project. So let's consider the commercialization pathways. Stanley, Elevala and Ketu are gas condensate fields. To extract the condensate, this gas must first be produced, the condensate stripped out and the gas either reinjected or if there is a market, sold. Currently, there is no meaningful market for gas, so it would need to be reinjected. This process is expensive. Stanley's CapEx is estimated by Horizon to cost in excess of USD 150 million gross with the condensate shipped via river tanker on the seasonal Fly River to Port Moresby. Economics, in our view, are marginal at best. Commercialization of Elevala/Ketu, in our view, relies upon the PNG LNG expansion project proceeding, specifically the pipeline extension to P'nyang. And the capital cost of developing Elevala/Ketu approaches, in our estimation, AUD 1 billion. While the state has publicly expressed support for third-party access, it is not mandated. Negotiations between ExxonMobil and the PNG government have stalled. And in addition, the impact of COVID-19 on future LNG demand has meant that the LNG supply gas anticipated for the mid-2020s has been deferred by a few years. These are Oil Search's words, not mine. We anticipate earliest condensate sales would be from 2030 and the earliest gas 2035. For the same reasons, a stand-alone Western LNG project is unlikely to get traction for many years to come. It is a small LNG project requiring over AUD 6 million -- AUD 6 billion in CapEx. Other attractive commercialization pathways have been explored, gas to power and small-scale LNG, for example. However, for one reason or another, primarily poor risk economics, these options never gained traction. In summary, in the current economic environment, commercialization of these assets is expensive, long-dated and would provide marginal returns. So now let's look at the fiscal conditions. With CapEx in the order of $1 billion with lead time plus project life of 20 to 30 years, stability and certainty are required. The mooted exit of some Australian banks from PNG raises funding uncertainty. Furthermore, oil prices, LNG prices and energy demand need certainty, which is hard to achieve in this currently extremely volatile energy environment. When Horizon drilled Stanley and Elevala/Ketu, oil was more than $100 per barrel. And today, BP's long-term outlook, as an example, shows flat USD 50 per barrel. The PNG government has been increasingly vocal about increasing the level of state take from resource projects. This desire is one of the primary drivers for the proposed transaction in PNG from the existing concessional licensing system to a PSC regime and the recently introduced national interest test in assessing development applications. Against that backdrop, the ability to reach a binding, mutually agreeable position with the state on fiscal terms is challenging, as we have seen with P'nyang and more recently with the Pasca development. So certainty of tenure remains a concern. Recent legislative changes in PNG introduced earlier this year are a special cause for concern. These include changes that give the Petroleum Minister absolute discretion on whether to approve or not a development license application. The removal of statutory provisions also provided a proponent an opportunity for recourse in the event of an adverse decision. It is worth noting that PRL 21, which contained Elevala and Ketu, actually expired in 2014 and is held over pending a decision on the joint venture's existing development plan for $1 billion condensate stripping development. On top of all that, the AFR allegations, at the heart of which is a tenure-related dispute, have not enhanced our reputation in PNG. So these issues, uncertain, long-dated, capital-intensive projects coupled with legislative and fiscal uncertainty, have the effect of severely degrading the present value of our PNG contingent resources and led to the $67.3 million impairment charge during financial year 2020. Look, I'd like to acknowledge the fine work carried out by Horizon management and staff for well over a decade to discover, appraise and assemble a significant contingent resource of gas and condensation in a challenging and remote environment. However, taking into consideration all of the foregoing, deliberately and objectively, the Board was firmly of the view that the materiality of the PNG opportunity ceased to justify the associated risks, additional capital and management attention, and Horizon will be better placed to secure a clean exit to allow the company to focus on maximizing the value of its oil-producing assets and on proactive growth. Over the years, Horizon has done a good job in attempting to extract value and the strategy nearly worked. But with no sense of time frame to commercialization until well into the next decade, we decided to call time and move on. The alternative is to spend another 5 to 10 years promising and not delivering. So moving on to the macro energy environment. This is another area that we need to address head on from both the opportunities and risk perspective. One thing is clear, we cannot look to the past as a predictor of the future. This is highlighted by the graph on the bottom left from the 2020 BP energy outlook. The future trends are subdued demand for oil, but with the outlook for gas somewhat more optimistic over the next 10 to 15 years, spurred along by broad-based demand and the increasing availability of global supplies. In the short to medium term for oil, we note the forward curve and predictions by the majors. They range between $50 to $60 per barrel through to 2025. However, we know that suppliers are reduced by lack of investment and by premature field abandonments. We believe there is the potential for a price spike mid-decade as a result of these fundamentals, especially when comparing with historical oil price volatility. We don't know precisely what's going to happen in the future, but we do know that the energy market will continue to be disruptive. And we need to be prepared in order to manage the risks and especially also to recognize the opportunities. And being prepared means we keep our operating costs low, maximize production and maximize the possibility for value-adding opportunities from our existing assets. In addition, we have the flexibility to assess each current situation and make the right decision as to growth at that time. We will also continue to improve our ESG response, which is becoming increasingly important, particularly in order to secure funding and investor support. We have made a lot of progress over the last year, and we've been under intense scrutiny following the AFR allegations. We are proud of our sustainability report, and investors and lenders should be assured that we're near the top of the class in this area, particularly for a company of our size. So turning now to the company, the 2020 financial results and the assets. So this slide shows the significant improvements made over recent years to earnings and profitability. For financial year '20, EBITDAX is just over USD 50 million. All reference to dollars from hereon are in U.S. dollars. So with a strong underlying profit before tax of approximately $15 million. These strong earnings were not only generated from the continued strong production, but also through material reductions in capital and cash operating costs per barrel, which were maintained below $20 per barrel produced. Impressively, cash operating costs in the second half of the year were reduced to below $15 per barrel. These cost reductions were largely driven at Maari following a number of initiatives implemented by the operator. This slide shows the continued free cash flow generation with the orange line in the chart on the left normalized to exclude the cost of recovery cash flows. This again highlights the strong performance in financial year '20, which had the second highest free cash flow generation in the last 5 years despite the COVID-driven headwinds during the second half of the year. Importantly, it shows the disciplined investment in exploration and development activities over recent years. It is noted that financial year 2018, investing cash flows included $17.6 million associated with the acquisition of the additional 15% in the Maari field. This strong and sustained free cash flow generation has aided the company in driving debt reduction in recent years. And this can be seen clearly in the chart on the right with an impressive 101% reduction in net debt in financial year 2020 to a modest net cash position of $0.5 million. The significant debt reduction has strengthened the balance sheet, providing greater resilience during the current economic climate and placing the company in a favorable financial position to produce growth opportunities -- to pursue growth opportunities. Our net cash trend has continued to build, and at the end of September, we were around about $5 million net cash. With regards to China Beibu Gulf, Beibu continues to be the star performer in the Horizon stable and contributes nearly 70% of the current company's cash flow with operating costs at less than $10 per barrel. Whilst our Beibu oilfields are conventional oil fields, which ordinarily suffer from natural reservoir decline, the joint venture has managed to maintain gross production at an average of over 9,200 barrels per day for over 7 years since first production commenced. When production dipped below the long-term average this year, a workover program was undertaken to restore and enhance production back to around about 9,200 barrels per day. The sustained production rates since first oil have been achieved through infill and near-field drilling, installation of additional water handling capacity and production optimizing workovers. In the near term, production rates are forecast to be maintained through the recently approved 2-well infill drilling program scheduled later this calendar year. And this will be followed by the 12-8 East development, which is targeting first production in early calendar year 2022. We are pleased that our 12-8 East project has commenced, and I'm happy to report that the development is already 20% complete with fabrication work continuing. The development concept involves a leased platform with 5 production wells in the shallow Jiaowei reservoir, 1 production well into the deeper Weizhou reservoir and 1 water injector well. This is Phase 1. And if it is successful, there is the potential for 2 further additional development phases via the drilling of more horizontal wells. We anticipate first oil by early 2022, and the forecast cost is $15 million net to Horizon based on current oil price forecasts. The cost of the project is linked to the oil price: low oil price, cheaper development. This is an example of how commercially aware CNOOC is as a partner and maximizes the chance for strong project economics. A further benefit from this development is that it provides an additional hub from which to appraise and develop nearby discoveries and to drill near-field opportunities. The objective of the joint venture is to continue to sustain production rates well into the future as has been successfully achieved in the past. The current producing fields have a current contractual and economic production life until 2028 with the PSC running to 2030, and field decommissioning costs have been prepaid into a sinking fund. Accordingly, these fields are expected to continue to generate strong free cash flows for the group over the medium to long term. Turning now to New Zealand. If Beibu is the star performer in the stable, Maari is the workhorse. Maari continues to be a solid asset for the group with a low decline rate, long-lived production and further opportunity to enhance value. Currently, it contributes approximately 30% to Horizon's cash flow. We are encouraged by the potential value to be unlocked by Jadestone, the proposed new operator and joint venture partner in the Maari project. Jadestone have strong operating capability and appear to have good alignment with Horizon on the future production potential at Maari. Jadestone have also indicated further potential operating cost optimizations and potential for field life extension into the next decade. Despite some COVID-related production issues during the year, with 3 wells requiring workovers which were delayed due to restricted activity, we managed to maintain production throughout the lockdown period in New Zealand. 2 of the 3 workovers have been concluded, restoring some 1,000 barrels per day, with the final workover to take place in quarter 1 2021. Jadestone, as the replacement operator for OMV, is committed to the transaction, which is expected to close by the end of the year. Looking forward, we anticipate that operations will continue to be streamlined, and the joint venture will be reviewing opportunities, such as infill drilling or bypassed pay, to move resources from the contingent categories to the proven and probable reserves category. We are conscious of the abandonment obligations in New Zealand and have made appropriate provisioning in our accounts. We do not anticipate the abandonment obligations arising until at least the end of the current license period in 2027 and potentially well into the next decade subject to the successful outcome of life extension activities. This year, we increased our focus on sustainability and for the first time, engaged a consultant to undertake a materiality review. The materiality review identifies the ESG issues that present risks or opportunities to the business. We encourage you to read it in your own time by pressing on the link embedded in the presentation. Just briefly then, our priorities are HSE: no spills, a low total recordable injury frequency rate and asset integrity. This calendar year-to-date, we are pleased to advise that we achieved a commendably low TRIFR of 1.36 compared with our internal target of 2 and with NOPSEMA's benchmark of 4.08. This is particularly pleasing given the high number of well interventions that were carried out at both Beibu and Maari. On governance, we expect the highest standards of integrity and ethical and transparent behavior. And on people, employees and communities, we recognize the importance of empowering employees, promoting diversity and wherever possible, to invest in communities. With respect to climate change, our response, be it a role in mitigation or in responding to the effects of climate change, is now increasingly embedded in our decision-making processes. Scope 1 and Scope 2 emissions are already 72% offset, and we proactively engage with our operators to reduce Scope 1 emissions. Turning now to business development. Our base strategy is to secure a growth asset to achieve long-term shareholder value. In the last months -- in the last 6 months, we have reviewed many business opportunities -- in the last 6 months, we have reviewed many business possibilities in the focus area primarily of Australia and Southeast Asia with a simple objective that by acquiring the right asset or assets, we can achieve long-term shareholder value. We have looked at many possibilities, ranging from producing to appraised to newly discovered to undiscovered. We have a very good sense of what is available and what constitutes the right asset or assets. We also need to be smart about our deal mechanism. We have considered farm-in, cash purchase, vendor finance, corporate or any combination of these. We tend to avoid competitive bid processes, preferring instead to deal with companies and individuals with whom we have a strong relationship. Our preference is for gas, preferably long-lived, producing or soon to be producing, ideally in a new jurisdiction to balance country risk. If we can add less mature assets as part of any deal, for example, appraisal or exploration, so much the better. I mentioned strong ESG credentials on the slide. And by that, I mean, we would have preference for low CO2 gas, low contaminant oil and well-maintained mid-life assets with an operator which is similarly minded. As to jurisdiction, we're not necessarily wedded to Australia and Southeast Asia. But this is our part of the world, and we know it the best. We have also reviewed some opportunities in the U.K. and South America. It is important to recognize that we know the business of growing companies very well. We understand the benefits and the pitfalls, and I am backed up by an excellent technical and commercial team. But if the right asset isn't forthcoming in a reasonable time frame, we will review our strategy accordingly. So by way of conclusion, look, we have a very strong balance sheet and low cost production. We are resilient in a low cost -- in a low price -- oil price environment with low OpEx, maintaining high levels of production. We continue to generate significant free cash flow applied to pay down debt and fund growth. Producing assets have significant incremental growth potential, new projects and infill wells. Significant progress on implementation of a growth strategy. We are seeking scale, diversity and optionality. And we aspire to return to the ASX 300 but in a measured low risk way, professionally and responsibly. Finally, let me just talk about what steps are being taken to improve shareholder value. It's a simple but fundamental question, but the answer neatly encapsulates Horizon's strategy. We are out to create long-term shareholder value. We have the people, the skills and the systems in place to do this. So number one, we focus on the assets that carry the most value, that is, our producing assets at Beibu and Maari. Secondly, we make strategic decisions to maximize expected value, such as actively seeking to acquire a growth asset or assets. Thirdly, we need to secure that acquisition or acquisitions to maximize expected value. And fourthly, return cash to shareholders, this is our goal. And that brings an end to my presentation. Look, thank you very much for your time.

Thank you, Chris. Very good and very comprehensive presentation. Given that the Notice of the Meeting has been sent to all registered members, I move that the Notice of the Meeting be taken as read. The minutes of the previous Annual General Meeting has been approved and signed in accordance with the Corporations Act. A copy is available for inspection at Horizon's offices should any member wish to do so. We will now move to the business of the meeting, which includes the resolutions to be put to the meeting. Prior to each resolution being discussed, the proxies that have been received on that item will be displayed. As mentioned earlier, all resolutions will be decided by a poll, and a live vote is now open for all items of business. Item 1, the financial report. The financial report, director's report and independent auditor's report are now open to discussion. There's no requirement for shareholders to approve these reports. Accordingly, item #1 is for discussion only, and there will not be a vote on this item. I'll remind you that only shareholders of the company or their duly appointed representatives or proxies are permitted to ask questions. If you do have a question, please submit your questions online. I will now ask Kylie Quinlivan, the company's Secretary, to read out the questions received on the financial report.

Thank you, Mike. Our first question, I will direct to our CEO, Chris Hodge. The first question, Chris, is what steps are taken to improve shareholder value?

Okay. I responded to this question in my address. There are 4 key steps: firstly, to focus on the assets that carry the most value, that is, our producing assets at Beibu and Maari; secondly, to make strategic decisions to maximize expected values, such as proactively seek to acquire growth assets; thirdly, to secure an acquisition to maximize value; and fourthly, to return cash to shareholders.

Thanks, Chris. In preamble to our next question, the shareholder quotes the annual report as follows. The Chairman, in his message within the 2020 Annual Report, stated that the Board has high aspirations because we're committed to the challenging goal of readmission to the ASX 300. Then the shareholder asks 2 questions. The first, I'll direct to you, Chris, as CEO; and the second question to Mike Harding, our Chairman. So Chris, while similar to our last shareholder question, a shareholder has asked, "Can you please outline what specific initiatives the Board has taken or is planning to take over the next 1 to 2 years to achieve this goal? This is particularly relevant given the significant decline in the company's share price since the beginning of 2020."

We have set ourselves the goal of readmission to the ASX 300 in 3 to 5 years because it is both challenging and achievable. We need a challenging target to be motivated and focused, a clear goal. The specific pathway we have taken is to secure a suitable growth asset, not easy in this environment. Yet because we are at a low point in the cycle, in the medium term, we have the best uplift potential. This is when the best deals are often done. For the type of asset, I don't want to go into too much detail on what we've looked at, but the idea would be a producing or to be producing long-lived asset, probably gas, deferred CapEx timing with plenty of value-adding opportunities such as appraisal or exploration. A significant basin and prolific petroleum system would be a plus. Once we get some traction, I believe that recognition, scale and interest will follow and with it, share price appreciation. Again, I want to stress that our strategy is not growth at any cost. If we don't identify or secure the right asset at the right price at the right time, we will not persist with the strategy.

Thanks, Chris. Mike, the second part of this shareholder's question is what other actions will the Board take to maximize shareholder value, for example, dividends?

Thank you, Kylie. Whilst Horizon is targeting free cash flow of USD 25 million over each year for the next 3 years, the near term, free cash is committed. Horizon has outstanding debt of USD 23 million; field development CapEx for 12-8 East of $50 million, net to Horizon; an infill drilling program cost of $5 million, net to Horizon. The company also has growth aspirations which will need capital as well as its operational commitments, including cash calls. And given the nature of our business with high risk from the oil price, Horizon also needs to maintain sufficient working capital and liquidity. The Board continues to review capital management and is looking to balance capital expenditure, growth aspirations and liquidity to deliver return either in the form of a share buyback or a dividend, and we have listened to our shareholders recently on this matter.

Thanks, Mike. We've also had a number of questions on the proposed PNG sale. The first, Chris, please advise shareholders the value of the company's assets that have been invested in PNG over the past 5 to 10 years over and above the amount written off in this year's annual report of USD 67.3 million.

The group had a total net investment of a little over $100 million in PNG over the last decade and approximately $40 million more than the amount written off in this year's annual report.

Please explain what process the board took to realize maximum value for shareholders when it proposed its divestment of the PNG assets to Arran Energy given the amount invested in PNG today.

The assets have been in effective sale mode for over 4 years by other parties, processes that started in much better economic times, and the established players and other major PNG developments expressed no interest, no interest in acquiring the assets. We considered 4 different proposals for the PNG assets in 2020 and 1 expression of interest. Of these, 3 were considered to be bona fide, and 2 progressed to the level of due diligence by external advisers. The deal terms negotiated with Arran Energy, including consideration of $3.5 million, are superior to the other proposals. Look, holding isn't free in PNG. We've estimated $1 million to $1.5 million per annum, net to Horizon, over an unspecified period. Perhaps significantly more, funds are needed for on-ground activity in order to maintain license tenure, which as I've already described is already tenuous. The Osaka Gas, $130 million contingent obligation, was challenging to be realized. The threshold for triggering its payment is FID of an LNG project in which Osaka Gas is entitled to take its share of LNG in kind on an equity basis. The basis for the contingent payment is framed around Western LNG, which we now know is unlikely to happen. An export of condensate [ and NGAS ], a few years later via P'nyang pipeline may not qualify for the payment. And anyway, Osaka Gas and Horizon were commercially misaligned as a result of the lopsided contingent obligation, adding a further hurdle to overcome. Repsol, Mitsubishi and Osaka Gas, all significant, well-funded LNG or big gas players in their own right, have each exited. Repsol and Mitsubishi did so pre-COVID when there was a much more buoyant LNG outlook. We are not saying that we should exit simply because they exited, but there's a pretty strong message to be learned when the big LNG players turn tail. While not permitted to go into detail, let me say that we are very confident, very confident that our deal in a low oil price -- in a low oil and gas price environment is significantly superior to that achieved by these other parties, especially when the effective value of the sales at Horizon is $9.3 million when the clean exit with no residual liabilities. Currently, totaling approximately $5.8 million is taken into account.

Thanks, Chris. Another question. "Mr. Hodge, in the September corporate presentation, you say that you plan to take advantage of the buyer's market presented by COVID, yet you've only sold assets. Isn't this an admission that you're selling at the bottom of the market despite the company's strong financial position?"

Thank you. As discussed in my address, we consider that the option value of our PNG assets is diminished by the challenges presented by the location of the resources and the commercialization pathway, the PNG fiscal conditions and certainty of tenure. Holding the assets also comes at a cost of approximately $1 million to $1.5 million per annum on a purely care and maintenance basis.

Chris, given the recent political changes in PNG, the price of the divestment looks even more absurd. Can the company back out of this agreement in anticipation of a more business-friendly government?

Thank you for that. As I outlined in my earlier address, the company is committed to the PNG divestment and views it as the right decision due to all of the issues I've mentioned. The price of the assets is reflective of these issues: uncertain, long-dated, capital-intensive projects with legislative and fiscal uncertainty.

We've also received a number of questions regarding sustainability. The first, after revising its long-term oil price assumption down to $60 a barrel, Horizon recorded an impairment of USD 67.3 million, amounting to 41% of 2019 financial year exploration and oil and gas assets. What is the sensitivity of the remaining value of exploration and oil and gas assets to further reductions in the long-term oil price? For example, what scale of impairment could we expect if Horizon adopted the oil prices forecasted under the IEA's Sustainable Development Scenario, being $57 in 2025 and falling to $53 in 2040?

Okay. Thank you for that question. As reported in the group's sustainability report, the group's remaining assets are resilient to oil prices under the IEA Sustainable Development Scenario, and we would not anticipate impairments under these price forecasts.

The next question is for our auditor, Sean Rugers, who is present. For the conduct of the audit, did the auditor consider the inconsistency of Horizon's long-term oil price assumption and the prices forecast under scenarios consistent with the Paris Agreement's goal of limiting warming to 1.5 degrees?

Thanks, Kylie, and thank you for the question. Before addressing any specific questions, I'd just like to first explain for clarity our role as auditor of the company's financial report. Management is responsible for the preparation and presentation of the financial report and prepares that report in accordance with the applicable financial reporting framework. The Board of Directors then approves that financial report, including [ that it's fairly ] presented. The auditor's responsibility then is to give an independent opinion on the financial report taken as a whole as to whether the financial report is prepared, in all material respects, in accordance with the Corporations Act of 2001 and the Australian accounting standards -- auditing standards. As the auditor, we provide reasonable but not absolute assurance that the financial report taken as a whole is free from material [ in the statement ]. So then in answering your specific question, I'll turn your attention to our audit report that's contained in the annual financial statements and in particular, the key audit matter that is disclosed in that audit opinion. As part of our audit work, volatility of global oil prices was identified as a key factor in determining that impairment was a key audit matter. And therefore, as part of our audit procedures that were undertaken to address this key audit matter, we assessed each of the key assumptions undertaken by management, which included the group's forecast for oil prices. And we know that these were developed from a range of global broker forecasts.

Thanks, Sean. Another question regarding sustainability. Horizon's financial year '20 scenario analysis assessed only the Beibu and Maari production assets. With similar analysis conducted on the 12-8 East project before the final investment decision was made, is the project expected to generate an acceptable rate of return under the IEA's latest Sustainable Development Scenario?

Thank you for the question. As I mentioned in my address, the 12-8 East development has operating and capital costs linked to the oil price, ensuring that the project is resilient to oil prices down as low as $35 per barrel, well below the IEA Sustainable Development Scenario.

Thanks, Chris. Next question. What makes the Board think that investors in Horizon, an oil and gas company, hear about the company's response to climate change and sustainability? It is not logical that one would hope to have an impact in this area through their investment in oil and gas.

Thank you again for the question. Look, it's increasingly apparent that it is critical for public companies to have strong ESG credentials if they are to attract and retain investors and importantly, to assess excess financing. For Horizon, our Maari field in New Zealand is subject to the New Zealand Emissions Trading Scheme, such that there is a direct financial impact on the company and our shareholders associated with our response to climate change.

Thank you, Chris. Now -- sorry. There's one other sustainability question. Can the company commit to assessing any potential investment in a significant growth asset against a scenario consistent with holding global warming to 1.5 degrees before making such an investment?

Yes, as mentioned in my address, our acquisition strategy will consider ESG as a key element, as a key element in our decision-making process.

Sorry, we're just -- next question. Chris, what is a reasonable time frame for an acquisition? The Board has done nothing for the last 2 years. Why should shareholders believe you're going to do anything now?

Look, we are focused on achieving growth. I went to this in some detail in my presentation. But we are focused on achieving growth in the near term, ideally in the next 12 to 14 months to 18 months.

And a question on our investigation, Mike. Can the Chairman please address the company's response to the allegations contained in the AFR? How much did the investigation cost? And why was it necessary? Why could the Board not review the documents themselves and make a decision? Does the company intend to take legal action against the AFR or the individual who leaked the confidential documents?