Horizon Oil Limited (HZN) Earnings Call Transcript & Summary

Okay. When the music stops, we wanted to sit down on our chairs and value because it would be recorded. So good morning, ladies and gentlemen. I think you all know me, I'm Mike Harding. I'm the Chairman of Horizon Oil Limited. Before beginning of the meeting today, we acknowledge the traditional owners of our country which we meet today. The Gadigal people of the Eora nation, and we pay our respects to their elders past, present and emerging. I would like to welcome you and officially open our Annual General Meeting in 2022. We'd also like to extend a welcome to those members who are joining us by webcast. Do we know anybody else joining us by webcast?

I think we have...

Based on a number of voting members in attendance, I declare a quorum for this meeting. Before I commence today's proceedings, I would like to draw your attention to the safety procedures for the venue. Should you hear an alarm, the instructions will be broadcast by the building wardens regarding what action to take, either to remain in place or required to be evacuate. If you're required to evacuate, please make sure you don't use the lifts and the evacuation point is located in the forecourt of Barangaroo Tower 3, as indicated on the map. I would now like to introduce my fellow directors. At my far left is [ probitas ] Bruce Clement and the Chief Executive Officer, Richard Beament. On my right is Nigel Burgess and Sandra Birkensleigh and also joining us in our company secretary, Vas Margiankakos, did I get it, right? I'll note that Sean Rugers, representing our auditors, PwC is also available today to answer questions on the auditor's report based on the meeting. Before beginning the formal business of meeting, I would like to ask our company secretary, Vas, to outline today's procedures and protocols.

Thank you, Mike. All resolutions will be decided by way of a poll at the end of the meeting. The meeting will consider the items of business outlined in the notice of meeting sent to all shareholders on 17 October 2022. There will be opportunities for shareholders to ask questions and will be confined to the formal business of the meeting. Any of those persons holding a yellow or blue card are eligible to ask question. [ Jenna Coil ] of Computershare has been appointed as the returning officer following confirmation by Computershare. Final proxy and voting results will be released to the ASX and the company's website later today. I'll now hand back to the Chair.

Thank you, Vas. As a making of shareholders available today who can see the entire meeting, I now declare voting open on all items of business. And the undirected proxies in my favorite channel will be posted in favor of the relevant resolution. The meeting will consider the items of business outlined in the notice of the meeting sent to all shareholders on the 17th of October 2022. I would like to start the meeting with my formal address. This will be followed by the CEO's presentation. There will be an opportunity to answer questions on the presentation and then we'll proceed to the formal part of the meeting for resolution as required in the notice that we put to the matter. So ladies and gentlemen, Horizon has again posted a strong set of results for the financial year. Similar to last year, coupled with a strong balance sheet, consistent low cost production and cash generation, we're pleased to return a further AUD 0.03 per share to shareholders made up of the dividend and capital return. Our strong results reduced the sustained production levels from Maari and Block 22/12 assets which are, of course, aided by the higher oil price. Our assets in China and New Zealand are high quality and our aim is to continue to maximize production and cash flow through workovers, infill drilling and other production enhancing initiatives. We were also pleased to commence production from our new 12-8 East field development, first of all, being produced in April 2022, only 18 months after FID was achieved. This development has been a success, which has led to an immediate second phase of development drilling, which is currently underway. I would like to take this opportunity of thanking Chris Hodge for his time as CEO and I'm particularly pleased to welcome the promotion of Richard Beament as CEO. All subsequent executive movements have been filled by internal staff. In this regard, I would like to acknowledge our new executive team, comprising of Gavin Douglas, our new Chief Operating Officer. Raise your hand. [ Where are we now? ] Kyle Keen, our new CFO and our Chief Financial Officer. And Vas Margiankakos, our new company secondary. In regards to health, safety and environment, I'm pleased to announce that for 2022, Horizon achieved a total recordable injury frequency rate below the Australian NOPSEMA industry average, with a lost time industry frequency rate of 0, 0 fatalities or significant environmental incidents in 2022. The Beibu operations achieved a strong safety record with no recordable safety incidents despite significant drilling, production and project development activities during the period. The Maari operations similarly achieved a lost time industry frequency rate of 0 and 0 environmental incidents for the period. I'm pleased our lenders ANZ, Westpac and ICBC continue to support Horizon with the recently announced -- and we recently announced the extension of our debt facilities. The company has also moved offices, with the new office providing a smaller footprint or appropriate for the current staff levels. Not only does this allow for some further cost reductions, but it provides the team with a refreshed new office space, helping to foster a more collaborative working environment. Looking to the future, we will continue to work to maximize production and value from our producing assets in Block 22/12, China and Maari in New Zealand, and continue actively pursue infill well drilling and other production enhancing initiatives in our producing assets, which are providing exceptional value. We will continue to review our cash position regularly to consider further shareholder distributions whilst always keeping an eye out for other opportunities. We've continued to progress work on enhancing our ESG strategy, particularly in response to growing climate change-related concerns. We acknowledge the part we to play in increasing [ guidance or contend with ] our sustainability. This year, our report, which transparently discloses our impact on the action we've taken to a more sustainable company. To this end, earlier in the year, we announced our ambition to achieve Net Zero GHG emissions by 2050. We will continue to refine our road map for achieving this ambition. Our CEO, Richard Beament, will say more about Horizon's performance shortly. He'll also update you on the company's strategy. Rich and his team have be congratulated with their achievements in 2022. Bruce Clement, together with myself are seeking reelection today. Bruce and myself are unanimously endorsed by the Board. Finally, I would like to thank our shareholders for your valuable support during the year. I will now hand over to Richard to present the CEO's report before returning to the items outlined in the notice. Richard?

Thanks, Mike, and [ really ] it's lovely to welcome everybody to what is our first physical AGM in quite a few years. Firstly, I'd like to just turn to the disclaimer and compliance statement, which relates to today's presentation. And look, today, I'm just going to go through and basically outline and reinforce, I guess, the company's strategy, give you an update on our operations and some of the key highlights for FY '22. So Horizon's company strategy is fairly simple. We aim to maximize free cash flow from our assets. We aim to further provide distributions to shareholders when it's sensible to do so. And we want to continue to invest in production growth, focus in and around our existing asset portfolio, but continuing to keep an eye out for opportunistic growth opportunities. Importantly, we're delivering on this strategy. So in FY '22, we had very strong cash flow generation, driving EBITDAX of roughly USD 73 million. And our ability to generate such strong free cash flow is really underpinned by our very low operating costs sitting at just under USD 20 a barrel. But obviously, that was enhanced by a very high oil price sitting at around $90 a barrel through FY '22. The strong free cash flow generation has helped us to deliver significant distributions to shareholders with consecutive returns of $0.03 per share over the last couple of years, which roughly equates to 40% of the company's market cap or about a 20% distribution yield over the last 2 years. Notwithstanding these distributions, we continue to focus on production growth. As I said, focused in and around our existing portfolio. We were very pleased earlier in the year back in April to commission our first new development in some time, the 12-8 East development, and we've had very, very strong production rates from that field. That's been enhanced further with infill drilling and additional workover activities. And we're now seeing combined production across our portfolio of roughly 5,000 barrels of oil per day net, which is an increase of some 40% on the prior financial year. Just to put that into perspective, we're currently generating revenues of about USD 0.5 million a day, and that's up from about $300,000 during FY '22. It's our objective to continue to mature further opportunities in those assets to really drive and sustain the production levels from our assets. Let me briefly recap FY '22 and point out a few highlights. We had over a 70% increase in revenues to over USD 108 million, over a 100% increase in EBITDAX to $73 million, over a 200% increase in underlying profit. And importantly, this drove over 100% increase in cash flow generation, which helped facilitate the distribution I mentioned earlier. As Mike mentioned, we managed to extend our debt facilities with ICBC, ANZ and Westpac. And operationally, I've already mentioned the successful commissioning of the 12-8 East development. But I think it's really important to recognize that, that field, we took FID only 18 months prior to that field coming online, which is really a testament to the capacity and ability of our operators and the joint venture and the contract is involved to be able to bring that facility online within 18 months, notwithstanding the pandemic and the various supply chain challenges. ESG, despite the elevated activity levels, we continue to uphold a strong safety record, significantly better than the benchmarks. And on climate change, as Mike mentioned, we declared our ambition to reach net zero by 2050 and are developing a road map to achieve this. We enhanced our governance in this area with formal ESG oversight by the Board supported by a sustainability steering committee. And for the first time, the group purchased over 15,000 tonnes of voluntary carbon units to offset the majority of our Scope 1 emissions of Block 22/12, and whilst continuing to offset or purchase carbon credits for 100% of our Scope 1 emissions from our Maari field. Going forward, our desire is to focus on further direct reduction of carbon emission reduction initiatives at both of our fields, and we continue to encourage the operators of our fields to perform that. As part of our overall decarbonization strategy, we continue to evaluate various institutional grade carbon removal projects. However, for any project to be considered it's got to have positive and appropriate investment returns. Just moving on to the next slide, we've got here a snapshot of the share price over the last 12 months. Horizon share price in the red or orange, the oil price in the green and the ASX 200 Energy Index in the gray. What you can see is we're clearly heavily leveraged and linked to the oil price. But importantly, we've outperformed the ASX 200 Energy Index by quite some margin, noting we have a $0.03 distribution quite recently, which obviously brought us back in line. Just a word on oil price. About this time last year, the oil price was floating just over $70 a barrel, and now the consensus is for it to remain at or about the $90 barrel mark. Notwithstanding the higher oil price, we've seen significant underinvestment in the sector. And whilst the sentiment has shifted away from fossil fuels, it's clear that oil is going to be necessary in the energy mix for quite some time to come. Accordingly, it's our general view that oil prices will continue to remain relatively elevated, really driven by those supply side pressures but also due to the continued strong demand for hydrocarbons. So now to an update on the actual asset portfolios, starting with Block 22/12 in China, if you just turn to the next slide. This slide has got a couple of good photographs of the 12-8 East development as it's come to fruition throughout the year. Again, I just really want to highlight the success of this project and what has been involved here is to get this project online notwithstanding lockdowns in China, the pandemic, supply chain challenges, inflation, you name it. Everything has been thrown at us, but it really is a testament to the joint venture and the contractors involved to get this field online. Just now moving on to the next slide. As you're probably aware, Block 22/12, it consists of about 20-odd wells spread across 8 different fields, as shown in the green squares in this slide. The geographical spread helps to diversify the portfolio and really derisk the asset as we've got cash flow coming from each of the different platforms. While historical production has been dominated by the 6-12 and 12-8 West fields, which are the top green box in the bottom on left for you. And production from those fields has generally been averaging about 8,000 to 10,000 barrels a day over the past, call it, 9 years since production first commenced. This is the box of off of the right, the 12-8 East field, which has really been the core driver of production growth over the year. So we're now seeing production rates elevated about 15,000 barrels of oil per day ever since the cleanup of the 12-8 East field occurred around about July this year. And our objective is really to continue to sustain that production from that field. So that's always a 50% increase in production rates out of the field. This field generates about 70% of the group's cash flow. And that's heavily driven by the very low operating cost, which for FY '22 stand at around $13 a barrel, very low indeed. So looking at the 12-8 East development in a little more detail. There's a 3D diagram on the right, which shows the key elements of the field. We've got 6 production wells and 1 water disposal well. The lease platform sitting over the top, that's all tied back through to the 12-8 West field by our dedicated pipeline. As I mentioned, that field successfully was commissioned in April this year. And what was very pleasing was we managed to keep the development costs on time and in budget of around about USD 20 million for our share. The field has been producing very well. And as you can see, it's generated about 8,000 barrels of oil per day on average over the last 3 months, and we expect it to contribute at least an average of 4,000 barrels of oil per day for the first full year of production. Importantly, the early success from this first phase development has given us the confidence and courage to go with a follow-up Phase II development. And so we're currently drilling ahead with 3 to up to 5 new production wells into the field, which will further enhance the production rates. Just to look at this Phase II development in a little more detail. As I mentioned, it's 3 to 5 wells, and they're depicted there. In the black is the likely well locations. I'm pleased to announce today that the first of those wells has already been drilled and completed and it should be turned on to production in the coming days. That subsequent phase of development will add about 200,000 barrels to our 2P reserves and again, continue to help us to sustain those high production rates of around 15,000 barrels a day certainly out into the new year. Other recent activity of Block 22/12 has been focused on infill drilling. We have 2 wells, which are depicted in the red line there, the A10 S1 and A12 S1 wells. Those wells both successful wells drilled and completed, again, helping to sustain production rates. We also had a very successful workover program in September, [ which helped enhance ] these high production rates. Let's move on to the next slide. This slide really just helps to sort of show the further opportunities across the field. You've got there a number of orange and yellow dots. The orange dots represent the wells that were drilled during the current year. But the orange dots refer -- the yellow dots rather, represent all the remaining infill well opportunities and further near-field prospects that we see right across the -- across [ to ] Block 22/12. So it's our objective to continue to look at drilling some of these opportunities, to continue to sustain those production levels, which segues nicely to the next slide. This is probably my favorite slide of the whole deck, because it really helps to demonstrate what our objective is and show you how we've been successful in this field over the past 9 years. So what you've got there in the dark green is our -- essentially our 2P reserve forecast. In the blue is our indicative future activities. What we're trying to show there is -- in the past, we've had a very successful run of being able to conduct infill drilling, workover activities, upgrades to the water handling capacity and the like and really maintain production at or about 10,000 barrels a day for the last 9 years. You'll see that we've been quite successful in recent months and really accelerating our development efforts and boosting production rates. As I mentioned, about 50% above the average of the last 9 years. And we're not done with that. So there's further infill wells proposed in the pipeline, upgrades to water handling capacity and other initiatives that we've got in the pipeline, which are all aimed at trying to sustain those higher production rates. I would just point out they're not a given. They rely on joint venture approvals, proper economic assessment, rely on elevated oil prices being sustained and indeed rig availability. But certainly, that's our core objective. Turning on to New Zealand. The Maari field continues to be a very important asset for the group, contributing about 30% of the group's cash flow. Importantly, over the past few years, the decline rate here has been arrested through consistent and constant water injection into the field. And perhaps the key difference with Maari over our China fields is we don't need that continual investment in new wells in order to sustain production rates. The water flied into the field helps to maintain pressure and continue sustaining production rates. Our operating costs are relatively modest here in the sort of mid-$20 a barrel now. And as a result, this field just continues to be highly cash generative. Maari crude attracts premiums to the oil price and most of the oil sold into the East Coast of Australia. We had a number of workovers during the year, and we've had some challenges due to COVID in getting those wells back online. But we expect those wells to be progressively reinstated over the coming months ahead. And with the termination of the proposed divestment by OMV of their stake in the Maari field, we look forward to working with OMV to continue to extract maximum value out of the asset. Now similar to the China field, here's another slide showing really the production performance and our view of the asset going forward. Again, the green -- the dark green is essentially the 2P reserves, the light blue potential indicative future activities. I would just highlight with Maari, you've got the notional end date there of 2027 for the permit. And so getting an extension beyond that date is quite critical in order to go after some of those future activities. But there are talks already afoot within the joint venture to look at an extension to the permit. So just looking to the future and what the next year kind of hold for us. This slide really just shows you what the various activities are. So Block 22/12. We've got our hands full there in really fulfilling and executing on the 12-8 East Phase 2 drilling program that will take us through to the end of the first quarter. There's a constant focus on upgrading water handling capacity and our fields in Block 22/12. What's very important to recognize that the more water we can handle in Block 22/12, the more oil production we can sustain. So there's a big focus on upgrading water handling. Further focus on some infill drilling targets, and we hope that towards the latter part of the year, we can mature a couple of other infill well opportunities to keep that sustained production levels. And at Maari, I mentioned we've got a couple of pretty key workovers, one which is underway at present. And then there's a third one which involves some further water injection enhancement into the field, again, to sustain production levels. And I've already mentioned Maari life extension being a focus area. Let me conclude by summarizing and emphasizing the group strategy and how we've planned to deliver against it in 2023. We've commenced FY '23 with exceptionally high production rates and sustained high oil prices which bodes well for continued strong free cash flow generation. As I mentioned, our production rates are currently about 40% higher than the average for FY '22. That bodes pretty well for cash flow generation. At Beibu, our priority is to optimize production and continue to enhance production rates through that constant focus on further infill drilling, workover activity and upgrades to water handling capacity. And at Maari, our focus is to restore production from the wells that are currently shut in and really work with the operator looking to the future and how we can extract maximum value from the asset. In terms of further distributions to shareholders, we're determined to deliver value to shareholders, having delivered consecutive returns of AUD 48 million this year and AUD 47 million last year. And further capital management initiatives are under constant review, as Mike mentioned. In terms of investing in production growth, as I mentioned, our focus is continued investment in our existing assets, trying to deliver value. And our first priority is the 12-8 East Phase 2 development, closely followed by further infill drilling and the workover activity at Maari. We keep a constant eye out for opportunistic inorganic growth opportunities, which could further enhance shareholder value. But we'd only really look at these if they provided exceptional value and continues to enhance our ability to provide distribution to shareholders. And whilst our business continues to face challenges, I'm very lucky to have a very capable team working with me. And I feel that we're in a very strong position to navigate the challenges ahead and continue to deliver value to shareholders. Thanks, Mike. And I'm happy to answer any questions.

Thanks, Richard. I'd now like to provide an opportunity for questions on Richard's presentation. We'll give an opportunity to ask questions on the formal business of the meeting later. And I'll endeavor to give everybody a chance to speak for reasons of time. So questions for Richard, [ I mean of ] the team.

In [ court stuff ] that I've read, I haven't seen anything on sort of sovereign risk in China. I assume that means it's very low as far as you're concerned? What is your thinking there?

We're quite fortunate. We have a very good relationship with our joint venture partner, CNOOC, and particularly through our other nonoperated party, ROC Oil who are owned by the Fosun group and again, provide us that connectivity through to the Chinese. Now realistically, we're essentially a domestic producer in China. China has got an insatiable demand for oil, and we bring to the table our own Western expertise. Through this 12-8 East drilling program, we're providing constant feedback and suggestions on well trajectories and so they really value our input. And on top on risk, if I was honest, I think it's more the other way around, it's more Australia and what Australia does. And as Australia's reaction, I'd like to think what we've seen in the last 24 hours is perhaps the softening of our stands and more cooperative position. But certainly, as the time horizon of this asset, I mean it runs out through to 2028. We recognize that the potential risk but not something we're particularly concerned on [ in terms of a year or 2 ]. Questions?

Yes, Andrew [indiscernible] is my name. You mentioned earlier in the presentation about any opportunistic potential additions to the portfolio. You mentioned the exceptional new business opportunities. When we look back over the last few years, it was only the transaction with Arran Energy, obviously, that was truly exceptional or 1 of the partners. Can you perhaps give us a flavor around about the opportunities you've been reviewing over the past few years and perhaps 1 or 2 which you came close to looking at potentially purchasing?

I would like to start, Richard. Yes, it's fascinating -- when I first came 3 years ago, everybody would turn the [ ballot up, come on ] and give you all the money, right? That's all on. When you look at what's happened over the last 3 years. When I first came, the production was off about 2027, whatever the year was, you might as well pack up and go home. But what we've done over the last 3 years that Richard has talked about, he's kept that production flat, and you've seen the revenues from it. What we'd like to do for the next 3 years is keep that production flat again. It's getting harder every sort of tranche you look at because the reserves are declining. But that's our big job, that's our main job. Now we've looked at lots of things, which Richard will talk to you about in a minute. But I don't think we're interested in long-dated back oil assets that go through the exploration phase, and we don't get any revenue from for 10 years, even if we do. It's got to be free cash flow accretive straight -- more or less straight away and hopefully in our own backyard. Now that are the 3 things that, once you start the 3 things tough, you narrow it down just like that. But they are the 3 things we put on top of these growth options over and above our production. You talk about it.

Yes. I'll just sort of add to that. We've looked at a lot of opportunities. I mean every week we get things across our desk. Have we seen anything particularly compelling? Not really. Nothing that we've really gone too far down the path. And it's really because we've got a fairly sort of narrow sort of level of capital to be able to deploy. And quite frankly, the best value we can have is investing in our existing assets. You can see that what we've been able lock out of China. It's not to say we won't go after things. We certainly look for value. And I think really where we would like to think the opportunities will come from is the bigger companies start to divest out of fossil fuels, then we would have the opportunity to pick up some of those assets. It may not be quite as -- the desire for value on exit, there may be a little bit more relaxed, and in that would be the opportunity for us. But we're patient, and we're not -- we don't have to do anything. These assets are good and [ certain ] way for extracting value for shareholders. Our main game is focusing on what we've got.

So you're pretty much ruling out any development assets going forward?

We have to be very close to development. We're certainly not interested in exploration opportunities, anything particularly long-dated. We've looked at some assets approaching development, but with that comes the whole -- a lot of risk and similarly comes with that, funding challenges, which are only getting more difficult. So that's -- not that we wouldn't consider them if they were really compelling value, but certainly [ it's nothing core team ].

Mr. Chairman, to ask a question that sort of follows on from that. Richard, are we in the sort of -- I mean, opportunity doesn't knock very loudly, normally. Are we sort of in passive mode? Are we waiting for deals to sort of come in the door? Or have we got our people in the organization or consultants or whatever, proactively looking?

Yes. We do have people proactively look. I mean we -- again, our focus on the core team is [indiscernible], but we do have some [ comms ] working for us, looking up in Asia, in particular. And we're pretty tapped in, in the local market through investment banks and so on. But it's -- we're not an inordinate amount of time on it, but we still think there's opportunity to be had.

Most of them Brent are looking for our cash.

Yes. That's a problem. We will take cash and...

Sorry, I had a lot of people knocking on the door with big development projects and naturally wherein is. [indiscernible] What they think, their assets are significantly higher by value than what they essentially are given the risk involved. Generally don't place the same level of value on our assets, which is really highly cash accretive. So it's going to be pretty -- yes, pretty focused.

According to my model, and I calculate that with a reasonable price expectation oil price will have around about in excess of USD 200 million in cash at the end of financial year 2026.

You've not told me that, Richard.

If I go to the [ PETRO ] research, which is the only research [indiscernible] and their number is actually USD 222,000. Okay. So you might both be marks, but we're getting the same answer. That's a hell of a lot of cash. And I just think -- I just wonder whether it's worth having a bit more proactive look at -- in opportunities. I agree with the strategy, of the current strategy to focus on squeezing the lemon with what we've got. We're at a very good time in the price cycle for doing that. This is where if you go back to the U.S. over the decades, over the centuries. This is where people have made money by sort of really squeezing what has got hard during -- with oil price cycle. But anyway, I sort of agree with your sentiment. We do have -- I don't agree that we don't have any capacity to do deals. I think we've got a lot of capacity to do deals.

Yes, look, don't misinterpret what I've said. I mean we are focused in this area looking will be opportunities. And we are being proactive. I just don't want you to take away that we're so focused on that, that we're not spending the appropriate time on our existing assets in squeezing the lemons.

A lot of what I seen granted on my background. But in Timbuktu, the other side of the world, which doesn't thrill to be much -- and they're all going through an [ oil put ] -- if you want, appraisal development phase where the small ones have run out of cash and got a -- given your cash flows, and let's get on with it. It's good and bad in that. But I've not seen a lot of them who would give us free cash flow more or less on day 1. But that's the trouble. They're all in that appraisal exploration development phase where you well know is full of pay, pay, pay.

And it is also, I think, at the moment, based on the deals sort of come across our desk, the price expectation is still quite elevated by the sellers, focused in and around the heightened oil price. So we need perhaps a bit of the softening in those price expectations to really help us to sort of find the deals would be accretive enough.

There's been exceptional in the current oil environment, it's going to be very hard to achieve. I would say that's not unattainable. I think this current environment, especially if you're only looking at producing assets versus development assets, like Mike said, that's where the opportunity seems like [ where ] exceptional new opportunities in the industry.

Yes. Look, look, we were very picky. I'll be honest and candid with you. It's why we haven't done something for sort of the last 3 years. I think the opportunities are there. It's just got to be a judicious amount, And again, we're not in an urgent hurry. There's nothing that's happening tomorrow, we'd rather wait for the right deal to come along.

There's a gentleman on the end.

[ Peter Brayden ]. I commend the company for its emphasis on cash generation. I think that's really important. So I'm wondering why the company is wasting money on purchasing carbon credit when there's no fines or penalties for current emissions.

Look, we've got a pretty judicious approach to that, and we're trying to make the right impact as we go along. Those carbon credits were purchased in China for a community-based project. So they were -- on the one hand, they had the environmental benefits that are probably just as important as the social benefit. So this was the methane digesters for some rural communities to help them to essentially displace burning coal and timber for cooking and using the, I guess, the byproduct from their animals for cooking. And we see that -- and it sort of goes to the political risk side, trying to help the community in the area we operate as well as having, I guess, the added benefit of providing some offsets. But I would just highlight that, as I mentioned, it's not our desire and my desire to focus on purchasing offsets. I'd much rather direct emission reduction initiatives. And certainly, certainly in New Zealand that means dollars for us. So it's -- there's an emission trading scheme there. We're paying $85 a tonne for carbon emissions in New Zealand. If we can reduce emissions there, we're saving $85 as well as not having to burn crude oil to power generation. So there's an economic rationale for focusing on carbon reduction initiatives, certainly that we're doing.

I don't know whether its carbon credits, but you saw we renewed the loan, $20 million loan we have. And I know from Rich's experience, the banks wouldn't have given us that if we weren't somehow addressing that subject. I'm not that I want to borrow any more money. But if we wanted to go with that route, you won't get any unless you've got some sort of strategy that they believe in. I love them anywhere could black oil.

It was fairly modest about [indiscernible].

I have another question. What's the risk of not getting the lease extension in New Zealand? Because [ political climate ] over there, the prime minister is pretty low and I really think you've got a major risk there if that sort of attitude continues in New Zealand, [ political see ].

Yes. I suppose I perhaps look at the other way. I mean our current portfolio, our current reserve position is focused on production through to 2027. The opportunity is there for an extension. It's -- that's not a given, I would agree with that verbiage, any extensions to -- I'm certain, there's other sort of permits that we would require.

You need the politicians on your side. That's what you need.

I think it's probably a positive with OMV staying in there that, they probably have a little more capital with the government and with the regulator to gain that, given now [ ePower ] and there are other assets. But yes, no, it's certainly an area we're going to need to work pretty hard, and that's certainly a current focus.

I think that's worth really worth pursuing because our environmental or, sorry, our P&A liability pushes that out. And looking at your production forecast, if you like. Now You've got production out in 2019, about where it is today, and it's very profitable today. So it just sort of doesn't make economic sense not to push it out. I think where the company has done well, obviously, in China and in New Zealand, you're very well aligned with the operator. That's quite clear from the presentations and the results. I know as I understand it, there's a good relationship there with OMV. OMV have always been a big kind of timid, may wanted to shut down [indiscernible] about 2023. Are they sort of -- have they got desire here as well as trying to push things out beyond...

Yes, look, I mean it's obviously only been -- stuff kind of been settling after the transaction being terminated. Well, what I can say is there's perhaps -- I mean, you're aware that the decommissioning legislation that's out there, and it actually requires you to fully decommission by the end of the permit date, but it's [ still upon OMV ] that, that's not going to fly. So there's certainly momentum building for -- we're going to let an extension come off Maari. And we really want to drive and push them to extend it out at least 5 years and get that incremental production in the further [ decom ].

Beyond the current close, the current [indiscernible].

Yes. So that's -- but we're seeing some positive signs coming out of OMV, but it's [indiscernible].

A quick question. What's the biggest risk to these capital returns? Is it a macro oil price big picture? Or do these operational sort of -- where the biggest risk of the return of the $0.03 returns that you give.

Look, it's all price and production. I mean there's the core, core parts. I mean I'd like to think that having the 2 assets that are now within China, a third field there with the 22/12 East field that helps to sort of diversify the production flows. But clearly, oil price has been -- you can see that our cash flow is pretty sensitive simply to what...

Are you more confident at the operational level, you've got to handle that -- what you kind of control the oil is the macro. But at this level in your model, a bigger business at the oil price level.

Yes. I mean there's always risks at the operational level, and we manage that through workovers via these fields have been the production of the 9-plus years. But yes, we will have small intermittent workover issues and so on. But the general fields produce, we know how they produce. It's more the oil price and obviously, we can undertake hedging to help us in the short term to communicate that.

I think on the oil price, of some -- going forward is that I can never get a straight answer from these accountants, our lifting our production costs are about $30 a barrel. So we're still okay if it drops to that. Have you got another number now, Richard, which you aren't telling us?

No. No. That's right, yes. So yes, we got very like operating costs, which means we've got good cash flow, but you can imagine the incremental value of an extra $10 a barrel really helps drive that.

But at one level that plays in, for example[ was 1 up to 60 ] with that now not feasible and then we'll get maybe 2 at what level, is that 3.

Yes, it's probably something like that. But at the moment, we're going through a particularly capital-intensive phase. So we drilled 14-odd wells on the troughs. So that -- that means we've got a higher overall cost, which we include the capital cost in there. But once we get past March, we don't have a huge commitment on capital after that point, such that if the oil price would fall it would still be very, very cash accretive.

Okay. Anything more on this in section. Sorry, Paul somebody else. [indiscernible].

Why did we get a capital return -- why did we get a capital return and not just a bigger dividend?

Look, good [ quick answer to ] the question. I mean we've been agonizing over what's the appropriate mix of distribution or buybacks, capital return, dividend. We've got a broad array of shareholders. We've got foreign shareholders, domestic shareholders, people holding in the super funds, retailers, you name it. And so we looked at what's really the optimal solution for the greatest number, so to speak. Capital returns can be favorable for -- certainly if you're retail shareholders. For the foreign shareholders, to be honest, whether it's capital or dividends it's kind of ambivalent. Probably their biggest risk or concern is what is the [ ATO ]. Think of a capital return when it's handed or indeed a buyback and whether they would deem any part of it to be a dividend regardless of what the company might call it. And so we engaged with the [ ATO ] to really see what was going to be palatable and this mix kind of was the level, which they were comfortable with them gave a sort of a notional endorsement on and again, trying to balance what's good for as many shareholders [indiscernible].

It's just in relation to who thinks about the current share price -- I'd be happy with plus range to the capital growth this year seems to be within the range of the cash flow returns/dividend. Are you happy with the current trading range? Would you like to see that higher? And perhaps why I don't see the Board investing themselves in buying shares in the company.

I'd like to see it high. Yes. We always like to see it high.

I mean, you guys make it high and I watch it go up and down, so -- and there's not much liquidity anyway, as you know. So it seems to float up to $0.13 and then down to $0.10 on the whims and fancies of the marketplace. And I don't think -- I'm not particularly keen on buybacks, nothing that will change much the share price. I don't know, we've all got shares [ in position everybody over causing many years ]

I think about a number of the directors that they still have shares.

I don't mean to be rude to any, but can we have the last one, and then we'll move on, please.

Question. What's in the company's banking credit account. So dividends will be unfranked, will it? Or...

Look, if we were, absent something significantly changing, if we were to pay a dividend it would be unfranked.

Okay. Maybe can move on. So given that the notice of the meeting has been sent to all registered members, I now move notice of the meeting to take it as read. The minutes of the previous annual general meeting has been approved and signed in accordance with the Corporation Act, and is available for inspection of [ the right to opposition ] who wish to do so. We'll now move to the business of the meeting, which includes a resolution put to the meeting. Prior to the resolution being discussed the proxies received [ for those items lines and display ]. As I mentioned earlier, all resolutions will be decided by a poll, and a live vote is now open on the lines of business. So the first item is the financial report to consider we save the financial report, the Directors report and independent auditor's report for the year ended 30th of June 2022. These documents have been made available to all shareholders. As no requirement for shareholders to approve these reports, accordingly the item awarded for discretionarily and there will not be a vote on this item. I remind you that only shareholders of the company or their duly appointed representatives or proxies are permitted to ask questions. So we've done a lot of the -- all the general stuff in the last 20 minutes. So anything on those reports that you'd like to ask? Okay. Let's go to item 2, adoption of the remuneration report. Committee now needs to consider item 2, adoption of the remuneration report for the year ended 30th of June 2022. The Board unanimously recommends that shareholders vote in favor of this item. Proxies issued in relation to this item is displayed on the screen. And it's now open for discussion. Gosh, that must be the first render remuneration report with no questions. So Item 3 is the election of me as a Non-Executive Director. I'm retiring by rotation in accordance with the constitution of the company and being eligible, I'm standing for reelection. I thought I stood down from the Board, I'll now hand over to my fellow Director, Sandra, to chair this item.

Thanks, Mike. The proxies received relation to the motion are disclosed. The firm's directors unanimously recommend that shareholders vote in favor of this resolution. Before we open -- Sorry, right -- thank you. There is now an opportunity for discussion on this resolution. Are there any questions? Thank you very much, ladies and gentlemen. As Mike has been reelected, I will now hand over to Chair.

Thank you, Sandra, thank you. Item 3B, the reelection of Bruce Clement. Bruce Clement is retiring by rotation in accordance with the constitution of the company. Being eligible, he is standing for reelection. The proxies received in relation to this motion are displayed. The other directors, including me, we nonetheless recommend that shareholders vote in favor of this resolution. There's now an opportunity to discuss this item if you'd like to. I'll move on to item 4, the renewal of proportional takeover provisions. The meeting now needs to consider item 4, approval of the renewal of the company's takeover provisions contained in the outlook of the company's constitution for a period of 3 years in accordance with the Corporations Act. Proxies received in relation to this motion is displayed on the screen, and there's now an opportunity to discuss that. Okay. Thank you. Item 5A, approval of the Managing Director's long-term performance rights. The meeting now needs to consider Item 5A, approval of the Managing Director's long-term performance right incentive. The details of the long-term performance right incentive plan are outlined in the notice of the meeting. Proxies received in relation to this motion is displayed on the street questions per have not gone to Item 5B, approval of granting of share Director LCI. And we can now need to consider Item 5, approval of the grant of rights to reshare to the Managing Director as deferred component of 2022 short-term incentive. Details of the short-term incentives are set out in the detail in the notice of the meeting. Proxies received in relation to this motion is displayed on the screen. And again, there's now the opportunity to discuss. Questions? If not, we'll go on to Item 5B, approval of granting of shares to LTI. The meeting now needs to consider Item 5B, approval of the granting of rights of company shares to the managing directors, A deferred installment of the 2022 short term incentive. Details of the short term incentive are set out in detail in the notice. Proxies received in relation to this motion are displayed upon the screen. And now, an opportunity to discuss.

Yes, broadly speaking, I'm in favor of this resolution and the one before, which because it puts the incentives into the -- in front of the CEO. I think that's good. I must say though -- not so much on the 5B but on 5A, which was the LTI. I know that we set out with some care in the notice of the meeting. I must admit, I had a bit of difficulty sort of working out how it works. I just wondered if there's sort of a media guide summary.

Well, if there is a short explanation.

Essentially, it's a one-off grant. We wanted immediate alignment to all shareholders rather than perpetual motivation state year-on-year and capture more sales and what the share price line. So it's essentially to motivate key management employees to become shareholders as soon as possible. That was the same rationale for the fees [indiscernible]. So this is -- essentially, if the share price hits each hurdle over a 30-day VWAP, and there is post that -- a $25 million in aggregate trading of shares at or above that VWAP so we want that share price hurdle to stay. And then the 5-year vesting window. So essentially, with other bells and whistles. The first hurdle is a 30-day VWAP prices, and that was $0.13 to $0.20, which is obviously the reduced capital dividend returns of the team to $0.17. And then in that 12 months post that VWAP hurdle being hit, there needs to be $25 million worth of shares traded at or above that VWAP as a second [indiscernible] So to essentially sustain that higher share price and then they come out of shares. So the size were options, these come out as shares.

Could I just put this sort of hypothetical to if -- for example, the share price went to $0.17 tomorrow, and it stayed there for the period. And if in the next 12 months, the -- is $25 million worth of shares. At the end of 12 months, does that mean the 19.6 million shares are assigned to the CEO?

It would be at the end of that $25 million. $25 million trade. We know that vest -- once the $25 million is trade.

Hold.

Well, you picked the [indiscernible] grant. So yes, in the instance of $0.17 because that's the highest threshold, 19.6 [indiscernible], but if it was $0.13, only the tranche is up to $0.13. So $7 million, then like relates the [indiscernible] 5 tranches ASP. Yes, the highest share price hurdle has been on value constrained liability --

And once those shares are assigned, is there any escrow or any holding period? So in other words, the recipient could actually go out and sell those shares on the market.

Subject to the trading policy. Yes.

Subject to the trading policy.

I'm all unhappy that you've spent some more time with direct working -- it's something that everybody struggles to this LTI in investing. So I'm happy that you do [indiscernible].

So we structured that second to make sure the share price was stuck. So at that point in time, they've done the job. Other shareholders will have an opportunity to exit whilst these sides are adding up to get $25 million. [ And can always for the leisure ] from all the bells and whistles on it. We thought that was a pragmatic approach.

Before [ we adjourn ] I'd just like to say thank you, just on a couple of things. I think we're a good little company when you look at our peers, who has given back to $100 million in the last 2 years, is it. all things being equal, it's likely in the future I'll agree to it. In terms of growth options, we were here on the growth options and few and far between. When you look at the criteria we said a few minutes ago, it's really bloody difficult to find unless we're going to spend some money and take some risk. I'm not so sure if we can find any that outweigh that risk and they give us cash. So where we are today, I'm very pleased with that, thank everybody because as I've said before, in the last 3 years we've kept production plan, the next 3 years, hopefully, we can do it again. It's getting harder all the time, but what a nice little company it is now. So let's get on to the polls. We'll now conduct the poll, and I invite us to sort out what we're doing in the poll.

Thanks, Mike. So [ Jim McQuill ] of Computershare Investor Services has been appointed returning officer for this meeting and are satisfied at computer shares in time. If there is any person at this meeting who believes they are entitled to vote but have not yet registered, would you please raise your again for assistance. Every member present in person or by representative, attorney or proxy if you hold a yellow issue card, you're entitled to 1 vote for each schedule. The resolutions on which are required to vote by poll are items 2, 3a, 3b, 4, 5a and 5b as set out in the notice of meeting.

Thank you, Vas. Well, reflect all of those that I should very lot that's rail. You know the format here will send us the FX and we'll get the results issued this afternoon. So bye.

Anybody else you'd like to see those [indiscernible].

Well, thank you once again for coming. And I'll declare the meeting closed. Thank you. Thank you.