Horizon Oil Limited (HZN) Earnings Call Transcript & Summary

Well, good morning, and thank you for joining Horizon Oil's investor webcast. I'm Richard Beament, the Group CEO, and I wanted to take a moment to run you through an update on the company after what has been a fairly transformational period as the Horizon today is very different to what it was just a year or so ago. FY '26 was game-changing. We delivered record production and sales, established Thailand as a material low-cost contributor to group cash flow, completed the Cue acquisition and entered FY '27 with a broader 5-country platform and a larger opportunity set. Before I begin, please note the usual important disclaimers, which I would encourage you to read. Look, at a glance, Horizon is now a diversified Asia-Pacific oil and gas producer with producing assets across Thailand, Indonesia, Australia, New Zealand and China. FY '26 net production was approximately 2.15 million barrels of oil equivalent with FY '26 sales of almost 2 million barrels of oil equivalent, up 33% and 22%, respectively, on FY '25 before any material contribution from Cue. The portfolio now combines established offshore oil production, domestic gas production with a mix of oil-linked and fixed price gas contracts and a set of infrastructure-led growth opportunities. On a Horizon net basis at 30 June 2026, 2P reserves were 13.6 million barrels of oil equivalent, 2C contingent resources were 19.8 million barrels of oil equivalent and 2U prospective resources were 14.3 million barrels of oil equivalent. The investment proposition is deliberately straightforward, reliable production, strong cash generation, disciplined reinvestment and shareholder returns. Now turning to the map showing our diversified portfolio. The map is important because Horizon is no longer a narrow 1 or 2 asset story. We now have exposure to producing assets across 5 countries and following Cue, a footprint that includes 9 producing oil and gas fields. Each part of the portfolio has a role. Thailand provides low-cost oil-linked domestic gas cash flow. China and Maari provide established offshore oil exposure. Australia gives us strategically relevant contracted fixed price domestic gas through Mereenie, Palm Valley and Dingo. Indonesia adds near-term oil exploration and development activity at Mahato and also managed gas exposure at Sampang. The value is not simply diversification for its own sake. It is diversification across cash flow, commodity exposure, maturity and opportunity type. The company highlights show the scale reset. Current Horizon net production is approximately 7,300 barrels of oil equivalent per day, including Horizon's share of Cue production. And the group's 2P reserves increased 51% from 9 million barrels of oil equivalent to 13.6 million barrels of oil equivalent over the year to 30 June 2026. What matters is the quality of that growth. The record FY '26 production and sales outcome was delivered before any material Cue operating contribution. Cue, therefore, adds a further platform for growth rather than being the driver of FY '26 record result. At the same time, Horizon has continued to prioritize capital management with more than $270 million distributed to shareholders over the past 6 years, as noted on the slide. This slide presents -- focuses on the company's key financial metrics over the past 5 years. Now I won't preempt the results for FY '26, but this slide reinforces the strength of the underlying business and disciplined capital allocation over an extended period. As noted in our recent quarterly report and on the slide, at 30 June 2026, Horizon retained $37.4 million of cash after approximately $8 million of debt repayments, the $17 million interim dividend paid in April and Cue-related cash acquisition costs. Net debt at 30 June 2026 was a relatively modest $11.3 million. And the point is that we've been able to return capital, reduce debt, fund growth and still preserve balance sheet flexibility. Our job is not just to grow barrels, it's to convert the portfolio into cash and allocate that cash well. This slide shows the near-term value runway across the enlarged portfolio. The common theme is infrastructure-led approval gated growth. In Thailand, we have compression projects, Pad D deliverability work and infill drilling. At Mahato, we have infill drilling, the OPL 3 Phase 3 development planning and a high-impact exploration well. At Palm Valley, we have appraisal drilling. At Maari, there is infill maturation. And in China, we have workovers in progress, optimization activities and 12-8 East expansion studies. What should be clear is that we have an enormous organic growth opportunity set with a period of intense activity over the coming 6 to 12 months. These activities will be important in helping us to grow and sustain production and cash flow generation out into the future. The strategic advantage that we now have is that we have multiple options to improve reliability, extend asset life and support cash flow without relying on any single large project. Now building on the operational activity, we provided an indicative production outlook. Now I should emphasize that this should be read as indicative only. It's intended to illustrate the shape of the opportunity set, base production plus potential organic growth. It illustrates that the group has organic growth opportunities within our current portfolio that have the potential to support production and cash flow out for the next decade and beyond. Now just turning to a bit more detail on the assets. Thailand is the clearest example of the FY '26 transformation. Sinphuhorm and Nam Phong have quickly become a material cash flow engine for Horizon, supported by low operating costs and gas pricing linked to oil markets. In Q4, the assets averaged approximately 1,900 barrels of oil equivalent per day net to Horizon with quarterly revenue increasing almost 18% to $7.3 million. The strategic role of Thailand is threefold. First, it provides domestic gas into a market that values reliable supply, even more so after the recent turmoil in the Middle East. These gas fields are the only source of domestic gas for the Nam Phong Power Station, which supplies around 20% of Northeast Thailand electricity. Second, the oil-linked pricing structure gives Horizon commodity leverage through gas. Third, existing infrastructure creates a practical path for deliverability enhancement with a strategic imperative growing for extending the life of these fields. Accordingly, the Nam Phong and Sinphuhorm booster compressors, the Pad D tie-in and the infill drilling program slated for early next year are all critical activities aimed at helping to meet these strategic energy needs. Indonesia comes to Horizon through Cue and gives us 2 different asset roles. Mahato is the near-term oil growth asset, while Sampang is a mature gas asset where the focus is disciplined production optimization. At Mahato, the PB oil field is producing from a proven central Samatra Basin setting with 2 approved infill development wells targeting the Bekasap reservoir. The PB-41 well commenced drilling in July with a second well expected to follow on as part of an approximate 2-month drilling campaign. The operator is also progressing the Phase 3 development plan and the high-impact GA-1 exploration well. At Sampang, the asset continues to supply gas to the Grati Power Station, but production is declining as the oil and water fields mature. The near-term focus is compressor commissioning of the Grati processing facility expected during this quarter and disciplined management through the current contract expiry. The Amadeus Basin assets strengthen Horizon's domestic gas exposure. Mereenie, Palm Valley and Dingo are established gas assets tied into regional infrastructure serving both the Northern Territory and East Coast markets. Mereenie has provided critical domestic gas to the territory for over 40 years and continues to supply around 30% to 40% of the market. The ongoing field development review is assessing future well opportunities and optimization initiatives. Palm Valley adds a near-term catalyst. The PV14 well has commenced drilling as the first of 2 appraisal wells designed to evaluate and develop additional gas resources and support longer-term Northern Territory market supply. Dingo adds contracted gas exposure into the Alice Springs power market. Together, these assets provide strategic domestic gas balance. Maari remains an established offshore oil cash flow asset and the Cue transaction increases Horizon's effective exposure to an asset we know very well. The asset remains regionally important, regularly supplying Australia's East Coast oil refineries. The near-term focus is on the MR3 well workover, which will be completed shortly, continued reservoir management and subsurface studies to mature potential future infill drilling candidates. China, well, it remains a reliable offshore oil contributor. In Q4, Block 22/12 gross oil production averaged just over 6,700 barrels a day or around 1,800 barrels of oil per day net to Horizon, and it's increased recently following some workover activity. The asset's role is clear, stable oil cash flow underpinned by low-cost operations with ongoing optimization. Water handling upgrades earlier in the year have continued to support production rates and the current workover program at the 6-12 field is underway. The next area of focus is continuing the 12-8 East Phase 2 feasibility studies. So to close, the investment case for Horizon is stronger and clearer than it was a year ago. We have a diversified Asia-Pacific 5-country production platform, record FY '26 production and sales volumes, a larger reserves and resources base and a disciplined capital allocation model that continues to prioritize shareholder returns. The transformation has 3 pillars. First, Thailand has become a material cash flow engine with near-term deliverability projects and an oil-linked gas pricing structure. Second, the Cue acquisition has increased scale, broadened reserves and production and added multiple value-accretive opportunities across Australia, Indonesia and New Zealand. Third, the base portfolio, Maari, Beibu, Mereenie and the Thailand assets continue to generate cash while we progress high-return infrastructure-led opportunities through approval gates. Our focus is unchanged, operate safely, maximize cash flow through strong production and keeping costs under control, allocate capital carefully, maintain balance sheet flexibility and create sustainable long-term value for shareholders with distributions remaining a priority. We are not chasing scale for its own sake. We are building a stronger regional energy business around assets that can generate cash and opportunities that can compete for capital. The enlarged Horizon gives us more options, but the discipline remains the same. So look, thank you for your time and continued interest in Horizon. I look forward to updating shareholders as the enlarged portfolio is integrated and as we move through this intense period of development activity. I look forward to also speaking to you all again in the coming weeks when we release our full year results for FY '26. Thanks very much.