Jadestone Energy plc (JSE) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Jadestone Energy Inc. first quarter results conference call. [Operator Instructions] This call is being recorded on May 28, 2020. I would now like to turn the conference over to Mr. Paul Blakeley. Please go ahead.

That's great. Thank you very much, operator. Ladies and gentlemen, good morning, and welcome to Jadestone's First Quarter 2020 Results Conference Call. I'm Paul Blakeley, Jadestone's CEO, and I'm joined on the call today from Singapore by Dan Young, our Chief Financial Officer; and on the line from Calgary, by Robin Martin, Investor Relations Manager. In this call, I'll be referencing slides in a presentation, which you can find on our corporate website by logging on to www.jadestone-energy.com, where you'll see it was recently uploaded under the Investor Relations section. Or if you're using the webcast, then the slides should be available via the link on your player screen. Additional documents such as the MD&A, financial results and press release are also already on the website. So moving to Slides 2 and 3 of the presentation. I'll just quickly remind you of our standard disclaimers and advisories, drawing your attention to the cautionary remarks regarding forward-looking statements and non-GAAP measures used in this discussion. Thank you. So turning to the agenda on Slide 4. I'll begin by providing a few introductory remarks, including how we've adapted to the current environment with provisions in place to mitigate the risks posed by COVID-19, how we're driving more efficiency and savings across the business, and I'll touch on some operational highlights for the quarter. Then Dan will run through the first quarter 2020 financial results, perhaps highlighting how we're managing cash flow to keep the balance sheet strong, particularly in light of the adjustments we've made to our spending plans for the year. And after that, I'll offer some concluding remarks before getting into a live Q&A session with the help of the operator. But first off, just a view on pricing. At this extraordinarily difficult time where COVID-19 has turned the world upside down, slowing economic activity and affecting us all and not least, its impact on global oil benchmarks. With Brent moving up to around $35 a barrel today from a low of less than $20 a barrel just 4 weeks ago, it might be tempting to see this as a sign that the oil market has bottomed out, particularly given the IEA's latest report suggesting that the outlook was somewhat improved, with demand a little better than expected and supply reined back sharply. On the latter supply point, this has definitely been helped by a marked collapse in non-OPEC production, mostly in the U.S. and Canada, and underpinned by OPEC+ cuts, which seem to be holding solid. However, despite all this, from our perspective, we assume recovery will be slow with the oversupply of crude oil likely running throughout this year and only improving slowly next year, and so we will be cautious and run our business on that basis. Turning to Slide 5. It's been just over a month since our last conference call when we emphasized, on the one hand, the transformational outcomes from 2019 for Jadestone with record production, cash generation and improving balance sheet. Whilst on the other hand, with the collapse of oil markets in the first quarter, we discussed the quick and decisive steps we've taken to protect our balance sheet, deferring all discretionary capital as well as working on cost reduction and efficiency initiatives to drive our cost base even lower. On the back of all this, I'm therefore pleased to report that despite the challenges faced by industry today, we delivered another strong quarter in Q1 2020, showing the inherent resilience in the business. First quarter results saw our cash position increased by $20 million from the end of last year driven largely by the combination of ongoing strong premiums to Brent, our hedging position and the continued focus on cost control, even while we completed some major one-off maintenance and equipment upgrade activities at Montara. Our breakeven operating cash flow in 2020 is down to approximately $20 a barrel, meaning we expect to continue generating cash even in the worst of times. We recognize how important it is to be a low-cost operator, even lower in moments like these. And we've launched a corporate-wide cost savings and efficiency program called Project Clover to drive more waste out of our business. At the same time, we've been swift to adjust our capital program for the year. And wherever possible, we've opted to defer major project spending to protect returns with the idea of producing incremental volumes into a higher oil price environment in the future. The net effect is that we remain strong and are comfortable to maintain our maiden dividend payment this year while even keeping a keen eye on the M&A market for potential growth through acquisition of distressed opportunities. We also remain on track towards completing our acquisition of a 69% operated interest in the Maari asset, which will bake in growth for 2021 and beyond and provides us an important toehold in New Zealand, which we hope to leverage further in what we see as an oil and gas province with great potential for us. And now on to Slide 6, which presents our environmental, social and governance framework for sustainability. We've shown this before, but we'll start to focus beyond the principles and describe certain performance measures that we will hold ourselves accountable to deliver. To select just a few highlights. During this quarter, we've maintained a 0 total lost-time injury frequency rate, 0 reportable Tier 1 environmental incidents or uncontrolled hydrocarbon releases and 0 instances of regulatory enforcement notices. And in our second quarter review, we'll provide more details on other targets, including both external stakeholder engagement as well as internal targets around diversity, training and recruitment. Since our last conference call, we published our first-ever annual report and sustainability report, which you'll find on our website, reinforcing our commitment to providing information and transparency in the business. They describe in greater detail how we're putting priorities into action with an emphasis on continuous improvement in everything we do as we strive to minimize our impact on the environment and with a goal of target 0 wherever possible. The targets we set are now being measured in parallel with operational and financial objectives and have become a part of our core business ethos. Slide 7 now summarizes how fit our business is to withstand the current challenging environment and recaps some of the steps we've already taken and some of the work in progress to ensure we remain resilient during uncertainty. At the operational level, we've implemented various changes in how we work, including adjusting the offshore rotor and forcing a pre-shift isolation period and deferring nonessential work. To date, there's been no disruption to ongoing operations. And as we start to see some of the government-mandated restrictions being relaxed, we'll assess if we can pick up on some overdue activities such as well workovers. We'll approach this carefully as we try to establish a new sense of normal. So even while some locations are resuming office work, the majority of the changes we have made will remain in place at least for the near term. The left side of Slide 7 also highlights the financial strength of our business prior to the spread of COVID-19 and its impact on oil price, and Dan will talk about this in more detail next. Suffice to say, from my perspective, this means we should aim to end 2020 stronger than we entered it, and we need to simply look at the additional challenges created by COVID-19 as problems we will solve. While dealing with this, we're also focused on the well-being of our people across the business, minimizing their exposure by work-from-home arrangements, eliminating travel and providing the IT infrastructure to keep us all together, which has proved very effective so far. And finally, we've seized the opportunity to work our cost base lower. The Project Clover initiative has already identified significant additional savings through reducing G&A, finding operating cost efficiencies and eliminating further waste from our business processes. It's in our DNA to push the business harder. And last month, we committed to deliver another $3 to $4 per barrel of cash savings this year, and we believe we may be able to stretch even beyond that. Turning to Slide 8 now and some detail on the actions we're taking as we put the business under a COVID-19 microscope. Over 150 cost-saving initiatives have been identified and a large number already implemented across the business spectrum. While much of the minor CapEx items are simply deferred spend, some of the G&A and the majority of operating cost efficiencies are recurring savings accounting for almost 50% of the total. $18 million of savings for the year are now already being implemented and almost as much again has been targeted for final assessment and action. Now turning to a summary of operational performance on Slide 9, where production was behind plan during the first quarter. This was largely due to seasonal cyclone impacts, which also affected well workovers at Stag; a planned shutdown for produced water upgrades at Montara; scaling of the Skua-11 well, which is actually now resolved; as well as some reliability issues with the compressor and other equipment, which have been areas of attention for us for several months. While the demonstrated step change in performance has been achieved compared with the previous operators through lots of small changes and the renewed focus on what's important, nonetheless, we continue to work to provide the long-term reliability, which is our target, and we're not there yet. Uptime performance was only in the 70s due to the events which I've just summarized, a number of which are, of course, seasonal, and therefore, we certainly haven't met our 2020 uptime target during this quarter. So we'll be refocusing on the annual target of 85% uptime, which is part of our ongoing effort in continuous improvement, and we'll report on further progress next quarter. In fact, we continue to work on a large number of opportunities to improve performance, including running the offshore plant at both Stag and Montara at lower pressure to improve production rates; further modifications to the control system at Montara to reduce spurious shutdowns; a remote restart of the Montara wellhead platform; and now the receipt of numerous major long-lead spares, which provide for quicker turnaround in the event of key equipment failures. These are all things we identified at the outset with the Montara acquisition under our 1 by 1 getting them in place. The Stag chart shows the sweet spot achieved in the second half of 2019 following the drilling of the new infill well 49H, and the impact on both production and unit operating costs are clear. This highlights the importance of getting production closer to 3,000 to 3,500 barrels a day at Stag to bring OpEx into the mid-$20 a barrel range. Similarly, in the fourth quarter last year, we saw Montara operating with consistently higher uptime, which we're working to maintain going forward. The operating teams are focused on delivering all these improvements to the offshore operations. And while COVID-19 has not impacted our minimum manning operations, we've been unable to make further improvements to equipment at the pace we'd like nor to carry out well workovers in the last 3 months due to a short-term inability to get equipment and crews offshore. Slide 10 provides an update on the Nam Du/U Minh gas project in Vietnam, where we decided to defer the project in light of the significant capital commitment over the next 2 years prior to any cash flow. We've now reestablished detailed negotiations with Petrovietnam and the gas buyer to agree a new first gas date and production profile, which will meet both our economic criteria as well as filling the ullage in the pipeline from the PM3 fields that supply gas to the power station and industrial complex at Ca Mau. In recasting the project, we expect that the first gas date has slipped by at least 12 months. And ideally, we would look to recommence capital spending next year when we anticipate market conditions will have improved sufficiently for us to be generating cash flow capable of supporting the project funding. This remains an important growth project for Jadestone, and the value has not been diminished in the current environment in large part due to the fixed price gas contract we expect to execute. However, we'll be prudent in our approach, and we'll report more on the progress of this development at our midyear results call later in the year. And finally, before I hand over to Dan, I'd just remind you that we remain committed to the Maari acquisition, which continues to progress towards completion. We've already achieved a number of key milestones. The New Zealand overseas investment office has most recently approved the transaction, and we're also making good progress with WorkSafe, the safety regulator; and with NZ P&M, the licensing authority. We're also working closely with the seller on operatorship transition. And an embryonic operating team is taking shape in New Plymouth, which will be much smaller than the existing organization there and will benefit from technical resource and support from both Perth and KL. We've also engaged with the licensed partners receiving their support, too. We remain on track to close the deal in the second half of the year. And having met expectations on cash flow in 2019, closing cash settlement for Maari is expected to be small. So with that overview, I'll now pass on to Dan to talk through our first quarter results and provide some color on our financial outlook for 2020. Dan?

Thank you, Paul, and hello, everybody. On Slide 13, we've set out some of the key headlines from our Q1 2020 performance. As Paul mentioned at the start of the call, 2019 was an exceptional year for Jadestone as we reported just 1 month ago with record production, liftings, revenue, EBITDAX, cash flow and profits. Q1 has been a strong quarter as well, with ongoing cash generation and continued deleveraging, albeit in the face of new challenges from COVID-19 and the collapse in crude oil prices from March. We also saw lower facility uptime in Q1, as Paul has mentioned, and as is typical for this time of year due to weather-related disruptions. We also had more maintenance work than as typical, including workovers early in the quarter at Stag and the other work that Paul summarized at Montara. Nevertheless, we had 3 crude oil liftings during the quarter for sales of a little over 1 million barrels, generating revenue of $74 million, a 32% jump on the same quarter last year. Price realizations averaged just over $64 a barrel in the quarter, which is down $3.5 from Q1 last year. But Brent crude fell substantially more year-on-year. We show in the table on the right-hand side here, the Brent lifting average for each quarter, with the keyword there being lifting. The Brent lifting average takes the monthly Brent average of each lifting that is incorporated into our final price realizations, with each average then weighted by the respective lifting size. You can see that Brent was down over $11 a barrel from a year ago, but we recovered more than half of that by an increase in our premia to about $11.50 a barrel on average. This demonstrates the ongoing strong demand for regional, low-sulfur crudes like Montara and especially regional heavy, low-sulfur crudes like Stag. As Paul has mentioned, we are sharply focused on costs, which came in at $24.99 a barrel in Q1 on a unit basis and after removing abnormal repairs and maintenance items. This is up around 5% on Q1 2019 unit costs of $23.75 due to the lower production this quarter from the seasonal weather impacts and higher maintenance activity, including the scaling work that Paul described. Q1 2019 also benefited from flush production. Average -- aggregate production costs are down almost $2 million compared to the same quarter a year ago and in line with Q4 2019. All in, this made for another highly cash-generative quarter, with $36 million in cash generated from operations before working capital changes compared to $27 million a year ago and nearly $31 million of EBITDAX compared to $23 million in Q1 2019. By quarter end, our aggregate cash position had grown to almost $120 million, and our net cash position is sitting at $72 million, again excluding the $10 million deposited in support of a bank guarantee. This places the balance sheet and the business overall, reinforced with our capped swap and our resilient low-cost production base, in a very strong position as we start to emerge from the global COVID-19 lockdowns. Slide 14 presents our EBITDAX for the quarter in our usual format. All in, a clean performance showing adjusted EBITDAX of nearly $31 million for the quarter compared to $35.5 million on an unadjusted basis. This is a roughly 1/3 increase on the same quarter a year ago despite the 18% drop in benchmark oil prices, reinforcing the impact of the Jadestone operating model versus a year ago when Montara was operated by the seller. This quarter's adjusted EBITDAX excludes the impact of hedging income, which was significant at $8.2 million in the quarter; as well as nonrecurring OpEx items, including costs to address damage from cyclone Damien; and a portion of the maintenance work at Montara, which Paul described. We've also adjusted for a portion of the total seismic costs that were expensed under the accounting rules. Slide 15 presents our Q1 2020 cash bridge, again, in our usual format. Our operating cash flows, as defined under the cash flow statement rules, are collected in the dotted green box on the left and shows a highly cash-generative business even in the face of reduced Brent prices. This includes a small portion of nonrecurring items. The Montara receipts include hedge settlement -- hedge settlements of $3 million, noting that the earlier accounting total of $8.2 million includes the March settlement, whereas the cash number shown here includes last December; and then around $2 million of our normal maintenance costs at Montara discussed earlier; and almost $1 million to do with cyclone Damien repairs at Stag. Again, you also see the $1 million in the other column associated with the seismic acquisition. After changes in working capital and taxes, that's around $46 million of cash generation. To the center of the bridge, you see the CapEx for the quarter, the majority of which is the seismic acquisition. There is also a small amount relating to the Australian drilling program, which is essentially spent into inventory as these are primarily long lead items, which we will utilize when we come back to an active drilling program. And spending toward Vietnam will contribute to our cost pools under the PSC mechanism, meaning these will ultimately be recovered once the project is producing. $38 million of unlevered free cash flow less leases relative to our current share price generates an unlevered free cash flow to enterprise value yield of around 60%. After accounting for the cash impact of paying down debt and leases, our closing cash position is $109 million, excluding the $10 million in support of the guarantee or an equity free cash flow generation of $20 million for the quarter. Turning to Slide 16. Our capped swap program continues to provide robust protection of near-term cash flows and as we start to see the global economy come out of COVID-19 lockdown. Approximately half of Montara's production is included in the swap volume or about 1/3 of group production, meaning those barrels receive a floor Brent price of $68.45 with a premium on top of that. Based on our last Montara lifting, this implies a total average realization of $74.55 per barrel on the swap barrels busting through to the end of Q3 2020. As covered earlier, we recorded $8 million of hedging income in Q1, and the mark-to-market fair value at quarter end was $32 million. Turning to Slide 17. We've tried to reinforce Jadestone's highly resilient position amidst the current external environment. Again, this is a slide we showed you a month ago as part of our full year results, but is updated here with the latest and lower consensus oil price view for 2020 as well as the work on Project Clover that Paul covered earlier. Starting with the 3 gray bars on the left. At our February 25 Capital Markets Day, we showed our projection for operating cash flow in the order of $160 million to $170 million. And we plan to use all of that and more predominantly for a heavy capital program for Nam Du/U Minh and for the Australian infill program. We were planning, of course, to part debt fund a substantial portion of that via the mandated enlarged RBL I also talked about on February 25. Today, with the impact of reduced cash flow due to lower prices, although significantly sheltered our hedging program, we felt it was prudent to shore up the cash position by reducing the CapEx burden, not to mention protecting returns by doing so. You can see in the blue blocks in the middle of the waterfall the impact on 2020 cash flows, firstly, from lower oil prices, again, we're using the latest Bloomberg consensus here, and secondly, as we defer the Vietnamese development and push back the Australian infills. With the majority of our spending being entirely discretionary, we can get back to a position where we not only pay down our debt to almost 0, but we also still maintain cash at $100 million or a little more. In addition, I'll note that many of the cost-reduction initiatives under Project Clover contribute over $30 million in cash savings for 2020 versus our work plan and budget, resulting in a growth in cash for the year despite the extraordinary macro events. This leaves us with ample dividend headroom and to fund the modest amount due at closing for Maari later this year. A couple of final comments before handing back to Paul. Our company guidance for production, CapEx and OpEx and the dividend remains unchanged and is summarized on Slide 24. We also delisted from the TSX-V during the quarter, another cost-saving exercise, given the locus of our current shareholder base and, moreover, trading liquidity on AIM. We are also applying to the Canadian regulatory authorities to move to standard U.K. semiannual reporting. If that application is successful, this will result in what we believe will be more informative financial information as we won't have to normalize for quarterly workovers at Stag, for example, and we'll also save on administrative burden. Further news on that will be forthcoming as the application progresses. And now back to Paul.

Very good. Thank you, Dan. And so on to the final slide, Slide 19, which summarizes the top priorities that we're concentrating on right now and will be throughout the year. First is a focus on safe operations, where despite the need to be efficient, we will never sacrifice our operating standards, safety critical maintenance or on our targets on environmental performance and social governance. Even in a world with COVID-19 impacting businesses globally, these will always remain top priorities. Equally, protecting the balance sheet has become a new focus, doing all we can to protect our returns. And Project Clover, as Dan has said, will have importance throughout the year to help improve our cash flow outlook. Dan also described the cash balance we have. And with continued discipline, we feel comfortable with maintaining the maiden dividend this year, closing out the Maari acquisition and even finding headroom for some inorganic activity should the right opportunities emerge. The organic growth pipeline is strong with Maari in the short term. And beyond that, the infill drilling campaign and Vietnam gas project remain great things to do as soon as the conditions are right. And while it's difficult to predict the future in such a volatile world, the staggering decline of capital into oil and gas projects by as much as 35% this year or over $130 billion will inevitably reverse the supply/demand story, providing respite in due course. Our intention is to remain nimble to take advantage as and when conditions improve. With that, ladies and gentlemen, I'd like to thank you for listening to our prepared remarks for this call. And I'll now hand back to the conference operator as we prepare for any questions you may have. Thanks.

[Operator Instructions] Your first question comes from David Round of BMO.

A couple for me, actually. Just firstly on production. Obviously, weather makes it a tricky quarter to predict. But can you just say what uptime would have been without the weather issues and without planned maintenance, and then what you need to do to get to the 85% target? And I see that the guidance was issued post the quarter. So presumably, this is already reflected, and you're comfortable with the guidance that's out there for the full year. And then just on the infill program. Given the lead time for a rig, when is the point at which you would have to make a decision on 2021 wells? And at current prices, would you be comfortable sanctioning drilling in 2021?

David, as usual, thank you very much for your string of questions. So let's begin with production. I don't think I've calculated the uptime without weather and so on, as you asked. But what I would say, which is perhaps getting to an answer, over the last several weeks, for example, Montara has been running at around 11,000 barrels a day, plus or minus. So that gives you a sense of where production perhaps should be under normal operating circumstances. So I hope that gets to your answer. And in terms of the uptime target, yes, I mean, certainly, this is work in progress. As you suggest, the 1Q component is always misleading because it does have so much seasonal impact. But in our view, together with what's done and what we continue to do to improve reliability, and this is all small ongoing remorseless steps to take away spurious outages and so on and just eliminate those things that irritate the operating business, just keep working away at those. And we certainly see ourselves able to reach that 85%. In terms of the infill, you're right. I mean the rig is unquestionably the long lead in these things. We had and already planning for the 2 wells this year, placed many of the tangible long lead items, as Dan has already discussed. And so that's taken care of, and those items will all just go into inventory ready for drilling. But we have been working with the drilling contractor and are close to agreeing a schedule for drilling next year, which we hope and feel is a far more comfortable time frame. And so our intention will be to just simply defer that drilling program by circa 12 months and pick it up again in a similar time frame next year. And we'll be able to report in more detail uncertainty around that timing when we provide our half year results.

Okay. So just a follow-up there. Presumably, our working assumption should be that everything moves by a year rather than it becomes the previous 2021 program plus the deferred 2020 wells. We should assume those '21 wells move to '22. Is that sort of a fair assumption?

I think it's a reasonable assumption today. Of course, you can't predict what's going to happen in the next 12 months given the violence of change that we've witnessed in the last 3. So on a reasonable set of assumptions, on a reasonable assumed recovery, and our position is to be cautious about that recovery, then I think it's reasonable to view this as being a 12-month setback.

Your next question comes from Chris Wheaton of Stifel.

Two, possibly three questions, if I may. Firstly, is there anything you can say on the current premia you think you'd be able to get for your liftings, particularly from Stag but also Montara, in terms of the premium to Brent? And the second question. On my numbers, you've got substantial free cash flow yield this year, mid-, high teens, free cash flow yield to enterprise. If you run the current spot prices through that P&L, you get substantially higher free cash flows coming out. With each incremental dollar on the oil price, you get incremental free cash flow here, quite a lot of incremental free cash flow. How do you think about allocating that additional free cash flow versus your base case now for 2020? How do you think about allocating that between, as you said, Paul, maybe additional workover work, maybe some additional maintenance? Those kind of capital allocation question is what I'm interested in.

Okay. Great. Thanks a lot, Chris. So I think we'll talk about oil premia first, and I'm going to let Dan speak to that.

Thanks, Chris. So I don't have any more news, unfortunately, on the Stag premia. The next Stag lifting is likely to be in July. And so we are still in the early days of those discussions, and we haven't locked that down yet. So I can't give you a new number for that. As you know, the last lifting was at $21 a barrel. What I can say is that in our slide where we look at the resilience of the business, Slide 17, we're assuming margins of around $2 to $3 a barrel across -- on a blended basis. So we're taking a fairly conservative cautious view on margins for our planning purposes. Of course, the Stag premium is going to come down from $21 in this next lifting. We're not expecting that. So for the time being, we have to rely on data from similar liftings, which continues to be sort of high single digits really from comparable heavy, heavy sweet crudes.

Great. Thank you, Dan. And in terms of allocation of free cash, I think we've really made the point, I think, Chris, that within the core business, we'll continue to and have assumed we'll spend money in improving uptime performance and including in restoring production where workovers and so on are required. So that's our base assumption for this year. It's the capital that we've removed. And to an earlier question, there's very little we can actually do to change the timing of that, given we need to lock in a rig that has a lead time of many months. And in our discussions with Petrovietnam on the gas project, again, we're assuming and working towards a principle where a project may be reinstated sometime next year so that we can reengage in project activity. So during the course of this year and particularly in light of, I think, still significant uncertainty, if we continue to build some cash, that's good for us and important to give us security as a business. And if we get a sense of and through the possibility that we'll see some distress in the market and opportunity emerging, certainly one way to restore short-term growth in light of pushing back the infill drilling and the gas project, might well be to look at acquisitions. But we'll always stick to our view on the rigorous screening that we do, and they have to fit our view of value creation through further investments. So we'll see how that plays out during the course of the year. But to hold a strong cash position at this point in time, that's not a bad place to be.

Your next question comes from James Carmichael of Berenberg.

Just a couple for me. So just on the timing of liftings. I think you highlighted that in Q1, you benefited from the January weighting of those liftings. What's been the time -- maybe I missed it, what's been the liftings in Q2? Just be helpful to sort of understand how we should think about that. And then also maybe if you could just add a bit of color around -- you described the unavailability of the Skua-10 and 11 wells in Montara. So just help us sort of understand what the issue was there, and I guess, whether they're available [ to invest ] in 2020.

So we had a Montara lifting in February, and we had a Stag lifting right at the end of the quarter. So we've had another Montara lifting in April. The next Stag lifting, as I mentioned, is likely to be pushed into early Q3. And we'll have another Montara lifting in this quarter. So does that give you what you're looking for on the lifting schedule?

Yes, Dan. That's it.

Yes. Thanks, Dan. And in the context of well availabilities, early this year, we had -- we found scale buildup in Skua-11, and so we planned and implemented a scale squeeze, which was successful, and Skua-11 is producing normally. And during in the year, Skua-10 was producing. And currently, we are working on an intervention to cure a small internal leak on the well. So the 10 is currently shutting, and the planned intervention is scheduled for next [indiscernible]. Other than that, all wells are online at Montara.

And -- so just lastly, on Vietnam. You mentioned that you're in discussions around the gas-out purchase agreement. So are you still sort of confident on that $79 Brent? I think most people are thinking about the expectations shifted on that. Maybe it's too early to say.

I don't think -- we have a view today, James, that -- but nothing has changed in the context of gas pricing in Vietnam. So we'll still be assuming a price within that range.

Your next question comes from Matt Cooper of Peel Hunt.

I wonder if you could talk through the likely steps and timing of the work program to unlock upside in Maari above the 2P case. In particular, I'm interested in produced Maari and Moki reservoir, which contains 300 million barrels in place.

Matt, great, thanks. So what I would describe is that the Maari assumptions that we have early in our 2P case, make no assumptions around investment in new wells, which would be required to unlock the reserves in the large untapped volumes at Manaia. So our base case assumption is some existing well interventions and coiled tubing, sidetrack drilling, relatively minor CapEx, around $7 million, plus or minus, is the only CapEx assumption in our base case for Maari. But I mean, to your point, these are large in-place volume. And so our plans and attention would be to start work on that immediately after transfer of operatorship. So as you can imagine, with lead times and so on, that's probably a couple of years before we could define very clearly what would be a significant capital program. So not in our base case, but it's one of the things that certainly excites us about the asset. And once we firmly have our hands, we'll, at that point in time, we'll start to work up what our longer-term plans will be and share them.

Your next question comes from Ashley Kelty of Whitman Howard.

Just a sort of quick question. Most other points had been raised or covered off already. And in terms of sort of deferrals, the RBL sort of signing, just wondering if you would look to accelerate that to take advantage of any uptick, further uptick in commodity prices and to give you some headroom for M&A that you touched on.

Okay. So I'm going to let Dan touch on the RBL and specifically where we are with that. Ashley, thanks.

So the first thing I'd say is when we hit the pause button on the RBL, we did that well into COVID-19 and a lower oil price environment. And all of the 6 -- all 6 of the banks were still very much wishing to proceed. Those dealer teams and the credit committees, and I said this is the time we were very grateful for all of their hard work. And I think they would like to continue to see that investment produce requisite returns for themselves. And so I think they're all very keen for it to restart as and when we're ready to do that. The majority of the use of proceeds, of course, under the enlarged RBL were financing, you mean. And so we tend to think of it as, other things being equal, something that we would take the loan document out of the covered and look to sign it as we get closer to sanctioning that project. That said, certainly, as we get closer to the infills in Australia, we'll be mindful of it. Yes, absolutely. And we would also -- I would say, we will also part debt fund where sensible. And in almost all cases, it will be sensible. We would certainly part debt fund inorganic growth, yes. So -- I mean, I look at the business today as, of course, one that is very -- has a very strong capital structure, a strong balance sheet today. But we have a bank group ready to grow with us and a bank group that is significantly in large from where it was.

Okay. And then one other thing. On Project Clover, this year sort of $5 a barrel sort of a target and the sort of $3 that you've achieved already, would it be reasonable to expect that the difference or the other gains will be realized at Maari once that is completed, you take over operatorship?

We haven't assumed in Project Clover savings at Maari. But of course, it would be under the same scrutiny, actually, to your point, I think. And therefore, we have spent some time with the current operator and encouraging him to look to change the cost profile where possible. And indeed, there are savings to be had. But in our Project Clover assumptions, this is within the existing business so far. Does that get to your point?

Yes, it does. That's great.

Your next question comes from Colin Smith of Panmure Gordon.

Yes. Two, please. First of all, you've talked about cautious oil price outlook, but you haven't extended the hedge book for some time. So I wonder if you could just talk about what your thinking is on hedging beyond the end of Q3. And then my second question comes back to the potential M&A opportunities, and just whether you are seeing any signs of stress that might deliver better opportunities perhaps than the set that you could have been looking at, at the beginning of the year.

That's good, Colin. So let's talk hedging first, and I'll let Dan pick that up.

Thanks, Paul, and hi, Colin. So on hedging, the way we think about this hasn't changed materially despite the COVID-19 disruptions. So to replay the tape as briefly as I can, when we took on the acquisition of Montara, we were tripling the size of the business across most metrics, and we took out the $120 million RBL. And with 100% of our production in the form of oil, it made sense in oil in a concession environment, it made sense to have some significant downside price protection. The banks wanted it, but it made sense for us as well. And so we took out a swap at that time to protect us. And of course, it served that purpose very well. And I think at the beginning of this year, as we were getting closer to what we were hoping the Vietnamese authorities would approve in terms of project sanction, we were looking to enlarge the RBL and spend a lot of capital, as you saw on Slide 17. It would have made sense at that point to do more -- to do some more downside price protection until we got the first gas. And so we were looking very carefully at that. In the absence of that, and as we get to the position where we are today, the balance sheet is very strong. We have $120 million of cash, we've got very little outstanding debt, and we've got a relatively cash-resilient, low-cost -- relatively low-cost production base. And down to below $20 and with Project Clover, still further improvements to come. So I would say the focus in an environment like today is very much around continuing to manage that cost base as best and as aggressively as we can and position the business to come out, as Paul described, at the end of the year stronger than we went into us. When we come to more substantial capital programs like in NZ, you mean, we would certainly look at further oil price protection and anything else that put more short-term pressure on the business, if you like. Otherwise, yes, I think the focus is as I just described. Does that make sense?

Yes. That's understood.

Great. Thanks. And Colin, to your question on M&A, in the context of the environment generally that we're observing, I'd probably say 3 things. And the first is we're always aware of a number of assets that were likely to or were imminently coming to the market. And some of those are that the plan is still in place, and that's sort of the [ first ]. And some of which we're quite excited about. The second is there were definitely assets that we were expecting and were clearly understood to be coming to the market this year, which have paused in light of the environment where the seller perhaps feels that there's -- they're not under pressure to sell this year and will pause until perhaps prices stabilize, which may be as much about getting a better price and may even be about getting a sale concluded at all. So there is a change in the market there against earlier expectations, perhaps. And then the third sort of bucket, I would say, there are assets that we are aware are coming to the market that were never anticipated. And how much the decision-making is around current conditions is actually hard to judge, but we are aware of a number. And so I think in the M&A space, it is fixing to become somewhat busier in the second half of the year than it was in the first.

Your next question comes from [ Ian Crosdale ], a private investor.

Just a quick a bit more color on the Maari acquisition. The window for acquisition is 6 months, H2. Can you close that window a little bit, maybe give us which quarter it might fall in?

[ Ian ], I wish I could. I would say that in the context of a new country entry, in a country where the jurisdiction -- generally, if you look at history, would tend to have you believe that these transactions do take time. When we first signed and announced the deal late last year, our view was it would take around 12 months. And so from -- I think it was September last year that really put it into a sort of September period this year. And so of course, we said second half. I'd say we are making good progress, and so perhaps nothing has changed to our view around the closing time. I'm just not sure that I would predict it's going to be earlier versus later. There are several approvals required. One of the key ones is now in place, and we just announced that the overseas investment office, which is a critical approval, has now come in. So that's encouraging. And the optimist in me believes that we might see this move a little bit earlier than we had originally projected. But I really -- I'm just not -- we're just not in control of the timing of these decisions. And so we have to -- and we'll maintain that the closing date is still a pretty wide window, remembering a couple of other things. One is the effective date is fixed. And so from a finance perspective, it doesn't really change the transaction at all. We are getting good access to the current operator. And as we had talked about to an earlier question, are having some influence on their actions, and in this case, cost reductions. So in that sense, there isn't necessarily the urgency that sometimes there is. And then the second thing I'd say is, also, it is likely that there'll be an election in New Zealand during the second half of the year, and I'm just not sure whether or not that will impact the timing of this transaction. So it's hard to say, [ Ian ]. Sorry, it's a long answer, but I'm optimistic it might come a little earlier.

Okay. I guess the only thing is the reserves will be added acquisition, so...

Yes, indeed. Yes. Thanks, [ Ian ].

[Operator Instructions] Okay. So there are no further questions. Please proceed.

Very good. Well, thank you very much, operator. And ladies and gentlemen, thanks very much for being on the call and showing interest in Jadestone. We really appreciate it. As we've discussed today, these are extraordinary times, but the business has demonstrated its resilience with a good first quarter, and we're doing a lot to make it even stronger. We're assuming a lower-for-longer period for the sector and just intend to manage accordingly. I hope we've made clear our intention to be prudent with what we have to strengthen the business further when we can and to benefit fully from our low-cost base, hedges and strong cash position. We will be on our toes in what will continue to be a very volatile world and even look to take advantage of distress in the market for the right opportunities. And as we've described, we're starting to see some interesting signs of that. So as I said earlier, we aim to exit 2020 much stronger than we entered it, and we look forward to providing updates in the future. Thank you very much, indeed.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.