Jadestone Energy plc (JSE) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Jadestone Energy Inc. Full Year 2020 Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, April 22, 2021. I would now like to turn the conference over to Paul Blakeley. Please go ahead.

That's great. Thank you very much, Colin. And hello, ladies and gentlemen. Good morning, and welcome to Jadestone's full year results conference call for the period ending 31st of December 2020. I'm Paul Blakeley, Jadestone's CEO. And I'm joined on the call today by Dan Young, our Chief Financial Officer in Singapore; and Robin Martin, Investor Relations Manager, who's on the line from Calgary. And while I want to say right upfront 2020 was an extraordinarily challenging year for our industry, we believe that the decisive actions we took early in the year in protecting our balance sheet have set Jadestone up extremely well going forward. First, on slides 2 and 3 of the presentation, a bit of housekeeping, where I'd like to offer a quick reminder of our standard disclaimers and advisories. And amongst all this narrative, I'll just draw your attention to the cautionary remarks regarding forward-looking statements and non-GAAP measures used in this discussion. Also, during this call, I'll be referencing slides, which you can find on our corporate website by logging on to www.jadestone-energy.com. Here, you'll see that the slides under the heading 2020 full year results review were recently uploaded under the Investor Relations section. An additional document titled 2020 Full Year Results and Final Dividend Announcement and the associated press release are also already on the website. And finally, if you're using the webcast, then the slides should be available via the link on your player screen. So let me begin with some introductory remarks and a quick summary recognizing the dramatic impact that COVID-19 had on global economies, commodity prices and even on the very fabric of lives, daily lives. It certainly tested the resilience of our own business model. And indeed, for some of our peers in the industry, it challenged their very existence. I'll also highlight the progress that we're making towards our ESG targets and how we've adopted a framework against which we can be measured and compared with peers. Dan is going to run through the full year results of 2020, remembering our revised guidance in April when we removed over 80% of capital in the face of enormous uncertainty. And then he'll outline the 2021 projections. I'll update on certain key projects, and then we'll conclude with a summary of what is essentially my performance contract with the Board. And then with the help of the operator, we'll take any questions you might have. So now turning to Slide 4 and a first quick overview of 2020 where revised production guidance was met, though following the intentional pullback on workovers as well as postponement of the 2020 drilling program, volumes were down on the previous year due to natural declines. $160 million in capital investment intended for organic growth was deferred due to the impact of COVID-19, and we're reinstating that now starting this year. Despite the year-on-year production decline, unit production costs were flat, largely due to the success of Project Clover, with the total annual cost of production down 14%, a great outcome, thanks to initiatives from across the whole organization. A real highlight, however, with emphasis on the balance sheet in a very uncertain world, was the doubling of net cash to over $82 million in the year while at the same time delivering a maiden dividend, acquiring a new ready-to-develop gas field in Indonesia and paying down debt to just 1 final installment at the end of 1Q this year, which is now done. And Dan, I'm sure, will give more details on all this in a moment. So now on to Slide 5, which highlights our progress towards environmental, social and governance targets, which were established for 2020. While recognizing that ensuring the sustainability of our business is not just about what we do but how we do it, we have included a number of ESG targets, which sit alongside operational and business objectives. There is the same degree of granularity and the same degree of impact on performance pay in meeting these targets for the whole organization, as we hold ourselves accountable to deliver. To select just a few highlights, I'll mention the drive to maintain a zero total lost time injury frequency rates, zero reportable Tier 1 environmental incidents or uncontrolled hydrocarbon releases and zero instances of regulatory enforcement notices. During the year, these targets were almost met, with the exception of 1 enforcement notice on our Stag operation, which focused on improving our emergency response procedures. We've taken this on board. We've made the necessary improvements, and the notice has since been removed. We also set significant environmental improvement actions, looking to reduce emissions by 10% and invest to reduce discharges and waste. These objectives were all met or exceeded. And in the spirit of continuous improvement, we've set further improvement targets for environmental performance in 2021. We also adopted the QCA governance code last year as we continue to pivot towards U.K. standards. We revised Board committee structures and remit to reflect this and worked to increase engagement with all stakeholders during what was a very challenging year. And finally, we met objectives set on recruitment of local nationals, providing jobs to talented people within each country where we have activity. We also introduced graduate training and intern and apprentice programs as we seek to attract the next generation into our industry. This is essential as we move through energy transition towards a lower-carbon future, which will still rely on delivering abundant low-cost energy to growing economies in the most efficient, environmentally sensitive way we can. Since we plan to be here for the long term, we're conscious of being on the front foot and amongst the leaders within our peer group. So now to Slide 6 and just spend a minute discussing how we lay out the ESG framework under which we measure our performance, aligned with wider societal challenges and provide the investment community and other stakeholders with sufficient detail to measure and compare Jadestone's progress towards a sustainable and lower-carbon future. We've continued integrating ESG considerations across our business and have taken steps to further align our framework in ESG with the UN Sustainable Development Goals in order to better demonstrate Jadestone's commitment and to measure progress. The 5 key goals that we've selected are shown on this slide. We've also continued to strengthen our governance systems and the adoption of the QCA code and by specifically formalizing board-level oversight over ESG matters, with the intention to establish a board committee specifically tasked for this. We're working towards alignment with the recommendations of the task force and climate-related financial disclosures and committed to investigate the material implications of climate-related risks on the business. This analysis will inform our climate change strategy, which will be developed in 2021 going forwards, setting a more strategic direction for navigating the energy transition and ultimately towards mapping out a route to developing a net zero carbon emissions target in line with the Paris Agreement. More on this will be available in our upcoming sustainability report, which will be published with the annual report in a few weeks' time. This document will give far greater detail and describe our progress towards minimizing impacts on the environment wherever possible and on continuous improvement in all the things we do. So with that, I'll hand over to Dan to provide some more detail on 2020 results and to reiterate our guidance for 2021. Dan?

Thanks, Paul, and hello, everyone. Slide 7 offers some key highlights for our performance in 2020, a year unlike any we've known. For Jadestone, as Paul had mentioned, it quickly became a focus on positive cash generation with reduced spending, but also substantially lower costs. We produced around 4.2 million barrels of oil in the year, down on 2019 due to natural declines, but also as a result of the intentional pullback on both infill drilling and on workover activity with the costs and constraints of COVID-19 and amidst the lower oil price environment. Liftings of 4.1 million barrels, down 7% on 2019, continued to be sold at prices above Dated Brent, albeit with Brent prices that were 35% lower than the prior year. Stag's premium has continued to be particularly strong. And overall, we achieved an average premium of $4.17 a barrel above Brent. Inclusive of the benefit of the hedging program, the overall -- the average realized price in the year was $52.32 per barrel or about $10.5 above Brent. The most recent Stag lifting has been negotiated at just under $14 a barrel above Brent. We have also pushed hard on the cost side of the business and ultimately achieved unit OpEx of $23.10 per barrel, which is within our original guidance range despite much lower production than we had originally planned, given the pullback on capital investments. All in, through our savings initiative, Project Clover, we found $33 million in savings relative to plan, of which 25% are locked in as structural changes. We also underspent our 2020 CapEx plans as part of protecting the balance sheet. Our objective was to use 2020 to put the brakes on major investments like infill wells in Australia and predevelopment spending on our gas projects so that we could build cash to redeploy into a more favorable investment environment. As Paul has already noted, we doubled our net cash balance, which stood at $82 million at 31st of December and have since grown that in 2021, including paying down the remainder of our debt. But to repeat, Jadestone is entirely free of any financial indebtedness. Importantly and against the backdrop of what was obviously a very challenging year for the industry, we kept our promise to become a dividend-paying company. We declared our maiden dividend of $7.5 million, apportioned between a 1/3 interim portion in October. And today, we're announcing our intent to recommend to shareholders a payment of the remaining $5 million of that $7.5 million, which equates to a bit over USD 0.01 per share. All this puts us in a good position to restart the growth engines of the company, both on the organic and the inorganic front. We have completed the Lemang acquisition in Indonesia. We continue to push hard to try to close the Maari acquisition in the first half of the year, and we're in the advanced planning stages for our drilling program at Montara, which will be followed by the workovers on the Skua subsea wells. We're also seeing more inorganic opportunities coming to market and are excited about the potential to add more to the portfolio, both add-on and material acquisitions. Slide 8 illustrates the operational performance at Montara and Stag, showing production on a barrels per day basis as the red line against the right-hand side Y-axis, and unit OpEx costs as the bars against the left-hand side Y-axis. At the highest level, I'll reiterate what we've been saying about both these assets that Jadestone's acquisition constituted a step change in performance both on production and on cost as you compare to the previous operator shown in gray on the far left of each chart. Focusing in on Montara for a moment, we can see the impact of the key Skua wells being off-line during a portion of the second half of the year due to problems within the wellbores which require a rig for repairs. While those 2 wells are off-line, we've managed to partly offset production by increases from the Swift and Swallow field so the impact does not actually jump off the page as a major feature. And on the cost side of the business, despite production not growing, we've managed to constrain costs in part as a result of Project Clover, including savings we implemented on logistics. At Stag, the graph shows the impact on production of the delays to the well workovers caused by COVID logistics challenges and amidst the lower oil price. There's an obvious impact on unit costs as a result, but again, partly mitigated by Project Clover initiatives and the new crude oil offtake model, which is working very well with the third shuttle tanker now in place at Stag. Slide 9 presents our EBITDAX for the year. All in, a clean performance showing adjusted EBITDAX of around $63 million for the year, which again was a very strong performance given the 35% fall in oil prices and lifting volumes down 7%. Adjusted EBITDAX excludes the impact of hedging gains, which were significant at $31 million. As a side note, the capped swap program that we put in place, when we took out the $120 million loan in 2018, has paid out now over $51 million to Jadestone across the 2 years of the program. We also exclude the $50 million impairment booked as part of our relinquishment on the SC56 exploration license in the Philippines, which we announced in November last year. This relates to capitalized exploration spending by the predecessor management team. When we took over the management of the group in 2016, there was $49.5 million already capitalized. There remained option value that was important to preserve for shareholders in respect of the remaining undrilled commitment well from Total, and we've naturally restricted our spend across the remaining period. Following our successful arbitration and Total's decision to relinquish, we've now relinquished our interest. And the remaining commitment obligations, which are around $2 million, will be met from the net proceeds received from Total in the arbitration. Given the severe impact of COVID-19 in 2020 on costs and the oil price collapse, I'm pleased that we are able to report substantial positive EBITDAX. This speaks to both the resilience of the portfolio amidst the dramatic change in investment and capital during 2020 and a 35% drop in benchmark oil prices. Slide 10 presents our full year cash bridge. Focusing in on our 2 producing assets, Montara and Stag, you can see that, even despite the challenges we faced in 2020, these are highly cash-generative for the business. We have some nonrecurring items in 2020, which I'll point out. The revenue bar includes the $31 million of swap receipts. Nonrecurring OpEx of $8 million is mostly costs incurred with repairs from Cyclone Damien and workover activity at the Skua subsea wells. Other income of $12 million is primarily the SC56 arbitration proceeds from Total. And the $12 million in other and G&A bar includes litigation costs associated with the arbitration and the arbitration with Inpex as well as Maari transition costs and a $1.5 million cash rig deferral cost. In blue, we call out the $44 million we repaid in -- out in principal repayment and interest service on the RBL. And also included in this bar in the gray portion is our maiden interim dividend of $2.5 million. Overall, that resulted in positive organic equity free cash flow generation of around $12 million. Lastly, we closed the Lemang acquisition in mid-December, a bit earlier than guided. And hence, we ended the year with the same cash balance we started with. Again, this speaks to the highly cash-generative nature of the business, coupled with our ability to remain responsive and very disciplined in how we manage cash. So while COVID-19 wreaked the damage it did with a 35% drop in oil prices and the constraints placed on our ability to work offshore, our underlying business responded very effectively, being able to fully meet our debt repayments and start paying dividends and to continue inorganic growth. Slide 11 sets out some details on today's announcement regarding the Board's intention to recommend a 2020 final dividend of $5 million or USD 0.0108 per share. The group's dividend policy remains unchanged and is described in the middle of the slide. What we have built is, first and foremost, a growth-oriented business, but it's also a portfolio that has increasing balance and diversity on several fronts. What ties everything together is that the business generates organic cash flow even in the extreme circumstances of 2020. On the right-hand side, we set out details of the final 2020 dividend recommendation. In particular, due to the internal reorganization, which I'll touch on more in a minute, the formal Board recommendation will be made following completion of the internal reorganization, including the capital reduction, which is expected in the second half of May. Slide 12 presents some key points relating to our internal reorganization. The overall effect of this is to establish a new TopCo for the group, Jadestone Energy plc, an England and Wales incorporated entity which will become the ultimate parent entity. I won't walk through all the mechanics of how this works, but we'll just say the proposed reorg was approved by approximately 100% of the shares voted at our special meeting 2 days ago. And the arrangement now remains subject to court approval, which we anticipate later today in Canada. Effectively, your shares in Jadestone Energy Inc. will be exchanged for shares in Jadestone Energy plc, which will be admitted for trading on AIM upon the market opening on Monday morning U.K. time. From a shareholder perspective, a key difference to highlight is that there will be no withholding tax on dividends, which effectively means around $0.20 more in your pocket on average for every dollar of dividend paid versus the status quo. Now turning to Slide 13, which summarizes our reserves and resources at year-end. As we've indicated, our intent in 2020 was to defer investment guided by the principle that we should protect the balance sheet. At the same time, we were minded to time our growth projects to coincide with higher prices and, hence, generate stronger returns than what otherwise have been possible. As a result, we saw a reduction in reserves due mainly to production, which resulted in a closing position of just over 37 million barrels of oil on a 2P basis at Stag and Montara. Focusing on resources on the right-hand side, and I'll note the difference in scale between the 2 graphs. I'll just say that we've updated our assumptions for both Maari and Lemang by way of CPRs commissioned as part of our corporate reorg. And the results are in line with our previous expectations. Layering on additional volumes from our gas development in Vietnam plus potential upsides at Maari, Montara and on Block 51 in Vietnam, we see total resource potential in the 200 million BOE range. On to Slide 14, which sets out our guidance for 2021, unchanged from when we released this in Q1. As we noted at that time, our focus for 2021 is to resume investment into the highest-returning projects in our portfolio. We expect a significant uptick in production in the second half of the year and are forecasting an increase of more than 50% H2 on H1. We are forecasting a full year average for the group of between 11,500 and 13,500 barrels per day and which assumes completion of the Maari acquisition midyear. On OpEx, we're guiding to $25.5 to $29.5 per barrel which, as usual, excludes well workovers for comparability period to period. This is slightly higher than last year due to the stronger Australian dollar and some once-in-5-year operating activity costs and about $1 per barrel of costs rephased under Project Clover. And we are forecasting overall spending CapEx plus abnormal OpEx of $85 million to $95 million. The centerpiece of that activity is the H6 infill well, which is set to commence in June. This will generate an IRR of over 100% and will pay back in around 9 months at current oil prices. Slide 15 shows our production expectations for 2021 and underscores the point about volumes being weighted to the second half of the year. Again, this slide is unchanged from our guidance presentation in Q1. The Valaris 107 rig is expected on site in mid-June. And we're already in-house to commence drilling the H6 infill well, which we anticipate will deliver around 3,000 barrels a day of initial production, starting around September time frame. Thereafter, we will use the rig to complete the Skua 10 and 11 workovers to restore production of approximately 3,000 barrels a day. But within the context of the subsea system, including the ongoing production from the Swift and Swallow fields, we anticipate a net addition of around 2,000 barrels a day. We also remain committed to our acquisition of a 69% interest in the Maari asset in New Zealand as is the seller. For modeling purposes, we have assumed the deal will close midyear and we'll be able to provide 3,000 barrels a day net to Jadestone from that point on for an annualized contribution of 1,500 barrels a day, with some upside from the MR6 workover currently underway. Slide 16 underscores again that the portfolio remains strongly cash-generative. The graph on the left side shows estimated 2021 operating cash flow generation on an after-tax basis, but prior to capital and debt. We've illustrated this at a range of Brent crude oil prices to illustrate the strength of the business. We've been conservative here in terms of margins over Brent, assuming just under $2 a barrel for the year on average. On the right-hand side, we switched to equity free cash flow after CapEx and debt repayments and the $5 million dividend we're announcing today. Here, the green bars illustrate approximate closing cash at the end of the year and compared to opening cash. The key takeaway here is that, with the nonrecurring Skua workover spend of around $30 million and the H6 infill well of around $40 million, we are still generating a net increase in cash by the end of the year at Brent prices down to the low 40s. Year-to-date Brent has averaged approximately $62 a barrel, positioning us well as we look to the remainder of the year. I'll now hand the call back to Paul.

Very good. Thank you very much, Dan. So now let's move to Slide 17 and provide an update on the 2 natural gas developments that hold within the business. Both these developments underpin our mid-term growth and are both fixed-price life-of-field contracts providing strong and predictable cash flows for a business. Each will deliver low-cost energy to key domestic markets within Southeast Asia, most likely replacing coal alternatives, bringing affordable energy to local communities who might otherwise not see the benefits that this can bring. At Nam Du/U Minh in Vietnam, our engagement with Petrovietnam continues, and we're still working towards an agreement on gas sales profiles, including first gas date. Once this is agreed, we can finalize and sign a GSA and resubmit a field development plan. We're now keen to push this forward. But since both buyer and seller need certainty and commitment to the project, these are the key steps that we have to agree first and, therefore, become the main objectives for 2021. In the meantime, we're working in the background on the FPSO tender, which is the longest lead time item of the project as well as some updated environmental monitoring in the field. At Lemang, our 2021 focus similarly remains on settling the headline terms of the gas sales arrangement, which is now complete, followed by government approval and then allocation of the gas to a buyer within the overall gas network and to market in Sumatra, West Java. Once done, we can then move to sign a fully termed gas sales agreement and move the project to FID. The development time line remains fully flexible with the PSC contract expiring in 2037. However, once a GSA is in place and with both a strong debt-free balance sheet as well as access to debt financing for such a project, we will want to advance this development as soon as practically possible. Slide 18 provides some detail on forward program across the business with ongoing work on optimizing production operations. We've already seen improving uptime performance in the first quarter this year as a result of investments on Montara control systems as well as the Stag shuttle tanker solution. And volumes have increased slightly on Montara with a new low topside pressure optimization project providing greater gas reinjection and so on. Wells planning is progressing, with the rig expected to arrive in June as planned, but subject to the Sapura OMV exploration well, which is ahead of us. I've already described our objectives for the 2 gas development projects this year, and so I'll just round off with the 3D survey in the Montara licenses, where we received the final process data earlier in the year. And in our early interpretation work, we can see clearly an improvement in data quality, which will help our understanding of the Montara blocks. And now finally to Slide 19, which is a proxy of my performance agreement with the Board and lays out the operational, ESG, financial returns and growth expectations of the business through the delivery of this year's activities. Dan has already described the 50% increase in production in the second half of '21 compared with the first as we reactivate some of the deferred capital programs from last year. Bringing back production from the 2 Skua subsea wells, adding H6, continuing to improve topsides performance and looking to close out the Maari acquisition are all key components. This sometimes feels frustratingly slow, but the decision to preserve capital last year and pause all of these new investment activities where we could has proved to be the right choice, and we're much stronger for it. There was little point in drilling in 2020, stressing the balance sheet in uncertain world and producing flush production volumes into the low prices we endured with a knock-on impact on returns. The ESG focus is on safe operations as always, still managing the potential threat of COVID-19 and continuing to reduce our impact on the environment through smarter operations and investment in mitigations. We are, of course, also reporting with greater transparency on more actions while improving ESG performance from our assets. Protection of the balance sheet has been a focus, too, which we've discussed in some detail through this call, doing all we can to improve our returns while providing room for the dividend or inorganic opportunity and for efficient capital deployment as conditions improve. The growth pipeline is strong, with Maari infill drilling and Vietnam gas, and we hope we can add to this in what is becoming an increasingly opportunistic M&A environment. And so in closing, 2020 was one of the toughest years our sector has encountered. And yet, with early and decisive action, our balance sheet is stronger, net cash doubled to over $82 million, while today we're enjoying higher unit cash flows as benchmark oil prices have recovered, while pricing premiums also remained strong. Also, as planned, we have now fully repaid our reserves-based loan sitting debt-free as of the end of 1Q 2021. We maintain our commitment to ongoing shareholder returns. And as Dan has already discussed, we confirm the final portion of our 2020 dividend, which, on average, will be around 20% higher into shareholders' pockets following the new TopCo as well as reaffirming our dividend policy for 2021 and beyond. Overall, we're in good shape as the markets begins to expand again, and I look forward to providing further updates through the year on progress towards all of our 2021 objectives. Ladies and gentlemen, thank you for listening, and that does conclude our prepared remarks for the call. I'll now hand back to the conference operator as we look to answer any questions that you may have. Thank you.

[Operator Instructions] We'll also be taking questions on Twitter at Jadestone Energy. Your first question comes from Nathan Piper from Intertech (sic) [Investec].

It's Investec, just for the record. So thanks very much for the presentation this morning. I wonder if you could delve into a bit more detail on a couple of topics, please. First of all, on the gas sales agreements, the gas sales agreements in Vietnam and Indonesia and just how and when we might see progress there. Secondly on Maari and probably a similar discussion about where you might -- when we might expect to see some progress there and what specifically you need to do to get the completion. And then maybe lastly, on the debt capacity of the company, I mean, where are your discussions with potential vendors that you spoke to in 2019, I think it was? So yes, clarity on those 3 would be helpful.

Great. Thanks, Nathan. So I'll start and give you my thoughts, and then I'll ask Dan to pick up. And he'll certainly speak to your question around debt capacity. And so first in your order, gas sales agreements both in Vietnam and Indonesia. I mean, frustratingly slow and, to large extent, outside of our control. And so to give you a simple answer about expectations on timing for these to be concluded is really quite difficult. But I'll just -- I'll try and give just a little more color on each over and above what was discussed earlier during the conference call. In Vietnam, I mean, we are actively engaged with Petrovietnam. I would say, most recently, and this is within the last month, Petrovietnam have finally announced a new upstream vice president, which was a vacuum in their organization for over 3 months. And I would say we're starting to see some more energy in the discussions perhaps as a result of that. But essentially, this is just quite simply the Vietnamese getting to grips with their view of supply and demand through the Ca Mau pipeline and where and how much does the Nam Du/U Minh gas volumes fit in. It's not a question of should this development go ahead. It's very clear that there are no alternative sources of gas. It's just wrestling with what that profile detail looks like. So I'm hoping, with leadership in Petrovietnam, we will see more progress. But I can't be today any more definitive than that. But I hope we'll, over the course of the next few months, be able to give you some clarity around progress. In Indonesia, it's probably slightly simpler and also quite different. Gas from Lemang, instead of being a sole source into a sole -- single demand requirement, actually feeds into a very large gas infrastructure throughout Sumatra and into West Java with a very large and diverse market. So it's consumed far more simply and just simply relies on the minister providing allocation of gas resource and matching suppliers with consumers over the course of the next several years. And we've made good progress with our, if you like, designated buyer, which is the electricity company, PLN. And we're just waiting now for the ministry to provide confirmation of timing and volume in a similar way to Vietnam, but in a sense, in a much more predictable format. So whilst, again, there's no predictions here. I think it's likely that we might see more progress, quicker progress, in Indonesia, but time will tell. And on pricing, the pricing is relatively straightforward and simple again in Indonesia. It's well formulated. We talked at the very outset the acquisition of a price in the range $5 to $6 for this project. That hasn't changed. So I think relatively straightforward. And then to Maari, quite simply, I think we, along with the rest of industry, are burdened today with the Tamarind fiasco on the Tui fields where there's a default on the decommissioning of that field, which the government is now paying for and a great reluctance by the government to move forward with any activity, whether it's new development or asset transfers, any decision-making, I think, has been hampered. And it's not just Jadestone and OMV. It has affected everybody. And in principle, it's because New Zealand, actually Australia, too, do not have legislation in place to cover this, like the U.K. has, for example. And so in the absence of that, it does seem that there's a difficulty in making decisions, not least for us, the acceptance of the transaction at Maari and the transfer of operatorship and interest. So with that in mind, we have offered a number of solutions, principally using the North Sea, the U.K. North Sea, as best practice. And we're working our way through that with the government in the hope that we'll find the right solution that will work for both parties. But in principle, it's a problem of not having the legislation in place. So we find ourselves in an unusual circumstance. But without -- whilst we preserve shareholder value, I think there are a number of actions that we can take and have suggested, which I hope will satisfy the government. And just to give you a context of the engagement, I mean, as recently as yesterday, we're exchanging commentary between ourselves and the New Zealand regulator to look to make progress on this. So I just hope that will continue. And hence, why we retain a midyear assumption on deal closing and not least a strong commitment from both buyer and seller to achieve the objective. So I spent a long time talking about those questions, Nathan. Dan, why don't you pick up on the debt capacity?

Yes. I guess, this time last year or a bit earlier than -- in February, March last year, we had 6 banks mandated, and we had fully negotiated a new facility. We had a $200 million facility ready to go with those 6 mandated banks. Today, after we hit pause last year for the reasons we've discussed, we still maintain those relationships. And we continue to see strong interest from senior bank debt to lend into the upstream market here. So both of the projects, we continue to think we will very likely fund at around 60%, 2/3 of the overall project cost with debt. Again, with Nam Du/U Minh we're only in the first phase where we have CapEx exposure. The second phase is funded out of cash flows that come on first gas. That's been our working model. Now of course, the business today is completely debt-free. And so yes, there's obviously incremental debt capacity in the business, and we'll think carefully about that. A key message we've always said at the -- since -- at the time of the announcement of Lemang, and we don't anticipate the need to raise any equity to fund both these projects, and that remains the case today. So our principles around those -- funding those projects hasn't changed at this point in time. And we like the flexibility that being debt-free today provides us. Does that answer the question?

That's useful. And thank you, Paul, for the long explanation -- detailed explanation, I'd say. Very helpful.

Your next question comes from Chris Wheaton from Stifel.

A question on your hedging, please. You've got about 30% hedged for the first half of the year. I'm interested in hearing your plans for the rest of the year. Are you anticipating hedging and presumably further hedging on top of that is also going to be contingent on the potential sanction of Vietnam and Indonesia as we just discussed those projects get sanctioned? So I'm just interested in your sort of plan for risk mitigation for the rest of the year, please.

Okay. Good. Thanks, Chris. And I am going to let Dan pick up your question. But I will just say the principal objective in hedging for us is associated with debt, and that certainly was the case on Montara and at the early part of this year are -- again, our objective was to underpin an ability to get back to capital investment. So there's always a very strong linkage to investment as a part of hedging strategy. But Dan, perhaps a bit more detail.

Yes. And Paul's really hit the key points there. So the swaps that we entered into in the first half of this year were really just to make sure there was always no risk to provide just a bit more insurance and almost no risk that we can't proceed and fully fund the capital program this year, which is clearly the case. So that was the rationale. Until we have significant capital that we're investing and putting the balance sheet, therefore, at some greater risk through that capital and/or major debt, we don't think it's likely that we would be contemplating additional downside oil price protection or giving away investors exposure to the upside in oil prices.

Great. Could I also ask about the M&A market and what you're seeing at the moment, given that there seems to be some pretty obvious struggles from some big oil companies unable to sell assets at the prices that they want? I'm just interested in what you're seeing in the M&A market across the region at the moment.

Yes. Okay, Chris. Thanks. I mean, I won't say a lot, except that, firstly, we have positioned ourselves through the course of last 12 months in preserving the balance sheet and building capital with the intention of reengaging in growth both organically and inorganically. And so we wanted to be positioned to take advantage of what we saw would be greater amount of M&A activity, and we are absolutely seeing that today. And in both the context of quantity of M&A and, to some extent, quality, I think we're pretty excited about what we're seeing coming to the market now and what we anticipate will come to market over the next 12 to 24 months. So I think it's a great time to be looking for further growth. As always, volatile world. Price expectations of sellers has to be managed. But we always established Jadestone and started to build out the portfolio with a view to become a credible counterparty in the M&A context across from sellers. And I'm hopeful that we'll able to take advantage of having got there, so to speak. But as always, it's a rigorous and extensive process. We are always looking for that value perspective through follow-on investment and growth. Everything we look at doesn't necessarily have that. And so we have to be patient and look at a number of things in order to find the right ones, but I'm encouraged.

Your next question comes from Matt Cooper from Peel Hunt.

Just one question from me, please. So I mean, clearly, the H6 infill well and the Skua workovers are key variables in the level of 2021 production. Could you talk a little bit about the risk on the Valaris rig arriving on time? So is the Sapura exploration well, is that currently on schedule? And if that did overrun, would that reduce the number of days that you have the rig?

Thank you, Matt. The rig is currently in Australia. It's in Dampier, on the Northwest shelf, preparing to mobilize to the Sapura MV exploration well. So there isn't a backlog of activity that will cause it to be delayed. It -- I mean, as recently as last year, it was a fully working rig. And so it's just being prepared for that move. And we have no indications that it will be delayed in arriving to the Sapura location. And the Sapura well is a relatively straightforward exploration, straight hole, notionally 30 days, I believe. So, so far, Matt, all on schedule. There is no limitation on timing for us in the sense that the rig has not currently got a sort of a hard stop because it's got other program to go to. But for us, it's more a case of ensuring that we complete the program before you settle into the next monsoon season -- cyclone season, I beg your pardon. So that's really the major constraint. We had certainly allocated an amount of time as part of normal contracting practice, but it's -- that's mostly around weather-related risk later on in the year.

Your next question comes from Mark Wilson from Jefferies.

A few just administration points, I think. First of all, I do like the way you show semiannual production on Slide 7. There's not many people who do that. That is very helpful. But 2 things around the production. Could you remind us just quite why Montara and Stag received such good premiums to the oil price in normal years? And secondly, could you give us the CO2 per BOE emissions if you have that? And then a bigger picture one for Paul is we've seen over in the North Sea some remarkable examples of growth via M&A. But they have involved usually either backing of private equity or combinations with the super major country businesses. So just wondering what the strategy is to inject scale into the M&A strategy going forward.

Thank you, Mark. Okay. Good. Well, I'm going to let Dan talk to premiums. He's such an expert. Actually, I may need to respond separately on CO2 emissions. The numbers don't spring immediate to mind. I may be able to find them before the end of the discussion. And then I'll pick up on M&A. But Dan, you are first.

Sure. So the Stag barrels are the barrels that attract the most outsized premium. And Stag is a heavy sweet crude. It's got an API of around 18 degrees, and it's virtually sold for free, 0.14% mass sulfur, so virtually sulfur-free. And with the IMO 2020 rules, those kinds of crudes are very, very valuable as blend stock associated with the impact of the bunker fuel market on -- for refiners. So that's the story there. Montara and Maari are both much more lighter normal crudes. I think Montara is around 42 degrees. I figure not at the top of the head what Maari is, but they both enjoy positive premiums. That's partly that's to Brent, partly that sort of location to customer versus the U.K. In the case of Montara, it's traditionally enjoyed a higher premium than it's getting right now. It's priced with reference to the [indiscernible] Brent differential, and that's particularly sensitive to naphtha and jet fuel demand. And so when we see a more normalized picture for jet and for naphtha derivatives and petchem, et cetera, you should see that premium continue to improve. It is selling at a positive premium to Brent, but it's not back to where it was at the beginning of the last year, which was $6, $7, but we hope to see a continued improvement in that premium, too.

Great. Thanks, Dan. On M&A, Yes. I think it's interesting, Mark, to correlate between what you see in the North Sea and Asia Pacific, where perhaps larger, more transformational deals have been done in the U.K. North Sea and where private equity plays a very significant role in the funding solution. It's -- that's less the case in Asia Pacific. There are perhaps a number of reasons for that. Certainly, in Southeast Asia, regulators host NOCs are less supportive of financial institutions acquiring assets because there's always that risk that there isn't a long-term commitment. And that certainly had an impact on the presence or lack of presence of private equity in the region in the past. How that goes forward, I wouldn't predict because it certainly might change. And so interestingly, there've been a number of very high-quality opportunities, which have failed to transact and perhaps in part the seller's price expectations. But I think it's also in part a lack of buyer universe. So where do we fit into that is a key question. And I'm often asked, well, sort of what size of opportunity can Jadestone manage. And reasonably, anything up to and including, let's argue, another Montara-sized deal is very easy for us to do today and would not, unlike Montara, given our balance sheet today, would not likely require new equity as a part of the funding solution. If you step beyond that, up to $0.5 billion ticket size, then equity has to play a role, but that's still well within, I think, our capacity, particularly for producing assets, which is what we certainly target and, therefore, where significant debt financing is possible. And then once you move to sort of towards $1 billion, it starts to become perhaps more of a stretch for us. And so if we see opportunities across that whole range, then it has our interest. Once it moves beyond that, we have to think of more innovative solutions, which is sometimes difficult for the seller or the regulator, the NOC, to understand and accept. Or we have to look at partnering solutions, which are often difficult, too. So that gives you perhaps a sense of where we are, where our capabilities are. And certainly, we'll look at tuck-in, small tuck-in deals, but we will also certainly look at much larger and more significant, more transformational deals now as we look forward with a strong balance sheet, no debt and looking to take advantage of the marketplace today. Does that answer your question?

No, absolutely. No, that's very clear, Paul. I understand it's a different market scope out there, so that's understandable. And also, I have to come back to that CO2 question later on or even off-line. And then so just on an admin point, you will be reporting semiannually from here. Would that be correct?

Yes.

There are no further questions at this time. Please proceed.

Great. Thank you very much, Colin. Ladies and gentlemen, I'm just going to say thank you for your interest and for participating in the call. As we've discussed, we find ourselves in a strong financial position today, even after weathering an exceptionally stormy year. And therefore, as markets start to recover, we're excited about the position we're in. We're back returning to growth within the portfolio. And as we've discussed on the call and to questions, I think there's great potential for further inorganic opportunity as well. So we're looking forward, I think, to a really exciting year or 2 for our business and for Southeast Asia. So ladies and gentlemen, thank you once again, and goodbye.

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