Aj Lucas Group Limited · ASX:AJL
Aj Lucas — Investor Presentation (November 2019)
68 slides from Aj Lucas's investor presentation, Nov 7, 2019
Slide 1: Capital Raising and Corporate Update
AJ Lucas Group Limited CAPITAL RAISING AND CORPORATE UPDATE November 2019 Preston New Road exploration site, Lancashire
Slide 2: Disclaimer
Disclaimer This Presentation has been prepared by AJ Lucas Group Limited (ACN 060 309 104) (AJL). Summary information • This Presentation contains summary information about AJL. This information is of a general nature and does not purport to be complete nor does it contain all the information which
Slide 3: Disclaimer (cont.)
Disclaimer (cont.) Disclaimers • None of AJL’s advisers or Canaccord Genuity (Australia) Limited, nor any of their respective affiliates, related bodies corporate, directors, officers, partners, employees, contractors, professional advisers or agents (Limited Parties), have authorised, permitted or
Slide 4: Contents
Contents 1 AJ Lucas Introduction 2 Entitlement Offer 3 AJ Lucas Corporate Overview 4 UK Shale Gas a Background b Operations Update c Next Steps 6 Lucas Drilling Services a Overview & Performance b Macro Coal Environment 7 Key Risks 8 Selling Restrictions 9 Appendix 4
Slide 5: AJ Lucas Introduction
AJ Lucas Introduction
Slide 6: AJ Lucas – at a glance
AJ Lucas – at a glance • Founded in Sydney, Australia in the 1950s, and listed on the ASX in 1999, AJ Lucas Group Limited (AJ Lucas, AJL, or the Company) has two core businesses: ₋ UK Shale Gas Investments – leveraging a proven track record of investing in the exploration and commercialisation of oi
Slide 7: Entitlement Offer
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Slide 8: Entitlement Offer overview
Entitlement Offer overview Offer summary • Pro-rata 19 for 20 non-renounceable entitlement offer (Offer) of new fully paid ordinary shares (New Shares) • New Shares are offered at $0.065 per New Share to Eligible Shareholders1 to raise up to $46.3 million • The Offer comprises an accelerated institu
Slide 9: Details of the Offer
Details of the Offer1 ▪ 19 for 20 pro-rata accelerated non-renounceable entitlement offer (Offer) to raise up to $46.3 million ▪ Up to 712.6 million new AJL shares to be issued under the Offer Offer description ▪ The Offer is not underwritten ▪ New Shares will rank equally in all respects with exist
Slide 10: Details of the Offer (cont.)
Details of the Offer (cont.) ▪ The Board of AJL reserves the right, subject to the requirements of the Corporations Act and ASX Listing Rules, to place any unsubscribed New Shares within 3 months of the close of the Offer at a price no less than the Offer price ▪ The allocation policy relating to th
Slide 11: Debt restructuring update
Debt restructuring update • In October 2019, AJL refinanced its Senior Loan Note facility (owing to OCP) through two new debt facilities: • a 3-year senior-ranking Asset Based Lending facility (ABL) of up to A$30 million provided by Investec; and • a 3.5-year junior-ranking loan note facility (Junio
Slide 12: Balance sheet impact of the Offer and the Debt Restructuring
Balance sheet impact of the Offer and the Debt Restructuring Pro forma adjustments1 Existing Financial Senior Pro forma position at Loan New debt Capital position as at 30 $m 30 Jun 19 Notes2 facilities 3,4,5 Raising6 June 19 Notes to Proforma adjustments 1. Basis of Preparation: the pro forma finan
Slide 13: Indicative Offer timetable
Indicative Offer timetable1 Event Date Launch of Offer and commencement of trading halt Thursday, 7 November 2019 (before market open) Institutional Entitlement Offer closes Friday, 8 November 2019 AJL shares recommence trading on ASX Monday, 11 November 2019 Record date for Offer (7:00pm Sydney tim
Slide 14: AJ Lucas Corporate Overview
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Slide 15: AJ Lucas – a renewed focus
AJ Lucas – a renewed focus • Australian Operations ₋ AJ Lucas sold the assets of its Engineering & Construction (E&C) division in mid-2018 – LDS remains the backbone of the Company’s Australian operations ₋ AJL management has taken active steps to restructure LDS’s cost base and refocus the division
Slide 16: AJ Lucas – a renewed focus (cont.)
AJ Lucas – a renewed focus (cont.) • UK Shale Gas Investments ₋ AJ Lucas has a ~48% shareholding in Cuadrilla Resources and, together with its direct licence holding, a ~48% effective interest in PEDL 165 in Lancashire (Bowland licence), which at >1,000 sq. km is the largest shale gas licence in the
Slide 17: AJL corporate structure
AJL corporate structure UK Shale Gas Investments AJL “effective interests”: 100% 47.7% PEDL 165: ~48.2% Lucas Drilling Cuadrilla Resources PEDL 244: ~45.6% Services (LDS) (operator) 23.75% PEDL 165 51.25% (“Bowland licence”)1 25% Spirit Energy 18.75% PEDL 244 56.25% 25% (“Bolney licence”) Angus Ener
Slide 18: AJ Lucas Group – financial performance & position
AJ Lucas Group – financial performance & position Financial year ended 30 June - A$m FY15A FY16A FY17A FY18A5 FY19A Income statement Revenue (Australia) 145.0 125.5 122.0 124.7 143.4 Revenue (LDS only) 83.5 79.6 73.4 124.7 143.4 Underlying EBITDA (LDS only) 6.2 11.4 2.7 19.7 24.4 Underlying EBITDA (
Slide 19: UK Shale Gas
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Slide 20: Background
a. Background b. Operations Update c. Next Steps 20
Slide 21: Intro: UK energy challenges & shale gas as a solution
Intro: UK energy challenges & shale gas as a solution • The UK faces a number of long-term energy challenges, many of which are linked to its recent legislated commitment to a carbon-neutral economy by 2050. In terms of gas: • Projections by both the Department for Business, Energy and Industrial St
Slide 22: Natural gas is critical to UK energy needs
Natural gas is critical to UK energy needs UK primary energy consumption 2000-2035 (Mtoe)4 • Natural gas accounts for over a third of the UK’s primary energy demand and ~85% of UK homes are heated by gas1 300 • North Sea gas production is in long-term decline, and in the 250 absence of domestic shal
Slide 23: Benefits of UK shale gas - environmental
Benefits of UK shale gas - environmental 1. Gas has a clear environmental advantage over coal • Natural gas emits ~40% less CO2 than coal and produces negligible SO2, mercury, and particulates when combusted1 • International Energy Agency (IEA): “Since 2010, coal-to-gas switching has saved around 50
Slide 24: Benefits of UK shale gas – macroeconomic
Benefits of UK shale gas – macroeconomic Balance of payments • UK North Sea oil & gas production continues to decline – approximately half of the UK’s current gas demand is imported1 • In 2018 the UK imported an estimated £7 billion of gas2 • UKOOG: central development case of 100 well pads with 40
Slide 25: AJ Lucas has a significant position in UK shale gas
AJ Lucas has a significant position in UK shale gas • The British Geological Survey (BGS) estimates that the Bowland shale, stretching across the north of England, contains gas-in-place of between 822 Tcf and 2,281 Tcf with a central estimate of 1,329 Tcf1 • AJ Lucas has interests in a number of lic
Slide 26: Preston New Road initial drilling campaign
Preston New Road initial drilling campaign • Drilling of the first vertical well at Preston New Road completed in January 2018 to a depth of ~2,700m through the Upper and One pilot well and two horizontal wells drilled Lower Bowland shales through the Bowland shale • Extensive core samples recovered
Slide 27: Bowland shale’s promising characteristics
Bowland shale’s promising characteristics • The Bowland shale at >1,000m thick in places is thicker than comparable US Shale core from Preston New Road shale formations (see following slide) • Core samples have been subjected to detailed lab analysis: • Total organic content (TOC) of 1-7% with an av
Slide 28: Comparison of UK and US shale gas metrics
Comparison of UK and US shale gas metrics UK Bowland Shale United States shale gas producing basins3 Springs Road site – PNR site1 Eagle Ford Barnett Fayetteville Woodford Haynesville Marcellus Lower Bowland2 Depth 1,300 - 3,300 2,300 – 2,600 2,100 - 3,700 2,000 - 2,600 300 - 2,100 1,500 - 2,900 3,2
Slide 29: The Bowland shale – a summary
The Bowland shale – a summary BGS estimates (P50 case) the Shale located several Bowland shale holds 1,300Tcf thousand feet below aquifers gas in place Shale thickness (>1 km) in Excellent gas quality with high places enables multiple methane content and few horizontal wells at different impurities
Slide 30: Announcement of moratorium
Announcement of moratorium • On 2 November 2019, the UK Government announced a moratorium on hydraulic fracturing on the basis of an interim OGA report on fracturing induced seismicity1 • The OGA’s report2 details the findings of four studies commissioned in February 2019 into seismicity during PNR-
Slide 31: Operations Update
a. Background b. Operations Update c. Next Steps 31
Slide 32: PNR-1z fracturing confirms recoverable gas – Traffic Light System
PNR-1z fracturing confirms recoverable gas – operations limited by the Traffic Light System • PNR-1z was completed with 41 separate sliding sleeves ~38,000 microseismic readings recorded during PNR-1z frac • Cuadrilla had planned to fracture each sleeve with 400m3 of fracturing fluid and 50 tonnes o
Slide 33: PNR-1z fracturing confirms recoverable gas (cont.)
PNR-1z fracturing confirms recoverable gas – operations limited by the Traffic Light System (cont.) • There were several key positive takeaways from PNR-1z fracturing operations • During fracturing operations complex fracture networks were generated and sand injected in the fractures stayed in place
Slide 34: PNR-2 operations – stages hydraulically fractured
PNR-2 operations – 6 stages hydraulically fractured each with >30 tonnes of proppant • Hydraulic fracturing at PNR-2 commenced on 15 August 2019 102 micro-seismic readings to date – 9 red-light readings1 • Encouraging results from the initial five (of 45 total) sleeves: • Textbook fractures with tar
Slide 35: Next Steps
a. Background b. Operations Update c. Next Steps 35
Slide 36: PNR-2 flow test & next steps
PNR-2 flow test & next steps • Cuadrilla is currently conducting a flow test of the six fractured sleeves of PNR-2, five of which were embedded with the targeted volume of proppant during fracturing operations • Early data from the PNR-2 flow test has been very encouraging • The gas at PNR-2 is high
Slide 37: Bowland licence development concept
Bowland licence development concept • The thickness of the Bowland shale in PEDL 165 which measures over 1km in places with multiple production zones lends itself to a stacked lateral well configuration; potentially: • 6 zones could be intersected by wells drilled at vertical intervals of 200m; • In
Slide 38: Other licence activity
Other licence activity Balcombe licence (PEDL 244) farm-out • Angus Energy plc (Angus) assumed operatorship of PEDL 244 under a farm-out arrangement agreed in January 2018 • Under the terms of the farm-out, Angus funded and completed a 7-day well test of an existing horizontal well (Balcombe-2z) whi
Slide 39: Lucas Drilling Services
Lucas Drilling Services
Slide 40: Overview & Performance
a. Overview & Performance b. Macro Coal Environment 40
Slide 41: Lucas Drilling overview
Lucas Drilling overview • LDS is a leading integrated provider of drilling services to Australia’s coal mining sector, offering a suite of specialised services: – Exploration drilling: resource delineation through chipping and coring services at brownfield and greenfield sites – Directional drilling
Slide 42: Long-term blue chip customers
Long-term blue chip customers ▪ LDS provides drilling services to some of the world’s largest miners and energy companies ▪ Relationships with certain customers have lasted for 20+ years ▪ LDS possesses a strong incumbency advantage as its processes, managers and rig operators are well integrated in
Slide 43: Exemplary safety record
Exemplary safety record ▪ Given its prominence in the Australian economy, the coal industry is highly Total Recordable Injury Frequency Rate regulated with stringent environmental and safety rules to protect mine Lucas Drilling vs industry peers2 workers from accidents, especially those caused by ga
Slide 44: Lucas Drilling evolution
Lucas Drilling evolution Financials metrics (financial year ended 30 June - $m) 2014A 2015A 2016A 2017A 2018A 2019A Revenue 94.2 83.5 79.6 73.4 124.7 143.4 Underlying EBITDA 10.8 6.2 11.4 2.7 19.7 24.4 Business evolution Financial performance and recent contractual activity • LDS emerged from the co
Slide 45: Macro Coal Environment
a. Overview & Performance b. Macro Coal Environment 45
Slide 46: Strong outlook for Australian met. coal exports
Strong outlook for Australian met. coal exports • Australia is the world’s largest exporter of metallurgical (met.) coal (~58% market share in 2017) and investment continues to be made in the industry; this underpins growth in demand for the various drilling services that LDS provides • Australia pr
Slide 47: Australian met. coal producers low on cost curve
Australian met. coal producers low on cost curve • LDS provides degasification and exploration services to blue-chip metallurgical (coking) coal operators; these customers are currently incentivised to maintain and expand coal production due to their low cash costs per tonne and robust operating cas
Slide 48: Key Risks
Key Risks
Slide 49: Key risks
Key risks Introduction • As with all businesses, there are a number of risk factors, both specific to AJL and of a general nature, that may have a material impact on AJL’s future operating and financial performance. This section describes certain specific areas that are believed to be risks associat
Slide 50: Key risks (continued)
Key risks (continued) A. UK investments of AJL including Cuadrilla UK political & a) AJL has an interest in a number of assets that are located in the United Kingdom. Such assets are subject to changes in UK laws, regulations, regulatory risk practices and policies including those concerning oversea
Slide 51: Key risks (continued)
Key risks (continued) A. UK investments of AJL including Cuadrilla (continued) Extent of, and ability to a) Cuadrilla’s ability to develop its concessions for unconventional hydrocarbons depends upon the presence of significant in-place resources recover and the ability of Cuadrilla to recover those
Slide 52: Key risks (continued)
Key risks (continued) A. UK investments of AJL including Cuadrilla (continued) Impact of induced Where seismic events induced by hydraulic fracturing operations exceed the 0.5ML threshold prescribed under the current Traffic Light System, seismicity Cuadrilla must suspend its operations for 18 hours
Slide 53: Key risks (continued)
Key risks (continued) A. UK investments of AJL including Cuadrilla (continued) Inability to meet Cuadrilla is the operator of the PEDL 165, and under the joint operating agreements between the owners of the licences Cuadrilla prepares the exploration licence budget for exploration of these areas whi
Slide 54: Key risks (continued)
Key risks (continued) B. Lucas Drilling Services and the markets in which it operates Commercial, financial a) As a business operating in the drilling industry, AJL faces general commercial risks, including the loss of major customers, competition and and operational risks other causes of business i
Slide 55: Key risks (continued)
Key risks (continued) B. Lucas Drilling Services and the markets in which it operates (continued) Project delays a) Delays to the commencement or completion of work on projects have occurred from time to time and may occur in the future due to a variety of reasons, including general market down-turn
Slide 56: Key risks (continued)
Key risks (continued) B. Lucas Drilling Services and the markets in which it operates (continued) Natural disasters and Some of the areas in which AJL has operations, particularly its drilling operations in Queensland, may be adversely affected by seasonal weather seasonal weather conditions. AJL is
Slide 57: Key risks (continued)
Key risks (continued) C. Other operational, financial and business risks Debt facilities a) The terms of the AJL’s borrowing facilities include a number of events of default, including non-payment of any amount due under the facility and breach of financial covenants, which, if triggered, could requ
Slide 58: Key risks (continued)
Key risks (continued) C. Other operational, financial and business risks (continued) Reliance on Key Like other companies, AJL’s performance is dependent on the ability of its senior executives and key personnel to manage and grow its business Personnel and respond to customers' needs. The loss of t
Slide 59: Key risks (continued)
Key risks (continued) D. Risks relating to investing in the New Shares Market conditions The market price of shares can fall, as well as rise, and may be subject to varied and unpredictable influences. Neither AJL nor the Directors warrant the future performance of either the New Shares, AJL or any
Slide 60: Selling Restrictions
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Slide 61: Selling restrictions
Selling restrictions International Offer Restrictions This document does not constitute an offer of New Shares in any jurisdiction in which it would be unlawful. In particular, this document may not be distributed to any person, and the New Shares may not be offered or sold, in any country outside A
Slide 62: Selling restrictions (cont.)
Selling restrictions (cont.) New Zealand This document has not been registered, filed with or approved by any New Zealand regulatory authority under the Financial Markets Conduct Act 2013 (the "FMC Act"). The New Shares are not being offered to the public within New Zealand other than to existing sh
Slide 63: Selling restrictions (cont.)
Selling restrictions (cont.) United Kingdom Neither this document nor any other document relating to the offer has been delivered for approval to the Financial Conduct Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000,
Slide 64: Appendix
Appendix
Slide 65: AJ Lucas direct and indirect licence interests
1. AJ Lucas direct and indirect licence interests Cuadrilla net licence AJL effective licence area area Licence Sq. km Cuadrilla interest AJL interest Other licence holder interests (sq. km) (sq. km) Bowland - Lancashire region PEDL 165 1,065 51.25% 23.75% Spirit Energy 25% 546 513 EXL 269 55 53.5%
Slide 66: Benefits of UK shale gas - economic
2. Benefits of UK shale gas - economic Source: UKOOG 66
Slide 67: Depiction of successful fracturing of Sleeve 3
3. Depiction of successful fracturing of Sleeve 3 Source: Cuadrilla management 67
Slide 68: Traffic Light System
4. Traffic Light System Source: OGA 68
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