3rd Quarter Results

Jadestone Energy Inc.
 

Jadestone Energy Results for the Period Ending September 30, 2019
Steady Production, Montara Operatorship Transferred, One-off Capital Completed and First Dividend Announced

November 28, 2019-Singapore: Jadestone Energy Inc. (AIM:JSE, TSXV:JSE) ("Jadestone" or the "Company"), an independent oil and gas production company focused on the Asia Pacific region, is pleased to report today its consolidated interim unaudited financial statements (the "Financial Statements"), as at, and for the three-month and nine-month period ended September 30, 2019.

Financial highlights

●     Net revenue for the quarter of US$62.5mm, 46% lower than Q2 2019 primarily due to one less lifting at Montara, which occurred post period end in October.  Net revenue for the nine-month period to September 30, 2019 of US$234.2mm;

●     Lower liftings in the quarter increased crude oil inventory by 307.6mbbls to 494.8mbbls, which would equate to US$32.3mm of revenue at average realised oil prices in the quarter;

●     Adjusted EBITDAX of US$29.6mm¹, down from US$75.4mm¹ in the prior quarter;

●     Cash generated from operations was US$23.5mm², down from US$59.3mm² in Q2 2019 due in part to fewer liftings as well as significant non-routine opex.  Cash generated from operations over the nine-month period to September 2019 was US$119.0mm²;

●     Unadjusted quarterly profit after tax of US$0.02mm, down from US$22.6mm in Q2 2019 and profit after tax for the nine-month period of US$30.1mm;

●     Average price realisations of US$65.36/bbl, a decrease of 9% from the June quarter

-    Montara and Stag continue to enjoy strong differentials to Dated Brent, with the most recent sales, locking in a margin of US$4.56/bbl and US$11.40/bbl, respectively;

●     Pre-tax hedging gains of US$4.2mm, included in revenue for Q3 2019, compared to US$1.4mm in Q2 2019;

●     Capex and non-routine opex of US$25.7mm in the quarter, including for the riserless light well intervention ("RLWI") project (US$11.8mm) and umbilical replacement (US$13.3mm) at Montara;

●     Operating costs of US$20.43/bbl, excluding non-routine opex, such as Stag workovers, down 6% from the prior quarter;

●     Gross debt of US$60.8mm, reduced from US$73.4mm at end June 2019, as the Company continues to pay down its reserve-based lending ("RBL") facility;

●     Gross cash of US$65.0mm, excluding US$10.0mm cash deposited in support of a bank guarantee, net cash position of US$4.2mm, or US$14.1mm inclusive of restricted cash; and

●     The adoption of a dividend policy, targeting a 2020 maiden full year dividend in the range of US$7.5mm and US$12mm.

The revenue, EBITDAX¹, profit and operating cashflow results reflect the periodic nature of revenue recognition for Jadestone: there were single liftings at Stag and Montara during the quarter compared to two Montara liftings and a Stag lifting in the previous quarter, and a sole Stag lifting in the same quarter in the previous year.  Conversely, inventory built up on the Balance Sheet to a market value of US$32.3mm by quarter end³. 

Operational highlights

●     Continued safe operations at all assets with no recordable personnel or environmental incidents;

●     Production in line with full year guidance averaged 13,036 bbls/d for the quarter, a 2% decrease from Q2 2019.

●     Production marginally lower due to planned downtime at Montara, for the umbilical replacement project, RLWI programme, and repairs to the gas lift compression system, partly offset by increased production from Stag following the 49H infill well;

●     Achieved two production liftings during the quarter, resulting in sales of 0.9mm bbls, compared with 1.6mm bbls from three liftings in Q2 2019, or 3.2mm bbls for the nine-month period.  In addition, crude oil inventory increased by 307.6mbbls during the quarter;

●     Completed transfer of operatorship of the Montara oil project, including acceptance of the Company's safety case and transfer of the remaining 1% interest in the Montara titles;

●     Completed all outstanding remedial works on the Montara asset which have resulted in gas lift operations to the subsea wells resuming;

●     Finished the first major investment programmes on Montara on time in mid-August and on budget;

●     Signed an agreement to participate in a multi-client 3D seismic acquisition covering 1,487 km², including the Montara blocks and surrounding area, now targeted to begin in Q1 2020; and

●     Formally submitted a field development plan ("FDP") for the Nam Du and U Minh gas fields, offshore southwest Vietnam, to Vietnam Oil and Gas Group ("Petrovietnam") in October, 2019.

Acquisition of a 69% operated interest in Maari

●     Announced, in November, 2019, the acquisition of the Maari Project, offshore New Zealand, from OMV for a headline cash consideration of US$50mm, subject to satisfaction of conditions.

Outlook

●     Full year average group production guidance is reconfirmed within the range 13,500-14,500 bbls/d;

●     Opex guidance for the full year is maintained at US$21- 24/bbl, reflecting an acceleration in opex reduction initiatives at Montara following the transfer of operatorship;

●     Guidance on major spend for the full year of US$66-81mm, down US$7mm as the Montara 3D seismic shoot is now expected to commence in Q1 2020;

●     Major spending of US$25.7mm in the quarter comprised both capex and non-routine opex, mainly for the RLWI project (US$11.8mm) and the Montara umbilical replacement (US$13.3mm).  This compares to US$12.2mm in the previous quarter;

●     Approval of the FDP for the Nam Du/U Minh gas project in southwest Vietnam is anticipated before year end or shortly thereafter; and

●     The Maari project transition phase will continue throughout Q4 2019 and into 2020, including obtaining New Zealand Government approvals relating to title transfer and change of operatorship and other customary conditions, leading to anticipated completion in H2 2020.

¹ EBITDAX is a non-GAAP financial measure which does not have a standardised meaning prescribed by IFRS.  This non-GAAP financial measure is included because management uses this information to analyse financial performance, efficiency and liquidity and it may be useful to investors on the same basis.  EBITDAX is a non-GAAP measure which should not be considered an alternative to, or more meaningful than, "net earnings (loss)" as determined in accordance with IFRS, as an indicator of financial performance.  EBITDAX equals net earnings (loss) plus financial expenses (income), provisions for (recovery of) income taxes, and depletion, depreciation and amortisation and exploration expense.  Because non-GAAP financial measures do not have a standardised meaning prescribed by IFRS, they are unlikely to be comparable to similar measures presented by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

² Before changes in working capital, interest and taxes

³ Based on average price realisation in the quarter

Paul Blakeley, President and CEO commented:

"I'm pleased to report Jadestone's third quarter 2019 results, with steady and safe production operations, slightly impacted by both the RLWI programme and the umbilical replacement at Montara.  The quarter's financial results were also impacted by crude liftings schedules which saw an inventory build of over 300,000 bbls from the previous quarter, and a delayed cash receipt for one lifting in the quarter. The ongoing cash generation of the business is strong, our Balance Sheet is improving with each quarter, and we're increasingly cash positive, just 14 months after closing our acquisition of Montara, which included a US$120mm reserves-based loan facility.

"At the same time, we completed the transfer of operatorship of Montara in the third quarter, completing all outstanding remedial works on the asset that had been identified during the acquisition, including the subsea well interventions, umbilical replacement and recommissioning of the gas lift compressor, and have begun to demonstrate the impact of our operating philosophy on minimising waste and further driving down operating costs.  

"We're also continuing to pursue value accretive inorganic growth elsewhere in our core region, announcing earlier this month that we will acquire an operated 69% interest in the Maari project, in shallow water offshore New Zealand, for a headline consideration of US$50mm.  The project will increase the Company's production by approximately 30% and 2P reserves by 33%, and is immediately accretive on an operating cashflow per share and free cashflow per share basis.

"In Vietnam, we're making good progress toward commercialising our southwest Vietnam gas project at the Nam Du and U Minh fields. The formal field development plan has been submitted to Petrovietnam, and we're still aiming to achieve field development sanction by the end of the year.

"The Jadestone strategy is definitely working with building momentum, and we remain on track to generate distributable earnings for shareholders, as promised in our announced dividend policy, which will result in our maiden dividend next year."

Operations update

Montara

Production at the Montara asset (Jadestone 100%, and operator) averaged 9,235 bbls/d during the quarter.  Production was affected by planned downtime associated with the RLWI programme and the umbilical replacement project, in addition to work on the gas lift compressor to address high temperatures on the compressor's exhaust stack.  Although this resulted in 72% uptime during the quarter, down from 82% in the prior quarter, completion of these activities addressed a number of reliability issues and accessed new reserves, which should underpin higher uptime performance and increased production going forward. 

All work was completed during the quarter as planned.  The regulator's prohibition notice, issued to the prior operator in relation to the compressor, has been withdrawn, and gas-lift resumed.  At the end of the quarter, production at Montara was over 12,000 bbls/d.  

One crude oil cargo was lifted from Montara in Q3 2019, for total sales of 592,028 bbls.  The next lifting occurred in October, meaning the Company recorded a substantial increase in crude oil inventory for the quarter.

The Company has also made progress toward its plan to acquire new 3D seismic in the Montara area, and has joined a multi-client survey to be conducted by Polarcus, which will include acquiring approximately 1,487 km² of 3D seismic including full coverage of the block area, starting in Q1 2020. This seismic acquisition is part of Jadestone's plan to improve reservoir imaging, to more accurately target future infill wells, and to assess further exploration step-out potential.

In addition, the Company is finalising well planning for its first infill well at Montara, which will be drilled from an existing slot on the Montara wellhead platform, targeting 1.8mm bbls of unswept oil, with a target initial production rate of 3,000 bbls/d.  The Company has identified a preferred drilling rig and negotiations with the contractor are in the final stages.  Critical path long lead items are already being procured.

Stag

Production at the Stag oilfield (Jadestone 100%, and operator) averaged 3,801 bbls/d in Q3 2019, reflecting the positive impact of ongoing production from the Stag 49H infill well which came on production in May, and continues to contribute as expected.  In addition, Stag uptime averaged 92%, compared to 75% in Q2 2019.  One crude oil cargo was lifted from Stag in Q3 2019, for total sales of 299,616 bbls. 

Vietnam

Having completed the formal FDP for Nam Du/U Minh during the quarter, the Company reached a key milestone, post period end in October, by formally submitting the FDP to Petrovietnam for their endorsement and Government approval.  The FDP is in the final stages of the review process, with formal approval anticipated before year end, or shortly thereafter.

Separately, the Company has received revised investment licences for Block 46/07 and Block 51, confirming that the Company's working interest has been formally registered as 100%.

Upon formal development sanction, the Company anticipates completing a gas sales and purchase agreement in accordance with the heads of agreement ("HOA") executed earlier this year.  The HOA established key terms including the agreed daily contract quantity of 80mmscf/d, and other commercial terms and principles including a take-or-pay commitment by the buyer and a minimum plateau production period of 55 months. 

Financial overview

Results for the quarter reflect a decrease in production volumes of 2% over the prior quarter, but due to the timing of crude oil liftings, a more significant decrease in sales volumes of 44%.  At the same time, realised prices also decreased for the quarter, to US$65.36/bbl, a decrease of 9% from Q2 2019, partially mitigated by our existing hedge programme.  The Company reported revenue of US$62.5mm, versus US$115.3mm in Q2 2019.

Production costs for the quarter were US$32.0mm, versus US$39.3mm in the prior quarter, reflecting an increase in well workover costs associated with the RLWI programme at Montara (US$9.7mm), but offset by a negative movement of inventory associated with the timing of crude oil liftings and reduced costs under Jadestone operatorship at Montara. 

After adjusting for non-routine opex including the RLWI and other workovers, repairs and maintenance, this equates to US$20.43/bbl⁴, versus US$21.74/bbl⁴ in the prior quarter.

Jadestone generated an adjusted EBITDAX of US$29.6mm for the quarter, compared to US$75.4mm for Q2 2019.

On an unadjusted basis, the Company reported a net profit before tax of US$2.8mm, compared to a net profit before tax of US$34.0mm in Q2 2019.  Profit before tax, excluding the RLWI and non-routine well workovers would have been an estimated US$15.5mm, notwithstanding the lower lifting volumes in the quarter.

Net cash generated from operations was US$23.5mm compared to US$59.3mm in the prior quarter.

Cash used in investing activities in Q3 2019 was US$25.1mm, including the subsea umbilical replacement, final amounts related to the Stag 49H infill well and the capex elements of the Montara RLWI campaign.  This compares to US$27.7mm used in investing activities in the prior quarter. 

Cash used in financing activities in Q3 2019 was US$13.0mm, which was the result of a scheduled quarterly repayment of the outstanding RBL balance, compared to cash used in financing of US$11.9mm in Q2 2019.

At the end of the quarter, the Company had US$50.8mm cash, plus US$14.1mm of restricted cash, primarily related to its debt service reserve, and a further US$10mm of cash in support of a bank guarantee.  Net cash was US$4.2mm, excluding the US$10mm of cash in support of the bank guarantee, or US$14.2mm including the bank guarantee. 

Additionally, the Company's existing capped swap continues to provide robust support for 2019 cash generation, establishing a floor benchmark crude oil price of US$71.72/bbl for 50% of planned 2PD production at Montara in 2019, before allowing for the realised premium, which was most recently US$4.56/bbl above Brent. 

4 This excludes the impact of workovers and repairs and maintenance at Stag given their unpredictable timing, and costs associated with the Montara RLWI which are opex related and will be tracked separately as per 2019 guidance

Selected financial information

The following table provides selected financial information of the Company, which was derived from, and should be read in conjunction with, the consolidated interim financial statements for the period ended June 30, 2019, available on SEDAR and the Company's website at www.jadestone-energy.com/financial-results/.

⁵ Production, sales and average realised prices are expressed on a barrels of oil equivalent basis as the underlying data includes gas production from Ogan Komering for the prevailing period based on Jadestone's 50% participating interest up until May 19, 2018
⁶ Payment for oil and gas property, plant and equipment and intangible exploration assets.  Excludes acquisition related capital expenditure and lease payments that under IFRS16 are included in cash used in investing activities
 

Conference call and webcast

The management team will host an investor and analyst conference call at 5:00 p.m. (Singapore), 9:00 a.m. (London), and 4:00 a.m. (Toronto) on the same day, Thursday, November 28, 2019, including a question and answer session.

The live webcast of the presentation will be available at the below webcast link.  Dial-in details are provided below.  Please register approximately 15 minutes prior to the start of the call.  The results for the period ended September 30, 2019 will be available on the Company's website at: www.jadestone-energy.com/investor-relations/.

Webcast link: https://event.on24.com/wcc/r/2110781/32ED0FFF54FF4F9CCE429834F9ACC57A
Event conference title: Jadestone Energy Inc. - Third Quarter Results
Start time: 5:00 p.m. (Singapore), 9:00 a.m. (London), 4:00 a.m. (Toronto)
Date: Thursday, November 28, 2019
Conference ID: 49825848

Area access numbers are subject to carrier capacity and call volumes.

- Ends -

Enquiries

About Jadestone Energy Inc.

Jadestone Energy Inc. is an independent oil and gas company focused on the Asia Pacific region. It has a balanced, low risk, full cycle portfolio of development, production and exploration assets in Australia, Vietnam and the Philippines.

The Company has a 100% operated working interest in the Stag oilfield and the Montara project, both offshore Australia.  Both the Stag and Montara assets include oil producing fields, with further development and exploration potential. The Company has a 100% operated working interest in two gas development blocks in Southwest Vietnam and is partnered with Total in the Philippines where it holds a 25% working interest in the SC56 exploration block.

Led by an experienced management team with a track record of delivery, who were core to the successful growth of Talisman's business in Asia, the Company is pursuing an acquisition strategy focused on growth and creating value through identifying, acquiring, developing and operating assets throughout the Asia Pacific region.

Jadestone Energy Inc. is currently listed on the TSXV and AIM. The Company is headquartered in Singapore. For further information on Jadestone please visit www.jadestone-energy.com.

Cautionary statements

Certain statements in this press release are forward-looking statements and information (collectively "forward-looking statements"), within the meaning of the applicable Canadian securities legislation, as well as other applicable international securities laws. The forward-looking statements contained in this press release are forward-looking and not historical facts.

Some of the forward-looking statements may be identified by statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of phrases such as "will likely result", "are expected to", "will continue", "is anticipated", "is targeting", "estimated", "intend", "plan", "guidance", "objective", "projection", "aim", "goals", "target", "schedules", and "outlook"). In particular, forward-looking statements in this press release include, but are not limited to statements regarding reserves volumes, production guidance and forecasts, opex and capital spending guidance, the financial benefits of the Maari acquisition and timing to completion, the payment and timing of the Company's maiden dividend, timing for and results of the Montara 3D seismic acquisition and the H6 infill well, timing for approval of the Nam Du/U Minh FDP and gas sales and purchase agreement.

Because actual results or outcomes could differ materially from those expressed in any forward-looking statements, investors should not place undue reliance on any such forward-looking statements. By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predicted outcomes will not occur. Some of these risks, uncertainties and other factors are similar to those faced by other oil and gas companies and some are unique to Jadestone. The forward-looking information contained in this news release speaks only as of the date hereof. The Company does not assume any obligation to publicly update the information, except as may be required pursuant to applicable laws.

The technical information contained in this announcement has been prepared in accordance with the March 2007 guidelines endorsed by the Society of Petroleum Engineers, World Petroleum Congress, American Association of Petroleum Geologists and Society of Petroleum Evaluation Engineers Petroleum Resource Management System.

Henning Hoeyland of Jadestone Energy Inc., a Subsurface Manager with a Masters degree in Petroleum Engineering who is a member of the Society of Petroleum Engineers and who has been involved in the energy industry for more than 18 years, has read and approved the technical disclosure in this regulatory announcement.

The information contained within this announcement is considered to be inside information prior to its release, as defined in Article 7 of the Market Abuse Regulation No. 596/2014, and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Glossary

bbls                  barrels of oil
bbls/d                barrels of oil per day
boe                   barrels of oil equivalent
EBITDAX        earnings before interest, tax, depreciation, amortisation and exploration expenses
mbbls                thousands of barrels of oil

mboe                thousands of barrels of oil equivalent

mm bbls            millions of barrels of oil

mmscf/d           millions of standard cubic feet per day

Jadestone Energy Inc.

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the three and nine months ended September 30, 2019

All comprehensive income is attributable to the equity holders of the parent.

The accompanying notes are an integral part of the consolidated financial statements

Jadestone Energy Inc.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at September 30, 2019

The accompanying notes are an integral part of the consolidated financial statements.

* The comparative information has been restated as a result of an IFRS3 adjustment to the purchase price allocation of the Montara asset acquisition (Note 6)

Jadestone Energy Inc.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

for the three and nine months ended September 30, 2019

The accompanying notes are an integral part of the consolidated financial statements.

Jadestone Energy Inc.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the three and nine months ended September 30, 2019

The accompanying notes are an integral part of the consolidated financial statements.

Jadestone Energy Inc.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

for the three and nine months ended September 30, 2019

1.  CORPORATE INFORMATION

Jadestone Energy Inc. (the "Company" or "Jadestone") is an oil and gas company incorporated in Canada.

The Company's ordinary shares are listed on the London AIM market and the TSX Ventures Exchange ("TSX-V"). The Company trades on both markets under the symbol "JSE".

The financial statements are expressed in United States Dollars ("US$" or "USD").

The Company and its subsidiaries (the "Group") are engaged in production, development, exploration and appraisal activities in Australia, Vietnam and the Philippines.  The Company's current producing assets are in the Carnarvon and Vulcan basins shallow water offshore Western Australia.

During the comparative periods for the nine months ended September 30, 2018, the Company had a participating interest in the Ogan Komering PSC in Indonesia.  The terms of the PSC expired in May 19, 2018, after which the Company no longer held an interest in the PSC.

The Company's head office is located at 3 Anson Road, #13-01 Springleaf Tower, Singapore 079909.  The registered office of the Company is 10th Floor, 595 Howe Street, Vancouver, British Columbia V6C 2T5, Canada.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

STATEMENT OF COMPLIANCE

These unaudited condensed interim financial statements (the "Financial Statements") are prepared in accordance with International Accounting Standard IAS 34, Interim Financial Reporting, on a going concern basis under the historical cost convention.  They do not contain all disclosures required by International Financial Reporting Standards ("IFRS") for annual financial statements, and should be read in conjunction with Jadestone's audited consolidated financial statements for the year ended December 31, 2018.

These Financial Statements were approved for issuance by the Company's Board of Directors on November 28, 2019, on the recommendation of the Audit Committee.

3.  BASIS OF PREPARATION

These Financial Statements have been prepared on an historical cost basis, except for financial instruments classified as financial instruments at fair value, which are stated at their fair values, and operating leases which are stated at the present value of future cash payments.

In addition, these Financial Statements have been prepared using the accrual basis of accounting.

Adoption of new and revised standards

New and amended IFRS standards that are effective for the current period

The Group has applied the following standards and amendments for the first time with effect from January 1, 2019.

-    IFRS 16 Leases.

IFRS 16 Leases

General impact of application of IFRS 16 Leases

The Group, for the first time, has applied IFRS 16 Leases (as issued by the IASB in January 2016) as at January 1, 2019.

IFRS 16 introduces new or amended requirements with respect to lease accounting.  It introduces significant changes to lessee accounting, by removing the distinction between operating and finance lease.  IFRS 16 requires the recognition of a right of use asset and a lease liability, at commencement for all leases, except for short-term leases and leases of low value assets. Details of the new requirements are described in note 19, right of use assets.  The impact of the adoption of IFRS 16 on the Group's consolidated financial statements is described below.

The Group has applied IFRS 16 using the "modified retrospective" approach, and has elected not to restate comparatives. 

Impact of the new definition of a lease

The change in definition of a lease mainly relates to the concept of control.  IFRS 16 determines whether a contract contains a lease, on the basis of whether the customer has the right to control the use of an identified asset for a period of time, in exchange for consideration.

The Group has made use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease.  Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to be applied to those leases entered or modified before January 1, 2019.

The Group applies the definition of a lease and related guidance set out in IFRS 16 to all lease contracts entered into or modified on, or after, January 1, 2019 (whether it is a lessor or a lessee in the lease contract).  In preparation for the first-time application of IFRS 16, the Group has carried out an implementation project.  The project has shown that the new definition in IFRS 16 will not change significantly the scope of contracts that meet the definition of a lease for the Group.

Impact on lessee accounting

On adoption, IFRS 16 changed how the Group accounts for leases previously classified as operating leases.  The impact to the Group accounts are:

-    Recognises right of use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of future lease payments;

-    Recognises depreciation of right of use assets and interest on lease liabilities in the consolidated statement of profit or loss; and

-    Separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated statement of cash flows.

Under IFRS 16, right of use assets are tested for impairment in accordance with IAS 36 Impairment of Assets.  This replaces the previous requirement to recognise a provision for onerous lease contracts.

Financial impact of initial application of IFRS 16

Upon the initial application of IFRS 16, the recognition of the present value of the minimum lease payments resulted in US$38.0 million (note 19) of right of use assets and associated lease liabilities.  The Company has recognised the lease liabilities in relation to lease arrangements, previously disclosed as operating lease commitments under IAS 17, that meet the criteria of a lease under IFRS 16.

Upon recognition, the Company's weighted average incremental borrowing rate used in measuring lease liabilities was 8.6% percent.

The nature of the Company's leasing activities includes vessels, helicopters, buildings and the Stag FSO, all of which are used in producing and storage of hydrocarbons where the Company has a right to substantially all of the economic benefits.

The Company's lease contracts may contain termination, renewal, and/or purchase options, residual value guarantees, or a combination thereof, all of which are evaluated by the Company on a quarterly basis.  The Company accounts for such contract options when the Company is reasonably certain that it will exercise one of these options.

New and revised IFRS's on issue but not yet effective

The Group has not applied the following new and revised relevant IFRS that has been issued, but is not yet effective:

-    Amendments to IFRS 3 Business Combinations.

The amendments are effective for annual periods beginning on, or after, January 1, 2020, and generally require prospective application.  The Group is currently performing an assessment of the standard, and does not anticipate a material impact on the financial statements of the Group in future periods, with the exception of the item listed below.

Amendments to IFRS 3 Business Combinations

The definition of a business has been amended under IFRS 3, on October 22, 2018, clarifying that to be considered a business, rather than an asset sale or purchase, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs.  The definition of the term outputs is narrowed to focus on goods and services provided to customers, generating investment income and other returns.  The amended definition will be applied to reporting period's beginning on, or after, January 1, 2020 prospectively.

4.  REVENUE

The Group derives its revenue from contracts with customers for the sale of oil and gas products.  Revenue is presented in the consolidated statement of profit or loss, net of royalties.

All royalties included in the comparative period ended September 30, 2018, relate to production entitlement in Indonesia.  The Ogan Komering PSC expired on May 19, 2018, and hence no revenue or royalties arose in the current period.

5.  PRODUCTION COSTS

6.  COMPARATIVE FIGURES

Following the transfer of Montara operatorship as at August 6, 2019, the Group has revised the initial provisional fair value estimates for inventory and oil and gas properties as at September 28, 2018. This revision is made pursuant to IFRS 3, to reflect new information obtained, following the transfer of the Montara operatorship, as of the acquisition date (see Note 7.2).  The adjustment to the Montara initial provisional fair value estimates impacted the following line items for the financial year ended December 31, 2018:

7.  ACQUISITION OF MONTARA ASSETS

On September 28, 2018 (the "acquisition date"), Jadestone Energy (Eagle) Ltd, a wholly owned subsidiary of the Company, closed the acquisition of the Montara Assets, obtaining control and 100% of the legal ownership from PTTEP Australasia (Ashmore Cartier) Pty Ltd ("PTTEP Australia").  The Company received 99% interest in the Montara titles on May 30, 2019, and following transfer of the Montara operatorship to Jadestone on August 6, 2019, the Company received the final 1% title interest on October 1, 2019, and the transaction was completed.

7.1  Fair value of consideration transferred

The consideration for the Montara Assets on the acquisition date comprised a cash payment of US$133.1 million, as set out below.

In addition to the upfront cash consideration set out above, there are deferred contingent payments payable, depending on the outcome of a number of trigger events.  The trigger events relate to future Dated Brent prices in 2019 and 2020, production from the infill well drilling scheduled for 2020, and any future final investment decision for developments with significant 2P reserves.  The Group has reviewed all the contingent payment trigger events at acquisition and recognised the following two potential payments, based on current and future anticipated potential prices of Dated Brent crude oil.

-    Annual average Dated Brent crude price exceeding US$80/bbl in 2019: US$20.0 million; and

-    Annual average Dated Brent crude price exceeding US$80/bbl in 2020: US$10.0 million.

Management has assessed the fair value of the above deferred contingent consideration using a Monte Carlo option simulation model, which considered inputs such as spot Dated Brent oil prices at the completion date, the prevailing risk-free rate, volatility of oil prices, and the period of time over which the contingent payment will apply.  At the date of acquisition, the Company recognised a fair value of US$15.8 million for the two contingent payments.  This amount was reduced to US$3.8 million at December 31, 2018, and at September 30, 2019 the revised fair value is US$0.9 million (Note 27).

The maintenance and inspection shutdown that occurred at Montara between November 1, 2018 to January 11, 2019, resulted in a deferral of production and revenue during that period of time, as well as an increase in costs due to overheads still being incurred and additional maintenance and inspection work required to rectify the safety issues.  As a result, on January 7, 2019, PTTEP Australia and the Group agreed that PTTEP Australia would fund cash calls capped at US$22.0 million.  Management believes that the shutdown was a result of facts and circumstances that existed as at the acquisition date.  As such, the US$22.0 million has been adjusted against the consideration transferred for the Montara Assets.

Since the acquisition date, the Company reviewed the fair value consideration on acquisition date, in accordance with IFRS 3 Business Combinations.  This assessment resulted in the restatements below.

7.2 Assets acquired and liabilities assumed at the date of acquisition

The fair value assessment of the Montara identifiable assets and liabilities, acquired as at the acquisition date, have also been reviewed in accordance with IFRS 3 Business Combinations.  Following the transfer of Montara operatorship as at August 6, 2019, the Group has revised the initial provisional fair value estimates for inventory and for oil and gas properties as at September 28, 2018.  This revision is made pursuant to IFRS 3, to reflect new information obtained about facts and circumstances that existed as of the acquisition date.  The restatement is as below.

8.  DEPLETION, DEPRECIATION AND AMORTISATION ("DD&A")

The Ogan Komering DD&A charge is based on a units of production basis, during the comparable period.  The PSC expired on May 19, 2018, and the Group no longer holds an interest in the PSC.

The right of use assets relates predominately to operating leases previously included in production costs.  Since the implementation of IFRS 16 Leases, these expenses are now recognised as right of use assets, and are capitalised and depreciated over the life of the lease.

9.  OTHER EXPENSES

10.           OTHER INCOME

Miscellaneous income for the nine months ended September 30, 2019 of US$1.4 million arises from a reduction in estimated Stag FSO redundancy payments in Q2 2019.

11.           IMPAIRMENT OF ASSETS

The impairment booked in the comparable period relates to the relinquishment of deepwater Block 127 in Vietnam.

12.           FINANCE COSTS

During the current reporting period, the Company paid interest of US$1.0 million related to the reserve based loan ("RBL"), which was drawn down in Q3 2018.  The comparable quarter interest paid of US$0.1 million relates to the convertible bond, which was repaid in August 2018.

The lease accretion reflects the finance charge on operating leases due to the adoption of IFRS 16; previously lease payments were treated as a production cost.  

13.           OTHER FINANCIAL GAINS

14.           INCOME TAX (EXPENSE)/CREDIT

The Company is a resident in the Province of British Columbia and pays no Canadian tax; the Group has no operating business in Canada.  Subsidiary companies are resident for tax purposes in the territories in which they operate.

The Australian corporate income tax rate is applied at 30%.  PRRT is calculated at 40% of sales revenue less certain permitted deductions and is tax deductible for Australian corporate income tax purposes.  The Indonesian corporate income tax rate is applied at 35%, and branch profits tax is applied at 20%.

The tax (expense)/credit on Group profit/(loss) differs from the amount that would arise using the standard rate of income tax applicable in the countries of operation as explained below.

INCOME TAX RECONCILIATION

 

PRRT TAX RECONCILIATION

DEFERRED TAX INCOME STATEMENT RECONCILIATION

The above movement in deferred PRRT credits relates to Stag.  The Group has unused PRRT tax credits of approximately US$2.9 billion available for offset against future PRRT taxable profits generated from the Montara field.  No deferred tax asset is recognised, in respect of the Montara PRRT credits, pursuant to IAS12 and LIFO principles, as future augmentation of existing PRRT credits is expected to more than offset any future PRRT tax otherwise due.

DEFERRED TAX BALANCE SHEET RECONCILIATION

The deferred tax balances in the statement of financial position are based on the following split.

15.           PROFIT/(LOSS) PER ORDINARY SHARE

The calculation of the basic and diluted profit/(loss) per share is based on the following data

The calculation of diluted earnings per share for the nine months ended September 30, 2019 includes 2,126,197 of weighted average dilutive ordinary shares available for exercise from in-the-money vested options (nine months ended September 30, 2018: 300,228 of weighted average potential ordinary shares available for exercise from in-the-money vested options are excluded, as they are non-dilutive given the Group's loss from operations).  Additionally, 607,821 of weighted average potential ordinary shares available for exercise are excluded, as they are out-of-the-money (nine months ended September 30, 2018: 526,467). 

The calculation of diluted earnings per share for the three months ended September 30, 2019 includes 2,726,334 of weighted average dilutive ordinary shares available for exercise from in-the-money vested options (three months ended September 30, 2018: 636,056 of weighted average potential ordinary shares available for exercise from in-the-money vested options are excluded, as they are non-dilutive given the Group's loss from operations).  Additionally, 607,821 of weighted average potential ordinary shares available for exercise are excluded, as they are out-of-the-money (three months ended September 30, 2018: 607,821).

Additionally, the calculation of diluted earnings per share for the nine months ended September 30, 2018, and for the three months ended September 30, 2018, excludes 66,644,947 and 64,023,510 respectively, of weighted average potential ordinary shares eligible for conversion under the secured convertible bond as they are non-dilutive, given the interest and other costs on the bond per share exceed basic loss per share in each respective reporting period.  The secured convertible bond was fully repaid on August 15, 2018. 

16.           INTANGIBLE EXPLORATION ASSETS

Amounts capitalised to exploration for the nine months period were US$8.5 million (December 31, 2018: US$1.8 million), predominantly related to activities on the Nam Du and U Minh assets in Vietnam.

17.           OIL AND GAS PROPERTIES

* Restated, see Note 6

18.           PLANT AND EQUIPMENT

19.           RIGHT OF USE ASSETS

The Group leases several assets including an FSO, helicopters, and buildings, among others.  The leases are under fixed terms of between 12 months to 6 years.

Right of use additions predominately relates to a helicopter transportation contract that has been recognised as a lease.  The contract has an undiscounted commitment of US$42.4 million over four years, and results in a discounted right of use asset and lease liability (Note 28) of US$37.7 million upon initial recognition.

20.           INVENTORIES

* Materials and spares restated, see Note 6

21.           TRADE AND OTHER RECEIVABLES

Trade receivables increased to US$41.4 million due to the latest Montara lifting being completed on August 30, 2019. The receivable was settled on October 1, 2019.  Prepayments as at September 30, 2019, includes US$7.5 million of cash held by PTTEP under the transitional operational arrangements for Montara, which concluded on August 6, 2019.

22.           CASH AND BANK BALANCES

The restricted cash balance includes US$10.4 million of cash held in a debt service reserve account related to the RBL facility.  The current balance of restricted cash of US$3.7 million represents principal and interest that will be released over the next 12 months, with the remainder included in the non-current balance and to be released later in 2020 and in 2021.

The Group retains US$10.0 million (December 31, 2018: US$10.0 million) in support of a bank guarantee to a key supplier in respect of Stag's FSO vessel.  This deposit is kept in a specific bank account that has in place certain restrictions that does not allow for the cash to be used for normal operations.

23.           SHARE CAPITAL

Authorised share capital

Unlimited number of ordinary voting shares with no par value.

The Company has one class of ordinary share.  Fully paid ordinary shares carry one vote per share without restriction, and carry a right to dividends as and when declared by the Company.

During the nine months ended September 30, 2019, employee share options of 33,333 were exercised and issued at a price of CAD 0.47 per share.

24.           HEDGING RESERVES

There was no hedging reserve, or movement, in the comparative period ended September 30, 2018.

25.           SHARE BASED PAYMENTS RESERVE

The total expense arising from share-based payments recognised for the nine months ended September 30, 2019 was US$1.1 million (September 30, 2018: US$0.5 million).

The Black-Scholes option-pricing model, with the following assumptions, was used to estimate the fair value of the options at the date of grant.

The following table summarises the share options outstanding and exercisable as at September 30, 2019:

26.           PROVISION FOR ASSET RESTORATION OBLIGATIONS

The Group's asset restoration obligations ("ARO") result from the future estimated costs to decommission each of the Stag and Montara assets.

In accordance with IAS37, the carrying value of the ARO provision comprises the discounted present value of the estimated future costs.  The present value of the future estimated ARO costs for each of the Stag and Montara assets, has been calculated based on blended risk-free rates set at the same rate as the estimated inflation rates of 2.26% and 2.14% respectively (December 31, 2018: Stag - 2.49%, Montara - 2.58%).

Management expects decommissioning expenditures to be incurred from 2032 onwards.

27.           OTHER PAYABLES

28.           LEASE LIABILITIES

29.           BORROWINGS

On August 2, 2018, the Company entered into an RBL agreement to borrow US$120.0 million to partly fund the Montara acquisition (Note 7).  The loan is secured against the Montara Assets, and is repayable in quarterly tranches from December 31, 2018 until March 31, 2021.  The loan incurs interest at 3% above LIBOR.

During the nine months period ended September 30, 2019 the Company repaid US$1.3 million of unsecured borrowings associated with Stag insurance premiums.

30.           TRADE AND OTHER PAYABLES

These amounts are non-interest bearing.  The Group believes that the carrying amount of trade payables approximates their fair value.

31.           DERIVATIVE FINANCIAL INSTRUMENTS

The Group uses derivatives to manage its exposure to oil price fluctuations.  Oil price hedges are undertaken using swaps and call options using fixed price sales contracts.  All contracts are hedged using Dated Brent oil price benchmarks.  The Group has designated the Montara capped swap as a cash flow hedge of highly probable sales.

During the nine-month period ended September 30, 2019, the fair value of the capped swap declined by US$32.8 million. This decline was largely due to the decrease in future Dated Brent oil prices, over the term of the swap.  US$20.9 million of the decline was directly due to the revaluation of hedge contracts and was recorded in other comprehensive income (Note 24).  US$0.6 million was due to the ineffective portion of the capped swap and was recorded in finance cost (Note 12).  US$11.4 million of the decline was related to hedge contracts settled in the period, and included in revenue (Note 4).

32.           BUSINESS RISKS AND UNCERTAINTIES

The Company has processes and systems in place designed to identify the principal risks of the business and has established what is considers reasonable mitigation strategies wherever possible.

For detailed analysis of how the Company manages its business risks and uncertainties see the Company financial statements for the year ended December 31, 2018. 

The operational and environmental risks have not materially changed since December 31, 2018.

33.           FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL MANAGEMENTS

For a detailed analysis on how the Company manages its financial instruments, financial risks and capital management, see the annual financial statements for the year ended December 31, 2018.

The financial risks, instruments and capital market strategies have not materially changed since December 31, 2018.

Capital management

The Group manages its capital structure and makes adjustments to it, based on the funds available to the Group, in order to support the acquisition, exploration and development of resource properties and the ongoing operations of its producing assets.

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Group, is reasonable.  There were no changes in the Group's approach to capital management during the nine-month period ended September 30, 2019.

Debt is defined as long and short-term borrowings (excluding derivatives) as defined in Note 29.  Cash and cash equivalents include the Montara Assets' minimum working capital cash balance of US$15.0 million required under the RBL, while restricted cash comprises the US$14.1 million in the RBL debt service reserve account as at September 30, 2019.  Restricted cash, as shown here, excludes the US$10.0 million deposited in support of a bank guarantee to a key supplier in respect of the Stag FSO.

34.           SEGMENT INFORMATION

Revenue and balance sheet information is based on the geographical location of assets as follows:

 

Non-current assets include oil and gas properties, intangible exploration assets and property plant and equipment used in corporate offices. (* Materials and spares restated, see Note 6)

35.           CONTINGENT LIABILITIES

Stag

The Group may be responsible for certain contingent payments of up to US$10 million linked to future expansion of the Stag Oilfield.  At this time, Jadestone's management does not consider it probable that the conditions necessary to trigger the contingent payments will occur.  Accordingly, as at September 30, 2019, no provision has been recognised in the financial statements.

Montara

The Group may be responsible for certain contingent payments of up to US$130 million linked to oil price appreciation, and/or volumes of production from the first infill well in its first year, and/or future expansion of the Montara Assets (see also Note 7).  At this time, Jadestone's management only considers the contingent payments of up to US$30.0 million linked to oil price appreciation above US$80/bbl in 2019 and/or in 2020 as probable, while also noting the uncertain nature of future changes in oil prices; in this case future prices of Dated Brent.  Accordingly, the fair value of the two oil price linked contingent payments of up to US$30.0 million is recognised as a payable (Note 27), and the remaining US$100.0 million of contingent payments has not been recognised in the financial statements.

36.           RELATED PARTY TRANSACTIONS

During the period, the Group entities did not enter into transactions with related parties, other than the following:

Compensation of key management personnel

37.           EVENTS AFTER THE REPORTING PERIOD

Transfer of remaining 1% title interest in Montara titles

The transfer of operatorship at Montara was completed on August 6, 2019, following the acceptance by NOPSEMA, the safety regulator in Australia, of the Company's safety case.  The Company received a 99% interest in the Montara titles on May 30, 2019, with the final 1% approved by NOPTA on October 1, 2019. 

Acquisition of a 69% stake in the Maari oil complex

On November 16, 2019, a wholly owned subsidiary of the Company signed a binding asset sale and purchase agreement to purchase a 69% operated interest in the Maari oil complex from OMV New Zealand Limited, a subsidiary of OMV Aktiengesellschaft.  The headline purchase consideration is US$50.0 million, with an economic effective date of January 1, 2019.  If Dated Brent averages US$75/bbl or more in 2020, then a further US$2.6 million is payable, and US$1.3 million if Dated Brent averages US$75/bbl or more in 2021.  The Maari oil complex is currently free cashflow positive, with 2P reserves of 13.9mm bbls and recent production of 4,000 - 4,500 bbls/d (both net to 69% working interest).

The transaction is expected to close in H2 2020 and will be funded from Company cash available on hand.  Completion will occur upon satisfaction of conditions, including acceptance of Jadestone as operator by the Maari joint venture partners, New Zealand Government approvals relating to title transfer and change of operatorship and other customary conditions.  OMV will continue as operator until the transaction completes in H2 2020.