Results for the Period Ending March 31, 2019

Jadestone Energy Inc.
 

Jadestone Energy Results for the Period Ending March 31, 2019
Strong Production Growth, Cash Flow Generation, and Profitability

May 29, 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, reported today its Q1 consolidated interim unaudited financial statements (the "Financial Statements"), as at and for the three-month period ended March 31, 2019.

Financial highlights

·   Net revenue during the first quarter of US$56.4mm, 25% higher than Q4 2018, a second consecutive quarterly record for the Company, and nearly three times Q1 2018;

·   Average price realisations of US$67.59/bbl, virtually unchanged from US$67.51/bbl in the December quarter, and increased 7% from the same quarter in 2018.  Realised price reflects an average premium to Brent of US$3.56/bbl;

·   Operating costs of US$23.75/bbl, excluding non-routine opex and Stag workovers, decreased by 18% from the prior quarter, and decreased 32% from the same quarter in 2018;

·    US$22mm purchase price adjustment from the Montara seller, in connection with the Montara              maintenance and inspection shutdown in Q4 2018, and effected via an abatement of cash calls resulted in a cash opex cost of around US$16/bbl for the quarter;

·    Positive net cash generated from operations of US$36.7mm before changes in working capital, versus a US$6.3mm cash outflow in Q4 2018, before changes in working capital, and a US$0.5mm cash inflow in Q1 2018 like-for-like;

·    Profit after tax of US$8.4mm, compared to a loss of US$6.6mm in the prior quarter, and a loss of        US$16.6mm in Q1 2018; the first ever quarter of substantive positive after-tax profit for the Company;

·   Gross debt of US$86.6mm, reduced from US$101.8mm at end December 2018, as the Company continues to pay down its reserve-based lending facility; and

·    Gross cash and bank balances of US$74.8mm, excluding the US$10.0mm cash deposited in support of a bank guarantee, resulting in a net debt position of US$11.8mm.

Operational highlights

·    Ongoing safe operations at all assets, with the Stag production facility over 6.5 years without an LTI¹;

·    Production during the first quarter averaged 14,449 bbls/d², 2.5x the prior quarter, and a record for the Company;

·    Completion of a major inspection and maintenance shutdown on the Montara asset, with production resuming on January 11, 2019;

·    Montara uptime significantly improved to 85% since restart on January 11, 2019; and

·    Drilling operations on the 49H infill well began at the Stag asset, and completed in May 2019.  The pre-drill estimate of 1.2mm barrels of 2P reserves has been confirmed and the well came on stream at a rate of approximately 1,400 bbls/d.

 Reporting for Montara will commence post transfer of operatorship

² Montara production averaged across the period Jan 11, 2019 to Mar 31, 2019, equivalent to Group production of 13,059 bbls/d averaged across the 90 days of Q1 2019

Paul Blakeley, President and CEO commented:

"I am very pleased to report Jadestone's Q1 2019 results, which include significantly higher production, strong cash flow generation, and a swing to profitability.  Our finances are in excellent shape and as we look to H2 2019, with newly-added production volumes from our Stag infill well, we expect to strengthen our balance sheet even further, while delivering a comprehensive capital programme which will see further increases in production.  Our guidance for 2019 remains very much in our sights.  We also remain poised to tackle new investment opportunities consistent with our strategy when we identify them. 

"While we maintain our focus on continuing safe operations at all our assets, our operational effort will accelerate at Montara as we look to begin the riserless light well intervention programme this quarter, followed by the subsea umbilical replacement.  The overall scopes of work will enhance the reliability and predictability of outcomes at Montara, in addition to unlocking more production and reserves.  We continue to exert our positive influence in ongoing operations at Montara as we progress toward the formal transfer of operatorship to Jadestone.

"Meanwhile, I am pleased to have signed a Heads of Agreement with Petrovietnam in respect of our Southwest Vietnam development.  The HOA confirms many of the key terms required to ensure a strong return on this investment.  Our team continues to make excellent progress on all work fronts, as we work to finalise a gas sales and purchase agreement later this year, concurrent with field development sanction."

Operations update

Production at the Montara asset resumed on January 11, 2019 following an extensive shutdown to remedy a backlog of overdue maintenance and inspection tasks.  Over the first quarter, the asset benefitted from production optimisation measures, in addition to strong well performance and a period of flush production following the shutdown.  Total production at Montara during the quarter of just over 1mm bbls, resulting in average production of 12,508 bbls/d since the restart on January 11, 2019. with one crude oil lifting of 578,865 bbls in the quarter. 

The Company is preparing for a substantial scope of work on the Montara complex in Q2 and Q3, including replacement of the subsea umbilical from the Skua and Swift/Swallow subsea wells to the Company's owned FPSO, together with a riserless light well intervention ("RLWI") programme that will restore gas lift to the Skua-11 and Swift-2 wells, perforate additional sands in the Swallow-1 well, and unlock new heel volumes in the Skua-11 well.  The RLWI is targeting 3,200 bbls/d, including continued production from Swift-2 and Skua-11, in addition to the new incremental volumes.

Planning for the Company's first infill well at the Montara field is progressing and is planned to be spudded late in 2019, subject to rig availability.  The well will be drilled from an existing slot on the Montara wellhead platform to develop 1.8mm bbls of unswept oil.  The Company is also progressing its plans to acquire a new 3D seismic survey in H2 2019, to improve reservoir imaging, to more accurately target future infill wells beyond the planned H6 well at Montara, and assess further exploration step-out potential. 

Production at the Stag oilfield was below plan due to the combined impact of 16 days of cyclone-related downtime in the quarter, versus nine planned, and the deferral of three wells requiring workovers.  Work to restore production from these wells was put on hold during drilling of the Company's 49H infill well, and is planned to commence in June 2019.  Stag's production averaged 1,941 bbls/d in Q1 2019, with one crude oil lifting of 169,986 bbls. 

The Company completed drilling operations on the Stag 49H infill well on May 6, 2019, and after allowing time for swell packers to expand and set, the Company completed hook-up operations and subsequently put the well on production.  Initial results confirm the Company's pre-drill estimates that the well will deliver 1.2 mmbbls of incremental 2P oil reserves.  The well came on production at a rate of 1,400 bbls/d. 

In Vietnam, the Company made excellent progress on its commercial work stream towards delivery of its Southwest Vietnam gas developments.  In April, 2019, two Jadestone subsidiaries signed a Heads of Agreement ("HOA") with Petrovietnam, relating to gas sales from the Nam Du and U Minh fields (Jadestone 70%³ working interest, and operator).  The HOA establishes key terms relating to gas sales from the fields, including establishing 80 mmcf/d as the agreed daily contract quantity, targeting a minimum plateau period of 55 months.  Work is progressing on all related work streams, including facilities front end engineering and design work, conducting technical and environmental studies, tendering for major contracts, in addition to negotiating the remaining commercial terms prior to formal development sanction, targeted for later this year.

³ Jadestone's working interest will increase to 100%, following registration of Petrovietnam's relinquishment of its 30% working interest in block 46/07 and block 51

Financial overview

Results for the quarter reflect an increase in production volumes of 2.5x, however a more modest increase in liftings of only 14% compared to the prior quarter, resulting in an increase in closing crude oil inventory of US$18.4mm.  With price realisations relatively unchanged, revenue has increased to US$56.4mm, versus US$45.0mm in the prior quarter. 

Production costs for the quarter were US$22.7mm, versus US$50.0mm in the prior quarter (prior quarter reflecting one-off costs associated with the Montara asset acquisition).  After adjusting for non-routine opex including the RLWI as well as Stag workovers, repairs, and maintenance, this equates to US$23.75/bbl⁴, versus US$28.94/bbl⁴ in the last quarter, assuming October production at Montara had prevailed for the full quarter. 

After incorporating the benefit of the US$22.0mm adjustment from the Montara seller, in connection with the Montara maintenance and inspection shutdown in Q4 2018, and effected via an abatement of cash calls, this resulted in a net cash opex cost of around US$16/bbl⁴ for Q1 2019.

Jadestone generated an adjusted positive EBITDAX of US$23.7mm for the quarter ended March 31, 2019, compared to an adjusted negative EBITDAX of US$1.7mm in the prior quarter, and positive EBITDAX of US$0.9mm for the same quarter a year ago.

On an unadjusted basis, the Company reported a net profit before tax of US$10.7mm, compared to a net loss before tax of US$4.9mm in the prior quarter and a net loss before tax of US$15.9mm in the same quarter a year ago.

Results were negatively impacted by the unplanned downtime at Stag due to poor weather during the tropical cyclone season, and three wells at Stag requiring workovers to restore production, but deferred due to drilling operations on the 49H infill well.  Results were positively impacted by the early implementation of a number of production optimisation initiatives at Montara, good well performance and a period of flush production after the restart, following its extended maintenance and inspection shutdown. 

Net cash generated from operations before working capital was $36.7mm compared to a cash outflow of US$6.3mm in the prior quarter, and US$0.5mm for the same quarter a year ago.

Cash used in investing activities in Q1 2019 was US$9.8mm including work on the 49H infill well.  This compares to US$26.1mm used in investing activities in Q4 2018, and US$0.5mm in the same period a year ago. 

Cash used in financing activities in Q1 2019 was US$15.7mm, the majority of which was a quarterly repayment of the outstanding RBL balance.  This compares to cash used in financing of US$18.9mm in Q4 2018, and US$0.4mm in the same period a year earlier.

At quarter end the Company had US$58.5mm cash, plus US$16.3mm of debt service reserve cash and a further US$10.0mm of cash in support of a bank guarantee.  Net debt was US$11.8mm, excluding the US$10.0mm of cash in support of the bank guarantee. 

Additionally, the Company's existing capped swap provides robust support for 2019 cash generation establishing, as it does, a floor benchmark crude oil price of US$71.72/bbl for 50% of planned 2PD production at Montara, before allowing for the realised premium, which was most recently US$3.77/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 March 31, 2019, available on SEDAR and the Company's website at www.jadestone-energy.com/financial-results/.

 ¹ 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
² Revenue was restated  during Q4 2018, including prior periods, from a gross to net basis after deducting royalties, but including the effective gain on hedging contracts
³ 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 9:00 p.m. (Singapore), 2:00 p.m. (London), and 9:00 a.m. (Toronto) today, Wednesday, May 29, 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. 

Webcast link: https://event.on24.com/wcc/r/2008028/D574DBE420C93D2ACEA0541E8306FBCA
Event conference title: Jadestone Energy Inc. - First Quarter Results
Start time: 9:00 p.m. (Singapore), 2:00 p.m. (London), 9:00 a.m. (Toronto)
Date: Wednesday, May 29, 2019
Confirmation ID: 01228997

 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 Stag, offshore Australia, and a 100% legal and beneficial interest in the Montara assets, and a 99% legal, subject to regulatory approval, beneficial right, title, and interest in the associated production licences AC/L7 and AC/L8 (the "Montara Titles"). The remaining 1% legal interest in the Montara Titles is being held on trust by the seller, in favour of the Company, until Australian regulatory approvals relating to the transfer of operatorship of the Montara assets are obtained. Both the Stag and Montara assets include oil producing fields, with further development and exploration potential. The Company has a 100% operated working interest (subject to registration of PVEP's withdrawal) 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 target reserves volumes, production forecasts, cost projections, timing of Montara operator transfer, timing and results of exploration and development activities on both Stag and Montara, timing and results of the Montara light well intervention programme and replacement of subsea umbilical, expected costs, commodity prices and timing of the gas sales agreement for Nam Du and U Minh.

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. This announcement contains inside information 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 that Regulation.

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 has been involved in the energy industry for more than 17 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

2PD                 proved and probable developed reserves

2P reserves      the sum of proved and probable reserves, denotes the best estimate scenario of reserves

bbls                  barrels of oil
bbls/d               barrels of oil per day
boe                  barrels of oil equivalent
boe/d               barrels of oil equivalent per day
EBITDAX        earnings before interest, tax, depreciation, amortisation and exploration expenses
FPSO               floating production, storage and offloading vessel
LTI                  lost-time injury

mbbl                thousands of barrels of oil

mboe               thousands of barrels of oil equivalent

mm bbls           millions of barrels of oil

mm boe                       millions of barrels of oil equivalent

mmscf/d          millions of standard cubic feet per day

PVEP               Petrovietnam Exploration Production Corporation

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

As at and for the three months ended March 31, 2019

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

for the three months ended March 31, 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.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at March 31, 2019

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

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

For the three months ended March 31, 2019

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

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the three months ended March 31, 2019

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

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

for the three months ended March 31, 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 TSX Ventures Exchange ("TSX-V") and the London AIM market. 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, offshore Western Australia.

During the comparative quarter for the three months ended March 31, 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 May 29, 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 quarter

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.  In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged.  Details of these new requirements are described in note 18, 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 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 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 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 profit or loss.

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

The recognition of the present value of the minimum lease payments resulted in an additional US$72.3 million 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 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 IFRS that is relevant to the Group, and was issued, but not 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 impact of this standard and does not anticipate a material impact on the financial statements of the Group in future periods with the exception of the items 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 income.  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 quarter ended March 31, 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 quarter.

5.   PRODUCTION COSTS

6.   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"), apart from interest in the associated licenses, which remains subject to regulatory approval.

6.1  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 2019, and any future final investment decision for developments with significant 2P reserves.  The Group has reviewed all the contingent payment trigger events and recognised the following two potential payments based on current anticipated performance and future potential prices of Dated Brent.

-      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 Brent oil prices at 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 March 31, 2019 the revised fair value is US$3.2 million.

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 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.

Taking into account the above, the total fair value consideration for the Montara Assets, as at the acquisition date, is set out below:

6.2  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 date of acquisition, have been reviewed in accordance with IFRS 3 Business Combinations.  The provisional fair value of the identifiable assets and liabilities of Montara as at the acquisition date were:

The provisional values continue to be assessed and as a result their final values and associated calculations, which include the tax effects, may be different from the provisional determination.  Pursuant to IFRS 3, the review of the fair values as at September 28, 2018 of the assets and liabilities acquired, will be completed within 12 months of the acquisition date.

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

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

The right of use assets relate 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.

8.   OTHER EXPENSES

9.   IMPAIRMENT OF ASSETS

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

10. OTHER INCOME

11. FINANCE COSTS

During the current reporting quarter, the Company paid interest of US$1.5 million (2018: US$0.3 million) related to the reserve based loan ("RBL"), which was drawn down in Q3 2018.  The comparable quarter interest paid relates to the convertible bond, which was redeemed 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. 

12. OTHER FINANCIAL GAINS/(LOSS)

13. 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/(losses) differ 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 offset any future PRRT tax otherwise due.

DEFERRED TAX BALANCE SHEET RECONCILIATION

In addition to the amount charged to the profit and loss, the following amounts relating to tax have been recognised in other comprehensive income.

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

14. 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 three months ended March 31, 2019 includes 931,349 of weighted average dilutive ordinary shares available for exercise from in-the-money vested options (three months ended March 31, 2018: none). Additionally, 607,821 of weighted average potential ordinary shares available for exercise are excluded as they are out-of-the-money (three months ended March 31, 2018: 729,433). 

Additionally, the calculation of diluted earnings per share for the three months ended March 31, 2018 excludes 60,326,609 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.  The secured convertible bond was fully repaid on August 15, 2018. 

15. INTANGIBLE EXPLORATION ASSETS

Exploration additions for the quarter were US$2.6 million (December 31, 2018: US$1.8 million), predominantly related to activities on the Nam Du and Minh Hai blocks in Vietnam.

16. OIL AND GAS PROPERTIES

17. PLANT AND EQUIPMENT

18.  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.

Jadestone entered into a helicopter transportation contract on March 25, 2019 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 27) of $36.9 million upon initial recognition.

19. INVENTORIES

20. TRADE AND OTHER RECEIVABLES

Prepayments have declined US$17.7 million since December 31, 2018, as the Company has utilised the US$22.0 million funding of cash calls from PTTEP (see Note 6). 

The PRRT receivable comprises the balance due as at December 31, 2018 of $0.7 million, plus the current quarterly movement of $3.1 million (Note 13),

21. CASH AND BANK BALANCES

The restricted cash balance includes US$16.3 million of cash held in a debt service reserve account related to the RBL facility.  The current balance of restricted cash of US$3.9 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 in in 2020 and 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, and 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.

22. 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 quarter ended March 31, 2019, employee share options of 33,333 were exercised and issued at a price of CAD 0.47 per share as part of the 2017 awards as detailed in Note 24.

23. HEDGING RESERVES

There was no hedging reserve, or movement, in the comparative quarter ended March 31, 2018.

24. SHARE BASED PAYMENTS RESERVE

The total expense arising from share based payments recognised for the quarter ended March 31, 2019 was US$0.2 million (March 31, 2018: US$0.1 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 March 31, 2019:

25.  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.

The carrying value of the provision comprises the discounted present value of the estimated future costs.  Current estimated ARO costs for each of the Stag and Montara assets have been escalated to the estimated date at which the expenditure would be incurred, at an assumed blended inflation rate of 2.26% and 2.14% respectively (December 31, 2018: Stag - 2.27%, Montara - 2.14%).  The estimates are a blend of assumed US and Australian inflation rates, reflecting the underlying mix of US dollar and Australian dollar denominated ARO costs.  The present value of the future estimated ARO costs for each of the Stag and Montara assets, has then been calculated based on blended risk free rates of 2.08% and 2.23% respectively (December 31, 2018: Stag - 2.49%, Montara - 2.58%).

Management expects decommissioning expenditures to be incurred from 2032 onwards.

26. OTHER PAYABLES

27. LEASE LIABILITIES

   

28. 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 6).  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.

29. TRADE AND OTHER PAYABLES

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

30. DERIVATIVE FINANCIAL INSTRUMENTS

The Group uses derivatives to manage its exposure to oil and gas 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 quarter ended March 31, 2019, the fair value of the capped swap declined by US$39.0 million. This decline was largely due to the increase in future Dated Brent oil prices, over the term of the swap.  US$32.8 million of the decline was directly due to the revaluation of hedge contracts and was recorded in OCI (Note 23).  US$0.5 million was due to the ineffective portion of the capped swap and was recorded in finance cost (Note 11).  US$5.7 million of the decline was related to hedge contracts settled in the period, and included in revenue (Note 4).

31. 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.

32. FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL MANAGEMENTS

For 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 the year end.

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 financial quarter ended March 31, 2019.

Debt is defined as long and short-term borrowings (excluding derivatives) as defined in Note 28.  Cash and cash equivalents includes the Montara Assets' minimum working capital cash balance of US$15.0 million required under the RBL, while restricted cash comprises the US$16.3 million in the RBL debt service reserve account as at March 31, 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.  Equity includes all capital and reserves of the Group that are managed as capital.

The Group's overall strategy remains unchanged from 2018.

33. 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.

34. 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 March 31, 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 6).  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, and the remaining US$100.0 million of contingent payments has not been recognised in the financial statements.

35. RELATED PARTY TRANSACTIONS

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

Compensation key management personnel

The total remuneration of members of key management for three months ended March 31, 2019 (including salaries and benefits) was US$1.4 million (March 31, 2018: US$1.5 million).