Jadestone Energy plc (JSE) Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to the Jadestone Energy First Half 2020 Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, September 10, 2020. I would now like to turn the conference over to Paul Blakeley, President and CEO. Please go ahead.

That's great. Thank you, Colin. Ladies and gentlemen, good morning, and welcome to Jadestone's Mid-year 2020 Results Conference Call. I am Paul Blakeley, Jadestone's CEO, and I'm joined on the call today, from Singapore, by Dan Young, our Chief Financial Officer; and Michael Horn, Executive Vice President for Business Development; and on the line, from Calgary, by Robin Martin, Investor Relations Manager. In this call, I'll be referencing slides in a presentation, which you can find on our corporate website by logging on to www.jadestone-energy.com, where you'll see it was recently uploaded under the Investor Relations section. Or if you're using the webcast then the slides should be available via the link on your player screen. Additional information contained in the first half 2020 financial statement has also been loaded onto the website. The format is different to what we've issued previously, combining press release, MD&A and financial statements into one document aligned with U.K. practice, and I do hope you'll find this more user-friendly. Slides 2 and 3 of the presentation offer a quick reminder of our standard disclaimers and advisories and amongst all this narrative, I'll just draw your attention to the cautionary remarks regarding forward-looking statements and non-GAAP measures used in the discussion. Thanks. And so now to the agenda on Slide 4, where I'll begin by providing a few introductory remarks, including how we've continued to operate in the current environment and manage to mitigate the risks posed by COVID-19 and all the ongoing challenges related to it. I'll also provide an update on Project Clover, and how we're driving more efficiency and cost savings across the business. And I'll touch on some operational highlights for the quarter as well as progress on M&A. Then Dan will run through the mid-year financial results, highlighting how we've delivered strong cash generation even during these challenging times, strengthening the balance sheet, particularly through the adjustments we've made to our spending plans for the year and importantly, with the positive benefit and impact of Project Clover. He'll also provide more detail on our maiden dividend declared today. After that, I'll offer some concluding remarks before getting into a live Q&A session with the help of the operator. But first off, just an update on our view of Brent pricing during what has been one of the most challenging periods our industry has ever faced and where COVID-19 has really turned the world upside down. We acted quickly and decisively, postponing major capital projects and focused on a survival-mode strategy with cost containment and balance sheet protection forefront in our minds. Operating limitations imposed by COVID-19 restrictions can't be overstated. And so the emphasis has been around safe, steady state operations with virtually no new incremental activity. The outcome of this approach is that we ended the half year with significantly increased financial strength, which, under the circumstances, gives us confidence to move forward and plan the restart of well interventions and other nonroutine activity now, while we also assess and prioritize new capital programs for next year. And we'll talk more about this in a moment. There is a lot of market data available to suggest global economic activity remains low with uncertainty around recovery, not least impacted by second wave events. And so we've assumed global oil benchmarks will remain weak and volatile. Nonetheless, Brent has slowly moved upwards to around $40 a barrel per day and as high as $45 a barrel recently, and is now at a level at which we comfortably generate surplus free cash. However, crude oil oversupply is not going away quickly. OPEC+ discipline will need to be maintained, and on this basis, we're planning for Brent to remain around $40 a barrel for the rest of this year and perhaps, only start moving higher mid next year and onwards. And though there is some encouraging news on recovery in China, for example, we do remain cautious, selective in what we choose to do and run the business with value preservation firmly in our thinking. Turning to Slide 5 and highlighting the results for the first half of the year. The emphasis has been about ensuring sustainability of the business in the most arduous circumstances, managing offshore operations under COVID-19 restrictions with supply chain challenges and the workforce wary from travel restrictions, including quarantine, has required a tremendous commitment from all Jadestone employees. And I first want to recognize the support that everyone in the team has given during these last 6 months. It has not been easy. Maintaining our target zero philosophy on safety and environmental performance, while at the same time, continuing to improve performance in emissions reductions, stakeholder engagement and improved governance shows resolute progress from an organization that remains focused on delivering results. The speed with which we pivoted the business into what I've called survival mode, while Brent was trading down into the mid-teens, has resulted in us maintaining free cash generation through the very worst of times, doubling our net cash position over the reporting period to $79 million. In taking this approach, our focus, in the face of the logistical and operational challenges created by this global pandemic, has been to avoid doing anything which relies on additional specialist contractor personnel, nonstandard equipment outside of our spares inventory or unscheduled logistics with the exception of safety-critical intervention where required. This approach concurrent with Project Clover initiatives has delivered an overall 20% reduction in operating costs compared to the same period this year, excluding workovers with a corresponding 8% production decline in the same period. This has resulted in a far more positive impact on the balance sheet than single mindedly chasing barrels at any cost. And as oil price recovers, we'll restart the activities that bring production back up to pre-COVID levels while benefiting from improving netbacks on the way. This is an intentional outcome to prioritize balance sheet strength and long-term value over short-term goals, and so we have adjusted guidance accordingly. The net effect is that we further strengthened our financial capacity and therefore, feel comfortable not only to announce our maiden dividend with interim payment this year, but also able to keep a keen eye on the M&A market for potential growth through further acquisition of distressed opportunities. We remain on track to completing our acquisition of the 69% operated interest in Maari producing asset, which together with infill drilling Australia postponed from this year, will provide strong growth in 2021. And now on to Slide 6, which presents our environmental, social and governance framework for sustainability. We've shown this before, but it serves as a useful tool to flag the key targets and milestones we're looking to achieve. I'll focus on just a few highlights. With an aspiration towards target zero outcomes as an overarching principle, there's been no serious safety incidents or lapses in environmental stewardship in the first half of the year, no enforcement notices, no critical risk or Tier 1 process safety incidents and no incidence of noncompliance in business ethics. We've also taken a very important step to enhance safety and environmental performance at Stag by taking advantage of the current failure by the Dampier Spirit FSO lessor to provide a replacement vessel, and we are deploying a new shuttle tanker arrangement instead, which I'll discuss in a minute. Organizational development has progressed with the recruitment of Malaysian national graduates into our subsurface group, apprentices, offshore in Australia, intern programs in various locations, and further diversity within the organization in certain key positions. And finally, improvements in governance with a decision by the Board to adopt the quality company's Alliance governance code, setting a clear corporate framework as we continue to move towards U.K. best practice for AIM listed companies. Slide 7 now provides more detail on the approach we've taken to the COVID-19 pandemic. Having moved swiftly to cut 80% of capital investment for the year, we implemented Project Clover to mobilize the entire organization to generate ideas on driving new efficiency and cost savings across the whole business. This has been hugely successful, already removing $24 million of costs from this year with an additional $4 million from the Stag shuttle tanker change and another $10 million identified, taking us well beyond the $3 to $4 per barrel target we set in March. At an operational level, we reduced crew numbers, developed a new rotor to meet the isolation requirements and travel restrictions and deferred all noncritical work. Technology has played a key role with remote working as well as in innovative new inspection techniques offshore, and there are numerous supply chain initiatives in collaboration with other operators to share costs where possible. At a corporate level, we've taken some important steps too, freezing salaries, cutting executive and board pay, rephasing tax payments and reducing headcount where possible, among other things. Slide 8 summarizes the monetary benefits of Project Clover and describes where the savings are coming from. Split between minor CapEx programs, operating costs, overheads and other items. As I said, $24 million of savings have been completed so far with an additional $4 million from the shuttle tanker and a further $10 million identified to be captured over the remainder of this year. Overall, we believe approximately 1/3 of the savings will be sustained into the future, and we're looking at how to tip more into this becoming a permanent outcome. The chart at the lower right of the slide illustrates that the initial target of $3 to $4 has already been met and provides a sense of where the target might stretch to. So clearly, there is much more to come on this. Slide 9 provides more detail on the changes we're making to the offtake arrangements for our Stag crude oil. Since its original development in 1998, the Stag field has produced into a contracted floating storage and offloading vessel, more into CALM buoy, with the oil periodically transferred into shuttle tankers and taken to markets, usually within Asia Pacific. The use of an FSO is a common arrangement in the industry, and as it's customary, involves maintaining a large and aging vessel permanently on location with its own overheads and maintenance costs while requiring ship-to-ship transfers of oil at sea. We've been planning an alternative arrangement to be implemented in 2024 when the FSO contract was set to expire, but have now been able to accelerate those plans as the FSO operator has advised their intention to retire the vessel immediately without being able to provide a replacement for us. Under the new arrangement, crude oil from Stag will be loaded directly to a shuttle tanker via the existing CALM buoy. The tanker will remain on location until a standard parcel size has been reached, which is usually around 300,000 barrels and typically takes around 90 days, followed by a changeover to the next tanker with its departure to market. It's a simpler, safer solution and results in reduced environmental risk by eliminating crude oil transfer at sea and by using newer double-hold vessels, which also improves efficiency by avoiding periodic dry docking, maintenance disruption and crewing logistics. Approximately $4 million to $5 million of savings will be achieved, equivalent to around $4 per barrel of unit OpEx to Stag crude, much of that due to lower day rates, contract timing and the spread of overheads across the fleet rather than a static unit. Now moving to Slide 10 to provide more detail on the approach we've taken to production volumes. As the COVID-19 pandemic gained momentum in March and April, governments and regulators imposed increasingly severe restrictions on travel, logistics and manufacturing. It became clear that both personnel and equipment movement would be impacted to the extent it became impossible to operate normally. While we moved quickly to deliver routine spares and other items required to maintain production operations, nonroutine activities associated with facility maintenance shutdowns or well workovers and interventions became untenable. Lack of access to personnel and equipment resulted in a decision to halt all these activities in order to eliminate the risk of failed outcomes, cost overrun or major unplanned incidents. In addition, just as we outlined in April with the decision to defer infill drilling, the same view of spending higher risk dollars for incremental production into a low price environment made little economic sense. This slide provides a sense of the activities that have been delayed with an impact -- with a total impact of 1,500 barrels a day to group production. The largest component of this is from the deferral of Stag workovers, consciously taken due to limited access to the facility with workover crews and equipment. Cost for this activity would have doubled if the crews had to be flown in and quarantine while pump spares and tubulars were also difficult to source. Similarly, we pushed back minor shutdown activity and other well work pending a clear line of sight to all necessary skilled contractors and tools being available. We believe that a focus on the balance sheet and long-term value is justified when compared to short-term production goals, and shareholders are much better served by this approach. Now turning to operational performance. Slide 11 summarizes the progress we're making at Stag and Montara to reduce costs and manage natural declines. While we still highlight the step change reduction in unit costs from the previous operator on both assets, production performance in 2020 has naturally declined by 8%, while operating cost reductions have been accelerated by 20% compared to the same period last year. In our trading update 3 months ago, we reported a first quarter impacted by weather and a planned shutdown at Montara for produced water system maintenance, along with compressor reliability issues, now resolved. Uptime in the entertaining period at the Montara FPSO was at 87%, excluding the impact of wells and weather, and averaging 70% for the 6-month period with wells downtime included. This is actually encouraging progress. We also identified impacts of facility performance associated with the fiber optic control system, which we aim to fix with a short shutdown later this month, and which was originally planned for early in the year, but again, delayed due to travel and COVID restrictions. This will complete repairs to cabling faults, which go back to original installation work on the FPSO in the shipyard and which were identified by the team well over a year ago. This is actually a further major step towards our overall uptime performance target of 85% at Montara. Meanwhile, the Stag facility operates reliably well above 90%, more significantly impacted recently by the queuing of wells for workover, which we intentionally allowed. Slide 12 is a quick recap on the Nam Du, U Minh gas project in Vietnam, where earlier this year, we opted to defer the project in light of the significant capital commitments in a very uncertain world in parallel with slow progress from Petrovietnam on gas sales arrangements. Since then, we've reengaged in negotiations with Petrovietnam and the gas buyers, to agree gas contract details, including a new first gas date and production profile, which meets both our economic criteria as well as filling the ullage in the pipeline from the PM3 fields that supplies gas to the existing power station and the industrial complex to come out in Southern Vietnam. We'll take a measured approach to this project, requiring a fully signed gas sales agreement to be in place before FID. But once again, we'll at least work some project preparations associated with tendering for critical path items in parallel in order to make sure efficient use of schedule timing. This is a very important project for Jadestone, and we do remain committed to its delivery, certain that this gas is needed to fill a supply gap for industrial infrastructure, vital to the continued growth in South Vietnam. We expect to provide more information on progress by the end of the year with the aim of being in a position to FID in 2021. The value of this project has not been diminished in the current environment in large part due to the fixed price gas contract we expect to execute, and further work is being done to reinforce resource upside as well as seeking cost reductions in the face of reduced workload across the supply chain. And now on to Slide 13 with a recap of the key attributes of the Maari acquisition and the status of remaining steps to closing. Several key milestones have been achieved, including consent of the offshore investment office, acceptance of our safety case and all required maritime consents as well as JV partner approval of Jadestone's operating capability. Our application to New Zealand Petroleum and Minerals is in progress, albeit slower than we'd hoped in light of COVID-19-related delays as well as their upcoming general election. We continue to anticipate closing before the end of 2020. From an operational perspective, we stand ready to take on the asset now and have completed all operational readiness tests. As for the asset itself, operating performance has been good and subject to completing 3 workovers. The first is done now, and the second is in progress. The production should then be restored within a range of 4,000 to 4,500 barrels a day. The third workover is delayed pending delivery of downhole equipment, but provides for further upside in the new year with the aim of then returning production to around 5,500 or 6,000 barrels a day. And finally, before I hand over to Dan, I'd just remind you that our Indonesia Lemang acquisition is also progressing towards closing as expected. Slide 14 provides a recap and update. This is an important addition to the Jadestone portfolio, providing diversity to the portfolio with fixed price gas in a low-cost onshore environment, but also is an important step for us reentering such a significant hydrocarbon economy in Southeast Asia and as an operator. Lemang is strategically located onshore Central Sumatra, close to infrastructure and markets with a near-term, but fully flexible development timeline and very strong deal metrics as shown at the bottom of the slide. We see a number of opportunities emerging in this space, not least, in anticipation that Pertamina, the state national oil company is moving towards reopening its divestment plans, which were delayed again due to COVID-19. All documentation for title and operatorship transfer of Lemang have been submitted for regulatory approvals, and the small Jadestone leadership team has now been seconded into the seller's organization to ensure a smooth transfer of operatorship when the deal closes very early in 2021, as planned. So with that overview, Dan, I'm going to pass over to you to talk through our first half results and provide some color on our financial outlook for 2020.

Thanks, Paul, and good morning, everybody. On Slide 16, we've set out some of the key headlines from our first half 2020 performance. As Paul has mentioned, you'll see that we've evolved the way we're presenting our interim financials, reporting more in line with typical U.K. practice. As such, the focus in the interim report and this presentation is on the first half of the year and not the most recent quarter, but we do intend to continue providing regular trading and operations updates to keep you up to speed with prompt ongoing performance of business. In the first half 2020, our average production was around 12,100 barrels a day, which was down by around 8% from the first half of 2019. That's largely the result of our deliberate pullback on well workovers and interventions amongst the -- amidst the COVID-19 restrictions, but also reflects the impact of typical weather downtime in Q1 and some increased maintenance activity. All in, we had 5 liftings for a total of around 2 million barrels, down around 15% from first half 2019. The average Brent price incorporated into our liftings was down 43% in the first half of 2020 compared to the same period in 2019. But our average premium more than doubled to $8.19 a barrel to help partially offset that Brent fall, resulting in a drop in average price realizations of 34%. We booked swap revenue of $23.7 million for the first half. With the combination of lower liftings and benchmark prices, but with the benefit of the oil swaps, our revenue was down about 1/3 to around $116 million. We have been even more vigilant around costs during COVID-19, including through the Project Clover initiatives. Paul has talked about the 20% reduction in costs preworkovers, but in light of the pullback and well interventions and workovers, total OpEx, in aggregate, is down even more by around 28% compared to the first half '19. Our unit OpEx in the first half, which is reported excluding workovers for the period-to-period comparability, was $23.27 a barrel, down 4% from the same period last year and notwithstanding the lower production this half. We've generated positive adjusted EBITDAX of around $37 million, including a positive result in Q2 2020 amidst the very worst conditions in our industry and generated cash from operations of $57 million for the half, and again, a positive cash generation in Q2 2020. Our total cash position now stands at $114 million. We continue to deleverage the balance sheet and have paid down our debt to $25 million. With all of that now recorded as current borrowings, meaning we are in the final phase of repaying the reserves-based loan, we took out to purchase Montara in September 2018. Our net cash position stands at a record $79 million at June 30, excluding $10 million in support of a bank guarantee to a key supplier. So all in, another highly cash generated quarter and half, and while comparisons to prior periods are less meaningful given the significant changes to the external environment against the backdrop of benchmark prices that have fallen by 40% or more, I'm pleased to be able to present a bottom -- a positive bottom line and further substantial improvement in the state of the Jadestone balance sheet. Slide 17 presents our EBITDAX for the first half, again, in our usual format. All in, a clean performance showing adjusted EBITDAX of around $37 million for the period compared to $52 million on an unadjusted basis. The main adjustment here is the hedge income from our oil swaps that settled during the period of around $24 million. We've also backed out the seismic acquisition costs at Montara at the beginning of the year and some nonrecurring COVID-19 costs and a fee associated with the rig deferral in Australia. Slide 18 presents our first half 2020 cash bridge, again, in our usual format. Our operating cash flows collected in the first half of the bridge illustrates our highly cash-generative business even in the face of reduced Brent prices. We collected $126 million of revenue receipts against cash OpEx of around $47 million, including nonrecurring amounts of around $4 million. There was a further investment in working capital of around $20 million plus staff, G&A and other costs for a total of $37 million. The most significant nonrecurring items shown here is in the Montara receipts category and reflecting hedged cash settlements of $21 million. We've also shown some nonrecurring Montara OpEx in the amount of $33 million, including repair work from cyclone Damien and additional COVID-19 costs. The center of the bridge shows CapEx for the first half of $7 million from Montara and $1 million for Stag and another $6 million for Nam Du/U Minh. While we've removed much of the CapEx from our 2020 plan, the Montara spending mostly relates to the seismic acquisition at the beginning of the year and the Vietnam spending will continue to be held in the PSC's cost pool to be recovered once the Nam Du/U Minh project is up and running. We've also paid down $25 million of debt in the first half, and after accounting for leases, our closing cash position is $104 million or $114 million, including the cash in support of the supplier guarantee. We're sometimes asked to talk about spot free cash flow yield. If you take our $57 million of operating cash flow before changes in working capital for the first half, reduced that by cash taxes of around $3 million and CapEx of around $13 million, you get to free cash flow of around $40 million, inclusive of hedge receipts or about $20 million without the hedge receipts. That implies a free cash flow yield of around 12.5% during the worst point in the oil industry in a generation. For the first half of 2019, the equivalent figure was around 40% before backing up the light well intervention and the 49H infill well, [ clean of ] nonrecurring OpEx and the 49H infill well, last year, the spot free cash flow yield implied around 60%. Slide 19 attempts to further reinforce to you the cash-generative nature of our business as well as the flexibility and optionality we've demonstrated this year. This is a slide we've used twice already, but now updated with the latest oil price outlook and our latest views on Project Clover. Starting with the 3 gray bars on the left, at our February 25 Capital Markets Day, we showed our projection for operating cash flow in the order of $160 million to $170 million, and we plan to use all of that and more predominantly for a heavy capital program for Nam Du/U Minh and for the Australian infill well program. We were planning, of course, to part debt fund a substantial portion of that via the mandated enlarged RBL, I talked about at the time. With the impact of reduced cash flows due to the lower oil price, shown here in the first blue box and reflecting actuals to August and $42 flat thereafter, we quickly moved to delay the Vietnam development and our Australian infill program. As Paul mentioned, this is much in service of protecting returns and long-term value as it is about ensuring we remain cash-generative in the interim. We've also rephased our 2019 Australian corporate tax repayment over 18 months to the end of 2021. We are on schedule to continue to pay down our debt to around $7 million outstanding at year-end, but anticipate that we will end the year with as much cash as we began and potentially a little more. I'll note that many of the cost reduction initiatives under Project Clover contribute over $24 million in cash savings for 2020, and this is before the $4 million of annual cost savings and margin uplift we expect from the move to shuttle tankers at Stag, which commences in about 6 days from now. So the portfolio remains strongly cash-generative and leaves ample room for the maiden dividend. On Slide 20, today, we declared a maiden dividend in the amount of USD 0.54 per share or around $2.5 million, which is 1/3 of the lower end of the full year total dividend guidance range. To recap a bit of context around the dividend, we are building a growth-oriented business with a focus on ensuring a balanced portfolio, but with assets that are producing or that can be rapidly commercialized. As we've just shown on the prior slide, the net effect of this is a business that's highly cash generative. To be clear, Jadestone remains growth-oriented, and we will remain conservative in how we approach our capital structure. So organic reinvestment needs will be prioritized, and we will not commit to distributions that would limit our ability to pursue inorganic options, such as the Maari and Lemang acquisitions, both of which were announced following the 2020 dividend guidance we first gave a year ago. However, the business we are building is fundamentally predisposed to providing shareholder distributions while remaining -- while maintaining our growth trajectory. We have adopted dividend policy, whereby we intend to declare dividends semiannually, split into an interim and final portion, approximately 1/3, 2/3. We intend to maintain the dividend and have a growing line with cash flow generation. So notwithstanding what has been a very challenging year for the industry to date, we are very pleased to be able to deliver on our commitment to begin paying dividends. This is a key step in the company's evolution. We are starting at a prudent level, taking 1/3 of the lower end of the guidance range of the full year total of $7.5 million to $12.5 million. When the Board comes to determine the final dividend, we will look again at the full year performance, including the oil price impact as well as the other key cash flow generation levers, our balance sheet, our reinvestment plans in deciding where we end up across that guidance range. The right-hand side of the slide provides a little more color on what to expect in the next little while with regards to the dividend. In the coming days, all depository interest holders will receive a letter from Computershare, requesting that you provide them with a declaration of your tax residency as well as your payment preferences for how to receive your dividend. As Jadestone is a Canadian-domiciled Corporation, these declarations are important to ensure the right withholding tax rate can be applied in accordance with tax treaties your country of residence has in place with Canada. These will need to be returned by the record date of October 16 in advance of the payment planned for October 30. If you're late in responding, a full 25% withholding tax will be applied. On to Slide 21 and a revisit of our guidance for the year. As Paul has already mentioned, we have opted to trim our production guidance for the full year. This is mainly a reflection of deliberate actions to prioritize longer-term value over short-term barrels. Again, on Maari, it's important to note that we have economic exposure to all barrels produced, regardless of when we start counting the barrels for production data from the point of closing forward. In the first half, we averaged 12,100 barrels a day, and for the full year 2020, we are guiding to between 11,000 to 12,500 barrels a day. As we've demonstrated earlier, one of the big achievements so far this year has been our success with Project Clover. The result is that despite lower production expectations for the year, we are keeping our unit OpEx guidance unchanged. This signifies a real reduction in the cost base of our business. Against our 2020 plan, the various Clover initiatives implemented to date will generate $24 million of cash savings and before the $4 million of savings we expect to achieve on an annual basis from the adoption of the shuttle tanker model at Stag. Unit OpEx guidance remains at $0.205 (sic) [ $20.5 ] a barrel through [ $0.235 ], $23.5, I should say. CapEx guidance remains unchanged from our earlier forecast after deferring both the Vietnam development and the Australian infills. We expect to spend between $30 million and $35 million for the year, and as just mentioned, we are also sticking with our commitment to the dividend for the full year. And now back to Paul.

Very good. Thanks, Dan. I'm just going to be very brief. Turn to Slide 23, which provides a mid-year check on our overall corporate performance and is the consolidation of our commitment to deliver on objectives which are set by the Board and cascaded down throughout the organization as appropriate. And just to summarize, our ESG performance is on track. We've discussed in this webcast how our operating performance has been guided by practical considerations to preserve the balance sheet rather than short-term production targets. Costs well constrained and Project Clover has brought significant benefits. And given all this, we're moving back in focus with growth and well workovers being implemented now to restore production to pre-COVID levels and Maari and Lemang both moving forward as planned. We also look forward to 2021 capital being reinstated to provide further growth in infill drilling and new gas projects, but that's all to be discussed in the future. The strength in the balance sheet is encouraging us to continue assessing inorganic opportunities at a time when there is a significant increase in more material assets coming to the market, and we've preserved cash to be able to look at these. And finally, of course, we've spoken sufficiently about the dividend and the importance of us maintaining our commitment to that. And so finally, Slide 24, which summarizes the top priorities that we're focused on right now and will be for the remainder of this year and into next. And I'll only highlight some of these, such as maintaining safe operations, where there is no room for compromise, safety critical maintenance and targets on environmental performance and social governments -- governance. Even in a world with COVID-19 impacting businesses globally, these will always remain top priorities. Preservation of the balance sheet and increased liquidity, providing flexibility has been discussed at length. And while it's difficult to predict the future in such a volatile world, the staggering decline of capital into oil and gas projects by over $280 billion this year, but will inevitably reverse the supply-demand story, providing respite in due course and opportunity that will come with it. And so with that, ladies and gentlemen, I'd just like to thank you for listening to our prepared remarks, and I'll now hand back to the conference operator as we prepare for any questions you may have. Thank you.

[Operator Instructions] Okay. So your first question comes from Chris Wheaton of Stifel.

A couple of questions, please, on the well workovers, the well drilling plan. Could you talk about the timing of getting the well workovers done. You've identified 6 wells across the 2 fields that need work doing -- to them. Could you talk about how quickly you can get after those now that oil prices have started to recover? And how easy would it be to work around some of the coronavirus issues related to getting everything you need to get those workovers in place? Secondly, it's about decisions on the question about capital allocation, if you like, for 2021 and decisions on infill drilling. What do you think you -- what condition does the balance sheet need to be in? What condition does the oil price need to be in for you to be comfortable on sanctioning one or more infill wells for 2021? If you think back, originally, there was one well each brand, I think, on Stag and Montara for 2021. I'm just interested in your views on what criteria you'd apply to get those wells drilled? And also, what -- how much cheaper might they be next year versus your original plan?

Thanks, Chris. We'll take these in order. With respect to workovers, we have a queue now of 4 workovers at the Stag field. And we certainly held off, not least given the challenges, as I've described, to get both crews and equipment available and the costs and risks associated with the limitations of access. So what we've observed in Western Australia particularly, and for those that aren't aware, interstate borders across Australia are closed. And so even a number of our workforce, for example, who live in New South Wales or Queensland, have to quarantine for 14 days to enter Western Australia. So those sorts of restrictions have imposed some pretty serious limitations on us. But having said that, and with ample planning time now with the delivery over the past month of sufficient equipment and spares, and a crew that we've put together who are -- for the workover, trained crew to go to Stag who are all West Australian residents. Whilst our existing long-term contract has crew members from across Australia. These are the sorts of things that we've done to be able to get a coherent and what I would consider safe and reliable program together. So the crew are mobilizing this week. Some are already on board and preparing the hydraulic workover unit for this activity to start, and we'll do the 4 wells back to back. And so certainly, for fourth quarter, we'll start to see the benefit of that activity. Beyond that, Chris, I'm not sure what additional wells. I mean, certainly, for example, as described already, Maari are also in -- back in workover mode, fixing a backlog of 3 wells. And at Montara, we have the Skua-10 well, which has a small hydraulic leak, and we are looking at a variety of options. This is a subsea well, and therefore, requires significant mobilization of vessels and so on. And so we're working on a number of solutions to fix that, and we'll mobilize once we've decided we have a safe and effective program to fix that well, but I can't give you a timing for that right now. So we'll see approximately 1,000 barrels added from the workovers on Stag in the immediate term, and we'll start to see benefits, for example, at Maari, with workovers there, and in due course, Skua-10 and Montara. I hope that answers the question.

That's great. And the infill -- on the infill drilling?

Yes. On capital allocation, the 2021. And of course, at the outset of the year, once the severity of the COVID pandemic became clear, we postponed the drilling and worked with the drilling contractor to postpone the rig slots. And in fact, we have preserved those slots for exactly a 12-month delay. And so late second quarter, we're planning to be able to pick up on that activity and subject to no significant changes to the environment. Our plan would be to simply reinstate the original program as envisaged. And that would be, as you suggest, Chris, one well at Montara and one at Stag. And in our view, as we outlined in our prepared remarks, I think we've moved -- we're moving into a price environment now where significant free cash generation from the portfolio and a very strong cash position would give us confidence that we can start to reinstate capital activity in 2021.

Your next question comes from David Round of BMO Capital Market.

I suppose a capital allocation follow-up to start with. And with the upcoming budget season in mind, I'm just trying to get my head around how you budget for assets like Maari, where there might be a lot of upside you want to get after, but you don't own the asset yet. So do you need to complete that deal first and really interrogate those assets before you allocate capital? Or could we see spend there in 2021 that maybe goes after some of the upside?

Thanks, David. So if we just -- I mean, if we just take the Maari example. As we announced with the acquisition following our detailed due diligence on the asset, we had already identified relatively minor capital intervention, which could have a material impact through coil tube drilling. And in our original thinking around the acquisition, that's something that would play into the 2021, 2022 time frame on an assumption of the asset closing at the end of this year and allowing for sufficient time for planning. And of course, as we start to think about work plan and budget for 2021 and preparation of the capital and market guidance early in the year, we'll be assessing the relative impact of a wide range of investment opportunities within the expanding portfolio to determine what would give the most material impact in a portfolio context. And so prioritization is sort of difficult to predict today, but specifically, Maari, it's low cost and attractive. It would be something that we would want to pursue in a way as we had originally contemplated.

Okay. And maybe then a similar sort of vein. On Vietnam, assuming you can come to an agreement on gas pricing this year, and it gives you enough time, is that a project that would then definitely go ahead next year? Or do you think that you would still have some discretion to choose the optimal timing for Jadestone?

Yes. As we touched on earlier, Nam Du/U Minh is a very material project for the company. The value proposition is really exciting. And of course, if you look at the market today, you'd love to have some fixed price gas in the portfolio and this would provide just that. And so we're particularly keen to proceed with both Nam Du/U Minh under main developments so that in a couple of years time, when they come on stream, we have a much more balanced portfolio and that was always a key part of the thinking in our acquisition strategy. So we do want to move both these projects forward. And it's all about the funding. And so I'm going to hand over to Dan and let him talk through where we left off the funding story and how that would play going forward. But in essence, these are projects that we want to bring forward, and we'll just have to assess how we pace our capacity to do them, both physically with organization as well as financially. But Dan, how would you talk about the financing?

Sure. So David, I think we continue to think about both projects in the same terms as we've discussed historically that they would be able to support senior debt funding, something in the range of 60% to 2/3 of the capital would be funded through debt. And of course, we had mandated and had all terms and conditions approved with a group of 6 banks to do that for Nam Du/U Minh in February. And so we're very confident that, that will continue to be the case as and when we're ready to press the button on that. As Paul said, we will do it in a measured way so that the business can comfortably do that. I think we're drilling those 2 wells next year, if that plays out as the base case plan, it is today, we'd be in a strong cash-generation position by the time we're getting to the FID decisions on those projects. And so I think we would certainly do it, as I said, in a measured way, but the underlying business remains as a very strong platform to provide the equity funding to support those projects.

Your next question comes from Colin Smith of Panmure Gordon.

Two, if I may. Just firstly, on the dividend. Just wondered if you could talk a little bit more about why you set it at the lower end of the implied full year guidance, given how well the business actually managed the overall cash position, as you've discussed in some detail. And also just to clarify, it sended a little bit as though you were suggesting that the final might be larger than implied by 1/3, 2/3 split. And then my second question is just on Slide 8, where you show where the cost savings and CapEx savings have come from. I wonder if you could just talk a little bit about how you -- what's left to do in terms of implementing the OpEx savings, which is the largest remaining component there? How confident you are being able to deliver that? And also perhaps, with reference to the buckets in there, I think you mentioned that you expect to be able to maintain 1/3 of the savings that you have delivered so far this year in survivor mode. I wonder if you could just talk about of what -- where that 1/3 actually is expected to become a permanent? And where potentially additional levels of permanent savings might be achieved?

Very good. Thank you, Colin. Well I think I'm going to let Dan talk to your dividend questions first and then we'll get into the project Clover stuff.

Okay. Colin, on the dividend, we felt and the Board felt that amidst COVID-19 and in environment that remains today still very uncertain with flare-ups in COVID-19 still occurring and we still have some oil price weakness. That prudence dictated we set the interim dividend at the lower end, based on the low end of the total full year range. It is a key step, as I said, in the company's evolution. And yes, the balance sheet and net cash on the balance sheet and the business profile and the cash generation, all leave us with ample room and comfort to do that. I think it's important, again, to reiterate that we were in a growth-oriented business. And as regards to the final dividend determination, yes, we will -- the Board will look at that time in March, April next year once we know where has oil price been for the full course of the year. The reinvestment plans that we've discussed on the call as well and the general outlook for the business and make a decision and adjust, it's quite possible depending on the performance of the business, closing of Maari, oil prices, other factors, so we may will come to a different view. We're confident we can certainly meet the low end of the guidance range, and I think it really -- it remains to be seen in March, February where the Board will decide, but that's the decision we've taken today. A conservative view first, delivering on the commitment, delivering on the promise to start to pay dividends, prudence at this point given where we are in COVID-19 saga. And we'll be nimble and make the right decision at March, April for the full dividend. Does that answer that -- those 2 pieces?

Yes. I think that's clear.