Jadestone analysis Moram
Results of companies

Jadestone FY22 Results

Jadestone ( LON:JSE ) introduction

Before analysing Jadestone FY22 results… Jadestone is a small-cap oil and gas company with zero debt. It operates in Southern Asia and Australia and receives a premium for its oil production. Founded in 2016 by former Talisman Energy directors, it owns five assets (Montara, Stag, PenMal, and CWLH). The company’s projected 2022 average production is between 11,000 and 13,000 barrels of oil equivalent per day (boepd), lower than the initial estimate of 17,000 boepd, due to the halt of Montara after a leak was reported in August. Jadestone’s strategy is to purchase developed oil and gas assets from major oil companies with remaining life.

Jadestone FY22 results summary

Jadestone Energy has announced its FY22 results, with a production average of 11,487 boe/d. The production was split across the company’s assets: Montara (4,227 bbls/d), Stag (2,176 bbls/d), Peninsular Malaysia (4,702 boe/d), and CWLH (383 bbls/d). The company’s revenues for the year reached a record high of $421 million, with liftings estimated at 4.0 million barrels of oil and 1.8 million cubic feet of gas. Jadestone Energy achieved an average oil price of $103.93/bbl and had operating expenses of approximately $37/boe. Jadestone Energy is currently debt-free, but it is expected that once Montara reopens, it negotiates a reserves-based lending facility to finance its natural gas projects from a more effective capital structure point.

Operations and liquidity

Having a look at the operational part. The Stag asset produced less this year due to maintenance in 1H22 (programmed every three years). The infill wells are expected to make up for it in 2023. Production in Stag is expected to reach 4,000 bopd once the planned workover activity, which commenced in December is complete. Meanwhile, the Peninsular Malaysia asset performed slightly below expectations at 4,702 boe/d instead of the expected 4,9k boe/d. To conserve cash until the return of Montara, the company shifted its capital expenditure for the Akatara development to 2023, which now increases the Capex for 2023.

Jadestone Energy spent around $87 million in capital expenditure for the year, with the Stag infill drilling program accounting for $60 million. The company’s cash balances at the end of the year were estimated at $122 million and it had acquired 20.2 million shares under its buyback program at a cost of $17.9 million.

Nevertheless, if we analyse the situation in deep detail, we can see that Jadestone has recently shifted some of the capital expenditure (Capex) from the Akatara development to 2023 in an effort to conserve cash until the return of Montara. However, this shift has now increased the Capex for 2023. We also see that Jadestone sold all remaining inventory in Montara before the end of the year and shifted the contingent payment ($3MM), including the second instalment of the decommissioning fund (around $3MM), to 2023. Without these three moves, the cash balance would have likely been closer to $90 million at the end of the year. Furthermore, it is important to consider that the cash balance needs to account for the $24 million paid in the first quarter and that Montara will have to produce from zero and Akatara expenses will be slightly higher than expected

Despite having $122 million in cash, Jadestone’s financial situation is not as comfortable as it may seem at first glance. The company has an ambitious growth strategy, both organic and inorganic, which requires approximately $50 million in working capital. This, combined with the $26.4 million still owed in February to Thailand, the January buybacks, the Akatara Capex, and potential future acquisitions, may put pressure on the company’s cash flow until Montara returns to operation. However, the return of Montara is expected to resolve any financial challenges, open the door for new (cheaper) financing and offer considerable upside for the share price.

Our final thoughts about Jadestone FY22

As we have discussed many times, we like Jadestone a lot not only for the short-term upside it can have when Montara reopens, but for all the growth potential it has in the long term in natural gas projects. With this article, we just want to analyze the results in more depth and point out that although $122MM in cash may seem a lot, it’s not so much considering all the uses it will be put to in 2023. We believe the reopening of Montara will facilitate the signing of the credit line and make its capital structure (debt-equity balance) more attractive. We will provide an update later when the much-anticipated news of the reopening of Montara arrives.

Collaboration:

Álvaro Diez de Rivera

Mount Teide (clarification over Stag asset)

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