Nexus Notes 1Q10 Results
Nexus reported the first full quarter of production from the Longtom gas project. During the March quarter Nexus sold 3.22 PJ of gas and 40,000 bbl of condensate, booking revenue of approximately A$14.8 million.
Our priority for 2010 remains the commercialization of the Crux asset. Discussions are ongoing with potential partners and Shell Development (Australia), the owner of the gas in AC/L9, to determine the best option that will deliver the maximum value to shareholders. To assist Nexus in this important effort, new board members with complimentary skill sets and extensive oil
and gas industry experience are providing valuable support to the Nexus team.
Production and sales exceeded the prior quarter which did not represent a full three months of production (commenced on 21 October 2009). Gas sales volumes were in accordance with Nexus' gas off-take sales agreement with Santos. Condensate sales volumes for the quarter were lower than production due to the timing of individual truck liftings. The difference between gas production
and sales is use of gas for fuel and flare.
Production assets - Longtom gas project (Nexus 100%) VIC/L29 – Gippsland Basin, Victoria
Post the end of the quarter, Nexus advised the market that production has ceased from the Longtom field on 23 April 2010 following the detection of low levels of mercury in the delivered gas. Nexus is working with Santos on the installation of mercury removal equipment at the onshore Patricia Baleen gas plant. At this early stage, it is estimated that the cost of implementation of the guard beds will be approximately A$2 million and will take at least two months to install.
Crux liquids project (Nexus 85%) ** AC/L9 – Browse Basin, Western Australia
Following the board changes a strategy review for the commercialization of the Crux asset was undertaken. While the Crux liquids project will generate earliest cash flow for Nexus, recent announcements regarding the floating LNG technology in Australia has highlighted the potential for this to accelerate a gas development at Crux. Work is continuing to attract a suitable joint venture partner to progress the development.
Nexus continues to evaluate all development options for Crux, including the liquids project while retaining the value of the contractual rights to participate with respect to liquids under a Shell-operated gas project.
Appraisal and exploration assets
Exploration activity has focused on maturing plans for potential prospects, subject in certain cases to securing appropriate farm-out arrangements. Prospects include, in the Browse Basin: Auriga-1 and Caelum-1 in the Crux permit AC/L9, Fossetmaker-2 and Mashrudder-1 in WA-377-P (Echuca Shoals); in the Gippsland Basin: Dusky-1 in VIC/P49 and Longtom West in VIC/P54; and in the
Perth Basin: Yngling-1 in WA-368-P.
AC/L9 Licence (Nexus 85%) Browse Basin, Western Australia
Two near field appraisal opportunities at Auriga and Caelum have been identified as possible additions to the Crux field. Drilling activity is on hold until a new partner is identified.
Echuca Shoals gas discovery (Nexus 100%*) WA-377-P Permit – Browse Basin, Western Australia
During the quarter Shell finalized its withdrawal from the permit leaving Nexus with a 100% interest. The potential gas in place at the Echuca Shoals gas field within WA-377-P is approximately 2 Tcf, with the potential for associated condensate. Geological studies also indicate the presence of deeper exploration targets which have the potential to add up to another 3 Tcf of gas in place. An
additional prospect at Mashrudder has also been identified on 3D seismic in the north-east of the permit in a deeper and older reservoir section. Nexus plans to farm-out equity in the permit to fund drilling activity and is currently in discussions with interested parties.
WA-424-P (Nexus 100%) Browse Basin, Western Australia
Technical evaluation of WA-424-P has indicated the potential for 3D seismic coverage to improve the delineation of potential drilling targets in the permit. Discussions with several interested parties have begun with a view to participating in the acquisition of 3D seismic data. The oil potential of the permit is confirmed by the small Gwydion oil field which was discovered in 1995.
VIC/P54 Permit (Nexus 100%) Gippsland Basin, Victoria
Reprocessing of 3D seismic data over the Longtom field and the eastern part of VIC/P54 is complete and interpretation of this data is underway to determine the potential for the Longtom trend to extend further east. A gas discovery could be tied into the Longtom production facilities.
VIC/P49 Permit (Nexus 80%)Gippsland Basin, Victoria
The Dusky prospect is a possible extension of the Basker field and is mature for drilling. Interpretation of seismic data over the deep water part of the permit has identified several large structures and further work to generate drill ready prospects is underway prior to farming out an interest in the permit. Nexus has applied for a variation to the year 6 work program and a six month permit extension from 15 April to allow completion of technical work on deep water leads.
WA-368-P (Nexus 50%) Perth Basin, Western Australia
Yngling is an oil prospect with a mean unrisked resource of 90 MMbbl. Nexus will seek to farm-out equity in the permit prior to drilling the prospect and has applied for a six month permit extension prior to drilling the year 3 commitment well.
NT/P66 (Nexus 100%) Bonaparte Basin, Northern Territory
No activity during the quarter. All drilling commitments for this permit have been fulfilled.
Cash flow and funding
At the end of March the company's cash balance was A$33.6 million. During the quarter Nexus received its first cash payments from sales revenue from the Longtom gas project of A$17.5 million. Cash production costs include processing tariff, opex and prepayment of tariffs in the form of take or pay charges totaling A$15 million.
The reduction in development cash outflow this quarter is due to substantially all capex costs having been closed out now that the Longtom project has been completed and the project finance debt facility is fully drawn. Cash interest and financing costs reflect the full interest and fee charges on the Longtom project debt facility.
In addition, administration costs are also lower than the previous quarter as there were a number of one-off costs relating to redundancies of project personnel following Longtom project completion and that of the Managing Director.
The net result is a decrease in cash of A$11.1 million for the quarter. Total loan facilities of A$296 million are represented by the fully drawn Longtom project debt facility (A$160 million) and fully capitalized Notes (A$136 million). The available Standby Letter of Credit
has been issued to Santos in support of Nexus’ obligations under the Longtom Gas Sales Agreement. The LC was undrawn at the end of the quarter and remains so.
Nexus continues to examine all sources of funding as part of its day to day cash flow management. The options being considered include scenarios for debt refinancing, asset sales, re-profiling of commitments and overhead reductions to ensure the organisation size is appropriate and fits with near term objectives.
Post the end of the quarter, Nexus announced the appointment of Mr Richard Cottee as Chief Executive Officer. Mr. Cottee will assume his responsibilities as CEO on May 3, 2010 and will be relocating from Brisbane to Melbourne. Following a handover period Mr. Fowler will step down from his executive role and resume a non-executive chairman position.
Mr. Cottee's most recent role was at Queensland Gas Company where he held the position of Managing Director from 2002 until 2008 when the company was taken over in a friendly acquisition by the BG Group.
- Nexus Resumes Production at Longtom-4 Well in Gippsland Basin (Mar 12)
- Nexus Updates on Plans to Divest its Crux, Longtom Assets in Australia (Feb 21)
- Santos Suspends Production at Patricia-Baleen Gas Processing Plant (Jan 14)