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AWE's half year results announcement

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Oilfield Technology,

AWE Limited (ASX: AWE) has announced its half year results for the 2015-16 financial year. The company reported production of 2.9 million boe, sales revenue of US$122 million and a statutory net loss after tax of US$274 million, which included US$191 million of non-cash impairments (after tax). After adjusting for non-recurring items, AWE’s underlying net loss after tax was US$63 million.

Managing Director, Mr Bruce Clement, said that AWE delivered improved production, extracted significant cost savings and continued to achieve important milestones on major development projects in what was obviously a tough operating environment.

Increased production

“AWE grew production by 12% over the half year with BassGas up 22%, Tui up 33% and Sugarloaf up 44% over the previous corresponding period. Operationally, there were no Lost Time Injuries, no reportable environmental incidents, and our community and stakeholder programs continued to gain momentum, particularly in the Perth Basin.

“We also extracted significant cost savings from our business: operating costs were down 11%, development expenditure was down 26% and exploration expenditure was down 57%. This trend is expected to continue in the second half of the financial year as cost and expenditure reduction measures take full effect,” Clement said.

He continued, “The company’s primary development project, the Waitsia gas field in Western Australia’s northern Perth Basin, made excellent progress during the first half of the financial year. Flow testing at Waitsia-1 achieved some of the highest onshore flow rates observed in decades, with a combined rate from the Kingia and High Cliff Sandstone formations in excess of 50 million standard cubic feet of gas per day, constrained by production tubing diameter”.

“These extremely positive test results paved the way for the Joint Venture to reach a FID for Stage 1A of the Waitsia gas project in early January 2016, a significant step for both AWE and for the onshore gas production industry in Western Australia. This early stage production will fulfil a 2.5 year, 10 TJ/day take or pay contract with Alinta and provide a new revenue stream for AWE while we work towards full field development,” Clement added.

A challenging half year

“From a financial perspective, the half year proved to be challenging with sustained lower oil prices leading to a review of asset carrying values and subsequent non-cash impairment of a number of assets. Revenue and cash flow, although down on the previous corresponding period, remained stable due to oil hedging put in place in October 2015.

“Subsequent to the end of the half year, AWE announced the sale of its 10% working interest in the Sugarloaf AMI in late January 2016 for US$190 million with an additional payment to AWE of US$9 million for drilling costs incurred prior to the effective date (1 January 2016). The sale of Sugarloaf removes significant recurring capital expenditure and will allow AWE to recycle capital and strengthen its balance sheet. AWE will use the proceeds to repay all debt, resulting in an estimated net cash position of A$60 million at completion at the end of March, leaving the company well positioned to pursue full field development of Waitsia,” Clement said.

“Net 2P Reserves at 31 December 2015, after production and adjustments that included a 2.5 million boe reduction in BassGas reserves, totalled 109 million boe compared to 114 million boe at 30 June 2015. The sale of Sugarloaf will naturally see these levels reduce before the end of the financial year, however we are planning an independent review of Waitsia/Senecio/Irwin/Synaphea gas fields where there remains significant potential for Reserves and Resources upside.

“The Board and management of AWE has focused on reshaping the company to deliver sustainable growth in a low oil price environment. We have closed our Jakarta project office and we are exiting the US market. In the process, we have reduced staff by more than 30% and the balance sheet will be significantly strengthened. Although these are tough times for the oil and gas industry, AWE’s portfolio of quality assets has the potential to deliver sustainable growth and value for shareholders,” he concluded.

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Adapted from a press release by Louise Mulhall

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