Thank you for standing by, and welcome to the Horizon Oil Limited full year results. All participants are in a listen-only mode. There will be a presentation, followed by a question and answer session. If you wish to ask a question via the webcast, please type it into the Ask a Question box and click Submit. I would now like to hand the conference over to Mr. Richard Beament, CEO. Please go ahead.
Thank you very much, and a very good morning to everyone. I'm very grateful of you all joining us today. With me today is the Group CFO, Kyle Keen, and also the Company Secretary, Vas Margiankakos. What a tremendous year we've had! Record production levels, revenue, and earnings, with further significant returns generated for shareholders. This morning, I'll make some introductory comments covering the full year end of 30 June 2023, before handing over to Kyle to go through the results in a bit more detail. I'll then cover the operational performance, highlighting the upcoming activity for what is again shaping up to be a very busy year. We'll then open up for some questions.
But during the course of this presentation, we will be making some forward-looking statements, and while we take every care in the preparation of these statements, actual results may materially differ depending on a variety of factors, so I'd encourage you to read the disclaimer in full. Now, before I get into the numbers, please note that all references to dollars are US dollars, unless otherwise stated. Now, as mentioned, financial year 2023 was a year in which we achieved record-breaking results, primarily due to the tremendous drilling and production success we've had at our Block 22/12 fields in China. Earlier in the year, we reached an all-time high production rate of over 20,000 barrels of oil per day gross at Block 22/12, which represented an almost doubling of production rates from the asset against the long-term average.
While production levels naturally declined, they still remain above the long-term average, with a pipeline of short and longer-term infill opportunities being matured to further boost production levels. It was the production success of Block 22/12, combined with continued strong oil prices, which drove the outperformance of the key metrics shown on this slide, with almost 1.8 million barrels of oil sold during the period, 47% higher than the prior year. When combined with a mildly lower realized oil price, this success translated into an 80% increase in statutory profit for the year to $43.9 million. EBITDAX was 42% higher at $103.5 million, and revenues were over 41% higher at $152.1 million.
Importantly, the continued strong free cash flow generation has enabled us to declare a final dividend for FY 2023 of AUD 0.02 per share, which builds on the interim distribution paid earlier in the year of AUD 0.015 per share. Following the payment of the interim dividend during the year, we ended up with a healthy net cash balance of $35.7 million, providing the liquidity to continue paying significant distributions. Our results for the full year are a further demonstration of the success and focus of our strategy. We remain focused on maximizing free cash flow generation, which was driven by the production success from our Block 22/12 asset in China.
The development of the WZ 12-8 East field in Block 22/12 played a pivotal role in significantly enhancing production rates, and was also supported by infill drilling and workovers carried out in the legacy Weizhou 6-12 fields. Oil prices remained robust, with revenues also supported by strong premiums received on Maari crude oil. We were very pleased to restore production at Maari back above 5,000 barrels of oil per day gross by year-end, through successful workover operations. Importantly, and notwithstanding a period of significant inflationary pressures, cash operating costs continued to be maintained below $20 a barrel produced. The strong cash flow has allowed us to continue to prioritize distributions to shareholders, with FY 2023 distributions totaling AUD 0.035 per share, comprising of the AUD 0.015 per share interim dividend, followed by the announced full year dividend of AUD 0.02 per share.
These distributions amount to a total return of over AUD 56 million, well over a 20% dividend yield for the year. Importantly, distributions over the past three years now total over AUD 150 million, or AUD 0.095 per share. We've provided these returns while still investing in production growth within our asset portfolio. The final FY 2023 dividend was determined balancing shareholder returns, future commitments, and maintenance of the group's liquidity levels. Prioritizing such returns to shareholders remains a key pillar of our strategy. Our capacity to generate substantial returns is attributed in part to the robust cash flow produced by our low-cost production assets, as well as the strategic investments made in expanding production across the portfolio.
In Block 22/12, we invested around $30 million in phases 1 and 2 of the 12-8 East project, which was fully recouped within a mere 12 months from the commencement of production. This investment drove production to record levels of Block 22/12, and resulted in a material reserves upgrade, given the strong production performance and accelerated infill drilling. The WZ 6-12 infill and workover program was also a great success. Our pipeline of opportunities for further infill wells within Block 22/12 is considerable, and the reserves and contingent resources upgrade underscores the untapped potential remaining within the asset. A topic I'll delve into a little more later. Maari also has some incremental high-value opportunities, with the most accretive project likely to be through life extension, which is a core focus of the joint venture.
While not our primary focus, we also continue to keep an eye out for exceptional new business opportunities, which might complement the existing asset portfolio with a view to enhancing shareholder returns. Now, I've touched on some of the full year highlights already. However, some additional key achievements were as follows: The combined daily production rate from Horizon's share of both Block 22/12 and Maari averaged over 5,000 barrels of oil per day for the full year. An increase of 44% from the average achieved during FY 2022. We had approximately 55% 2P reserves replacement, and on shareholder returns, we added over AUD 80 million of shareholder value through a combination of distributions paid and capital growth, with an FY 2023 total shareholder return of around 40%.
On ESG, despite the elevated activity levels, we've continued to uphold a strong safety record, significantly better than industry benchmarks. Specifically on climate change, we made a modest investment of seed capital in a carbon removal credit development, Nobrac Limited, to aid with the group's longer-term decarbonization ambitions. To act as a natural hedge against the growing carbon emission costs incurred at Maari. Importantly, this investment presents a potential opportunity to deliver an additional cash flow stream and provide further value for shareholders. The project's progressing very well, and we're looking forward to seeing the first biochar production from the pilot plant later this year. Presented here is a summary of Horizon's 2023 reserves and resources statement.
As mentioned, we achieved 55% 2P reserves replacement, with an additional 1 million barrels of 2P reserves generated, mainly from reserves revisions associated with the successful infill drilling and favorable production trends at Block 22/12. These incremental reserves helped to offset the reduction in reserves associated with the record production levels achieved during the year. Importantly, our portfolio of contingent resources also increased materially by approximately 40% during the year, as production trends at Block 22/12 and further technical analysis helped to identify further opportunities within the asset. Our focus continues on developing this substantial inventory of contingent resources. Look, I'll now pass over to Kyle to run through the financial results in a little bit more detail.
Thanks, Richard. Before I go through the results, I'd like to emphasize that all references to dollars are to U.S. dollars, as this is the group's functional currency, since all revenues are generated and received in U.S. dollars. The table on the right of this slide summarizes the 2023 financial year results with a comparison against the prior year. As Richard has mentioned, the results were strong, with records achieved in a number of key metrics due to both production growth and a strong realized oil price during the year. Production volumes increased 43% as a result of the successful execution of both phase 1 and phase 2 of the 12 East development, as well as 2 infill wells and a multi-well workover program in the 6-12 fields in Block 22/12. Revenue increased 41% to $152.1 million.
The higher revenue was, of course, driven by the 44% increase in production. The increased revenue, combined with the maintenance of cash operating costs below $20 a barrel, led to an increase in EBITDAX to $103.5 million. This cash flow helped to rebuild the company's cash position to just under $44 million at year-end, following the substantial $46 million distributed to shareholders during the year. Pleasingly, we exited the period with a strong balance sheet, with net cash of just under $36 million. In this next slide, we just see cash flow. The strong net cash flow or cash inflows from operating activities of $72 million largely helped to rebuild the cash position, following this $46 million distributed to shareholders during the year, and the $32 million of investment in the 12 East development.
This cash flow chart further highlights the rapid repayment of the 12 East development, and the importance of progressing further investments in Block 22/12. With a closing cash balance of approximately $43.6 million, the group has the necessary liquidity to cover the repayment of our debt facility, setting aside funds for Maari decommissioning, funding of production growth opportunities in our assets, the maintenance of appropriate working capital balance, and finally, the payment of the distribution of AUD 0.02 per share. To help dissect the financial year result further, the next chart shows the key elements which have driven the 80% increase in statutory profit to $43.9 million, and clearly shows in the blue bar the significant impact of the production growth from Block 22/12.
Despite cost pressures and a high inflationary environment, all controllable costs were largely maintained during the year, with the expected increase in operating costs and amortization expense driven by the commencement of production from the WZ 12-8 East development. Noting that cash operating costs per barrel were still maintained below $20 a barrel produced. Turning over to the next slide, we can take a look at the full year results compared against the previous 4 years. This slide highlights the significant growth in both production and sales volumes. And as I've mentioned, the production levels increased owing to the successful execution of both phase 1 and phase 2 of the WZ 12-8 East development, as well as 2 infill wells and a multi-well workover program in the WZ 6-12 fields in Block 22/12.
The ability of the Block 22/12 joint venture to enhance production levels through infill drilling and other initiatives, and continue to maintain low operating costs, have been the predominant driver of Horizon's cash flow in recent years, and provided the confidence to further invest in infill drilling, workovers, and the 12-8 East development, which have been so successful this year. The revenue chart shows the contribution to revenue of the 47% higher sales volumes during the financial year, with the average realized oil price being materially in line to the prior financial year. Pleasingly, oil prices continue to trade above $80 a barrel, which notably bodes well for ongoing revenue and cash flow generation.
The next slide again shows the relative impact of the higher production and the robust oil price on the group's profitability for the year, with a 42% increase in EBITDAX and a dramatic increase in statutory profit from $24.3 million to $43.9 million. EBITDAX over the past two financial years has amounted to approximately $176 million, or 1.6 times the enterprise value of Horizon at 30 June 2023. An incredible result. The strong EBITDAX and profit results were further aided by the group's continued low cash operating costs and the maintenance of low general and administrative costs despite the inflationary pressures. The next slide shows the continued strong free cash flow generation, with the green line in the chart on the left normalized to exclude cost recovery cash flows in earlier years.
This again shows the impact of the higher production and robust oil price on cash flow generation. The strong operational cash flow allowed for the rapid repayment of the 12 at East developments and resulting in free cash flow of $39.7 million for the financial year. Pleasingly, Horizon has distributed approximately 90% of the financial year free cash flow to shareholders through the combination of the interim and final dividends, amounting to AUD 0.035 per share. Yet again, I have saved the best chart to last with the net cash, net debt chart on the right. Here, we can see strong and sustained free cash flow generation from the group's assets, with cash generated over a 4-year period of approximately $145 million or AUD 220 million, notwithstanding the depressed oil price in 2020.
Our focus is to continue to drive this cash flow generation by extracting maximum value from these assets. The resilience of this cash flow, high oil prices, and a strong production result, provided the confidence to declare aggregate distributions of AUD 0.035 for the financial year, thereby delivering on our strategy of continuing to return significant value to our shareholders. I will now pass over to Richard to provide an update of our asset portfolio and the outlook for the company.
Well, thanks, Kyle. Look, I'll, I'll now provide an update regarding the assets, starting with the group's flagship asset, Block 22/12, in China. This has been a standout year for the asset, with the recent addition of the 12-8 East field development indicated at the bottom of the graphic. The year was a period of significant activity, which commenced with a 5-well workover program, which was followed up by 2 wells drilled at 6-12, and a further 4 wells drilled at the 12-8 East field. The result of all this activity was a dramatic boost in Block 22/12 production, to peak rates of around 20,000 barrels of oil per day gross in December, which represented an approximate doubling of production rates from early 2022.
The additional production and cash flow generation during the year took Block 22/12 cash flow to around 80% of Horizon's overall cash flow, aided by the very low cash operating costs, which were less than $12 per barrel produced during the year. We commemorated some significant milestones in FY23, most notably 10 years since first oil from Block 22/12, and the one-year anniversary following first oil from the successful 12-8 East development. It is particularly pleasing to see that we achieved peak production from Block 22/12, 10 years after first oil from the fields, and that really underscores the quality of the asset and the tremendous potential opportunities within the block. As expected, field production rates have naturally declined at Block 22/12 since drilling activity was completed in January, with exit rates for June around about 13,000 barrels of oil per day gross.
The joint venture is actively evaluating further infill well opportunities, which aim to support material reserves replacement over the longer term, which I'll cover in a little more detail on the next slide. As mentioned, Block 22/12 has a large portfolio of future opportunities, which can add reserves and boost production rates, comprising infill and appraisal wells and facility upgrades.... On this slide, we have highlighted the locations of the various opportunities, all of which are being actively evaluated and matured by the joint venture. The immediate focus is on maturing an infill well program, most likely targeting wells in the 6-12 and 12-8 East production areas, with a view to drilling between 2-5 wells, most likely in the second half of FY 2024, subject, of course, to the necessary regulatory and joint venture approvals.
Water handling upgrades at the facilities is a constant focus, and following the success of the 12-8 East development drilling, the joint venture is turning its focus to a subsequent phase of development drilling over the next few years. This chart has now become a common feature of our presentations, and there are some key changes in the chart, which I want to highlight. As a reminder, our current 2P reserves forecast is shown in the dark green, which has been updated to reflect the Block 22/12 reserves upgrade. This has had the effect of bulking up and lifting the 2P forecast curve when compared to this time last year. As mentioned previously, production rates from Block 22/12 are expected to naturally decline, as you can see in the chart. The light blue sawtooth profile is the additional production potential to be unlocked from future activities.
You will note that we've added additional indicative production increases in the chart, which aim to represent additional potential infill well opportunities, which continue to be matured, a number of which were added largely as a result of the success at 12-8 East. I'd like to emphasize that all indicative future activities remain subject to further technical and economic evaluation and subject to joint venture and regulatory approvals. As previously stated, the indicative cost of unlocking the blue area shaded in the chart is in the order of $10 million-$15 million net to Horizon per annum over the next 3-5 years.
We've also extended the chart until the end of the petroleum contract in 2030, as whilst the legacy 6-12, 12-8 West fields are contractually due to be handed over to CNOOC in August 2028, the 12-8 East field can run through to the end of the petroleum contract in 2030 and possibly beyond by agreement. Turning now to New Zealand and Maari, where we've seen continued stable reservoir performance. Successful workover operations, in conjunction with sustained water injection into the field during the year, restored production rates back above 5,000 barrels of oil per day gross by year-end, with a near-term focus on low-cost, high-value workovers of two other wells. The first of these involves working over the MR-2 well to convert it to a permanent water injection well, as well as reinstating production from the MR-6A well.
With sustained production performance and ongoing workover reference over the next 12 months, we anticipate that Maari production will remain robust, thereby providing confidence to pursue an extension to the permit beyond the December 2027 license expiry. Operating costs are still modest in the context of the current oil price, but were impacted by the shut-in of some wells for workovers during the year to mainly replace broken pumps. Cash flow from Maari was enhanced during the year from strong premiums being received on oil sales, with premiums averaging around about $10 a barrel during the year.
At the end of the year, the operator completed and lodged with the regulator an updated Maari decommissioning plan and cost estimate, which will be evaluated for the purpose of determining the level of financial security, which will likely be needed to be provided by the Maari joint venture over the coming years. While the regulations surrounding security are still being finalized, it will be necessary for Horizon to set aside funds judiciously over the coming years to ensure it can meet these obligations. Now, the chart on this slide reflects our current Maari forecast in the dark green, which, as you can see, is expected to exhibit a more modest decline when compared to that of Block 22/12.
While we've also included indicative future activities in light blue, the main activities post 2027 would, would require both a significant CapEx expenditure commitment and permit extension to be commercially viable. So, as most of our current efforts are focused on lower cost production optimization works and workover activity with the objective of maintaining current production rates. We see significant value in simply extending the permit by up to five years to maximize value from the current well stock. That is unlocking the dark blue profile on the slide. As I mentioned, the immediate focus is on workovers to reinstate production from currently shut-in wells, as well as to enhance rates through the conversion of a third well to a permanent water injector. This table sets out the timing of possible operational activity over the period until late 2024.
Please note that the timetable is indicative and most of the activities remain subject to further technical and economic evaluation, joint venture, and regulatory approvals. In total, we have between 2 and 5 infill wells in Block 22/12, which are being matured, with the possibility of some or all of these being drilled during the second half of the year. Upgrades to produced water handling capacity at Block 22/12 is also being prioritized, as the more liquid we can manage, the higher the oil production rates we can sustain … Further infill well opportunities in a possible 12-8 East Phase 3 drilling program are also being considered, with the possibility of drilling these in future years. As mentioned, at Maari, we have 2 immediate workover priorities.
The first is the permanent conversion of the MR2A well to a water injector, which should aid in sustaining production levels from the main Maari Moki Reservoir. Which will be followed up by the workover of the MR6A well, which is aimed at reinstating production. Other activity at Maari is focused on life extension, with the venture evaluating options to extend the license beyond 2027, progressing decommissioning studies and examining other value-accretive opportunities. In looking forward and keeping with the key elements of our strategy, we plan to capitalize on our recent production growth to maximize free cash flow generation and shareholder returns. To ensure these can be sustained, we'll continue to invest in further production growth within our asset portfolio, whilst also looking out for new business opportunities.
With that, Kyle and I will be pleased to answer any questions that you may have. Thank you. If you wish to ask a question, please type it into the Ask a Question box and click Submit. I will now hand over to the speakers to manage the Q&A session.
Okay, so the first question we have here is: Can we have a guidance of what to expect moving forward at DD&A? Are you expecting it to be roughly in line with historicals, a little below $20 a barrel produced? With the onset of Block 22/12, are you looking at structurally higher DD&A per barrel moving forward?
Look, I'll take this one. It's a bit premature for us to provide any guidance at this particular time. I mean, we generally give guidance at the half year. So we'll look to issue guidance again at the half year results presentation.
Thanks for that. The next question we have is: What is the estimate of net CapEx to Horizon for the indicative future activities for Beibu and Maari? And what is the likelihood of the indicative future activity for Maari in 2027, 2028? Is that conditional on a license extension?
Look, I can probably take that one. As I alluded to, our expectation is that we will spend between $10 million and $15 million per annum over the next three to five years to unlock that blue profile. Look, it's really going to be concentrated on Block 22/12 at this stage. Even with a modest life extension at Maari, you know, those indicative future activities would require substantial CapEx and a fairly protracted extension really to warrant investing significant amounts of CapEx there post-2027. We don't consider that likely at this stage.
Thank you, Richard. The next question we have is: Have you started putting cash aside for Maari abandonment?
I'll take that one. Look, as I mentioned in my speech, we have started setting aside funds for the Maari decommissioning. I'll just note that despite having set, you know, commenced setting aside funds for Maari decommissioning, we've still managed to distribute approximately 90% of our free cash flow generated during the financial year to our shareholders. Yeah, and I'd just note it's really just tied up within our overall working capital assumption. And as I noted in, you know, in the discussion, you know, the regulator in New Zealand has issued guidelines around putting down financial security. It'll take some time for that to mature, but we'd expect greater clarity on what's required by when over the next sort of 12-18 months.
Great. Thank you, Kyle. We have another question here regarding the future production profile for Beibu. Can you explain, within the indicative future activities, how much is attributable to liquids handling upgrades, and how much is attributable to appraisal slash infill drilling?
We probably don't go into that much specifics. Yeah, it's probably fair to say most of it is associated with infill drilling, but there is a reasonable amount attributable to water handling upgrades as well, but couldn't give you the exact split. It's probably 70/30 or something like that, towards infill wells.
We're just filtering through the questions for a second. Another question we have here is: What is the pipeline of reserves for the future?
Look, we probably covered that reasonably well in some of the slides, but you can see in the reserves and resources statement, we have just under 5 million barrels of reserves, roughly sort of split half-half between Maari and Block 22/12. And we've got just under 7 million barrels of 2C contingent resources, mostly weighted towards China. And we see that the pipeline of those China contingent resources is the predominant, you know, predominant driver of the indicative future activities that you'll see in that forecast production slide. And we're actively pursuing that.
So, you know, as I alluded to, we would hope that we can convert those contingent resources into reserves over the next 3-5 years, particularly at Block 22/12, to effectively replace our Block 22/12 reserves.
Thank you, Richard. Another question we have is regarding Maari decommissioning, and what is the expected liability to Horizon, and how will the company account for this? For example, will cash be built up on the balance sheet or parked in the JV?
Thanks, Vas, I'll take this one. Look, the company has recorded $52.5 million on its balance sheet as the restoration provision for Maari. As I've mentioned, we have commenced setting aside funds for Maari decommissioning. Richard mentioned it forms part of our working capital balance. So those funds are sitting on our balance sheet. They're not sitting in the joint venture.
Okay, I think we'll just give it a few more... a minute or so for any further questions. We'll just wait at this point in time.