Vancouver, British Columbia, March 30th, 2020. Newport Exploration Ltd (“Newport” or the “Company”) is pleased to provide shareholders and investors with an update on its quarterly dividend payment schedule as a result of recent global activity in the oil markets. As the Company’s Gross Overriding Royalty (“GOR”) business model relies upon the operations of Beach Energy Ltd (“Beach”) in Australia, the Company is also providing a summary of a news release made by Beach dated March 27th, 2020.
The economic shut down from COVID-19 has resulted in a reduction in demand for crude oil and petroleum products worldwide. Also, failure of the OPEC + countries to agree on a reduction of supply by 1.5mmbpd and the subsequent price war between Russia and Saudi Arabia has plunged the global financial markets into turmoil. Crude oil, as a global commodity, has been extremely negatively affected during the past several weeks resulting in a great deal of uncertainty in the sector.
What is already certain is that significant capex cuts are being made by most producers, with energy companies cutting and deferring costs wherever they can. At the same time oil production from North American companies is declining, bank capital substantially reduced; in some cases banks are refusing energy companies access to credit facilities that were already in place, with other companies in breach of their debt covenants. As a consequence, dividends in energy companies are being slashed or suspended. This latter point is obviously of concern to shareholders and potential investors in Newport.
As stated in a Company News release dated, February 10th, 2020, “The Company’s strong balance sheet ensures that Newport has the ability to maintain regular quarterly dividend payments with a reduced likelihood that the quarterly dividend payments would be cut in any sector downturn”.
That statement is still valid and Management remains confident in the Company’s ability to weather the current oil price disruption. After the recent dividend payment the Company has over $6 million in the treasury, no debt, and will not need to incur any debt or sell any assets in order to remain solvent and/or to pay dividends. Furthermore, the Company is well positioned to maintain a solid balance sheet even if the oil price stays at USD$25/bbl through 2020 and 2021 without the need to raise any additional capital. This was achieved in early 2016 when the low oil price at that time was followed by a V-shaped recovery. However, with uncertainty of such a recovery in 2020, and without knowing the medium to long term economic effects of the COVID-19 pandemic, it is difficult to predict what’s next for the oil sector.
The Company’s ability to maintain its dividend schedule is subject to Beach continuing to produce oil and gas from their Cooper Basin operations. Beach are extremely well positioned to weather the current oil price storm. In its news release of March 27th, 2020, entitled ‘Business Update’, Beach make several key points relevant to Newport’s 2.5% GOR. These are summarized as follows:
At the end of February 2020 Beach had AUD$151M net cash, with access to over AUD$600M in liquidity via a AUD$450M committed revolving credit facility.
Western Flank oil assets are low cost producers, with field operating costs of approximately AUD$5/bbl.
Revenues from Beach’s gas business cover all their group operating and stay-in-business costs; projected FY2021 free cash flow break-even oil price is less than US$0/bbl.
Beach’s actual realized oil price in January and February 2020 was AUD$100/bbl.
Beach crude oil sells at a material premium to the Brent Crude oil price and the declining Australian dollar provides a further buffer against lower US dollar oil prices.
Beach is well positioned to manage an extended period of low oil prices, as well as the impact of the Covid-19 pandemic.
While its strong balance sheet means Beach is well placed to continue growth investment, in recognizing the current downturn, it is being prudent in targeting up to a 30% deferral in FY2021 capital investment relative to its previous guidance.
Obviously, Newport’s management will re-examine the Company’s dividend schedule on the basis of Beach’s FY2020 Financial Results and any revised guidance. At the present time shareholders should be aware that Newport can support the current quarterly dividend schedule, and Beach is in an incredibly strong position to handle the current market disruption.
Newport holds a 2.5% GOR on several oil and gas licences and permits in the Cooper Basin in Australia. These permits are currently being operated and explored by Beach and Santos Ltd. (“Santos”), both major Australian oil and gas producers.
The Company has an advantageous business model, with the 2.5% GOR over permits with strong technical fundamentals and with excellent operators in Beach. As stated in a Company News Release dated February 11th, 2020, Beach achieved a 100% success rate with wells in ex PEL 91, including 12 horizontal development wells, with several new well locations identified, and new infrastructure approved for anticipated increased production. The Company has built-in exposure to significant potential for long term growth at zero risk to shareholders as there is no time limit or expiry date on the GOR assets, and most importantly, no cost to the Company to retain, explore, develop or operate them.
The Company continues to strongly encourage shareholders and potential investors to access information released independently by Beach and Santos in order to keep current during exploration, development and production on all the licences subject to the Company’s 2.5% GOR.
The Company currently has 104,429,874 common shares issued and outstanding and over $6 million in the Treasury, comprised of cash, cash equivalents and short term fixed income investments.
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Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the accuracy or adequacy of this news release.
Cautionary Statement on Forward-Looking Information
This news release is intended to provide readers with a reasonable basis for assessing the future performance of the Company. The words “believe”, “should”, “could”, “expect”, “anticipate”, “contemplate”, “target”, “plan”, “intends”, “continue”, “budget”, “estimate”, “may”, “will”, “schedule” and similar expressions identify forward-looking statements. Forward-looking statements may pertain to assumptions regarding Beach’s drilling plans, future dividends, the price of oil and fluctuations in currency markets (specifically the Australian dollar). Forward-looking statements are based upon a number of estimates and assumptions that, which are considered reasonable by the Company, are inherently subject to business, economic and competitive uncertainties and contingencies. Factors include, but are not limited to, the risk of fluctuations in the assumed prices of oil, the risk of changes in government legislation including the risk of obtaining necessary licences and permits, taxation, controls, regulations and political or economic developments in Canada, Australia or other countries in which the Company carries or may carry on business in the future, risks associated with developmental activities, the speculative nature of exploration and development, and assumed quantities or grades of reserves. Readers are cautioned that forward-looking statements are not guarantees of future performance. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those acknowledged in such statements.
The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except to the extent required by applicable laws.