TIDMPOL
RNS Number : 7430F
Polo Resources Limited
11 March 2020
This announcement contains inside information as defined in
Article 7 of the EU Market Abuse Regulation No 596/2014 and has
been announced in accordance with the Company's obligations under
Article 17 of that Regulation.
11 March 2020
Polo Resources Limited
("Polo" or the "Company")
HIBISCUS PETROLEUM - INVESTMENT UPDATE
Polo Resources Limited (AIM: POL), the multi-sector investment
company with interests in oil, gold, coal, copper, phosphate,
lithium, iron and vanadium, notes that its 8.75% investee company
Hibiscus Petroleum Berhad ("Hibiscus") has announced a Corporate
and Business Update outlining the Group's targets and initiatives
following the COVID-19 outbreak and the recent OPEC+ alliance
breakup.
Highlights
-- The confluence of the COVID-19 outbreak and OPEC+ alliance
breakup has adversely impacted crude oil prices.
-- On track to deliver three offtakes in 3Q FY2020 across North
Sabah and Anasuria; two offtakes already conducted in February
2020. Three further offtakes expected in 4Q FY2020.
-- Total production is still on track to hit target of 3.3 - 3.5
MMbbls of oil delivered in FY2020.
-- Maintaining net positive operating cashflows by managing OPEX.
-- CAPEX to be selectively deferred if period of low crude prices is prolonged.
-- Initiatives on new ventures to continue.
Market Environment
Oil prices are currently being impacted by:
-- A supply overhang caused by increasing US production, and
demand overhang caused by the US- China trade war;
-- A reduction in global oil demand caused by the coronavirus,
COVID-19, as sectors like transportation are affected due to
restrained movement and travel. As shown in Figure 1 of Hibiscus's
announcement, in February 2020, global oil demand contracted by 2.0
million barrels per day ("MMbbls/day") y-o-y, mostly from China.
While there is some downside risk to the forecast, the expectation
is for a recovery in the second half of calendar year 2020; and
-- The failure of OPEC and Russia to come to an agreement on
further production cuts amid the coronavirus outbreak and the
subsequent price war initiated by Saudi Arabia have resulted in a
reduction of over 30% to oil prices. Saudi Arabia's price war and
intention to increase its oil production are believed to be an
attempt to secure a positive outcome from the next meeting of the
OPEC Conference in June 2020.
Hibiscus provides the following guidance on its situation:
Offtakes and Revenue
At times of low oil prices, produced volumes are important and
in this regard, Hibiscus confirms that a total of three crude oil
offtakes were planned for the Quarter ending 31 March 2020 ("3Q
FY2020") across both the North Sabah and Anasuria assets. Two crude
oil offtakes were conducted before the sharp drop in crude oil
prices, with the third planned for March 2020. Looking ahead to the
Quarter ending 30 June 2020 ("4Q FY2020"), Hibiscus targets a
further three offtakes, bringing the total offtakes for FY2020 to
11.
For the Quarter ending 31 December 2019 ("2Q FY2020"), net daily
oil production at the North Sabah and Anasuria assets were
6,318bbls/day and 2,680bbls/day respectively. For the months of
January and February 2020, the production from both assets has
exceeded the levels recorded in 2Q FY2020. Total production remains
on track to achieve the company's FY2020 target of delivering
between 3.3 - 3.5 MMbbls of oil. There may be revisions to this
target as there could be an advantage to execute maintenance
activities which require a shutdown, during this period of low
prices. This will allow future production to be optimised through
higher uptime and potentially higher realised prices.
Initiatives to Reduce Costs Remain a High Priority
The careful management of costs to maintain low operational
expenditure and the delivery of production enhancement projects
have been key towards obtaining a low unit production cost
structure. This is particularly important in times of low crude oil
prices.
For guidance, Hibiscus highlights in Figure 2 of its
annoucement, the historical average unit production costs (OPEX per
boe or OPEX per bbl) for both the Anasuria and the North Sabah
assets. These have been below the average realised oil price
achieved in previous quarters. Furthermore, in times of low crude
prices, costs of oilfield services generally reduce and the company
has already commenced discussions with key service providers to
determine if any efforts can be made in this area so that unit
production costs are further reduced.
CAPEX
As part of the company's initiative to preserve cash, capital
projects to enhance production scheduled for calendar year 2020
execution will be revisited and oilfield service contractors will
be requested to further optimise their pricing levels. Only
projects showing viability and a reasonable payback period will be
pursued, while projects that promise only mid to long term returns
will not be pursued as aggressively as originally anticipated.
Impairment Assessment
The company, in conjunction with its external auditors, conducts
impairment assessments on all of its assets on an annual basis at
the end of each financial year. Hibiscus will continue this
practice as a normal course of business. Figure 3 of Hibiscus'
announcement shows our Net Assets per Share at the end of the last
five financial years.
New Ventures
Oil and gas producing assets have been coming onto the market,
partially spurred by supermajors looking to rationalise their
portfolio. Due to lower oil prices, there could be a slowdown in
these type of M&A opportunities.
Despite the weaker sentiment, the company remains focused on new
ventures. This lower oil price environment could potentially be
advantageous in acquiring assets at a reasonable price to boost the
company's oil production.
HSSE Measures in Dealing with COVID-19
The company takes the threat of the COVID-19 outbreak seriously
and has enacted various directives to counteract its spread and
impact. Guidelines issued apply to all staff, contractors and
visitors to any of the company's locations.
The full details of this announcement can be found at
http://www.hibiscuspetroleum.com/.
For further information, please contact:
Polo Resources Limited
- Kudzayi Denenga, Investor Relations +27 (0) 787 312 919
Allenby Capital Limited (Nominated
adviser & broker)
- John Depasquale +44 (0)20 3328 5657
About the Company
Polo Resources Limited is a multi-sector investment company
focused on investing in undervalued companies and projects with
strong fundamentals and attractive growth prospects. For complete
details on Polo, please refer to: www.poloresources.com
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END
UPDKZGMFNMNGGZG
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March 11, 2020 04:00 ET (08:00 GMT)
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