Horizon Oil : 2020 Half Year Results Presentation

HY20 RESULTS PRESENTATION

28 FEBRUARY 2020

HORIZON OIL LIMITED | ABN 51 009 799 455

01-

OVERVIEW

Recent Events Update

• Recent weeks challenging following media articles pertaining to PNG licence transactions dating back to 2011
• Strong and proactive Company and Board response to allegations
• • Independent external investigation commenced with Herbert Smith Freehills and Deloitte
  • Independent board committee established to oversee investigation
  • CEO suspended on 12 February 2020, with new CEO Chris Hodge appointed
• Recent allegations exacerbated PNG challenges including licence tenure issues, lack of progress in commercialisation of the discovered resources and recent shift by PNG Government in requiring improved fiscal returns from resource projects. In light of the above matters and uncertainties, together with reference to comparable market transactions, led to a US$67.3 million impairment of the Group's PNG portfolio to a carrying value of US$5.7 million
• Base business strong with continued material cashflow generation until late into this decade
• Company remains poised for seizing growth opportunities

28 FEBRUARY 2020 PAGE 3

HY20 HIGHLIGHTS

Production Volume	Sales Revenue	EBITDAX
754,862 bbls	US$53 million	US$31 million

Net Debt Reduced	Underlying Profit after Tax	Cash on Hand
US$7.4 million	US$6.2 million	US$22 million

HY20 RESULTS PRESENTATION	28 FEBRUARY 2020		PAGE 4

HY20 DELIVERING ON OBJECTIVES

STRONG PRODUCTION AND CASHFLOW PROVIDING PATHWAY TO FURTHER GROWTH

	Strong	•	Continued strong high margin
		production from Maari and
	Production &		Beibu
	Cashflow	•	Cash operating costs averaged
			approximately US$20/bbl

Progressive Debt Reduction

• Progressive debt reduction with Net Debt reduced to US$7.4 million
• On track to net cash by 30 June 2020

	Drive Growth	• Drilling success in Block 22/12,
		leading to pursuit of further
			infill, appraisal and exploration
			opportunities
		•	Commenced evaluation of
			inorganic growth opportunities

	Sustainability	•	Continued sound HSSE
		performance at Horizon Oil's
			operated and non-operated
			assets

HY20 RESULTS PRESENTATION	28 FEBRUARY 2020		PAGE 5

02-

FINANCIAL RESULTS

HY20 FINANCIAL RESULTS

	(US$ million)	HY 2020	HY 2019	Change (%)
	Production volume, bbls	754,862	801,904	[6%]
	Sales volume, bbls	770,744	1,021,218	[25%]
	Revenue	52.7	63.6	[17%]
	EBITDAX	31.3	44.3	[29%]
	Statutory (loss)/profit after tax	(62.8)	20.1	[>100%]
	Add/(less) financing costs - unrealised	1.7	(11.4)	[115%]
	movement in value of options
	Add impairment expense	67.3	-	>100%
	Underlying profit after tax	6.2	8.7	[28%]
	Cash on hand	22.1	20.4	8%
	Cashflow from operating activities	24.2	34.3	[29%]
	Net debt	7.4	64.2	(89%)

Sales volume reverted to approximate net working share of production following early recoupment of cost recovery entitlement in China.

Realised oil price of US$68.34 per barrel, inclusive of US$2.8 million hedging gain.

Operating costs of US$32.5 million were 12% lower than the prior year.

US$67.3 million non-cash impairment recorded on the Group's PNG assets.

A further US$20.0 million in debt repaid during the half-year. Net debt reduced by 89% to US$7.4 million.

HY20 RESULTS PRESENTATION	28 FEBRUARY 2020		PAGE 7

HY20 KEY CASHFLOW DRIVERS

US$ MILLION

2.8

-19.0

-7.3

49.9

-2.2

-20.1

24.2

-1.1

-2.4

21.5

22.1

Cash & cash Crude oil sales

Hedging

Operating

Corporate &

Interest

Net cash

Debt

Investment in

Exploration

Cash & cash

equivalents at

settlements

costs (excl

tax

inflows from

repayment &

oil & gas and

expenditure

equivalents at

30 June 2019

amortisation)

operating

lease costs

other assets

31 December

activities

2019

Strong net operating cashflow generation used to materially reduce debt

Disciplined investment in exploration and development activities to drive growth

Reduced interest costs and maintenance of low general & administrative expenditure

HY20 RESULTS PRESENTATION	28 FEBRUARY 2020		PAGE 8

HY20 UNDERLYING PROFIT DRIVERS

14 US$m

12
10	8.7
8
6
4
2
0
-2
-4
-6
-8
-10

	(0.7)	(1.8)	6.4
[13.9]
	4.6
	6.2
	[3.2]

6.2

Underlying	Cost recovery	Production Volume Net realised oil	Operating costs Other income/costs Exploration and	Financing costs
Profit after tax	volumes recouped	price, inclusive of	development
for HY 2019		hedge settlements	expenses

Underlying

Profit after tax

for HY 2020

The impact of recoupment of cost recovery volumes substantially mitigated by higher realised oil price and lower operating costs

Cost discipline maintained with low general		Financing costs reduced following
& admin expenditure and modest		refinancing and repayment of debt
exploration/development expenditure

HY20 RESULTS PRESENTATION	28 FEBRUARY 2020		PAGE 9

CALENDAR YEAR FINANCIAL HIGHLIGHTS

OIL SALES (mmbbls)					REVENUE1 (US$m)
						130						80
						120				24.5	4.2	70
			0.39			110
5-year average: 1.55 mmbbls		0.06
			100						60
						90
	0.15	0.29				80				59.0	59.1	50	US$/bbl
			US$m
				60
			0.97	0.92		70	48.5	7.3	15.2			40
0.86	0.89					50						30
	0.82					34.6
				40
						42.6			20
						30
										48.2
			0.65	0.63		20	43.6			43.8
0.48				24.4			10
0.34					10
0.29					15.5
						0						0
CY 2015	CY 2016	CY 2017	CY 2018	CY 2019			CY 2015	CY 2016	CY 2017	CY 2018	CY 2019
	Beibu cost recovery	Beibu	Maari				Beibu cost recovery	Beibu	Maari	Net realised sales price 1
					1 inclusive of hedge settlements

Oil sales volume above 5-year average level with early recoupment of cost recovery volume

Base sales revenue exclusive of cost recovery increased for both Beibu and Maari driven by higher net realised oil price

Greater production and revenue diversification following acquisition of additional Maari interest in 2018

HY20 RESULTS PRESENTATION	28 FEBRUARY 2020		PAGE 10

CALENDAR YEAR FINANCIAL HIGHLIGHTS

EBITDAX AND COST PER BBL				UNDERLYING PROFIT BEFORE TAX (US$m)
	90				88.3	30
										34.8
	80	77.3				80.0					32.1
					25
	70
	60			51.3		20
US$m	50					US$/bbl
	40.5			15	5.9
	40						6.1
	30					10
	20					5
	10							-11.1
	0					0
		CY 2015	CY 2016	CY 2017	CY 2018	CY 2019		CY 2015	CY 2016	CY 2017	CY 2018	CY 2019
	EBITDAX	Cash opex/produciton bbl	G&A and others/production bbl

Continued strong EBITDAX driven by sustained production and maintenance of low operating costs

Maintenance of low general and administrative expenditure

Underlying profit of US$34.8 million with continued cost discipline

HY20 RESULTS PRESENTATION	28 FEBRUARY 2020		PAGE 11

CALENDAR YEAR FINANCIAL HIGHLIGHTS

FREE CASH FLOW (US$m)				NET DEBT (US$m)
				127.7
				120.8
65.5		67.6	62.7	94.3
	40.2
35.3
				64.2
-18.7			-5.8
		-35.6
-42.5	-13.7

CY 2015

CY 2016

CY 2017

CY 2018

CY 2019

7.4

Investing CF

Operating CF

FCF*

CY 2015

CY 2016

CY 2017

CY 2018

CY 2019

• Free Cash Flow represents cash flows from operating activities less investing cash flows (net of acquisition payments)

Sustained growth in free cash flow with disciplined investment in exploration and development activities

Accelerated debt reduction following 2018 refinancing which consolidated debt, simplified capital structure and lowered funding costs

89% reduction in net debt for CY19 and on track to Net Cash position by 30 June 2020

HY20 RESULTS PRESENTATION	28 FEBRUARY 2020		PAGE 12

03-

OUTLOOK & PORTFOLIO UPDATES

OVERVIEW OF PORTFOLIO

• Asia Pacific focus
• Material joint venture interests
• High margin, long life oil production assets in China and New Zealand generating strong cashflow
• Significant holding in material condensate rich gas resources and adjacent exploration acreage in PNG

Block 22/12 (Beibu Gulf] 26.95% / 55%

PDL 10 (Stanley)	30%
PRL 21 (Elevala/Ketu)	30.15%
PRL 28 (Ubuntu)	30%
PRL 40 (Puk Puk/Douglas)	20%
PPL 372	95%
PPL 373	100%
PPL 574	80%

PMP 38160 (Maari/Manaia) 26%

HY20 RESULTS PRESENTATION	28 FEBRUARY 2020		PAGE 14

2P Reserves: 4.4 mmbbls

2C Resources: 2.0 mmbbls

As at 30 June 2019

HY20 RESULTS PRESENTATION	28 FEBRUARY 2020		PAGE 15

CHINA BLOCK 22/12

BLOCK 22/12 PRODUCTION HISTORY & OUTLOOK

16,000
14,000
12,000
10,000
8,000
6,000
4,000	Average daily gross production
2020 Production
2,000	Historical average
-	Sep-2013Dec-2013Mar-2014Jun-2014Sep-2014Dec-2014Mar-2015Jun-2015Sep-2015Dec-2015Mar-2016Jun-2016Sep-2016Dec-2016Mar-2017Jun-2017Sep-2017Dec-2017Mar-2018Jun-2018Sep-2018Dec-2018Mar-2019Jun-2019Sep-2019Dec-2019
Mar-2013Jun-2013

	Annual	Average	•	Current gross daily production rate
	Gross	Daily Gross
		above 10,000 bopd - above average
	Production,	Production,
		historical daily production rate.
	mmbbls	bopd
CY 2013	3.02	9,882	•	Production rates maintained since
CY 2014	4.08	11,194		first production over 6 years ago
	through infill and nearfield drilling,
CY 2015	3.43	9,404		installation of additional water
				handling capacity and production
CY 2016	3.28	8,981
	optimizing well workovers.
CY 2017	3.04	8,326	•	Maturing plans for further infill drilling,
CY 2018	3.60	9,857
	together with WZ 12-8E field
				development production to offset
CY 2019	3.43	9,399
	natural reservoir decline.
Average	3.41	9,570

Block 22/12 continues to generate approximately 60-70% of Horizon Oil cashflow

Long life production - current WZ 6-12 and WZ 12-8 field lives forecast to 2028

Low cash operating costs - currently less than US$15/bbl produced

Current WZ 6-12 and WZ 12-8 field abandonment costs prepaid in sinking fund

HY20 RESULTS PRESENTATION

CHINA BLOCK 22/12

During HY20

• Crude oil sales were 410,811 barrels with cost recovery volumes of 2,474 barrels at a net realised price of US$65.19 per barrel.
• Production from the Group's interest in the Beibu Gulf fields was 444,740 barrels of oil with average gross production rate of 8,969 bopd.
• Cash operating costs remained below US$15 per production barrel.
• Successful exploration drilling of the WZ 6-12 M1 well results in an additional 0.6 mmbbls gross 2C contingent resources, 0.2 mmbbls net to HZN.

Outlook

• Maturing plans for evaluation of nearby prospects during the 2020 calendar year, with the intention to integrate any commercial discoveries with the recent WZ 6-12 M1 discovery and other infill well targets.

HY20 RESULTS PRESENTATION

CHINA BLOCK 22/12

BLOCK 22/12

WZ 12-8E Project

• Basic engineering for the development has been completed.
• The development of WZ 12-8E is planned with a new wellhead platform tied back to the existing WZ 12-8W platform. The new platform will be leased by the joint venture, reducing upfront capital costs.
• FID for the development is expected later this financial year.
• First oil is expected to commence mid-2021 calendar year.
• Total development costs net to Horizon Oil are forecast to be less than US$20 million, with the majority phased throughout the 2021 and 2022 calendar years.

HY20 RESULTS PRESENTATION

2P Reserves: 4.4 mmbbls

2C Resources: 5.5 mmbbls

As at 30 June 2019

MAARI/MANAIA FIELDS

HY20 RESULTS PRESENTATION	28 FEBRUARY 2020		PAGE 19

NEW ZEALAND

MAARI/MANAIA PRODUCTION HISTORY & OUTLOOK

12,000

10,000

8,000

bopd

6,000

4,000

Average daily gross production

2,000

2020 Production

Historical average

0

2017-Jan

2017-Mar

2017-May

2017-Jul

2017-Sep

2017-Nov

2018-Jan

2018-Mar

2018-May

2018-Jul

2018-Sep

2018-Nov

2019-Jan

2019-Mar

2019-May

2019-Jul

2019-Sep

2019-Nov

2020-Jan

	Annual Gross Production,	Average Daily Gross Production,
	mmbbls	bopd
CY 2017	2.94	8,064
CY 2018	2.28	6,256
CY 2019	2.44	6,675
Average	2.55	6,998

• Current gross daily production rate approx. 7,000 bopd - in line with average historical daily production rate over the last 3 years.
• Overall production decline rate reduced through continued water injection and production optimizing well workovers.
• Potential new operator targeting long term maintenance of production levels, operating cost reductions and field life extension to 2031 and beyond.

Maari/Manaia continues to generate approximately 30-40% of Horizon Oil cashflow

CY19 production 7% above CY18

• strong response from water injection

Long life production

• current production licence and reserves forecast to end of 2027 with potential to extend

Cash operating costs - US$25 - 30/bbl

HY20 RESULTS PRESENTATION

NEW ZEALAND

MAARI/MANAIA FIELDS

During HY20

• Crude oil sales were 359,933 barrels at a net realised oil price of US$71.9 per barrel.
• Production from the Group's interest in Maari and Manaia fields was 310,122 barrels of oil with average gross production rate of 6,482 bopd, 11% higher than HY2019. The increased production was driven by well optimization activities and continued water injection.
• Cash operating costs were US$26.90 per barrel (US$30.3 per barrel including workovers).
• In November 2019, Jadestone Energy Inc. (AIM:JSE, TSXV:JSE) announced that it had executed a conditional sale and purchase agreement to acquire OMV New Zealand Limited's 69% interest in the Maari project. The completion of the proposed transaction will occur upon satisfaction of conditions on or before 15 November 2020.

Outlook

• JV continues to focus on production optimisation and life extension planning following the continued strong production performance.

HY20 RESULTS PRESENTATION

2C Resources: Liquids: 26.9 mmbbls Raw gas: 599 bcf

As at 30 June 2019

HY20 RESULTS PRESENTATION	28 FEBRUARY 2020		PAGE 22

PNG

During HY20

• In Papua New Guinea, Horizon Oil continued planning for the commercialisation of the gross appraised resource of 2,200 PJ of sales gas and 64 million barrels of associated condensate in four petroleum licences in the foreland basin of Western Province.
• During the period, activities to optimise and refine the engineering basis for a condensate development at Elevala and Ketu continued.

Outlook

• Whilst the Group's PNG assets have significant potential value, there remain challenges to realising value in the short term. Accordingly, this led to the Group impairing its PNG assets in the period down to US$5.7 million.

HY20 RESULTS PRESENTATION

OUTLOOK & TARGETS

STRONG PRODUCTION AND CASHFLOW PROVIDING PATHWAY TO FURTHER GROWTH

	Strong Operating	• Pursue and promote production
	enhancement opportunities at
	Cashflow	Maari/Manaia and Beibu fields
	• Strong hedge position - 270,000
		bbls hedged to 30 June 2020 at
		US$68.35/bbl
		• Maintenance of low operating costs
		with disciplined and focused infield/
		near field exploration/appraisal
		program

Strengthen Balance Sheet

• Continued strong cashflow generation allowing for progressive reduction in debt
• Forecast net cash position by 30 June 2020

	Drive Growth	• Execute WZ 12-8E development
		combined with pursuit of further
			infill, appraisal and exploration
			opportunities in China
		•	Pursue inorganic growth
			opportunities

	Sustainability	• Focus on continued safe operations
	• Climate-change resilience reporting

HY20 RESULTS PRESENTATION	28 FEBRUARY 2020		PAGE 24

FY20 GUIDANCE

STRONG PRODUCTION AND CASHFLOW PROVIDING PATHWAY TO FURTHER GROWTH

PRODUCTION

(NET WORKING INTEREST VOLUMES)

1.4 - 1.5 mmbbls

SALES

(VOLUMES)

1.4 - 1.5 mmbbls

REVENUE

US$90 - 100 million	EBITDAX

US$50 - 60 million

• The above Guidance represents forward looking statements. Such statements relate to future events and expectations and as such involve known and unknown risks and uncertainties. Actual results, actions and developments may differ materially from those expressed or implied by these forward looking statements depending on a variety of factors. Refer to disclaimer on the following slide.

HY20 RESULTS PRESENTATION	28 FEBRUARY 2020		PAGE 25

DISCLAIMER

Statements contained in this material, particularly those regarding the possible or assumed future performance, costs, dividends, returns, production levels or rates, prices, reserves, potential growth of Horizon Oil Limited, industry growth or other trend projections and any estimated company earnings are or may be forward looking statements. Such statements relate to future events and expectations and as such involve known and unknown risks and uncertainties. Actual results, actions and developments may differ materially from those expressed or implied by these forward looking statements depending on a variety of factors.

While every effort is made to provide accurate and complete information, Horizon Oil accepts no responsibility for any loss, damage, cost or expense incurred by you as a result of any error, omission or misrepresentation in information in this presentation.

In this presentation, references are made to EBITDAX, Underlying Profit and Free Cashflow, which are financial measures which are not prescribed by Australian Accounting Standards:

• EBITDAX represents the profit adjusted for interest expense, taxation expense, depreciation, amortisation, and exploration expenditure (including non-cash impairments)
• Underlying profit represents the profit adjusted for the unrealised movement in the value of options issued under the subordinated loan facility, unrealised movements and gains associated with convertible bonds and non-cash impairments
• Free Cash Flow represents Cashflow from Operating Activities less Investing cashflows (net of acquisition payments)

All references to dollars in the presentation are United States dollars unless otherwise noted.

HY20 RESULTS PRESENTATION	28 FEBRUARY 2020		PAGE 26

Authorisation

This ASX announcement is approved and authorised for release by the Horizon Oil board.

FOR MORE INFORMATION

PLEASE CONTACT US

CHRIS HODGE	Horizon Oil Limited
P [phone]	Level 6, 134 William Street
[e-mail]	Woolloomooloo NSW 2011
	Australia
	horizonoil.com.au