Horizon Oil Ltd (ASX: HZN) endured a year it would rather forget which saw its share price drop 80% to 7 cents leaving the company with a market capitalisation of just $90 million.
Despite the challenges during the year, CEO Brent Emmett stated that: "Horizon Oil's ability to maintain strong revenue, cash flow and profitability in this environment is a testament to the quality of its assets and the ability of management to respond quickly to the changing environment with its oil price hedging approach and by cutting operating and capital expenditure."
Earnings before interest, taxes, depreciation, amortisation and exploration expenses (EBITDAX) were down 10% to $89 million, EBIT was down 28% to $35 million, whilst net profit was up 43% to $18.3 million mainly due to lower income tax expenses. Earnings per share came in at 1.4 US cents.
Oil production for the 2015 financial year was down 9% to 1.31 million barrels, whilst revenue slumped 25% to $104 million. The crude oil price lost almost 50% during the same period but hedging contracts delivered an average realised oil price of US$85.6 / barrel which was only 16% lower than that achieved in FY2014.
As at 30 June 2015, Horizon had 397,500 barrels of crude oil hedged at a weighted average price of US$94.77/barrel, which ensures that its realised price during FY2016 will be significantly higher than current oil prices.
The company provided a positive outlook for FY16 which included:
- Operating cash flows are expected to be substantially maintained notwithstanding lower oil prices
- Capital expenditure for FY2016 expected to be 50% lower than FY2015
- Progress at the Beibu Gulf fields development plan
- The company expects to have credit facilities in place to cover the repayment of its US$80 million Convertible Bond in June 2016
- Aim to progress the Papua New Guinea Stanley LNG project towards a final investment decision.
Horizon Oil managed to deliver a good result during a tough year for oil producers and the hedging contracts will help it through the coming year. However, with oil prices hovering around US$40/barrel, investors would be wise to avoid this sector until the outlook is a little more certain.
