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Producer Neptune flags lower output in Q4 on Touat repairs, Norway issues

Highlights

Output impact at Algerian Touat field into Q1 2021

Production affected by Hammerfest LNG shutdown

Total output seen at 140-145,000 boe/d in 2020

London — Independent producer Neptune Energy expects its oil and gas production in the fourth quarter to be affected by repairs needed at its major Touat gas field in Algeria and the shutdown of the Hammerfest LNG plant in Norway, it said Nov. 18.

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Issues at Touat had already affected Neptune's total output in the third quarter, with group production averaging 134,500 b/d of oil equivalent, down 15,000 boe/d from the previous quarter.

Total output in the fourth quarter is set to be "marginally lower," gas-focused Neptune said. In the third quarter, gas accounted for around three-quarters of the company's production.

The performance of the Touat gas processing facility remains "variable", with shutdowns in August and September required due to technical problems, the company said.

"We have identified some technical issues, which, due to COVID-19 restrictions, may take some time to resolve and will impact production in the fourth quarter of 2020 and first quarter of 2021," Neptune said.

Due to lower production at Touat, operating costs in Algeria also increased to $11.30/boe in the third quarter, it said.

Touat began exporting gas into the Algerian network in September 2019 and reached plateau production in April this year of around 13 million cu m/d -- or 4.5 Bcm/year -- of gas as well as 1,800 b/d of condensate.

The project is led by Groupement Touat Gaz, comprising Neptune Energy Touat (65%) and state-owned Sonatrach (35%). Within Neptune Energy Touat, France's Engie holds 46% and Neptune 54%.

Norway issues

Neptune's total production in the fourth quarter is also expected to be affected by issues in Norway, which accounted for around 40% of the company's total output in the third quarter.

Output will be hit by the shutdown for one year of the Equinor-operated Hammerfest LNG facility following a fire at the end of September, together with temporary strikes that affected production at the Gjoa and Gudrun fields in early October.

As a consequence of the shutdown of Hammerfest LNG, the Snohvit, Albatross and Askeladd fields have been shut in, Neptune said.

"Neptune's losses of revenue from the Snohvit unit will be recovered through business interruption insurance, claims for which are effective 60 days after the incident," it said.

The strike action in early October also prompted Neptune to temporarily suspend activities at its operated Gjoa P1 and Duva projects.

"As a result, Gjoa P1 is now expected on stream in early 2021," it said, adding that together, Gjoa P1 and Duva will add around 16,000 boe/d at plateau.

Operating costs in Norway remain low, but increased slightly to $7.50/boe in the third quarter, reflecting shutdowns in the period and unfavorable foreign exchange movements, it said.

Year production

In the year to date, Neptune's output has averaged 148,600 boe/d, so despite the expectation of lower output in fourth quarter, the company's guidance for fully-year production is still 140,000-145,000 boe/d.

CEO Jim House said that despite the setbacks in Algeria and Norway, the company had a number of key activities ahead in 2021.

"While repairs at Touat and the outage at the Equinor-operated Hammerfest LNG facility will restrict production in the near term, we head in to next year with new projects coming online in Norway and Indonesia, and high value appraisal activities at Dugong in Norway and Isabella in the UK, which will enhance cash flow and provide longer-term growth," House said.

In September, activity at the Merakes project in Indonesia recommenced and first gas remains on schedule for the first half of 2021, adding 10,000 boe/d at plateau, Neptune said.

"With repairs to the Hammerfest LNG plant due to be completed by Q4 2021, we expect to exit 2021 at materially higher production rates," it added.

Neptune also uses hedging instruments to set a floor for sales realizations on a rolling basis, with reducing levels of hedging for each of the next three years.

For gas, hedging provided weighted average floor prices of $6.10/MMBtu for 2020, $5.80/MMBtu for 2021 and $5.70/MMBtu for 2022, with upside caps at $7.90/MMBtu, $6.90/MMBtu and $5.90/MMBtu, respectively.

For oil, weighted average downside protection is $42.50/b for the remainder of 2020, with upside capped at around $57/b. For 2021, weighted average downside protection is $40.40/b, with upside capped at $50.40/b.