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Polo Resources Ltd (POL)

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Wednesday 11 March, 2020

Polo Resources Ltd

HIBISCUS PETROLEUM - INVESTMENT UPDATE

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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