Neptune Energy lowers investment expectations amid ‘increasingly volatile’ commodity prices
Neptune Energy has downgraded expectations for investment, production and cash flow this year, with its boss warning of “increasingly volatile” commodity prices eating into margins.
Expectations were lowered amid falling oil and gas prices alongside a global economic downturn, while market conditions recede from last year’s commodities boom. These factors are increasingly putting pressure on energy producers’ supply chains.
The global fossil fuel producer which operates Cygnus in the North Sea – one of the largest developments in British waters – still expects the domestic Seagull field to start-up in September while gas exports from Algeria are anticipated to restart in October.
Nevertheless, it has lowered overall production guidance to 150,000 barrels of oil and gas equivalent, reflecting outages in the first six months of trading this year – including at the non-operated Snøhvit Unit and planned maintenance in the UK and the Netherlands.
Neptune also reduced forecasts for post-tax operating cash flows to $1.4bn, cash taxes to $1.9bn and development expenditure to $350-400m.
Chief executive Pete Jones said: “Commodity prices are likely to be increasingly volatile in the second half of the year, while the industry faces continued inflationary pressures in the supply chain. We remain focused on capital discipline and have re-phased some of our smaller development projects, our exploration programme and our decommissioning plans.”
The company is set to be broken up and sold next year to Eni and Var Energi, with its German onshore operations being spun off into a smaller-scale company.
Var will take on Neptune’s Norwegian assets in a £1.8bn takeover, while Eni will take on the rest of its global portfolio for £2.1bn – with the deals expected to pass regulatory approval hurdles and close in the first quarter of next year.
Despite the adjustments in expectations, Neptune posted robust half-year results, including operating profits of $1.1bn, with a cash flow of $700m – while paying out $1.1bn in taxes.
Neptune also confirmed it has secured a $1.3bn borrowing base with total available liquidity of $700m after updating its reserve based lending arrangements.
It now expects it Gudrun electrification project scheduled to come online by the end of the year.
The group has additionally benefitted from the allocation rounds for carbon capture projects, being awarded three CO2 storage licences in the UK with more licence applications submitted in Norway and the Netherlands.