2020 was a year of substantial achievement but there were many challenges, with the corporate and commercial settings dominated by the COVID-19 pandemic. The pandemic presented enormous challenges to most businesses, with the oil and gas sector particularly affected by the collapse of the oil price and the restrictions on local and international travel. However, I am pleased to report that despite the oil price downturn and the consequent reduction in revenue, we were able to maintain production from our Ungani Oilfield at similar levels to the previous year by careful cost control and the efforts of our staff and contractors.
Our field based exploration activity was severely curtailed by travel restrictions and our strict avoidance of contact with Aboriginal communities in the area of our operations in the Kimberley. This gave us the opportunity, without the pressures of field operations, to consolidate and review our exploration data base which identified a number of highly prospective new play types, and it allows us to also carefully prepare for our next operational exploration phase.
The positive results of this exploration review enabled us to successfully undertake a comprehensive farm-out process to attract an exploration partner to the Canning Basin. This process was initially severely constrained by the pandemic travel restrictions and the consequent necessity for interested parties to conduct due diligence remotely. Our systems were sufficiently robust to facilitate these processes and consequently we were able to execute an agreement in December for Origin Energy to farm-in to our areas and partner us in a comprehensive exploration program during 2021.
This program has the potential to both discover very significant oil resources through the drilling of two high potential exploration wells, and also includes a regional and prospect oriented seismic program. This seismic program will provide both a better understanding of the regional geology and will delineate potential drilling locations for the 2022 exploration program.
The entry of a substantial and exploration focused partner is a major step forward for the evaluation of the basin and we look forward to a long and fruitful relationship.
As with all oilfields, maintenance of production at the Ungani Oilfield requires continued work and capital to arrest the natural decline of the field. During 2019 and early 2020 two additional wells were drilled at the field as part of that maintenance program. Ungani 6H was unfortunately not able to be completed due to a number of operational issues. Ungani 7H was drilled as a horizontal well and initially produced at substantial rates. However, the production from the well has been considerably less than predicted and the reason for this is currently being investigated with a workover of the well planned for early 2021 to provide additional information to better understand the issue. The Ungani Joint Venture also plans to take advantage of the presence of a rig in the basin for the exploration wells to drill a further well at Ungani, with the objective of accessing additional reserves and extending the field life.
The Company’s financial position was preserved through 2020 both by the receipts from production from the Ungani Oilfield and the timely and decisive actions taken to reduce the Company’s outgoings. These measures included the cancellation of all discretionary expenditure and careful review of all operating costs. Other cost reduction measures included extensive and wide reaching salary reductions of up to 75%, particularly for senior staff and Directors, and unfortunately also included a number of redundancies. Given the ramp-up of activity in 2021, salaries have now been restored to more appropriate levels.
The Board particularly thanks staff and contractors for the sacrifices made during this period. The current recovery in oil prices is very welcome and is expected to provide substantially increased production margins during the coming year.
During the year the final payment of the Alcoa facility was also made and the Company is now debt free.
The Company is an oil and gas producer and explorer and its focus is on realising the value of its assets for shareholders. It also recognises that there is a necessary and accelerating process worldwide to reduce carbon dioxide emissions. The Company is working to ensure it is able to reduce or offset its Scope 1 and Scope 2 emissions to as low a level as possible. It is also cognisant of the shifting sentiment from fossil fuels, whilst acknowledging they will be part of the energy mix for decades to come. The Company’s active participation in the integrated energy economy will be vital to ensure the Company remains relevant and commercially viable in the future and these participation opportunities will be actively sought going forward.
The Company has also entered into a mineral exploration joint venture primarily for lead and zinc in the area of its petroleum exploration permits. The geological exploration model for these battery minerals is complementary to the Company’s petroleum exploration model and provides the potential for significant value add to its exploration activities.
The Company’s gas resources, particularly in its 100% owned Yulleroo Field represent a very significant opportunity both for local gas supply and also for development of an integrated energy project. A feasibility study in conjunction with the Yawuru Traditional Owners of the area is currently in progress.
The addition of three highly experienced new independent non-executive Directors to the Company’s Board has also provided significant impetus to its forward participation in the integrated energy economy.
Shareholders and Staff
The Board thanks our longer term shareholders for their patience and support during turbulent times and warmly welcomes new shareholders who have joined us for what promises to be an exciting year ahead. The Board also thanks the Buru staff and contractors who have provided unstinting support and perseverance in a difficult commercial and personal environment.
We all look forward to 2021.
Eric Streitberg, Executive Chairman