Neon Energy Limited 30 May 2014 Neon Energy Limited Presentation to Annual General Meeting For personal use only
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Neon Energy Limited
30 May 2014
Neon Energy LimitedPresentation to Annual General Meeting
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Neon Energy LimitedA Snapshot …….. Responding to the challenges
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What happened?
o Vietnamo Indonesia
Response thus far
o Sale of US assetso Negotiated exit from Vietnam ?
Where do we go from here?
o Cash shell for right opportunityo New ventureso M&AF
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Neon Energy LimitedThe Perfect Storm
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Identification
Acquisition
Enhancement
Farm-out
Rig Aquisition
Drilling
Vietnam Results:Commercial failure
Operational Outcome:Huge cost overruns
Liability uncertainty
Exploration Cycle
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Neon Energy Limited
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500
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3000 0 20 40 60 80 100 120 140 160 180 200
TD (m
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Rig Days
Rig days for explora ons wells, SE Asia
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Statistical Basis for Expectations
Source: IHS
Ca NguPTD 1522m 53 Days
Cua Lo PTD 2950m 45 Days
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Neon Energy Limited
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500
1000
1500
2000
2500
3000 0 20 40 60 80 100 120 140 160 180 200
TD (m
)
Rig Days
Rig days for explora ons wells, SE Asia
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Statistical Basis for Expectations
Source: IHS
Ca NguPTD 1522m 53 Days
Actual 1290m 91 Days
Cua Lo PTD 2950m 45 Days
Actual 2868m 183 Days
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Neon Energy LimitedVietnam – Drilling Cost Exposure
• Some of the overage beyond the Operator’s control (e.g. weather downtime) however, a significant portion was avoidable
• Operator spent beyond approved budgets • Maximum Neon exposure up to US$22.1 MM• Offers of settlement have been made by Neon – no response from Eni• Neon’s request for an audit to understand discrepancies - denied by Eni• Attempts to discuss a settlement have been fruitless thus far
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Neon Energy Limited
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US had reached the inflection point when increased benefit required greater incremental investment
o Upside from thermal enhancement served only to offset natural decline
o Increasing lifting costs
o Water disposal increasingly an issue
o Exploration upside limited by onerous business climate (eg Paris Valley) and physical restrictions to drill
Sale removes monthly revenue uncertainty
Desire to maintain focus on core competencies without operational distractions
Sale provides guaranteed long term overhead assurance based on new scaled down G&A levels
Bene
fit
Input: Human Resource Effort (Focus)
Financial Input
• Drilled to physical limit at NSA• Optimised Steaming at NSA• New Seismic at Glau• Paloma wells • Paris Valley
Decision Point
Inflection Point
Realising Value of US Assets
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Neon Energy Limited
• Roth Capital appointed in Q2 2013 to bridge value gap in US assetso Broad mandate
• Significant experience in the California oil and gas spaceo Support work solidified management decisions regarding path forward
• Brought Neon up to speed on local deal drivers, players and metricso Source of short list of “A” players
• Facilitated expeditious sale process
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Sale of US Assets – A Good Outcome for Shareholders
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Neon Energy Limited
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Tanjung Aru
Work program for 2014 included 3D seismic acquisition program (completed)
o Accelerated for logistical reasons
Verbal agreement with Operator KrisEnergy for late payment as a result of Vietnam
overruns
Notified at short notice on 5 May that KrisEnergy elected to issue Notice of
Withdrawal, despite Neon having made a US$300,000 “good faith” payment
Subsequent to completion of the Californian transaction, Neon has formally offered
to pay all outstanding sums, plus applicable interest
Waiting for a response from KrisEnergy
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Neon Energy Limited
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New Ventures Strategy
• Neon Available as a cash shell for the right assets• Expanded areas of effort• Maintain focus on conventional E&P, technology
playso New Australian acquisition latest example
• Utilise project equity to fund work program commitments
• Current environment of asset rich / cash poor juniors translates into M&A opportunities
• Early entry organic growth• Strategic partnerships as appropriateF
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Neon Energy LimitedNew Acquisition: WA-503-P Dampier Basin Australia
• Block WA-503-P, offshore WA (Neon 100%, Operator).• Combined structural / stratigraphic plays remain
o Recent success at Hurricane-1• Neon has already identified four leads on legacy 3D
seismic datao Largest has potential for over 100 MMbbls oil in
place within a series of stacked clastic reservoirs.• Proven trend• New broadband technology can unlock remaining potential • Shallow 50 – 70m water depth capable of utilising less
expensive Jack-Up drilling rig• Minimal commitment during 3 year first phase
o 100 Km2 Broadband Seismic o Studies 11
Conventional Data Set Broadband Data Set
Location Map
Generic example courtesy of CGGVeritas
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Neon Energy LimitedQ&A
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What is our exposure to Eni:
The quantum varies depending upon a number of factors however the maximum claim wouldbe the US$22.1 MM which is the Eni claimed default by our subsidiary company, Neon Energy(Song Hong) Pty Ltd. Neon disputes this amount.
Why did we not raise capital to cover our expenditure pre drill:
Funds to cover our needs (including significant contingencies) were raised well in advance ofdrilling operations. The cost overruns on both wells were beyond what could have beenreasonably expected. Unfortunately we are not permitted to discuss specifics at this time, dueto confidentiality under the JOAs.
How did we allow Eni to spend far in excess of our existing cash position:
As two wells were “commitment” wells, Neon, KrisEnergy and PetroVietnam had very limitedability to control the actions of the Operator, after approval of the original drilling budget.While Neon was obviously aware of the increasing costs on a daily basis, the scale of the costoverruns was not fully understood until Eni reported its estimate of final costs to Neon inMarch of this year.
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Neon Energy LimitedQ&A
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What is the current status of negotiations with Eni:
Neon made offers to the JV, prior to Eni issuing the Notices of Withdrawal on 10 April. TheJOAs require Neon to sign documents effectuating an assignment of interest to Eni andKrisEnergy. We presently await this documentation, and anticipate renewed negotiation at thattime.
What is the current status of Tanjung Aru:
Neon was unable to pay a cash call for 3D seismic mobilisation to Operator KrisEnergy, whichwas due in early April. After discussion with KrisEnergy, we paid a US$300,000 “good faith”payment, on the understanding that KrisEnergy would endeavour to avoid acting on Neon’sdefault for a period sufficient to complete the Californian asset sale. Unfortunately there wasa minor delay in completing the US transaction, during which time KrisEnergy’s board opted toact on Neon’s default by issuing a notice of withdrawal. This came as a surprise, particularlygiven our long established and excellent relationship with KrisEnergy to date. Neon has madea formal offer to KrisEnergy to pay the full amounts owing, and we currently await a responsefrom KrisEnergy to that offer.F
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Neon Energy LimitedQ&A
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What is the quantum of the insurance claim:
The total amount of the claim is US$44 MM, of which Neon’s net portion would be $8.5 MMafter a $2.5 MM excess fee. It should be stressed there is no guarantee of any payout, soanything between $0 and the full $8.5 MM is possible. We can advise that the Vietnam JVpartners each had their own policy in place, and that a common loss adjuster has beenappointed to consider the claim. Neon’s policy is independent of Eni and KrisEnergy’s, andany settlement proceeds will be remitted directly by the insurers to Neon.
What is the timing of the next capital raising:
Neon has no plans for a capital raising in the foreseeable future. We anticipate a 57%reduction in corporate overheads to a go forward annual budget of ca. $2.8 MM. Coupled withthe US asset sale proceeds, funds in the bank and a potential insurance claim payout, Neon iswell funded.
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Neon Energy Limited
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The Path Forward
No debt
Sufficient cash to fund Neon
overheads for foreseeable future
Rebuild the Company through:
o Availability as a cash shell for the
right assets
o Expanded new ventures effort
o Active M&A effortFor
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Neon Energy LimitedDisclaimer
This presentation has been provided for the sole purpose of providing preliminary background financial and other information to enable investors to review the business activities of the Company.
This presentation contains interpretations and forward looking statements that are subject to risk factors associated with the oil and gas industry.
It is believed that the expectations reflected in the presentation are reasonable but may be affected by a variety of variables and changes in underlying assumptions which could cause actual results to differ substantially from the statements made. Including but not limited to: production fluctuations, commodity price fluctuations, variations to drilling, well testing and production results, reserves estimates, loss of market, industry competition, environmental risk, physical risks, legislative, loss of mineral leasetenure, fiscal and regulatory developments, economic and financial market conditions, project delay or advancement, approvalsand cost estimates.
Investors should undertake their own analysis and obtain independent advice before investing in Neon Energy shares.
All references to dollars ($) in this presentation are to AUD$ unless otherwise stated.
The Company and its Directors, agents, officers or employees do not make any representation or warranty, expressor implied, as to endorsement of, the accuracy or completeness of any information, statement representations or forecasts contained in this presentation and they do not accept any liability for any statement made in, or omitted from, this presentation.
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Neon Energy Limited
Neon Energy LimitedGround Floor, 88 Colin Street,West Perth, Western Australia 6005Phone : +61 8 94811176
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