Jadestone shuts in Montara in bid to complete repairs

The AIM-traded firm said that after an interim repair and restart of production from Montara, it had been working to complete a permanent repair to tank 2C.

During preparations for the repair, an additional internal defect in water ballast tank 4S was detected, which would now be included in the repair work.

It said there was also a focus on the remaining scheduled inspection and repair activities to the FPSO crude oil tanks and production facilities which, as it previously announced, had been delayed by the availability of personnel during the Covid-19 pandemic.

“Over the past several weeks, the permanent repair to tank 2C has been developed, though delayed due to weather, manpower and logistics issues, further complicated while the facility remains in production operations,” the board said on Friday.

“This has resulted in an inability to simultaneously accommodate the increased number of inspection and repair crews alongside production operations.

“As a result, the company has taken the decision to temporarily shut-in production from Montara and reorganise offshore manpower on the FPSO enabling priority and focus on maintenance and inspection crews.”

Jadestone said that was “the most practical and efficient way” to complete tank repairs while progressing ongoing inspection and remediation to other tanks in the FPSO, and to complete key remaining scheduled inspection and repair activities planned for the rest of the year.

It currently expected the inspection and repair activities to result in production being shut-in for the rest of August and possibly through September.

The company said it anticipated that prioritising the activity would result in incremental costs of between $2m and $4m.

As a result of the Montara shut-in, and the performance of the wider production portfolio in the year-to-date, Jadestone said it now expected 2022 production to average between 13,000 and 14,000 barrels of oil equivalent per day, down from the 15,500 barrels it flagged in late June, which was itself at the lower end of its previous guidance range.

“The revised 2022 production guidance reflects the company's assumption that production from its non-operated assets offshore peninsular Malaysia will now remain shut in for the remainder of 2022, due to ongoing delays in reinstating operations.

“The company is confident that by taking this approach at Montara, the necessary work required to deliver long-term asset integrity can be safely and efficiently completed.”

Jadestone said the impact would be short-term with no reduction in reserves, and as a result and given its strong balance sheet, the firm said it intended to continue the share buy-back programme it announced on 2 August.

Looking at its first-half production, Jadestone reported a preliminary figure of 15,008 barrels of oil equivalent per day, with Australia contributing 9,565 barrels and peninsular Malaysia contributing 5,443.

Liftings in the first six months of 2022 totalled two million barrels of oil and 0.9 billion cubic feet of gas, with realised prices coming in at $109.52 per barrel of oil, and $2.17 per thousand standard cubic feet of gas.

Jadestone said it was expecting to reporte first-half revenues of $225.6m, and a cash balance at period end of $161.1m.

“Safety to personnel and facility integrity are key foundational principles at the heart of our operating philosophy, and after experiencing ongoing delays to the permanent repair on tank 2C, and to the wider inspection and repair programme on the Montara Venture FPSO, we believe we had to approach this work scope in a different way,” said president and chief executive officer Paul Blakeley.

“A temporary shut-in of Montara production, in order to replace production crews with maintenance and inspection teams, is the most practical solution which will allow us to apply the necessary additional manpower to accelerate key maintenance and repair activities and restore facility integrity.

“There can be no shortcuts, and while we have made very significant progress in restoring the FPSO to the standard which we expect, the limited FPSO accommodation, as well as other factors such as Covid-19, have been impeding our progress. Our decision will reverse this trend.

“This represents production deferred, rather than barrels lost, and we are working hard to restore Montara production as soon as possible.”

At 0945 BST, shares in Jadestone Energy were down 8.06% at 91.94p.

Reporting by Josh White at Sharecast.com.