Results for the Period Ending June 30, 2018

RNS Number : 9537Y

Jadestone Energy Inc.

28 August 2018

 

Jadestone Energy Results for the Period Ending June 30, 2018

August 28, 2018-Singapore: Jadestone Energy Inc. (AIM:JSE, TSXV:JSE) ("Jadestone" or the "Company"), an independent oil and gas production company focused on the Asia Pacific region, reported today its condensed consolidated unaudited financial results for the three and six months ended June 30, 2018. 

Second quarter highlights

·    Total liquids production of 299,601 bbls, and natural gas production of 157,799 mmbtu, for a total of 4,239 boe/d* for the quarter, an increase of over 4% from the same quarter a year ago, and over 3% up from the prior March 2018 quarter. 

·    Production from Stag of 256,077 bbls for the quarter, an increase of more than 9% over the same quarter a year ago and more than 6% up from March 2018 quarter, reflecting improved uptime and notwithstanding planned maintenance activities which caused the deferral of approximately 38,000 bbls (or 417 bbls/d for the quarter);

·    Sales revenue of US$18.3 million, increased slightly from US$18.1 million in the same quarter a year ago, as increased benchmark prices more than offset the impact of lower aggregate production volumes given the expiry of the Ogan Komering license on May 19, 2018;

·    Production costs of US$10.7 million in the quarter, down 52% from US$22.2 million in the same period a year ago, due to lower operating costs at Stag including workover costs;

·    Positive cash from operations (before changes in working capital) of US$0.1 million, despite the lower production, and additional costs arising from the Stag turn-around, compared to cash used in operating activities of US$11.1 million in the same quarter a year ago;

·    The Stag Oilfield reached a safety milestone of six years without a lost-time incident, and conducted a major planned maintenance turn-around to ensure ongoing facilities integrity;

·    Jadestone obtained approval for the Nam Du and U Minh outline development plan from Vietnam's Ministry of Industry and Trade ("MOIT") on May 21, 2018, and work on front-end engineering design ("FEED"), field development plan studies, and the early phases of gas sales agreement negotiations have begun;

·    A new gross split PSC covering the Ogan Komering working area in Indonesia was awarded to Pertamina effective May 20, 2018, and the Company began direct business-to-business negotiations with Pertamina to formalise the Company's participation in the new licence.  Concurrently, Indonesia's Minister of State Owned Enterprises has established a principal agreement to govern the mechanism by which Pertamina can confer an interest in the new licence and Pertamina's corporate guidance for asset divestitures is being finalised.

* Net working interest and based on production at Ogan Komering averaged across the 49 days of Jadestone participation in the license during the quarter (April 1, 2018 through to May 19, 2018), plus the full quarter's average share of production at Stag

Material developments

Subsequent to the end of the quarter, the Company also announced several material developments:

·    A definitive sale and purchase agreement ("SPA") with certain subsidiaries of PTT Exploration and Production Public Company Limited ("PTTEP"), to acquire a 100% interest in the Montara oil project (the "Montara Oil Project" or the "Montara Assets"), offshore Australia via an asset acquisition;

·    Funded by a $110 million (gross) oversubscribed equity placing, upsized from an initial target of US$95 million;

·    An underwritten secured reserve-based loan facility of US$120 million from Commonwealth Bank of Australia and Société Générale and;

·    Admission and first day of dealings on the AIM Market of the London Stock Exchange on August 8, 2018.

Paul Blakeley, President and CEO, commented:

"Operations during the second quarter were executed safely, and according to plan.  I am pleased with the performance of our turn-around team in conducting major maintenance work at Stag in late April, which included planned production vessel repairs and integrity-focussed inspection work.  While the downtime resulted in deferring production of 38,000 bbls into Q3, the positive impact of our operating philosophy on facility uptime has more than offset the deferral, meaning we are still able to show quarter-on-quarter growth from Stag and generate positive cash from operations.  With the maintenance turnaround behind us, and the next one not expected until 2022, I am increasingly confident that Stag will remain a safe and predictable source of cash flow and value creation. 

"Also during the second quarter, we have made significant progress toward executing our Vietnam growth strategy in respect of our proposed Nam Du and U Minh gas field development, with the MOIT approvals, and with FEED, gas sales agreement negotiations, and engineering procurement construction discussions now fully underway. 

"In addition, the transactions we announced after the end of the quarter demonstrate our team's capacity to layer transformative inorganic opportunities into our portfolio.

"The Montara acquisition marks a step change in our business by adding 10.3 mbbls/d of production and 28.1 mmbbls of 2P reserves.  We are working with PTTEP toward closing the asset acquisition within September/October 2018, at which time, the economic benefits of the asset, dating back to the effective date of January 1, 2018, will be reflected in our financial statements by way of a closing adjustment to the purchase price.  Accordingly, we have started working within the Montara organisation to ensure a seamless transfer of operatorship to Jadestone, and ongoing safe production operations. 

"In addition, our new financing arrangements will not only fund the acquisition, but have allowed us to repay the convertible debt facility we had with Tyrus Capital Event S.à r.l., which had been drawn to US$15 million.  These steps simplify our balance sheet and establish the Company's self-funded growth platform, with the capacity to generate annual free cash flow for many years, whilst simultaneously growing production."

Operations update

Stag Oilfield (offshore Australia)

Crude oil production at Stag totalled 256,077 bbls during the quarter to June 30, 2018, an increase of approximately 9% from the same quarter a year ago, and up 6% from the prior quarter.  This primarily reflects increased uptime, which more than offset the impact of approximately 38,000 bbls of deferred production due to a planned 12-day maintenance turnaround in April, concluded 1 day ahead of schedule.  

Following the planned maintenance event, which was completed on May 3, 2018, production volumes have returned to approximately 3,300 bbls/d.  Average production for the quarter was 2,814 bbls/d.

The Company continues to pursue opportunities to enhance value at Stag, and is in advanced planning stages for its first infill well on the asset, expected to be drilled in the fourth quarter of 2018.

Ogan Komering (onshore Indonesia)

Production at the Ogan Komering PSC, under the terms of a temporary cooperation contract, totalled 68,823 boes, reduced by 47% compared to the prior quarter due to expiry of the cooperation contract on May 19, 2018, or 49 days into the quarter.

On a daily rate basis, average Ogan Komering production over the 49 days was 1,425 boe/d, decreased by just 2% from the prior quarter, as the partners continued their efforts to arrest natural declines of the producing fields.

Jadestone is engaged in direct business-to-business negotiations with Pertamina to formalise the Company's participation in the new licence for the Ogan Komering working area, which was granted to Pertamina on May 20, 2018.  The Company expects to reach satisfactory binding terms during the fourth quarter of 2018, with participation to be effective from the commencement of the new licence on May 20, 2018.

Financial overview

Jadestone generated adjusted EBITDAX of US$0.3 million for the quarter ended June 30, 2018, compared to a negative adjusted EBITDAX of US$11.5 million in the same period a year earlier.  On an unadjusted basis, the Company reported a net loss before tax of US$3.9 million, compared to a net loss before tax of US$14.0 million for the same period a year earlier. 

Both unadjusted earnings and adjusted EBITDAX were increased due to higher average realised prices, generating increased revenue despite lower overall production and sales.  In addition, operating costs at Stag have fallen substantially, down 52% as compared to Q2 2017, a period before the Company took over operatorship.  The Company continues to realise additional operating cost efficiencies throughout its operations at Stag.

The Company reported total book costs of production of US$10.7 million during the quarter, or just under US$32.70/boe production.

In connection with the Company's commodity hedges, during the three months ended June 30, 2018, total non-cash charges of US$1.1 million were booked to the income statement and US$2.8 million to other comprehensive income to reflect current market values at June 30, 2018.  In the same period a year earlier, the Company had no commodity hedges. 

Investing activities for the quarter amounted to a cash outflow of US$0.2 million, comprised mainly of payments for oil and gas properties.

At the end of the quarter, the Company had US$6.6 million cash, plus a further US$10.0 million of cash in support of a bank guarantee, and another US$13.0 million undrawn on the Company's convertible bond facility.

Selected financial information

The following table provides selected financial information of the Company, which was derived from, and should be read in conjunction with, the consolidated unaudited financial statements for the period ended June 30, 2018.

	June 2018 Qtr	June 2017 Qtr	Change (%)
Production, mboe	325.9	369.4	(11.8%)
Sales, mboe	270.7	363.0	(25.4%)
Avg realised liquids price, US$/bbl	71.46	50.64	41.1%
Sales revenue, US$mm	18.3	18.1	1.1%
Capital expenditure1, US$mm	0.3	0.7	(61.9%)
	June 2018 Qtr	Mar 2018 Qtr	Change (%)
Production, mboe	325.9	369.1	(11.7%)
Sales, mboe	270.7	333.0	(18.7%)
Avg realised liquids price, US$/bbl	71.46	67.34	6.1%
Sales revenue, US$mm	18.3	21.0	(12.7%)
Capital expenditure1, US$mm	0.3	0.5	(46.8%)
	H1 2018	H1 2017	Change (%)
Production, mboe	695.0	629.4	10.4%
Sales, mboe	603.7	670.4	(9.9%)
Avg realised liquids price, US$/bbl	69.09	53.60	28.9%
Sales revenue, US$mm	39.3	35.3	11.3%
Capital expenditure1, US$mm	0.8	3.4	(77.6%)

¹ Payment for oil and gas property, plant and equipment and intangible exploration assets.  Excludes acquisition related capital expenditure.

Conference call and webcast

The management team will host an investor and analyst conference call at 9:00 p.m. (Singapore), 2:00 p.m. (London), and 9:00 a.m. (Toronto) on Tuesday, August 28, 2018, including a question and answer session.  The live webcast of the presentation will be available at the below webcast link.  Dial-in details are provided below.  Please register approximately 15 minutes prior to the start of the call. 

Webcast link: https://event.on24.com/wcc/r/1821936/9FCEC286A9137A20C910628826C70497

Event conference title: Jadestone Energy Management Briefing

Start time: 9:00 p.m. (Singapore), 2:00 p.m. (London), 9:00 a.m. (Toronto)

Date: Tuesday, 28 August 2018

Confirmation ID: 81408196

Participant ITFS Dial-In Numbers:
Australia	1800076068
Canada	([phone]
France	0800916834
Hong Kong	800962712
Indonesia	0018030208221
Japan	006633812569
Malaysia	1800817426
New Zealand	0800453421
Singapore	8001013217
United Kingdom	08006522435
United States	([phone]
Other International (Canada toll)	([phone]

Area access numbers are subject to carrier capacity and call volumes.

-  ends -

For further information, please contact:

Jadestone Energy Inc. Paul Blakeley, President and CEO Dan Young, CFO Investor Relations Enquiries	[phone] [phone] [e-mail]
Nomad and Joint Broker
Stifel Nicolaus Europe Limited:	[phone]
Callum Stewart
Nicholas Rhodes
Ashton Clanfield
Joint Broker	[phone]
BMO Capital Markets Limited:
Thomas Rider
Jeremy Low
Thomas Hughes
Public Relations Advisor
Camarco:	+ 44 (0) 203 757 4980
Georgia Edmonds	[e-mail]
Billy Clegg
James Crothers

About Jadestone Energy Inc.
Jadestone Energy Inc. is an independent oil and gas company focused on the Asia Pacific region. It has a balanced, low risk, full cycle portfolio of development, production and exploration assets in Australia, Vietnam and the Philippines.

The Company has a 100% operated working interest in Stag, offshore Australia, and has announced a definitive Sale and Purchase Agreement to acquire a 100% operated working interest in the Montara project, offshore Australia, effective January 1, 2018.  Both the Stag and Montara assets include oil producing fields, with further development and exploration potential.  The Company has a 100% operated working interest (subject to registration of PVEP's withdrawal) in two gas development blocks in Southwest Vietnam and is partnered with Total in the Philippines where it holds a 25% working interest in the SC56 exploration block.

Led by an experienced management team with a track record of delivery, who were core to the successful growth of Talisman's business in Asia, the Company is pursuing an acquisition strategy focused on growth and creating value through identifying, acquiring, developing and operating assets throughout the Asia-Pacific region.

Jadestone Energy Inc. is currently listed on the TSXV and AIM. The Company is headquartered in Singapore.  For further information on Jadestone please visit http://www.jadestone-energy.com.

Cautionary statements

A barrel of oil equivalent ("boe") is determined by converting a volume of natural gas to barrels using the ratios of six thousand cubic feet ("mcf") to one barrel.  Boes may be misleading, particularly if used in isolation.  A boe conversion ratio of 6 mcf:1 boe is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilising a conversion on a 6:1 basis may be misleading as an indication of value.

Certain statements in this press release are forward-looking statements and information (collectively "forward-looking statements"), within the meaning of the applicable Canadian securities legislation, as well as other applicable international securities laws.  The forward-looking statements contained in this press release are forward-looking and not historical facts.

Some of the forward-looking statements may be identified by statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of phrases such as "will likely result", "are expected to", "will continue", "is anticipated", "is targeting", "estimated", "intend", "plan", "guidance", "objective", "projection", "aim", "goals", "target", "schedules", and "outlook").

In particular, forward-looking statements in this press release include, but are not limited to statements regarding the ODP revision for Nam Du/U Minh to reflect a standalone development and the early stages of FEED and related work, and Jadestone's continuing discussions with its partners and the regulators on a new contract for Ogan Komering.

Because actual results or outcomes could differ materially from those expressed in any forward-looking statements, investors should not place undue reliance on any such forward-looking statements.  By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predicted outcomes will not occur.  Some of these risks, uncertainties and other factors are similar to those faced by other oil and gas companies and some are unique to Jadestone.  The forward-looking information contained in this news release speaks only as of the date hereof.  The Company does not assume any obligation to publicly update the information, except as may be required pursuant to applicable laws.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

The information contained within this announcement is considered to be inside information prior to its release, as defined in Article 7 of the Market Abuse Regulation No. 596/2014, and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

Glossary

bbls	Barrels
bbls/d	Barrels per day
boe	Barrels of oil equivalent
boe/d	Barrels of oil equivalent per day
EBITDAX	Earnings before interest, tax, depreciation, amortization and exploration expenses
FEED	Front-end engineering and design
mmbtu	Million British thermal units
MOIT	Ministry of Industry and Trade
PSC	Production sharing contract

Jadestone Energy Inc.

CONDENSED Consolidated INTERIM STATEMENT OF FINANCIAL POSITION

As at June 30, 2018

	Notes	June 30, 2018		December 31, 2017
ASSETS		US$000		US$000
Non-current assets:
Intangible exploration assets	9	94,074		105,673
Oil and gas properties	10	53,976		62,238
Deferred tax assets		24,337		23,821
Plant and equipment	11	1,443		648
Restricted cash	12	10,000		10,729
		183,830		203,109
Current assets:
Inventories		13,617		9,610
Receivables and prepayments		4,203		4,719
Cash and cash equivalents	12	6,565		10,450
		24,385		24,779
TOTAL ASSETS		208,215		227,888
EQUITY AND LIABILITIES
Equity:
Share capital	13	364,466		364,466
Share-based payment and warrants	14	22,128		21,855
Hedging reserve		(3,441)		-
Accumulated losses		(299,626)		(278,123)
		83,527		108,198
Non-current liabilities:
Provision for asset restoration obligations	15	82,982		84,728
Other payables		6,712		7,259
Deferred tax liabilities		-		200
Secured convertible bonds	17	13,330		12,770
Derivative financial instruments	17	4,360		3,067
		107,384		108,024
Current liabilities:
Borrowings		184		829
Trade & other payables, accruals and provisions		12,533		10,837
Other financial liabilities	16	4,587		-
		17,304		11,666
TOTAL EQUITY AND LIABILITIES		208,215		227,888

The accompanying notes are an integral part of the consolidated financial statements.

Jadestone Energy Inc.

CONDENSED Consolidated INTERIM PROFIT AND LOSS

AND OTHER COMPREHENSIVE INCOME

for the six months ended June 30, 2018

	Notes	Three months ended June 30,				Six months ended June 30,
		2018		2017		2018		2017
		US$000		US$000		US$000		US$000
Gross revenue		18,333		18,134		39,332		35,344
Royalties		(837)		(2,432)		(3,549)		(3,157)
Cash flow hedges		(1,072)		-		(1,307)		-
Net revenue		16,424		15,702		34,476		32,187
Production costs	3	(10,657)		(22,188)		(23,465)		(40,200)
Depletion, depreciation and amortization	4	(2,264)		(2,476)		(5,064)		(4,899)
Staff costs		(3,780)		(3,259)		(6,805)		(6,232)
Other expenses	5	(1,645)		(1,784)		(4,090)		(3,754)
Impairment of assets	6	-		-		(11,902)		(7,667)
Other income		44		681		56		799
Purchase discount		-		-		-		789
		(1,878)		(13,324)		(16,794)		(28,977)
Finance costs	7	(1,988)		(669)		(2,967)		(681)
LOSS BEFORE TAX		(3,866)		(13,993)		(19,761)		(29,658)
Taxation expense/(credit)	8	(1,046)		2,215		(1,742)		(1,605)
LOSS FOR THE PERIOD		(4,912)		(11,778)		(21,503)		(31,263)
Loss per ordinary share:
Basic and diluted (US$)		0.03		0.05		0.10		0.14
Loss for the period		(4,912)		(11,778)		(21,503)		(31,263)
Other comprehensive income, net of tax:
Items to be reclassified to profit or loss in subsequent periods
Loss on derivatives designated as cash flow hedges		(3,933)		-		(4,916)		-
Tax effect		1,180		-		1,475		-
Total comprehensive loss attributable to owners of the Company		(2,753)		-		(3,441)		-
		(7,665)		(11,778)		(24,944)		(31,263)

The accompanying notes are an integral part of the consolidated financial statements.

Jadestone Energy Inc. CONDENSED Consolidated INTERIM STATEMENT OF EQUITY for the six months ended June 30, 2018
	Share capital US$000		Share-based payment reserves US$000				Accumulated losses US$000		Total US$000
					Cash flow hedging reserve US$000
At January 1, 2017	364,466		21,357		-		(243,708)		142,115
Loss for the period	-		-		-		(31,263)		(31,263)
Transactions with owners, recognized directly in equity:
Recognition of share-based compensation	-		211		-		-		211
Total transactions with owners	-		211		-		-		211
At June 30, 2017	364,466		21,568		-		(274,971)		(111,063)
At January 1, 2018	364,466		21,855		-		(278,123)		108,198
Loss for the period	-		-		-		(21,503)		(21,503)
Other comprehensive loss for the period	-		-		(3,441)		-		(3,441)
Transactions with owners, recognized directly in equity:
Recognition of share-based compensation	-		273		-		-		273
Total transactions with owners	-		273		-		-		273
At June 30, 2018	364,466		22,128		(3,441)		(299,626)		83,527

The accompanying notes are an integral part of the consolidated financial statements.

Jadestone Energy Inc.

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

for the six months ended June 30, 2018

	Notes	Three months ended June 30,				Six months ended June 30,
		2018		2017		2018		2017
		US$000		US$000		US$000		US$000
OPERATING ACTIVITIES
Loss before tax		(3,866)		(13,993)		(19,761)		(29,658)
Adjustments for:
Depletion, depreciation and amortization	4	2,264		2,475		5,064		4,899
Finance costs	7	1,674		744		2,468		1,186
Share-based payment	14	127		149		273		211
Unrealized foreign exchange loss/(gain)	7	(73)		(74)		(175)		(502)
Impairment of assets	6	-		-		11,902		6,191
Interest income	7	(32)		(1)		(66)		(3)
Purchase discount		-		-		-		(789)
Inventories written down		-		(429)		-		284
Operating cash flows before movements in working capital		94		(11,129)		(295)		(18,183)
Changes in working capital:
(Increase)/decrease in inventories		(2,288)		746		(4,007)		4,740
Decrease/(increase) in receivables and prepayments		43		(3,605)		1,181		(3,148)
Increase/(decrease) in trade & other payables, accruals and provisions		99		5,859		1,664		1,942
Cash (used) in operations		(2,052)		(8,129)		(1,457)		(14,649)
Taxation paid		(531)		(286)		(1,049)		(286)
NET CASH (USED) IN OPERATING ACTIVITIES		(2,583)		(8,415)		(2,506)		(14,935)
INVESTING ACTIVITIES
Acquisition of Ogan Komering, net of cash acquired		-		-		-		(1,641)
Payment for oil and gas properties		(182)		(591)		(389)		(879)
Payment for intangible exploration assets		(69)		(47)		(358)		(2,047)
Payment for plant and equipment		(14)		(57)		(16)		(481)
Proceeds from disposal of plant and equipment		27		400		27		400
Interest received		32		-		66		-
NET CASH (USED) IN INVESTING ACTIVITIES		(206)		(295)		(670)		(4,648)

FINANCING ACTIVITIES
Payments for borrowings		(276)		(223)		(645)		(447)
Net drawdown on convertible bonds		-		9,700		-		9,700
Payments for bond facility standby fees		(32)		-		(64)		(115)
NET CASH GENERATED/(USED) FINANCING ACTIVITIES		(308)		9,477		(709)		9,138
Effect of translation on foreign currency cash and cash equivalents		-		(133)		-		(690)
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS		(3,097)		634		(3,885)		(11,131)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		9,662		14,478		10,450		26,243
CASH AND CASH EQUIVALENTS AT END OF PERIOD		6,565		15,112		6,565		15,112

The accompanying notes are an integral part of the consolidated financial statements.

Jadestone Energy Inc.

NOTES TO THE cONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

for the six months ended June 30, 2018

1.           CORPORATE INFORMATION

Jadestone Energy Inc. (the "Company" or "Jadestone") is an oil and gas company incorporated in Canada. The Company's common shares are listed on the TSX Ventures Exchange ("TSX-V") under the symbol JSE.

On August 8, 2018, the Company issued 239,711,474 new ordinary common shares raising gross proceeds of approximately £83.9 million, at a price of 35 pence per share and, listed on the London AIM Market.

The financial statements are expressed in United States Dollars ("US$").

The Company and its subsidiaries (the "Group") are engaged in production, development, and exploration and appraisal activities in Australia, Indonesia, Vietnam and the Philippines. The Company's current producing asset is in the Carnarvon Basin, offshore Western Australia.

The Company's head office is located at Keppel Towers, #15-05/06, 10 Hoe Chiang Road, Singapore 089315. The registered office of the Company is 10th Floor, 595 Howe Street, Vancouver, British Columbia V6C 2T5, Canada.

2.             Basis of preparation

Statement of compliance

These unaudited condensed interim financial statements (the "Financial Statements") are prepared in accordance with International Accounting Standard IAS 34, Interim Financial Reporting, on a going concern basis under the historical cost convention.  They do not contain all disclosures required by International Financial Reporting Standards for annual financial statements and accordingly, should be read in conjunction with Jadestone's audited consolidated financial statements for the period ended December 31, 2017.

These Financial Statements were approved for issuance by the Company's Board of Directors on August 28, 2018 on the recommendation of the Audit Committee.

Basis of measurement

These Financial Statements have been prepared on an historical cost basis, except for financial instruments classified as financial instruments at fair value, which are stated at their fair values.  In addition, these financials have been prepared using the accrual basis of accounting.

            Hedge accounting

For the purposes of hedge accounting, hedges are classified as either:

·      Fair value hedges where they hedge the exposure to changes in the fair value of a recognised asset or liability; or

·   Cash flow hedges where they hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability, or a highly probable forecasted transaction.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting, along with the risk management objective and strategy for undertaking the hedge.  The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged, and how the entity will assess the effectiveness of changes in the hedging instrument's fair value in offsetting the exposure to changes in the hedged item's fair value or cash flows attributable to the hedged risk.  To achieve hedge accounting, the relationships must be expected to be highly effective and are assessed on an ongoing basis, to determine that they continue to meet the risk management objective.

Hedge accounting is discontinued when the hedge instrument expires, is sold, terminates, is exercised, or no longer qualifies for hedge accounting.  At that point in time, any cumulative gain or loss on the hedging instrument recognised in Other Comprehensive Income (OCI) remains in hedge reserve until the forecasted transaction occurs.  If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to profit or loss for the year.

Cash flow hedges

The effective portion of the gain or loss on hedging instruments that are classified as cash flow hedges, is recognised in OCI, while any ineffective portion is recognised immediately in the statement of profit or loss.  The ineffective portion relating to commodity contracts is recognised in other operating income or expenses.

Amounts recognised as OCI are transferred to profit or loss when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs.

3.             PRODUCTION COST

	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
	US$000		US$000		US$000		US$000
Stag Oilfield:
FSO vessel expenses	4,255		6,592		8,219		13,652
Workovers	2,106		9,212		5,536		12,131
Repairs & maintenance	1,214		697		1,979		1,971
Air, marine and onshore support	1,090		(56)		2,345		(112)
Other operating expenses	989		3,250		2,624		9,368
	9,654		19,695		20,703		37,010
Ogan Komering:
Operating expenses	1,003		2,493		2,762		3,190
	10,657		22,188		23,465		40,200

                The Ogan Komering PSC expired on February 28, 2018 and a temporary co-operation contract was entered into, continuing the PSC terms pending the issue of the new PSC on May 20, 2018, at which time Jadestone ceased to hold an interest in Ogan Komering.

4.             DEPLETION, DEPRECIATION AND AMORTISATION           

	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
	US$000		US$000		US$000		US$000
Depletion and amortisation (Note 10):
Stag Oilfield	2,166		2,009		4,210		4,408
Ogan Komering	-		434		657		434
	2,166		2,443		4,867		4,842
Depreciation for plant and equipment (Note 11)	98		33		197		57
	2,264		2,476		5,064		4,899

The Ogan Komering PSC was fully depleted as at the end of the PSC on February 28, 2018.

5.             OTHER EXPENSES

	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
	US$000		US$000		US$000		US$000
Professional fees/consultancies	695		894		1,593		883
Office costs	992		837		1,606		1,930
Cash flow hedges	27		-		652		-
Travel & subsistence	14		172		331		299
Time costs - recovery	(111)		(160)		(159)		(659)
Operator G&A	27		-		67		176
Other overhead	-		-		-		234
Others	-		41		-		558
Participating interest tax and branch profit tax	-		-		-		333
	1,644		1,784		4,090		3,754

6.             IMPAIRMENT OF ASSETS

	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
	US$000		US$000		US$000		US$000
Impairment of intangible exploration assets	-		-		11,902		5,950
Impairment of material and spare parts	-		-		-		1,717
	-		-		11,902		7,667

During Q1 2018, an impairment of US$11.9 million (six months to June 30, 2017: US$6.0 million) was incurred as the decision was taken not to perform any further exploration activities on MEVPK/127 in Vietnam. The Company has commenced relinquishment, to return the block back to the Vietnamese government. 

7.             FINANCE COSTS

	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
	US$000		US$000		US$000		US$000
Accretion expense (Note 15, 17)	630		613		1,084		979
Fair value loss on derivative liability	982		-		1,293		-
Interest on convertible bonds (Note 17)	280		8		558		8
Foreign exchange (gain)/loss	56		(74)		(43)		(502)
Interest income	(32)		(1)		(66)		(3)
Others	72		123		141		199
	1,988		669		2,967		681

8.             Taxation EXPENSE

	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
	US$000		US$000		US$000		US$000
Deferred tax (income)/expense relating to PRRT	190		(2,501)		461		591
Corporate income tax	1,185		286		2,068		1,014
Deferred tax on cash flow hedges	(329)		-		(587)		-
Deferred tax liabilities	-		-		(200)		-
Tax expense/(credit)	1,046		(2,215)		1,742		1,605

                The Australian corporate income tax rate is applied at 30%. Australian PRRT is applied at 40% of sales revenue less certain permitted deductions and is tax deductible for Australian corporate income tax purposes.  The above movement in deferred tax balances relates to temporary differences between the tax base of an asset or liability, and its carrying amount in the statement of financial position.

The Indonesian corporate income tax rate is applied at 35%. Branch profit tax is applied at 20%.

The Company is resident in the Province of British Columbia and pays no Canadian tax as it has no operating assets in Canada and is in a tax loss position.  The subsidiary companies are resident for tax purposes in the countries in which they operate.  No Canadian tax arises in the current period, or in the previous year, from any of the subsidiaries' operations.

9.             INTANGIBLE EXPLORATION ASSETS     

		Total US$000
At January 1, 2018		105,673
Additions		303
Impairment		(11,902)
At June 30, 2018		94,074
At December 31, 2017		105,673

                During the six months ended June 2018, the Company performed a review of its exploration assets and decided no further exploration activities would be performed on Vietnam PSC MEVPK/127, resulting in an impairment of US$11.9 million. The Company has commenced relinquishment, to return the block back to the Vietnamese government.

10.          OIL AND GAS PROPERTIES

		Total US$000
Cost:
At January 1, 2018		75,863
Changes in asset restoration obligation (Note 15)		(2,781)
Transfer to plant and equipment		(1,003)
Addition	`	389
At June 30, 2018		72,468
Accumulated depletion and amortisation:
At January 1, 2018		(13,625)
Depletion and amortisation for the period		(4,867)
At June 30, 2018		(18,492)
Net book value:
At June 30, 2018		53,976
At December 31, 2017		62,238

11.          PLANT AND EQUIPMENT

	Computer equipment		Fixtures and         equipment		Total
	US$000		US$000		US$000
Cost:
At January 1, 2018	1,180		1,024		2,204
Transfer from oil and gas properties	1,003		-		1,003
Additions	16		-		16
Disposal	(26)		(1)		(27)
At June 30, 2018	2,173		1,023		3,196
Accumulated depreciation:
At January 1, 2018	(665)		(891)		(1,556)
Charge for the period	(172)		(25)		(197)
At June 30, 2018	(837)		(916)		(1,753)
Net book value:
At June 30, 2018	1,336		107		1,443
At December 31, 2017	515		133		648

12.          CASH AND CASH EQUIVALENTS

	June 30, 2018		December 31, 2017
	US$000		US$000
Current asset:
Cash at bank	6,565		10,450
Non-current asset:
Restricted cash: Stag	10,000		10,000
Restricted cash: Ogan Komering	-		729
	10,000		10,729

Restricted cash at June 30, 2018 comprises Stag's cash deposit of US$10.0 million, placed by the Company in support of a bank guarantee to a key contractor, with respect to the Company's obligations under a long term contract.

The Ogan Komering PSC temporary co-operation contract expired on May 20, 2018, at which time the company ceased to hold an interest in Ogan Komering. The decommissioning fund of US$0.7 million was transferred to Pertamina, as the new operator, to fulfil the decommissioning activities at the end of the new production sharing contract.

13.          share capital

                Authorised ordinary common shares:

                Unlimited number of common voting shares with no par value.

                Allotted and outstanding:

	No. Shares		US$000
At December 31, 2017	221,298,004		364,466
At June 30, 2018	221,298,004		364,466

The holders of ordinary common shares are entitled to receive dividends as and when declared by the Company. Fully paid ordinary common shares carry one vote per share without restriction, and carry a right to dividends as and when declared by the Company.

On August 8, 2018, the Company issued 239,711,474 new ordinary common shares, raising gross proceeds of approximately £83.9 million, at a price of 35 pence per share and listed on the London AIM Market.

14.          SHARE-BASED PAYMENTS

The total expense arising from share-based payments recognized for the six month period ended June 30, 2018 was US$0.3 million (June 30, 2017: US$0.3 million).

On August 19, 2015, the Company adopted, as approved by shareholders, a stock incentive plan (the "Plan") which establishes a rolling number of shares issuable under the Plan in the amount of 10% of the Company's issued shares at the date of grant. Under the terms of the Plan, the exercise price of each option granted, cannot be less than the market price at the date of grant, or such other price as may be required by TSX-V. Options under the Plan can have a term of up to 10 years, with vesting provisions determined by the directors in accordance with TSX-V policies for Tier 2 Issuers.

The Black-Scholes option-pricing model, with the following assumptions, was used to estimate the fair value of the options at the date of grant:

	Options granted on
	March 29, 2018	December 10, 2017	March 28, 2017	June 8, 2016
Risk-free interest rate	1.99% to 2.04%	1.68% to 1.72%	1.11% to 1.21%	0.70% to 0.83%
Expected life	5.5 to 6.5 years	5.5 to 6.5 years	5.5 to 6.5 years	5.5 to 6.5 years
Expected volatility	43.1% to 44.1%	43.2% to 43.9%	41.6% to 42.8%	42.1% to 42.7%
Share price	C$0.43	C$0.42	C$0.45	C$0.49
Exercise price	C$0.50	C$0.45	C$0.47	C$0.49
Expected dividends	Nil	Nil	Nil	Nil

The following table summarizes the share options outstanding and exercisable as at June 30, 2018:

	Number of options	Weighted average exercise price C$	Weighted average remaining contract life	Number of options exercisable
As at January 1, 2018	8,102,821	0.58	9.03	927,822
New share options issued	3,000,000	0.50	10.00	-
Cancelled during the quarter	(170,000)	1.03	-	-
As at June 30, 2018	10,932,821	0.55	8.87	3,241,164

15.          PROVISION FOR ASSET RESTORATION OBLIGATIONS

	June 30, 2018		December 31, 2017
	US$000		US$000
Non-Current:
Opening balance	84,728		77,186
Accretion expense (Note 7)	1,035		1,589
Changes in discount and forex rate assumptions (Note 10)	(2,781)		5,919
Others	-		34
	82,982		84,728

The Group's asset restoration obligations ("ARO") result from the future costs of decommissioning the Stag Oilfield facilities, which are expected to be incurred after 2034.  The balance of the provision is the discounted present value of the estimated future costs.  The present value of the ARO has been calculated based on the blended estimated Australian and United States risk free rate of 2.73% after allowing for an inflation rate of 2.27%, both as at June 30, 2018 (blended risk free rate of 2.52% and inflation rate of 2.27% as at December 31, 2017). The adjustments to the present value of the ARO arising from changes in discount rate and other economic estimates and assumptions for the period are included in oil and gas properties (Note 10).    

16.          OTHER FINANCIAL LIABILITIES

	June 30, 2018		December 31, 2017
	US$000		US$000
Cash flow hedges	4,587		-

As at June 30, 2018, Jadestone has entered into two commodity hedges to hedge 350,000 bbls of crude oil production over the period January 2, 2018 to June 30, 2018 at Brent ICE crude fixed at US$64.60/bbl, and another 350,000 bbls over the period July 1, 2018 to December 31, 2018, at Brent ICE crude fixed at US$65.00/bbl, These have been designated as cash flow hedges and hence the fair value movements are recognised in other comprehensive income while the ineffective portion and the amount related to sales for the period are immediately recognised in the income statement.

17.          SECURED CONVERTIBLE BONDS

Pursuant to the establishment of the convertible bond facility (the "Facility") with Tyrus Capital Event S.à r.l. ("Tyrus") on November 8, 2016, Jadestone paid a structuring fee equal to 2% of the total amount of the Facility. Jadestone is also required to pay a standby fee equal to 1% per annum on all undrawn amounts until maturity.  The Facility will mature on October 31, 2019, at which time Tyrus will have the option to convert the full amount of any principal owing under the Facility into common shares of the Company at a conversion price of C$0.50.  

As at June 30, 2018, the drawn down amount of the convertible bond was US$15 million. The cost related to the convertible bonds is tabled below.

	Six months ended		Six months ended
	June 30, 2018		June 31, 2017
	US$000		US$000
Interest expense	558		8
Standby fee	65		138
Bond accretion (Note 7)	560		6
Fair value of associated financial derivative	1,293		-
Amortisation of prepaid structuring fee	64		-
	2,540		152

The fair value of the options as at June 30, 2018 amounting to US$4.4 million (December 31, 2017: US$3.0 million), embedded in the bonds as a derivative financial instrument, is included in the consolidated financial statement as a liability.

	June 30, 2018		December 31, 2017
	US$000		US$000
Nominal value of convertible bonds issued	15,000		15,000
Derivative financial instruments at date of issuance	(2,390)		(2,390)
Liability component at date of issuance	12,610		12,610
Less: Convertible bonds issuance cost	(378)		(378)
Liability recognized at inception, net of costs	12,232		12,232
Cumulative accretion expense	1,098		538
	13,330		12,770

On July 16, 2018, the company entered into an Extension and Modification of Convertible Note Agreement with Tyrus, to agree the terms for an early redemption of the facility in exchange for US$17.5 million. The company repaid the Facility on August 15, 2018.

18.          Financial instruments, FINANCIAL RISKS AND CAPITAL MANAGEMENTS

                Categories of financial instruments

	June 30, 2018		December 31, 2017
	US$000		US$000
Financial assets:
Receivables	4,203		4,719
Cash and cash equivalents	6,565		10,450
	10,768		15,169
Financial liabilities:
At amortised cost:
Borrowings	184		829
Provisions	82,982		84,728
Payables	6,712		7,259
At fair value:
Convertible bonds	13,330		12,770
Derivative financial instruments	4,360		3,067
	107,568		108,653

                Commodity price risk

The Group's earnings are affected by changes in oil and gas prices. The Group manages this risk by monitoring oil and gas prices and entering into commodity hedges against fluctuations in oil prices if considered appropriate. As at June 30, 2018, Jadestone had entered into two commodity hedges to hedge 350,000 bbls of crude oil production over the period January 2, 2018 to June 30, 2018 at Brent ICE crude fixed at US$64.60/bbl, and another 350,000 bbls over the period July 1, 2018 to December 31, 2018, at Brent ICE crude fixed at US$65.00/bbl.

During the six-months ended June 30, 2018, the loss on cash flow hedges recognised in the statement of other comprehensive income amounted to US$3.4 million net of tax (June 30, 2017: nil), and the loss on cash flow hedges recognised in the income statement amounted to US$2.0 million net of tax (June 30, 2017: nil). As at June 30, 2018 the financial liability of the cash flow hedge amounted to US$4.6 million (Note 16) (June 30, 2017: nil). 

                Commodity price sensitivity

The results of operations and cash flows of oil and gas production can vary significantly with fluctuations in the market prices of oil and/or natural gas.  These are affected by factors outside the Group's control, including the market forces of supply and demand, regulatory and political actions of governments, and attempts of international cartels to control or influence prices, among a range of other factors.

The table below summarises the impact on profit/(loss) before tax, and on equity, from changes in commodity prices on the fair value of derivative financial instruments.  The analysis is based on the assumption that the crude oil price moves 10%, with all other variables held constant.  Reasonably possible movements in commodity prices were determined based on a review of recent historical prices and current economic forecasters' estimates.

		Effect on other		Effect on other
	Effect on loss	comprehensive	Effect on loss	comprehensive
	before tax	income for	before tax	income for
	for the period	the period	for the period	the period
	ended June 30,	ended June 30,	ended June 30,	ended June 30,
	2018	2018	2017	2017
Gain/(loss)	US$000	US$000	US$000	US$000
Increase by 10%	(1)	(2,709)	-	-
Decrease by 10%	1	2,709	-	-

Foreign currency risk

No sensitivity analysis has been prepared for carrying amounts of monetary assets and liabilities denominated in foreign currencies, as the Group does not expect any material effect arising from the effects of reasonably possible changes to the exchange rate for such foreign currencies.

                                Interest rate risk

The balance of short term borrowings as at June 30, 2018 amounts to US$0.2 million
(December 31, 2017: US$0.8 million). The 7.5% coupon on the Company's convertible bond facility, drawn down to US$15.0 million as at June 30, 2018, is a fixed rate coupon (Note 17).

                Liquidity risk

The Group has reduced the loss for the six-month period ended June 30, 2108 by US$9.8 million compared to the six-months ended June 30, 2017. Net cash used in operating activities for the six-month period ended June 30, 2018 is US$(1.5) million compared to net cash used of US$14.7 million in the six-months ended June 30, 2017. The Group's net current assets remain positive at US$7.1 million (December, 2017: US$13.1 million).  The reduction in the net current assets is due to the financial liability of US$4.6 million arising from accounting for the cash flow hedges and further cash consumed during the period of US$1.5 million

The table below analyses the Group's financial liabilities into relevant maturity groupings at the reporting date, based on the remaining period to the contractual maturity date.  The amounts disclosed in the table are the contractual undiscounted cash flows.  Balances due are equal to their carrying balances, as the impact of discounting is not significant.  The maturity profile is:

	June 31,   2018		December 31, 2017
	US$000		US$000
Less than 1 year:
Trade & other payables, accruals and provisions	12,533		10,837
Other financial liabilities	4,587		-
Borrowings	184		829
	17,304		11,666

Within 2 years:
Secured Convertible Bond (Note 17)	13,330		12,770
	13,330		12,770

19.          SEGMENT INFORMATION

For management purposes, the Group operates in two business segments, namely exploration and production of oil and gas.  The geographic focus of the business is Southeast Asia ("SEA") and Australia.

Revenue and non-current assets information based on the geographical location of assets respectively are as follows:

	Revenue					Non-current assets
	Six months ended June 30, 2018		Six months  ended June 30, 2017			June 30, 2018		December 31, 2017
	US$000		US$000			US$000		US$000
Producing Assets:
Australia	28,608		27,156			89,616		95,898
SEA - Indonesia	10,724		8,188			-		1,346
Exploration and Evaluation Assets:
SEA - Vietnam	-		-			43,588		55,258
SEA - Philippines	-		-			50,486		50,415
Others	-		-			139		192
	39,332		35,344			183,829		203,109

	---------------- Six months ended June 30, 2018 ---------------				----------------Six months ended June 30, 2017 ---------------
	Production Assets	Exploration Assets	Corporate	Total	Production Assets	Exploration Assets	Corporate	Total
Gross revenue	39,332	-	-	39,332	35,344	-	-	35,344
Effective portion of cash flow hedge	(1,307)	-	-	(1,307)	-	-	-	-
Royalties	(3,549)	-	-	(3,549)	(3,157)	-	-	(3,157)
Net revenue	34,476	-	-	34,476	32,187	-	-	32,187
Production cost	(23,465)	-	-	(23,465)	(40,200)	-	-	(40,200)
Depletion, depreciation and amortisation	(5,013)	-	(51)	(5,064)	(4,870)	-	(29)	(4,899)
Staff costs	(2,139)	(344)	(4,322)	(6,805)	(3,921)	39	(2,350)	(6,232)
Other expenses	(1,963)	(1,564)	(563)	(4,090)	(2,352)	(103)	(1,299)	(3,754)
Impairment of asset	-	(11,902)	-	(11,902)	-	(7,667)	-	(7,667)
Purchase discount	-	-	-	-	-	-	789	789
Other income	-	-	56	56	-	-	799	799
Finance costs	(1,314)	(43)	(1,610)	(2,967)	94	(12)	(763)	(681)
LOSS BEFORE TAX	582	(13,853)	(6,490)	(19,761)	(19,062)	(7,743)	(2,853)	(29,658)

⁽¹⁾ As at June 30, 2018, revenue from one (June 30, 2017: one) customer, domiciled in Singapore, contributed to 73% (June 30, 2017: 77%) of the Group's total revenue.

20.          RELATED PARTY TRANSACTIONS

During the period, the Group entities did not enter into any transactions with related parties other than the following:

                Compensation of directors and key management personnel

                The remuneration of directors and other members of key management during the period were as follows:

	Six months ended June 30, 2018		Six months ended June 30, 2017
	US$000		US$000
Short-term benefits	1,796		2,002
Other benefits	255		805
Termination payments	-		125
Share-based payments	124		177
	2,175		3,109

21.          EVENTS AFTER THE REPORTING PERIOD

Montara assets

On July 15, 2018, Jadestone Energy (Eagle) Pty Ltd, a wholly-owned subsidiary of the Company, as buyer, entered into an acquisition agreement with PTTEP Australasia, the seller.  Under the terms of the acquisition agreement, the seller has agreed to sell certain assets, comprising the key equipment, facilities and reserves necessary for the proper operation of the Montara oil site, for a purchase price of US$195.0 million, subject to working capital adjustments and additional contingent amounts.

The transaction is structured as an asset acquisition, thereby limiting Jadestone's exposure to any residual liabilities associated with the Seller's business in Australia, and has an economic effective date of January 1, 2018.

The assets are currently producing approximately 10.3mbbl/d and the transaction is expected to close in September/October 2018. 

                Convertible bond

On August 1, 2018, the Company and Tyrus Capital Event S.à r.l. agreed, conditional upon admission to AIM and receipt of the listing proceeds, that the Company would redeem the convertible bond facility (Note 17), by paying US$17.5 million to Tyrus.  The convertible would thereupon terminate, and all associated security would be released.  The convertible bond was redeemed on August 15, 2018.

Reserve based lending agreement

On August 2, 2018, Jadestone Energy (Eagle) Pty Ltd, as borrower, and the Company, as parent, entered into a secured reserve based lending agreement with Commonwealth Bank of Australia and Société Générale to borrow US$120.0 million, repayable over the period to March 31, 2021. The debt finance will be used to part fund the acquisition of the Montara assets.

AIM listing and equity raise

On August 8, 2018 the Company issued 239,711,474 new shares at 35 pence per share generating gross proceeds of approximately £83.9 million and listed on the Alternative Investment Market (AIM) a submarket of the London Stock Market.

 

END

 

 

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