Jadestone Energy hit by production woes

Even at a time of sky-high energy prices, you still need to be producing well to reap the benefits. Jadestone Energy (JSE) has certainly seen a positive uptick in earnings in the first half of this year, but operational problems at its offshore Australia Montara asset in June has hit production guidance for the year, while its non-operated new Malaysian holdings had a run of issues that will likely mean zero production from those two licence areas. 

An oil leak at the floating production, storage and offloading (FPSO) ship at Montara in the Timor Sea in June was fixed, but another issue with the ship was identified in August and Jadestone shut down production. 

Chief executive Paul Blakeley called the Montara issues disappointing, but the company was looking hard at how to prevent them from popping up again. A review of the whole inspection process has now begun. “While we understand that the lack of a firm restart date is frustrating for many of our stakeholders, our focus is on the remediation plan and its successful execution which, in turn, will restore confidence in the significant remaining value we see at Montara,” he said. Stopping further leaks is particularly crucial at the site, given the previous owners oversaw a massive spill in 2009. Broker Peel Hunt says this will knock $45mn (£39mn) from 2022 free cash flow, to $27mn. 

Oil and gas prices meant the first half was still profitable, and Jadestone increased its half-year dividend by 10 per cent. It is also in the middle of a $25mn buyback programme, which began in August, while the cash balance remains healthy and the company is debt-free. 

Jadestone has been a weak performer – its share price is down 10 per cent in the year to date, compared with the FTSE All-Share Oil & Gas index return of around 25 per cent. Assuming Montara gets back to production in November, the dividend and buyback plans are enough to keep us on board. Buy.  

Last IC View: Buy, 101p, 6 Jun 2022