Jadestone Energy claims operational turnaround

The key to Jadestone Energy’s (JSE) first-half loss was ultrasonic thickness checks not being rigorous enough around horizontal reinforcing braces. Stripping away the technical words: we missed something. Jadestone first ran into trouble at its Montara project, offshore Australia, over a year ago, resulting in an eight-month suspension ending in March. 

Then another crack appeared even after rigorous checks, and this brought on another month of lost production this year. The first-half numbers reflect it – Jadestone swung from Ebitdax (cash profits minus exploration spend) of $131mn (£106mn) last year to a $3mn interim cash loss this year. Weaker oil and gas prices also contributed. This has seen the dividend paused until "balance sheet strength has returned" in the words of chair Dennis McShane. 

Montara is now up and running again. Chief executive Paul Blakeley said he had “far higher” confidence in the issues being solved properly this time. The company is hiring a chief operating officer who will hopefully make shuttered operations a thing of the past. 

Outside of Montara, the half was positive on the operational front. The development of the Akatara project is on schedule, while the first of four planned wells at East Belumut was a success. 

Given the weaker cash flow, however, the continued portfolio development has required some balance sheet engineering. Jadestone rearranged its debt, taking on a new reserves-based loan of $200mn ($111mn drawn) and raised $51mn through an equity issue to major shareholder Tyrus Capital. Tyrus also has warrants for 30mn new shares at 50p, well above the current share price. 

The company forecasts a swing into a net debt position, excluding lease liabilities. This will rise in the second half to around $100mn from $8mn, as per Jadestone’s forecast. Investment bank Stifel sees Ebitdax falling over 50 per cent for the full year, to $78mn. 

After flagging a weaker balance sheet as a reason to re-evaluate our rating on Jadestone at the time of the full- results, we think there is still enough reason to stay positive given the project pipeline and low valuation. Buy 

Last IC View: Buy, 59p, 25 Apr 2023