Horizon Oil Limited ABN 51 009 799 455 Level 6, 134 William Street, Woolloomooloo NSW Australia 2011 Tel +61 2 9332 5000, Fax +61 2 9332 5050 www.horizonoil.com.au 26 October 2018 The Manager, Company Announcements Australian Securities Exchange Limited Exchange Centre 20 Bridge Street Sydney NSW 2000 HORIZON OIL LIMITED 2018 ANNUAL REPORT AND NOTICE OF AGM In accordance with Listing Rule 4.7, attached are Horizon Oil Limited’s Annual Report for the year ended 30 June 2018 and the Notice of Annual General Meeting to be held on Wednesday, 28 November 2018. The Notice of Annual General Meeting will be sent to all shareholders. A printed copy of the 2018 Annual Report will be mailed to those shareholders who have made the election to receive it. Copies of these documents can be downloaded from the Company's website www.horizonoil.com.au. The Annual General Meeting will also be available on live webcast. To register, please copy and paste the link below into your browser: https://webcast.openbriefing.com/4777/ Yours faithfully, Kylie Quinlivan General Counsel/Company Secretary For more information please contact: Horizon Oil Limited T: +61 2 9332 5000 Level 6, 134 William St Kylie Quinlivan General Counsel/ F: +61 2 9332 5050 Woolloomooloo NSW 2011 Company Secretary E: [email protected] horizonoil.com.au Media enquiries M: +61 419 372 210 Gavan Collery E: [email protected] ResourceComms Pty Ltd Horizon Oil Annual Report Horizon Oil Annual Report 2018 2018 Horizon Oil Limited ABN 51 009 799 455 HIGHLIGHTS REVENUE 20 US$100 m 46% INCREASE FROM 2017 CASH FLOW ADDITIONAL 18 FROM OPERATING MAARI/MANAIA ACTIVITIES ACQUISITION “2018sawthebenefit TAKES HORIZON OIL’S INTEREST TO of year on year oil sales growth when coupled with strengthening US$57.6m 26% oil prices.” 62% INCREASE FROM 2017 ADDING 3.1 mmbbl John Humphrey, Chairman OF 2P RESERVES Michael Sheridan, CEO FY18 1.65 FY17 1.42 FY16 1.38 FY15 Oil sales 1.21 Beibu (mmbbl) 16% FY14 1.36 Maari FY18 100.0 FY17 68.5 FY16 76.0 Revenue FY15 104.0 (US$m) 46% FY14 138.5 AREAS OF 1. China OPERATION Block 22/12 26.95%/55% (Production/Exploration) 2. Papua New Guinea 1 PDL 10 (Stanley) 30% PRL 21 (Elevala/Tingu/Ketu) 30.15% PRL 28 (Ubuntu) 50%1 2 PRL 40 (Puk Puk/Douglas) 0%1 PPL 372 95% PPL 373 100% PPL 430 100% 3 PPL 259/574 80% 3. New Zealand PMP 38160 (Maari/Manaia) 26% 1 Refer to footnote 1 on page 2. Horizon Oil Annual Report 2018 2018 HIGHLIGHTS UNDERLYING PROFIT OIL SALES FOR 2018 BEFORE TAX FINANCIAL YEAR OF 1.65 MILLION bbls, FOR AN EXPLANATION OF A 16% INCREASE UNDERLYING PROFIT BEFORE TAX REFER TO PAGE 21 OF THE DIRECTOR’S REPORT US$18.9m 1.65mmbbl 586% INCREASE FROM 2017 NET DEBT US$88.6m 18% REDUCTION FROM 2017 Net operating FY18 75.1 cash flow FY17 51.7 after opex incl hedging, FY16 52.2 China cost recovery and FY15 81.1 excl. extraordinaries (US$m) 45% FY14 93.6 FY18 4.3 FY17 5.2 General & FY16 6.7 administrative FY15 5.6 expenses (US$m) 18 % FY14 6.2 CASH OPERATING COST PER BARREL SOLD Contents US$ /bbl 20 2018 Highlights 1 Annual Financial Report 19 Chairman and CEO's Report 2 Directors’ Report 20 Reserves and Resources Statement 5 Sustainability Report 40 Shareholder Information 97 Board of Directors 10 Glossary 99 Consolidated Results 10 Activities Review 11 Company Directory 101 – Production 12 – Development and Pre-development 16 – Exploration 18 Horizon Oil Annual Report 2018 1 Chairman and Chief Executive Officer’s Report 20 18 LEFT TO RIGHT: John Humphrey Chairman Michael Sheridan Chief Executive Officer Dear Shareholders Highlights Financialyear2018sawthebenefitofthe By most measures, 2018 was a good year for the Company. continuation of the Company’s year on year oil Oil sales increased 16% to 1.65 million barrels, driven by the sales growth when coupled with strengthening oil contribution of an additional 16% interest in Maari for the 6 months prices. With annual revenues in excess of US$100 from 1 January 2018 and the production enhancement programs million,thesubstantialresultantfreecashflowfrom undertaken in our Beibu Gulf and Maari/Manaia fields. The solid the Company’s high margin production in China production performance was enhanced shortly after year end with and New Zealand further strengthened the balance the drilling and completion of the two infill wells on the 12-8 West sheet, with net debt materially reduced, and enabled and 12-8 Mid fields, Beibu Gulf, the gross initial flow rates of which the acquisition, from cash reserves, of an additional exceeded expectations at 3,500 bopd. 16%interestintheMaari/Manaiaoilfields. The increased sales volume and a strengthening oil price, led to This strong underlying business is also financing the progression of revenues in excess of US$100 million and EBITDAX of US$68.5 the Company’s material growth opportunities in China and Papua million, an increase of 52% on the 2017 result. With average New Guinea constituting the bulk of a net 2C resource base of operating costs below US$20/bbl sold and all-in free cashflow 600 PJ of sales gas and 27 mmbbl1. breakeven price of US$38/bbl sold, Horizon Oil was able to acquire the additional interest in the Maari/Manaia joint venture from cash Increasing investor confidence in the sector, with particular interest reserves and reduce net debt by US$20 million, to US$88.6 million. in exposure to rising oil prices and, in Horizon Oil’s case, recognition of the aggressive reduction of debt from free cashflow, led to an Accordingly, as at 30 June, the Company’s ratio of net debt to 2 improved share price, increasing by over 250% in the year, albeit EBITDAX was a modest 1.3 times and will further reduce with from a low base. substantial debt reduction from free cashflow over the coming 12 months. OIL PRODUCTION 1.3mmbbl 19% INCREASE FROM 2017 1 The Group will exchange a 20% interest in the Ubuntu field for a 20% interest in the Puk Puk, Douglas, Langia and Weimang fields in a trade with Kumul Petroleum Holdings, Papua New Guinea’s national oil company. Completion of this transaction is conditional on customary Papua New Guinea Government approvals. 2 For an explanation of EBITDAX refer to page 21 of the Director’s Report. 2 Horizon Oil Annual Report 2018 Chairman and Chief Executive Officer’s Report (cont’d.) EBITDAX “ 2018 was a good year for the Company. Oil sales US$68.5m increased 16% to 1.65 million barrels, driven by the contribution of an additional 16% interest in Maari for the 6 months from 1 January 2018 and the production enhancement programs undertaken in our Beibu Gulf 52% andMaari/Manaiafields.” INCREASE FROM 2017 John Humphrey and Michael Sheridan Good progress was made on development planning for both the In this regard, excellent progress was made on the Western LNG large 12-8 East field in Beibu Gulf and Horizon Oil’s material gas gas aggregation scheme. Concept development planning involved and condensate resources in Western Province, PNG. a scheme with lowest technical and execution risk, maximum use of standard, proven technology and high system reliability. The CNOOC Limited, which operates Horizon Oil’s interests in Beibu Company completed its preliminary Front End Engineering and Gulf, has scheduled final investment decision on the 12-8 East Design (pre-FEED) studies of the proposed development. Those development later this year, having substantially concluded analyses, conducted with specialist consulting firms, including commercial and legal arrangements with the drilling contractor Technip for liquefaction facilities and Petrochina’s subsidiary CPE and platform lessor which facilitate the low capex, phased for pipeline studies, have confirmed both the technical viability of development approach adopted by the joint venture. the proposed concepts and cost estimates. In Papua New Guinea, Horizon Oil progressed planning for the Further, with the resurgence of, and a strengthened outlook commercialisation of the gross appraised resource of 2,200 PJ of for, oil prices and the current competitive cost environment for sales gas and 64 million barrels of associated condensate in the oil field services and equipment, the Stanley early condensate four petroleum licences in the foreland basin of Western province recovery scheme, which was put on hold after completion of the that may supply gas to the Western LNG project. The Company development drilling when oil prices collapsed in late 2014, is 1 holds approximately 30% of the resource and is operator of two re-emerging as an attractive investment proposition that has the licences constituting the majority of the resource. potential to provide nearer term condensate and domestic gas The condensate rich gas resources in the Stanley, Elevala, Ketu revenue, while planning for, and construction of, the longer-dated and Ubuntu fields lie to the south of ExxonMobil and Oil Search’s Western LNG project take place. P’nyang gas field which will provide the threshold volumes for Interest in the Western LNG project and its underlying gas- expansion train 3 of the PNG LNG scheme. The planned pipeline condensate resource base led to Repsol’s announcement earlier route from P’nyang to the PNG LNG facilities passes within 20 this year of its conditional agreement with China Changcheng kilometres of the Ketu field. Natural Gas Power Co. Ltd Group (China Changcheng) to acquire While the Government of Papua New Guinea has announced that its Papua New Guinea licence interests. its proposed Gas Policy would seek to ensure third party access to such pipelines, it remains appropriate for Horizon Oil and its fellow joint venturers to progress their independent development plans for their resources.