On behalf of Spirit Energy’s Board of Directors, I am pleased to report that despite the uncertainty of commodity prices in 2019, Spirit Energy had a strong year in which we delivered good results and returns for our Shareholders.
I am proud of the achievements of the Spirit Energy team who pursued opportunities to optimise the corporate strategy to create long-term value. Through strong performance and cost discipline, revenues exceeded £1,400 million (2018: £1,978 million) and adjusted operating profit was £207 million(i) (2018: £426 million). Including exceptional charges of £516 million (2018: exceptional credit of £91 million) and unrealised re-measurement of energy contracts credit of £194 million (2018: £(5) million), the statutory operating loss was £115 million (2018: operating profit £512 million). Free cash flow was £117 million(i) (2018: £444 million) and £400 million (2018: £nil million) was paid in dividends to Shareholders in 2019.
Volatility in the global geopolitical backdrop persisted in 2019 and will carry on in 2020. The extraordinary impact COVID-19 has had on individuals, societies and economies across the world has brought us all into unfamiliar territory. COVID-19 will impact our operations and may require temporary shut-in if there is an outbreak for this to be dealt with safely. We have had one such instance at the Chestnut field, and following a full crew change, operations recommenced after a temporary suspension. Even before the pandemic reached the countries where we operate, oil prices had fallen victim to a battle for market share and surging production. Prices will likely remain low throughout the remainder of the year as supply outstrips demand – looking longer-term, the impact on our industry from the current level of volatility is unknown.
This unknown reinforces the need for Spirit Energy to remain agile and focused in the way we pursue our strategic goals – concentrating on getting the right balance between exploring new opportunities and extending the life in those areas we are already producing. It is the Board's responsibility to ensure the Executive team are making the right decisions to ensure the business is robust, while flexible enough through this period of unprecedented change in our industry and society.
In 2019 significant strides were made in strengthening Spirit Energy’s foundation and important progress was achieved towards our production targets and sustainability.
A Strong Foundation
Since its inception in December 2017 the Spirit Energy team has been focused on creating an agile, independent full-cycle exploration and production company. The successful separation of functional services previously provided by Centrica brought us closer to realising that vision. It was an immense undertaking which was executed seamlessly and as a result Spirit Energy is now standing on its own feet with a clear sense of purpose. The rigour in systems and processes of our large company heritage has been retained but in a nimble, lower cost model supporting the creation of long-term value for our Shareholders.
Health and Safety Remains a Priority
Nothing exemplifies this more than the continued trend of improved performance in both personal and process safety that we saw in 2019. Recognising the importance of driving continuous improvement, the Board and Executive Management supported the launch of an Incident Free Workplace initiative. The core principle of Incident Free Workplace is that every incident is preventable. A key goal for 2020 is to ensure that we translate this into even further improvements.
A Relentless Focus on Performance
We saw improved performance this year despite difficult conditions. We benefited from the hard work of teams both on and offshore and from the decisive action taken in 2018 to improve our production efficiency. Particularly commendable was the relentless focus on performance by the Executive Management team at the same time as they were called on to support the marketing process for Shareholder equity in Spirit Energy. This ongoing performance focus is the best thing the Spirit Energy team can do to help position the company for the future.
Sustainability and a Commitment to the Environment
The energy industry has to do two things: supply reliable and affordable energy; and provide solutions to climate change.
Sustainability for Spirit Energy is about us running our operations in a safe, responsible, efficient and profitable way. At its most basic level this means adopting responsible business practices that do no harm and comply with all applicable standards.
However, in playing our part in helping to solve climate change we need to go further in reducing the environmental footprint and CO2 emissions of our operations. In 2019 Spirit Energy made good progress in substantially decarbonising our operated assets and minimising our primary production emissions through improved operational efficiency. There is more we can do and the recent formation of an energy transition working group will help guide our progress.
While I am encouraged by Spirit Energy’s success in 2019, I am even more encouraged by the determination and ambition that I have found across the Company. It is our employees that continue to deliver inspiring performance, even in conditions that force us to work from home or with minimum staffing levels on our assets. I would like to thank them on behalf of the Board, for their hard work and commitment over the past 12 months and in the unpredictable days ahead.
(i) The Directors believe that these financial KPIs provide additional useful information on business performance and underlying trends. These measures are used for internal performance purposes. The adjusted measures in this report are not defined terms under IFRS and may not be comparable with similarly titled measures reported by other companies. Please refer to page 88 for definitions and reconciliation of adjusted performance measures to the statutory results.
SHOOTING FOR THE MOON AT MORECAMBE
Offshore England’s northwest coast lies Spirit Energy’s Morecambe Bay gas fields, now in their fourth decade of pioneering gas production. Through the efforts of a dedicated team, steadfast in their desire to deliver excellent performance, safely – and complemented by continued investment in technology, skills and infrastructure – we continue to extend the life of this cornerstone asset.