Expiry of PWC LOI Halts Horizon Oil’s New Gas Sales Deal, Capital Spend Reduced
Horizon Oil’s Letter of Intent with Power and Water Corporation for a new Mereenie gas sales deal has expired without replacement, prompting a suspension of planned infill drilling and a notable cut to capital expenditure forecasts.
- Expiry of LOI with Power and Water Corporation halts new gas sales agreement
- Existing gas supply contract remains valid through 2030
- Planned drilling of two infill wells suspended, reducing 2026 capex by USD 5 million
- Joint Venture retains flexibility to resume drilling if market conditions improve
- Focus shifts to securing new gas sales contracts with other market participants
Expiry of Key Gas Sales Agreement Derails Near-Term Drilling Plans
Horizon Oil Limited (ASX:HZN) has confirmed the expiry of its Letter of Intent (LOI) with the Northern Territory’s Power and Water Corporation (PWC) for a proposed new gas sales agreement at the Mereenie field. The parties failed to agree on replacement terms, leaving the existing gas supply contract intact through 2030 but scuttling plans for near-term expansion.
The original intention behind the new agreement was to underpin the drilling of two additional infill wells designed to meet rising gas demand. Without this commercial underpinning, the Joint Venture has decided to suspend the infill drilling program, trimming Horizon’s forecast capital expenditure for 2026 by approximately USD 5 million. This pause reflects a recalibration of investment priorities amid uncertain contracting outcomes.
Operational Readiness Maintained Amid Strategic Shift
Despite the suspension, Horizon and its partners have well-advanced well planning, with long-lead equipment already procured and drilling contracts secured. This operational preparedness means the Joint Venture can swiftly restart drilling activities if gas market conditions or contracting opportunities improve, preserving optionality without immediate capital outlay.
With the PWC deal off the table, Horizon is now pivoting its gas marketing efforts towards engaging other potential buyers to secure commercially acceptable sales arrangements. This strategic shift will be critical to unlocking future production growth and capital deployment at Mereenie.
Broader Strategic Moves and Market Position
This development comes on the back of Horizon’s recent aggressive expansion moves, including its ongoing off-market takeover bid for Cue Energy, aimed at creating a diversified oil and gas producer across the Asia-Pacific region. The company’s previous update highlighted a binding LOI for Mereenie gas supply through 2034, which supported the initial drilling plans. The current setback underscores the complexities of gas contracting in the Northern Territory and the challenges Horizon faces in translating strategic ambitions into near-term operational execution. The company’s ability to navigate these hurdles will be closely watched by the market, particularly given the recent binding Letter of Intent signed for Mereenie gas supply.
Bottom Line?
Horizon’s suspension of infill drilling signals a cautious stance on capital deployment, but its maintained readiness leaves room for a quick pivot if gas sales agreements materialise.
Questions in the middle?
- Will Horizon secure alternative gas sales contracts to justify resuming infill drilling at Mereenie?
- How will the suspension affect Horizon’s production growth targets and cash flow forecasts for 2026?
- Could broader market or regulatory shifts in the Northern Territory influence Horizon’s gas marketing strategy?
