© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to the Cooper Energy Update Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Monday, 16th of July, 2018. I would now like to hand the conference over to your first speaker today, Don Murchland. Thank you. Please go ahead.
Thank you, Edward, and good morning, everyone. I'm -- as Edward said, I'm Don Murchland, Investor Relations for Cooper Energy, and I welcome you to our update call this morning. Thanks for taking the time to dial in. As I expect most of you are aware, we haven't typically done quarterly calls, but it's been an eventful period for us. And with full quarter results done and the Sole project passed halfway, we thought a call to give a brief presentation and take investor questions would be opportune. We've prepared a slide pack to talk to. It was lodged with the ASX prior to market opening with the report this morning and can be downloaded off our website. Recording of this call also will be available later in the day off the website.I'm joined on the call today by some members of the management team, each of who will speak briefly and be available for questions. In order of speaking, we have David Maxwell, Managing Director; Iain MacDougall, General Manager, Operations; Mike Jacobsen, General Manager of Projects, who has responsibility for the Sole Gas Project; Duncan Clegg, General Manager Development; and Andrew Thomas, General Manager Exploration & Subsurface. Virginia Suttell, our CFO; and Eddy Glaves, GM Commercial & Business Development would normally be present, but today our apologies that both are taking well-earned break and will be returning very shortly. Daniel Panella, our Financial Controller is sitting with us today, if there are any financial questions you may have.Turning to the pack we've lodged, if we go to Slide 3, which I'm sure is one many of you have seen before in a number of forms and if you have not, I'll draw your attention to it, if you're in doubt about what this presentation is, what it isn't and questions about risk. For the rest of the show, I'll now hand over to David, who will take us through the presentation highlights.
Thanks, Don, and let me add my welcome to everybody on the call and those who will listen to this later on. The benefits and the value of the strategy and plans that we put in place some 5 years ago are very clear in our quarterly results. Quarterly results, which as Don said we released this morning, and also very clear on the transformational near-term activities, which we'll discuss a little bit on today. Production revenue for the full year have both increased. Production has increased 54% to 1.49 million barrels of oil equivalent, which is at the high-end of our guidance range of 1.4 million to 1.5 million barrels of oil equivalent. And revenue is up 71% to $66.7 million. And this also reflects in addition to the increased production, the increase in both gas and oil prices. The Sole project is proceeding consistent with plans, and importantly, we had a very good result with Sole-3, the first of the 2 production wells, which has now been completed. Activities to increase production from existing assets have been successful, and we've announced the agreement to purchase the Minerva Gas Plant. In addition to that, we're currently marketing the Casino Henry gas for 2019, and as you'd expect with a lot of customer interest. I'm going to pass across to Iain MacDougall now to talk us about production.
Thank you, David, and good morning, everyone. We've just concluded a solid quarter of production, underpinned by the workover at Casino-5, which was brought back online in late April and which drove a 24% increase in Casino Henry gas production over the previous quarter. This result at Casino comes alongside the continuing outperformance at the Minerva Gas Field and the successful 5 well onshore development drilling campaign at Callawonga in the western flank of the Cooper Basin, which brought on additional oil production in the middle of the financial year. As David has outlined, this has enabled us to deliver a production of 1.49 million barrels of oil equivalent at the top end of our recently increased guidance of 1.4 million to 1.5 million barrels of oil equivalent, representing a 54% increase on FY '17. Our conservative firm guidance for FY '19 is 1.4 million barrels of oil equivalent from existing production assets, a figure which does not include the commissioning gas that we expect to produce from Sole in Q4. Looking a little further ahead to FY '20, a full year of production at Sole equals a little over 4 million barrels of oil equivalent. We have also recently commenced detailed engineering and planning work to drill a Henry-2 sidetrack well in late calendar 2019, which will deliver immediate incremental production from the Casino Henry asset. So all being well, we anticipate that we will be in a position to multiply our production by a factor of something close to 5 in FY '20.I'll now hand over to Mike Jacobsen to provide an update on the Sole project.
Thank you, Iain. Good morning, everyone. The Sole project is progressing very well and remains within schedule and within budget. Progress to the end of June 2018 for the upstream project is 56%. The project remains on track for gas into the Orbost Gas Plant for commissioning within Q2 2019 and first commercial sales from July 2019. The project forecast cost of completion remains within the P50 budget of $355 million, which is inclusive of the Sole-3 final cost and unused contingency in the order of $9 million, after drilling contracts of fixed-price lump sum. With reference to Slide 6, I'll run through the project milestones for the quarter, starting in the top right-hand corner. This picture shows the running of the Subsea Christmas Tree on Sole-3 from the drilling rig. The Christmas Trees are used to control and monitor the subsea wells. Christmas Trees have now been installed on the Sole-3 and also on Sole-4. Sole-3 has been completed and successfully flowed back to the drilling rig. Duncan Clegg will provide some more details on the Sole-3 results and also Sole-4 drilling progress. And moving clockwise through the slides -- or through the photos, the subsea pipeline is currently being welded in Crib Point close to Melbourne. The pipe is welded into shorter sections of 1.5 kilometer lengths before it is reeled on to a large installation ship that lays the pipeline to the seabed. As of the 13th of July this year, 37 kilometers of the 65 kilometers of pipeline has been welded with the planned completion being in the middle of September 2018. The installation vessel will arrive into the country in early October of this year to reel up and then install the pipeline. 3 trips of installation ship are required to lay the full 65 kilometers.The subsea wells are controlled using a large umbilical that is run from the Orbost Gas Plant to the wells in one continuous length. And the photo shows -- the photo shows the umbilical in the U.K., which has been completed and is currently having end connections fitted and tested. Once completed, the umbilical will be transported to Sole and installed between the month of November this year and January of 2019. The shore crossings, or HDD pipes, have been successfully installed for the pipeline and also the umbilical. And the photo shows the HDD gas plants from where they are run under the sand dunes to the seabed some 500 meters offshore. Once on location, the layer ship picks up the HDD and welds this to the pipe on board before laying out to the wells. The next photo on the top of the slide shows the gas plant construction, which is being performed by APA, and this is very well advanced. Civil works are largely complete with major equipment now being installed by Downer, who is the principal contractor. In this photo it shows the 5 bioreactors, which are used or which actually contain the bacteria that converts the H2S into solid sulfur that can safely be disposed off. I'll now hand over to Duncan Clegg.
Good morning, everyone. Thank you, Mike. As previously advised, we've successfully completed the flowback at Sole-3. The test have demonstrated excellent reservoir and high deliverability. Our analysis confirms the well is fully capable of achieving the inter-plant designed flow rate of 68 terajoules a day. This was a great result and consistent with our predrill expectations. The detailed analysis of the gas samples is ongoing and readings taken during the test indicated the H2S at a 1,000 PPM and gas composition in line with expectations and well within the plant design specification. We are now working on Sole-4 completion. And last Friday, we [ tanked ] the reservoir at 1,094 meters Measured Depth Rotary Table. This slide notes that we are currently running the 9 5/8-inch casing, but that was yesterday. It's now cemented and tonight we will be drilling ahead into the reservoir section. We will run the lower completion this week and flow test the well towards the end of this month. We expect the well to also demonstrate similar production capacity as Sole-3. Current plan is to have everything complete at Sole-4 early August, and then the remaining project works are all contained within the fixed-price lump sum contracts. I'll pass the baton on to Andrew who will cover the Otway exploration.
Thanks, Duncan. Now let's talk about some growth opportunities at our Otway Basin and Gippsland portfolios. Firstly on Slide 8, let me set the scene. Over the past 12 months, the exploration team has been reprocessing the existing 3D seismic data that covers the majority of our offshore exploration acreage. The exploration prospect inventory has been refreshed and several potentially large prospects with resource sizes that range from up to 100 to 400 petajoules have been identified. One of the unique characteristics of exploration in the Otway area is that gas can be easily recognized on the seismic. We call these gas indications Direct Hydrocarbon Indicators, or DHIs. If you look at the picture of seismic line on the right-hand side of Slide 8, the areas in red indicate a high probability of finding gas. The validity of these DHIs has been borne out by the historical exploration results with greater than 80% of the exploration wells [ drilled in that ] area have found gas. We have several undrilled prospects in our portfolio that are easy to define and are adjacent to our existing fields and pipeline infrastructure. We consider them to be low risk defined gas. We are currently in the process of assessing our portfolio of offshore Otway prospects, and subject to partner approval, plan to drill 2 of them in 2020. If drilled in 2020, they will be the first exploration wells in the VIC/P44 permit area to be drilled in 12 years. And over onto Slide 9, let's turn to our Gippsland Basin acreage. Work is underway with well planning for appraising the Manta gas field and also deepening the well to test the potential of deeper Manta targets. We are planning on having this prospect drill ready for the 2020 well campaign. In line with our strategy to optimize the value of our existing offshore infrastructure and grow our business around gas hubs, in this case the Orbost Gas Plant, we bid for and were awarded a new exploration permit VIC/P72 in May this year. The permit is located adjacent to our Patricia-Baleen license, VIC/L21, which contains pipeline infrastructure that is connected to the Orbost Gas Plant. We believe this permit is located in a good address and we have identified prospect types analogous to the adjacent Esso oil and gas fields and the Longtom gas field. Our current plan is to reprocess the existing 3D seismic, complete technical studies and then make a decision on an exploration well target that would most likely be drilled in 2021. I'll now hand back to David to discuss commercial updates.
Thanks, Andrew. And on the next slide, together with Mitsui and AWE, on the 1st of May, we announced the signing of agreements to purchase the Minerva Gas Plant. This plant, the Minerva Gas Plant, has got a capacity of 150 terajoules a day of gas processing. Access to an operator-ship of the Minerva Gas Plant provides the opportunity for the joint venture to have lower operating costs, improved productivity and reserves increases as a result of lower inlet pressure available in the Minerva Gas Plant. And processing capacity available on a short timeframe, for further production increases and the exploration opportunities in the offshore Otway that Andrew just mentioned. On the gas market, gas supply from Southeast Australia is tight, and there is a lot of interest in any volumes available to contract. In this environment, the negotiations for gas supply from Casino Henry for calendar 2019 are underway, and we expect to conclude these very soon. On the next slide, Slide 11, we summarize our production and capital guidance for 2018 -- for the 2018-'19 financial year. Our production guidance from the offshore Otway, that covers the Casino Henry asset and the Minerva asset, which are both gas, and the Cooper Basin, which is oil, is some 1.4 million barrels of oil equivalent. Please note, and as Iain mentioned, this does not include any production from Sole, which when it commences, will significantly increase our production and revenues.On capital expenditure, we're guiding to a total of $183 million for the financial year, and this is $183 million on an incurred basis, which is allocated predominantly to be at 95% through our high-margin gas activities in the offshore Gippsland Basin and the offshore Otway Basin. The Sole project, as expected, is the main expenditure. Now on to the final slide, Slide 12, to summarize. As I mentioned at the outset, the benefits and value of our focus on Southeast Australia gas opportunities, which are at the low end of the cost curve at a time when gas supply is tight and prices increasing, is evident. Production and revenue are up. The transformational Sole project is approaching 60% complete and within schedule and within budget. And the Sole-3 well has confirmed capability to produce at volumes higher than the project requirements, with the second production well Sole-4 underway. Gas prices, and this includes our gas prices, are increasing. And against this background, we're planning for the next wave of our near-term development in exploration. And this includes planning for drilling to commence in late calendar 2019. This drilling is to include the development of the Henry Gas Field, the Manta well, which includes the Manta deeps and exploration wells, and Minerva Gas Plant acquisition and the exploration opportunities, which can underpin and increase the value of further growth. On that note, we invite questions on either this presentation or the quarterly results, which we released this morning also. Thank you.
[Operator Instructions] Your first question comes from the line of James Bullen from Canaccord Genuity.
Just a quick question around the tender for 2019. I was just reading through the quarterly, it does sound like you've already had a number of responses to that tender. And I guess, given you're looking at closing it soon that, that will also follow. Could you just provide some indication around whether it's confirming your view of the gas price environment in Southeast Australia?
Yes. Thanks, James. Firstly, what we did, and I think we announced this a few months back was we, first of all, went through a tender process and that tender process closed. And we're now in the process of negotiating the contract with the -- with what I'm going to call the winners of that tender process. And I can confirm that the pricing of that gas is consistent with what's typically being talked about in the market, and there probably the best reference is the ACCC analysis. I think the last report they've put out was in March-April. And there they were talking about prices in the 9 -- 8 to 11 and probably more focused in the 9 to 11 range, and that pricing range is consistent with what we're seeing. As you'd appreciate, the actual prices and terms are confidential, but certainly the prices that we're seeing and the prices that we had bid were consistent with the ACCC report on pricing at the moment.
Great. And just around the production guidance for FY '19, you have elected to exclude the commissioning gas. Can we take from that you're in any way concerned around what's happening on the APA side of the fence?
Yes. I'll say a couple of words and then I'll pass across to Mike to talk specifically around the commissioning. Guidance is a serious number and we thought it prudent to only provide firm guidance against existing production assets. I will leave Mike to talk about the schedule for the Sole project and commissioning. But we are expecting -- the first thing is that it's within schedule and within budget. So maybe best if I pass over to Mike and he can say a few things about the current overall schedule and the incremental components of it.
Yes, thanks, David. I mean the commissioning, we are on plan to start that in April of 2019. And I guess, with commissioning, with the nature of commissioning, we have chosen to be conservative with our guidance in terms of how much gas will be available to market during that commissioning period. We're just being conservative is why you're seeing the guidance the way it is.
And have you had an update though from APA in terms of their progress?
Yes, we have. And they're still telling us that they're on track. They're on track, as I said, for gas into the plant in Q2 2019 and then commercial sales starting from July of 2019. So that is on track is what APA is telling us.
Yes. We have a steering committee, which is a combination of the project management team from APA and the project management from Cooper Energy in the offshore. Mike Jacobsen, Duncan Clegg and Iain MacDougall from Cooper Energy are on that and their counterparts in APA. That steering committee meets once a month and addresses schedule, commissioning and all the interactive issues between the offshore and the plant. And the last of those meetings was 2 weeks ago and the reports and advice from APA was as Mike shared.
Great. And last question, just to confirm, did I hear that in FY '20 you are looking towards a 5 times uplift in production?
I think Iain said up to 5. It's between -- to be honest, it's between 4 and 5. It's in the order of 6 million BOEs on existing assets, including Sole, at current contracted rates.
[Operator Instructions] There are no further questions at this time. David, please continue.
Thanks very much, Edward, and look, thanks for joining the call. If you have any question separately, please contact, in the first instance, Don Murchland, whose contact details are in our quarterly results released this morning. Just very briefly summarizing, Q4 was a very good quarter for us supporting the strategy that we've been pursuing for the last 5 years. The Sole project continues within budget, within schedule. The results we announced Friday, a week ago, from Sole-3, very pleasing and illustrate the capacity of Sole-3 alone to produce more than is required contractually with APA and our customers, and Sole-4 underway. And then, as Andrew has summarized, there's a number of other opportunities that we'll be looking to drill, come late '19, early '20. On that note, thank you very much.
Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.