Small Caps | Jun 13 2024
With the costly decommissioning of the BMG field now behind it, Cooper Energy has outlined its strategy to exploit a tight east coast gas market.
-Analysts attended Cooper Energy's investor day
-BMG decommissioning now complete
-Attention turns to Otway production and processing
-Free cash soon to flow
By Greg Peel
The south-east Australian gas market is confronting seasonal shortages from 2026 and an annual supply gap from 2028. With two gas plants, 217PJ of proven & probable (2P) reserves and 1,632PJ of prospective resource, Cooper Energy ((COE)) is poised to benefit from rising prices and leverage its infrastructure, Canaccord Genuity believes.
Cooper Energy has now passed a milestone with the completion of decommissioning of the troubled Basker Manta Gummy (BMG) gas field off the coast of Victoria, which cost the company some two-thirds of its market capitalisation.
With decommissioning complete, last week’s investor day provided management at the company an opportunity to articulate its growth strategy, highlight its free cash flow-generating capacity, and reinforce a focus on opportunities where it enjoys a competitive advantage, being Australian gas.
Investor focus, and what Jarden describes as the key to unlocking the material upside within Cooper's portfolio, now turns to planned drilling activities in the Otway Basin, also off the coast of Victoria. The company’s primary focus is to improve production at Orbost, deliver into strong southeast coast gas markets and grow production through the Otway East Coast Supply Project (ECSP) formerly known as OP3D.
The Plan
Development drilling at Annie is targeted for the second half of 2025 and will likely be followed by exploration drilling at Juliet and Elanora. Importantly, notes Canaccord, unlike the Annie discovery well, Juliet and Elanora will be completed as production wells if successful, with the company targeting first production from ECSP in 2028.
With gas contract pricing now in the mid-teens and the 150TJ Athena gas plant under-utilised, Canaccord suggests this development will be highly economical despite rising construction costs.
No updated cost estimates have been released, although management expressed increasing confidence JV partner Mitsui will participate in the work program. Cooper believes company revenues could exceed $500m per annum by FY29, once Otway wells are tied in.
Nearer term, the focus is on higher (above consensus) production rates at the Orbost Gas Processing Plant (OGPP). After spending the past 12 months progressing various initiatives to improve output, the company is confident average production rates will soon increase to 58 TJ/day, more than 10% higher than the average rate achieved in the March 2024 quarter. In addition, Cooper is targeting average rates of 62 TJ/day by the end of FY25, above consensus forecasts of 60 TJ/day from FY26.
The improvement project initiatives are having a positive impact and remain ongoing. That said, Jarden points out Orbost is still well short of its 68TJ/d nameplate capacity due to issues in the sulphur absorption circuit. With a third absorber costed at under -$30m, it does remain an option to drive improved production.
Management is also evaluating the potential reconnection of the Patricia Baleen gas field for possible production or gas storage, and has begun farm-out discussions to drill one or more Gippsland exploration wells in 2026/27.
Macquarie believes Patricia Baleen could add a material tranche of value. The site is optimally located given access to the Eastern Gas Pipeline, which provides access to Port Kembla LNG imports and the NSW market, and, unlike Otway, unencumbered flow into Melbourne.
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