Upping the East Coast Amplitude

Commodities | Mar 28 2025

Following a reworked joint venture agreement for Amplitude Energy's Otway project, analysts highlight greater development and funding certainty.

-Amplitude Energy's new joint venture agreement
-Lower risk for East Coast Supply Project development
-Strong interest from potential gas buyers

By Mark Woodruff

Gas production and exploration company Amplitude Energy ((AEL)), formerly known as Cooper Energy, will undertake a two-phased gas drilling and development campaign in the Otway Basin, off the Victorian coast. The company has established a new joint venture with O.G. Energy, which acquired a 50% stake previously held by Mitsui E&P Australia.

According to Jarden, this change in ownership should bring clarity to the joint venture structure and resolve the prolonged uncertainty surrounding the scale and execution of the proposed drilling program.

O.G. Energy, a subsidiary of private company Ofer Global, is already Beach Energy's ((BPT)) 40% joint venture partner in its Otway Basin assets.

While the new agreement lowers risk for Amplitude's East Coast Supply Project (ECSP), first production is now delayed to 2028 from 2026.

Amplitude Energy is primarily a pure-play domestic gas producer focused on Australia's East Coast market, with an asset portfolio spanning the Cooper, Otway, and Gippsland basins.

Key infrastructure includes the Orbost gas plant, which processes gas from the Sole field, and the Athena gas plant, which handles production from various Otway fields.

Rationale for the joint venture

While recent efforts by management at Amplitude have focused on increasing production and process efficiency at Orbost, Macquarie notes the emphasis is now shifting to drilling in the Otway Basin to restore volumes through the Athena gas plant.

The joint venture plans to target three exploration and appraisal wells from late-2025, supporting a 90 terajoules per day (TJ/d) development aimed at supplying over 560,000 homes across Victoria.

The project remains subject to regulatory approvals, a final investment decision, and drilling outcomes.

According to Bell Potter, if successful, the development could double group revenue and deliver a threefold increase in group earnings compared to FY24.

Demand is not in question, with management receiving strong interest from potential gas buyers.

The East coast gas market has experienced a lengthy period of underinvestment, explains Wilsons, and future domestic gas supply will likely be limited. These circumstances are creating tailwinds for pure play domestic gas producers, such as Amplitude.

Discovered volumes will attract impressive gas sale prices likely in the range of $14-21/GJ, suggest the analysts at Wilsons.

This broker likes the new tie-up with O.G. Energy as the three-well program will allow significant savings (circa -$40m per well) due to synergies, as opposed to doing a reduced program.

Positively, the opportunities are near infrastructure and the resources are medium to low-risk opportunities, in Wilsons' view.

Drilling at Eleanora will commence in the second half of this year (which includes the Isabella sidetrack), followed by Juliet and Annie in 2026, with management estimating a 98% probability of a gas discovery in at least one of these locations.

Development flexibility will be maintained to reduce scope if exploration wells are unsuccessful. A fallback position would be to develop Annie standalone, a project which has a 100% risk weighting (risk free) from Goldman Sachs.

The joint venture will see O.G. Energy reimburse Amplitude $25m for historical costs and fund its share of future costs, while Amplitude's 50% share will be funded via cash, organic cash flow, and debt.

Amplitude remains Macquarie's key pick for East Coast Gas exposure with supply shortfalls predicted to occur as early as this winter.

Funding and costs

At the beginning of 2025, Amplitude had net debt of $254m, and available cash liquidity of $241m.

Just days before the joint venture announcement, Morgans acknowledged the market's understandable concerns regarding Amplitude's net debt position but expressed confidence in management's ability to manage balance sheet constraints and support the next phase of growth in the Otway Basin.

Morgans' confidence is reinforced by management's successful demonstration Orbost could sustain production above 60 terajoules per day.

For the new joint venture, management assesses Phase 1 costs for Amplitude will be between -$240-270m, and, assuming success in all three wells, indicative costs for the development (Phase 2) should be in the range of -$140-185m.

Phase 2 of the development involves the hook-up of flow lines and integration with the existing pipeline network to transport gas back to the Athena gas plant for processing. The cost estimate also includes required modifications to the Athena facility to accommodate the additional volumes.

Committed capex will take net debt to a maximum of around $350m in the second half of 2026, on management's numbers, based on the high-range Phase 1 capex estimate (-$270m) and on conservative Orbost Gas Processing rate assumptions of 59.3TJ per day.

Macquarie explains costs can be funded from cash and debt given circa a $150m annual underlying free cash flow (FCF) run rate and a likely expanding borrowing base as new reserves are booked post drilling.

Although capex seems relatively high for the quantum of gas volumes, Wilsons explains the project will attract premium sales prices. This analyst has faith in the financing path laid out and expects greater momentum in the stock price over the short-term.