Undeveloped gas projects must be exempt from ’reasonable pricing’, Cooper Energy says
New East Coast gas supplies being developed by Cooper Energy will be delayed because of the federal government’s gas market intervention makes it too risky, the company says.
The federal government’s proposed gas market interventions - designed to ensure gas is supplied reliably and at a fair price into domestic markets - have delayed Cooper Energy’s Otway Phase Three development indefinitely, with the company deeming it too risky to go ahead at this stage.
The Cooper Energy board was expected to make a final investment decision (FID) on OP3D in April or May this year, but “that’s now lost”, managing director David Maxwell said, with uncertainty caused by the federal government’s gas market interventions to blame.
Mr Maxwell told The Australian on Tuesday that the government’s proposed mandatory code of conduct, which would allow the Australian Competition and Consumer Commission to intervene in gas markets, meant that contracts struck for gas supply could arguably be overturned.
With large energy projects typically needing to lock in long-term, cornerstone customers before they could attract project financing, Mr Maxwell said the model as it stood was broken, with the code of conduct specifically the issue.
“It’s the ability under the code for an arbitrator to direct the price and in certain circumstances the volume which should be produced and to whom it should be supplied,’’ Mr Maxwell said.
“That doesn’t provide certainty where you’ve got, for example, the sort of gas agreement which we’ve negotiated with AGL.
“There is the risk that an arbitrator ... deems something, then they have the unilateral ability to direct, which overrides the gas contract that you’ve negotiated to underpin the investment.’’
Mr Maxwell said gas projects were characterised by large upfront capital investments, which were paid back over an extended period of time, which meant investor certainty was paramount.
“Foundation gas agreements need to be excluded from the mandatory code as they are critical to the financing and ultimate project sanction of major gas developments,’’ Mr Maxwell said.
“Undeveloped reserves and resources should be excluded from the mandatory code.
“We will only take FID on our OP3D project when we are comfortable on these and other issues.’’
Mr Maxwell said the previous forecast had been to produce the first gas from OP3D before the winter of 2025, but “I think that’s gone’’, he said.
Cooper was contracted to supply AGL with up to 10 petajoules of gas for six years from OP3D under the deal, which would account for 50-70 per cent of its production..
Cooper on Tuesday reported record production, revenue, EBITDAX and cashflow for the first half.
Production was 16 per cent higher at 1.82 million barrels of oil equivalent, while revenue was up 6 per cent to $101.2m.
The company reported an underlying net loss of $1.2m compared with a $6m net loss in the previous corresponding period.
Mr Maxwell said it had again been a “frustrating’’ half due to issues at the Orbost gas processing plant in Victoria, which processes the gas from Cooper’s offshore fields and is currently being operated by APA Group.
“Interruptions at the Orbost Gas Processing Plant, operated by APA, impacted processing rates in Q2 FY23,’’ the company told the ASX.
“The Orbost plant performance throughout November and December was frustrating.
“We are on track for the transfer of the Major Hazard Facility Licence and operatorship of the Orbost plant to Cooper Energy during H2 FY23,’’ Mr Maxwell said.
“In parallel engineering and technical work has been accelerated to improve the plant’s stability and rate in the near term and when Cooper Energy assumes operatorship.’’
The performance of the plant is improving, the company said, with the average processing rate up 21 per cent on the same period in 2021.
“This was driven by strong plant performance in Q1 FY23, averaging 51 terajoules per day, with September a particularly good month averaging 56TJ/d with high utilisation of the polishing unit.
“Performance in Q2 FY23 was below expectations, particularly in November and December. “Different events impacted the processing rates including a series of power generator related plant trips causing unplanned outages, which lead to foaming issues at the plant inlet, limiting production rates to around 40 TJ/d during November.
“These trips were not related to the ongoing sulphur treatment issues at the plant.
“A subsequent planned two-day shutdown and several further unplanned, avoidable plant trips also negatively impacted the average processing rate for the quarter.’’
Cooper said it had its own, experienced gas plant manager working with APA on site ahead of the handover of the facility.
Cooper downgraded its full year production guidance from 3.7-4mmboe to 3.55-3.7mmboe due to lower than expected production through the Orbost plant.
It was Mr Maxwell’s last results announcement before retirement, with Jane Norman to take over as managing director on March 20.
Cooper shares closed 2.9 per cent lower at 16.5c.
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