Company overview - Cooper Energy Limited is an upstream oil and gas exploration and production company whose primary purpose is to secure, find, develop, produce and sell hydrocarbons. The Company's operations consist of oil production in the Cooper Basin (onshore Australia) and the South Sumatra Basin (onshore Indonesia); pre-development activities associated with the Sole and Manta gas fields in the offshore Gippsland Basin, and exploration for oil and gas in the Cooper, Otway and Gippsland basins. The Company's Australian Business Unit includes exploration and evaluation for oil and gas, development, production and sale of crude oil in various areas in the Cooper Basin, Gippsland Basin and Otway Basin. It holds interests in approximately three exploration licenses, over 30 retention licenses and approximately 10 production licenses in the South Australian Cooper Basin. The Company holds interests in over four exploration licenses and a retention license in the onshore Otway Basin


COE Details

Progress on Louth-1 spudding: Cooper Energy Ltd (ASX: COE) has announced that Louth-1, an exploration well has been drilled by the PEL 92 Joint Venture in PRL 102 in the Cooper Basin. The well had been drilled to 840 metres, had set 9 5/8” casing and was being prepared to drill ahead in 8 ½” hole in the Mackunda Formation. Cooper Energy holds a 25% interest in the PEL 92 Joint Venture with the balance held by the Operator, Beach Energy Limited. Louth-1 is designed to test the gas/condensate potential of the Patchawarra Formation. Further, Patchawarra Formation targets have been successfully tested at the Mokami and Udacha gas/condensate fields located 4 km and 10 km east of the Louth-1 well location. Louth-1 has a prognoses total depth of 2,671 metres and is expected to take 14 days to complete.


Location of Louth-1, PRL 102, Cooper Basin, (Source: Company reports)
 
Earnings impacted by impairments of the discontinued operations: For FY17, Cooper Energy has posted an underlying loss of $8.7 million compared to loss of $2.8 million in FY16. On the other hand, sales revenue grew 43% year on year (yoy) to $39.1 million while EBITDA rose from $1.2 million to $5.3 million. The statutory loss after tax reduced to $12.3 million compared to the previous year’s loss after tax of $34.8 million. The FY17 statutory profit includes $(3.6) million comprised of $(5.0) million relating to provisions and impairments in respect of the discontinued Tunisian and Indonesian operations offset by a gain on sale of $1.4 million. Notably, the acquisition of the producing Casino Henry and Minerva gas fields was the major factor in the company’s 109% increase in production and 290% increase in 2P reserves as at 30 June 2017. For the year, total assets increased by $316.3 million to $492.6 million, and the company held cash and deposit balances of $147.5 million.


Financial Performance; (Source: Company reports)
 
Expected increase in Production, Reserves and Resources: Cooper Energy produced 0.96 million barrels of oil equivalent (MMboe) in FY17, comprising 4.0 PJ of gas and 0.28 million barrels (MMbbl) of crude oil and condensate, compared to the previous year’s production of 0.46 MMbbl of oil. The movement in oil volume between periods is attributable to the divestment of Indonesian operations effective from 30 September 2016 and lower production from the Cooper Basin, where the suspension of drilling in the previous year was reflected in lower output. However, results achieved from the resumption of drilling in the Cooper Basin during FY17 are expected to maintain production levels in FY18. Further, the company has reported 362% increase in Proved and Probable reserves at 54 million boe as on 25 August 2017, and in the near term, it anticipates further increases in production, revenue and cash flow through a full year contribution from Casino Henry, the opportunity to supply gas under new contracts from March 2018 and development activity that may be pursued with joint venture approval. The FY17 results were the first since Cooper Energy’s acquisition of the Victorian gas assets from Santos Ltd effective from 1 January 2017. Additionally, general and administration costs were also affected by costs associated with the acquisition and subsequent integration of new ventures and were $3.9 million higher than in the preceding year. The Company is now focussed entirely on Australia and generates the majority of its income from gas production in south-east Australia. Gas also accounts for the majority of the Company’s expanded reserves and resources base. Annual production increased 109% and is expected to grow by approximately five times in three years to 2020 through projects that are currently in development.


Cooper Energy holds the largest Australian conventional gas reserves in its peer group (Source: Company Reports)
 
Focusing on south-east Australia: During the year, COE crossed key milestones with focus on Australia and including the acquisition of gas production, exploration and development assets in the Otway and Gippsland basins, offshore Victoria. The assets acquired saw Cooper Energy assume 100% ownership of the Sole gas field and Orbost Gas Plant and 50% ownership of the offshore Otway Basin assets. Further, it had entered an agreement with APA Group, whereby they will acquire, upgrade and operate the Orbost Gas Plant to process gas from the Sole gas field. Moreover, the company is concentrating on its portfolio in Australia with the sale of remaining Indonesian assets and withdrawal from Tunisia. Cooper Energy has now completed the establishment phase of its strategy to build a gas business around a portfolio of gas projects and supply contracts focussed on south-east Australia. The Company’s portfolio now encompasses a mixture of gas supply contracts, market competitive producing assets, plant, development projects, and well-located exploration acreage with an inventory of attractive prospects. However, the financial significance of the year’s progress is only partially evident in the accounts for the twelve months to 30 June, initially because the acquisition of producing assets was effective from 1 January 2017 and, the greatest uplift in revenue generation is forecast to occur from the closing six months of FY19.
 

South-east Australia gas supply costs in 2020; (Source: Company reports)
 
Marketing of Gas for optimising returns: The development, contracting and supply of gas to south-east Australia is a core element of the Company’s strategy. The marketing of this gas is being conducted to optimise returns whilst assuring cash flow and revenue through contracting a base load of gas under longer term contracts and marketing the balance in a mixture of shorter term agreements. Importantly, the objective of the Company’s gas marketing efforts in FY17 was to contract sufficient gas from the Sole gas field necessary to support financing of development. This objective was achieved in January 2017 at which point 180 PJ of the Company’s 249 PJ 2C resource had been contracted to a portfolio of gas buyers including AGL Energy, EnergyAustralia, Alinta Energy and O-I Australia. The Company also holds uncontracted gas at Casino Henry (52PJ of 2P Reserves) and Manta (106 PJ 2C Resources). Marketing of uncontracted gas from Casino Henry is now underway and the Marketing of Manta gas will be coordinated with the development plans for the field.
 
Update on Otway Basin: The Company holds offshore and onshore interests in the Otway Basin, the most significant of which are the Casino Henry and Minerva gas projects and the VIC/P44 exploration permit located offshore Victoria. Interests are held in onshore acreage in South Australia and Victoria, with activity in the latter suspended due to the Victorian government’s moratorium on onshore gas exploration. Transfer of operatorship and most of the titles in relation to the offshore Otway Basin acreage occurred subsequent to year end, while transfer of title for a few of the pipeline licences is pending approval from the relevant regulators.


Offshore Otway Basin prospectivity; (Source: Company reports)
 
Resumption of Cooper Basin: Drilling activity, which had been suspended in FY16 at Cooper Basin due to the low oil price environment, recommenced during the year. A total of nine wells were spudded in the Company’s Cooper Basin acreage. Of the nine wells drilled, seven were successful development wells and were cased and suspended. The final five of these wells, which also had appraisal objectives, were drilled on the Callawonga oil field to address the McKinlay Member sandstone which has hitherto been lightly exploited. Further, the success of this program has been reflected in upgrades to reserves estimates and investigation of a possible further drilling program in the new calendar year. The remaining wells, Penneshaw-1, an oil exploration well in PRL 87, and Butlers-9, an oil appraisal well in PPL 245, were plugged and abandoned.

Gas resources in Gippsland form an essential part of the Company’s growth strategy: Commercialisation of the Company’s gas resources in the Gippsland Basin is a principal element of the Company’s growth strategy. The Company’s interests in the region comprise a 100% interest in VIC/L32, which holds the Sole gas field; a 100 % interest in VIC/RL13, VIC/RL14 and VIC/RL15, which hold the Manta gas field. Manta is assessed to contain 2C Resources of 106 PJ of gas and 3.2 MMbbl of liquids as well as hydrocarbon potential in deeper reservoirs. The Company is working towards a two-phase development program of its Gippsland gas resources involving development of Sole to supply gas from 2019 and a subsequent development of Manta. Further, it was intended that the Manta gas and liquids field are utilised through integration with Sole and, potentially, the Patricia-Baleen gas field and pipeline. Commercialisation of the gas field was found to be economically feasible in 2015 and a development concept involving subsea wellheads to produce gas and gas liquids through connection to the Orbost Gas Plant by either a direct pipeline or via connection to the Patricia-Baleen gas field and pipeline, had been planned.
 

Cooper Energy total production; (Source: Company reports)
 
Stock Performance: Cooper Energy anticipates production of approximately 1.4 MMboe from its operations in FY18 and expects most of that to come from Otway Basin gas production with approximately 0.2 MMboe from the Cooper Basin oil production. On the other hand, the Company continues to manage general and administration costs tightly while advancing commercialisation of the Gippsland Basin gas projects. As at 30 June 2017, the Company had oil price hedge arrangements in place for 0.03 MMbbl over the next 6 months. In respect of the balance of FY18, the effect of the positions taken is that approximately 27% of the Company’s first half oil production is hedged at an average floor price of A$54.45/bbl. Cooper Energy has also completed the institutional component of its fully underwritten accelerated non-renounceable 2-for-5 pro-rata entitlement offer announced in August 2017, as part of its $400 million finance package for the Sole gas project and other opportunities. The group has received strong support from shareholders and new investors, and raised $97.9 million at an offer price of $0.295. The group also came up with a declaration of a final investment decision (“FID”) for the Sole gas project; and Sole is expected to deliver gas sales of 24 PJ or 4 million barrels of oil equivalent per annum to Cooper, which is about four times the company’s production in FY17.

Meanwhile, the share price of COE has declined over 21% in the last six months while it is up 19.8% in the past one year (as of September 19, 2017). Given the positive developments and oil price scenario, the stock has also got a boost recently with the addition to S&P /ASX 300 Index effective September 18, 2017. Upside momentum is expected in the stock at the back of growth driven by ongoing exploration developments, increasing production and cost savings, and we give a “Buy” recommendation on the stock at the current price of $0.295
 

COE Daily Chart; (Source: Thomson Reuters)

 
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