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

Cooper Energy Ltd (ASX: COE) seeks to manage its capital with the objective of providing shareholders with the optimal returns from the application of its expertise in the exploration, development and production. The company’s portfolio is expected to offer the potential for growth in production over next few years through to 2021 with the help of promising projects like the Sole Project, Manta and other gas projects. Further, 2017 has been a decent year for COE from various aspects including financial, production and operations. The September quarter result was also a reinforcing one on the group’s transition to offshore operator with production from its Otway Basin assets staying above expectations while development at the Sole project is as expected. The group delivered higher production with 377% quarter on quarter growth and 194% revenue increase. The recent new gas sales agreement with Origin for Casino Henry puts forth a case for having an uplift in revenue and production from 2018 to 2020.
 

COE’s Victorian Otway Basin (Source: Company Reports)
 
Decent financial performance: COE’s FY17 revenue was $39.1 million, which was up 43% from $27.4 million of previous year. Its significant non-operating items were at $(3.6) million after tax and the statutory net loss after tax narrowed down to $12.3 million as compared with FY16 loss figure of $34.8 million. In FY17, the cash flow from operating activities was $4.1 million which is down from $7.9 million. Its cash and investment amounted to $148.2 million as on 30 June 2017 which was up from $50.8 million as on 30 June 2016. Cash at September 2017 was at $242.3 million. These financial results reflect the costs of acquiring and integrating the gas assets with the supporting systems and approvals in place. During the year, the completion of an over-subscribed capital raised its equity funding of the Sole gas project to $151 million that enabled work to proceed ahead of the finalisation of debt funding. The project is proceeding according to the schedule and the budget.

Attaining a favourable position: COE seems to be now favourably positioned as a gas producer, operator and developer of projects while becoming the holder of a significant volume of uncontrolled gas which is available in the coming 13 years. This also finds some support from the annual production that rose by 105% and 2P reserves that expanded by 290%. COE’s oil and gas production for the year totalled 0.96 MMboe as compared to the previous year’s figure of 0.46 MMboe which is due to the increased output from Otway Basin gas operations. The movement in the oil volume between periods is attributable to the disinvestment of Indonesia operations and the results achieved from the resumption of the drilling in the Cooper Basin during FY17 collectively indicate for maintaining good production levels in FY18. The guidance for FY18 production has been given to be 1.4 MMboe with operating costs in line with earlier figure of $31/bbl.
 

Reserves and Production Trends (Source: Company Reports)

2017 a transformational year: The group shifted from being predominantly a non-operator to be an Operator with respect to the most significant parts of its business encompassing operatorship of offshore exploration, project development and other production operations. It ceased its operations outside Australia with disinvestment and withdrawal from the previously remaining Indonesia and Tunisian interests. It has completed its establishment phase and the restructuring of its asset portfolio, in order to focus on Australia which helped it in generating cash and a portfolio-style gas business. Its asset base now comprises production of gas in the offshore Otway Basin. The Sole gas project is also under construction in the offshore Gippsland Basin and a range of supply contracts with blue-chip gas buyers are also being undertaken. The reserves have increased from 8.7 MMboe to 11.7 million MMboe from 30 June 2016 to 30 June 2017. COE also raised additional equity through two institutional placements and two retail offers. The group also acquired the Victorian gas assets of Santos Limited which established COE as a supplier of gas to south-east Australia and acquired a 50% interest in the operatorship of producing Casino Henry gas assets, a 10% interest in producing Minerva gas field.

Leveraging through key projects: Through the Sole Project, COE has been able to concentrate on its capital and risk exposure to its core competency and there is an upstream of development. In doing so, COE has reduced its project cost from $605 million to $355 million. Meanwhile, the Casino Henry gas project that produces gas and gas liquids from the Casino field in VLC/24 and the Henry and Netherby fields in VLC/30, has demonstrated successful trials to reduce the on-shore plant inlet for the purpose of enhancing flow rates and for recoverable reserves. Casino Henry Joint venture has submitted applications to NOPATA to renew VIC/RL11, VIC/R12 and to vary the work program of VIC/P44. COE’s another prospective project is Manta gas project that has been assessed to contain the contingent resources of 106 PJ of gas and 3.2 MMboe of condensate.
 

Sole Gas Project Schedule (Source: Company Reports)
 
2018 Outlook: COE’s portfolio and capital expenditure plans have been indicated to deliver successive increase in production over the coming three years which will be based on existing assets equities, annual output that could rise from 1 million boe in FY17 to over 6 million. It is expected that in FY19, the Casino well will reap some benefits. The drilling and development of the Manta field in the Gippsland holds the potential for further growth in later years and a lot of the work is yet to be undertaken including the negotiation of new sales and processing of contracts from Otway Basin which will commence from 1 March 2018.
 

Future Events (Source: Company Reports)
 
Updates at Otway Basin: Recently, Beach Energy Ltd through its PEL 494 Joint Venture with Cooper Energy commenced the preparations for drilling a conventional onshore gas exploration well in the Penola Trough, Otway Basin in South Australia and Beach will be supported by the South Australia Government through the Plan for Accelerating Exploration (“PACE”) gas grant scheme which aims to bring new gas to the market within three years. COE had announced that the Casino Henry Joint Venture signed a new gas sales agreement with Origin Energy Retail Limited for the supply from 1 March 2018 to 31 December 2018 and this will replace the existing supply agreement with Energy Australia which will expire on 28 February 2018.

Stock Performance: Lately, COE has been benefitting from favourable commodity price scenario. The group is also tracking well on its’ targets. For instance, COE had successfully completed the acquisition of 65% interest in Vic/L26, Vic/L27 and Vic/L28, and has the necessary production license for achieving its production targets. While the group is inching towards the positive side on its financial gauge, its Return on Equity is also improving over last few years. Given the long-term prospects while the stock price was down 8.6% in the past six months (as at January 09, 2018) followed by a rise of 5% in last one month, we give a “Buy” at the current price of $0.315


COE Daily Chart (Source: Thomson Reuters)

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