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) is a junior energy player that has established low cost operations in the recent times. Its East Coast Gas Exposure along with target to witness 4X growth in annual production from FY18 through FY20 in view of the Sole and Henry assets, is expected to drive more momentum with next leg of growth expected from Otway and Manta assets.

June quarter performance: Cooper Energy Ltd. (ASX: COE) delivered a solid result for June 2018 quarter with sales revenues rising 24% year on year (yoy) to $19.6 million against earlier quarter while they surged 51% as compared to prior corresponding period (pcp). Rising gas production coupled with better prices for gas and oil drove the performance. Moreover, the June quarter results indicated for full quarter of sales with regards to the Casino Henry joint venture’s new gas supply agreement, which was said to have started in March 2018. Accordingly, the sales revenue rose 71% yoy to $66.7 million during fiscal year of 2018 boosted by better volumes and prices for both gas and oil. As per the production performance, production rose 6% to 0.35 million boe during the quarter against 0.33 million boe in pcp on the back of the reinstatement of Casino-5 at the end of April after workover, despite Cooper Basin oil production pressure. The group’s production of 1.49 million boe for the full year, has reflected a rise of 54% against pcp. Full year contribution from the Casino Henry and Minerva assets drove the performance. As per the balance sheet position of the group, cash and borrowings reached $254.3 million as at June which was not much of a change as compared to $254.9 million at the beginning of the quarter. Cash receipts comprised $48.1 million from exited parties to the Basker Manta Gummy oil project to fund their share of abandonment work on the disused legacy infrastructure on the project. Cash capital expenditure fell to $38.7 million against $54.2 million in earlier quarter but rose as compared to $17.4 million in the pcp. Overall capital expenditure was reported to reach $79.2 million basis development activities in the Otway Basin (Casino-5 workover) and Gippsland (Sole Gas Project).


Production outlook (Source: Company reports)

Production performance by segment: With regards to the production performance by segment, Cooper Energy’s share of production from the offshore Otway Basin had 1.68 PJ of gas and 1.23 kbbl of condensate. Casino Henry comprised 1.40 PJ of gas and 0.51 kbbl of condensate against the earlier quarter figure of 1.20 PJ and 0.60 kbbl. Gross daily production from Casino Henry since the workover averaged 33.2 TJ/day from 26.7 TJ/day in the March quarter. The Minerva gas field contributed 0.28 PJ of gas for the quarter. Total Minerva production averaged 30.8 TJ/day (Cooper Energy share 10%) against 33.3 TJ/day in earlier quarter, on the back of natural field decline. Further, 0.72 kbbl of condensate from Minerva added to June quarter production compared with 0.71 kbbl of the previous quarter. Cooper Energy’s share of oil production from its Cooper Basin tenements fell to 63.6 kbbl (average 699 bopd) from 70.5 kbbl (average 783 bopd) in earlier quarter. But Production rose 8% against pcp production of 58.8 kbbl. Production attributable to Cooper Energy’s 25% interest of the PEL 92 Joint Venture in the June quarter accounted for 61.1 kbbl of oil representing an average daily rate of 672 bopd. In comparison, production from PEL 92 averaged 749 bopd in the previous quarter and 608 bopd in the June quarter 2017. Positive progress of 5 well infill drilling program at the Callawonga field drove this performance. Meanwhile, Production from the PPL 207 Joint Venture (Worrior oil field) contributed remaining Cooper Basin production. Cooper Energy’s share of PPL 207 June quarter production was 2.5 kbbl, against 3.1 kbbl in the previous quarter.

Sole Gas Project Progress: Sole Gas Project has been completed by about 56% as at 30 June 2018 and the group incurred a capital expenditure of $189 million on the offshore project. This progress has the offshore project within schedule and budget for the P50 estimated project cost was $355 million. Sole-3 production well is now ready for the flow back test which was completed with production tubing and sand screens over a near-horizontal 97 metre completed section of the Top Latrobe Group sandstone reservoir. Flow rates were constrained by surface well test equipment to a maximum of approximately 48 MMscf/day, (million standard cubic feet per day) through a 104/64” choke. Over a 9-hour main flow period, through an 88/64” choke, the flow rate averaged over 38 MMscf/day. Post-test analysis of the measured data showed Sole-3 capability to produce above the maximum Orbost Gas Processing Plant design rate of 68 TJ/day under production conditions. Sole 4 had been drilled to the intermediate casing point as planned at approximately 530 mMDRT (measured depth rotary table) at 30 June.


Sole Gas Project Progress (Source: Company reports)

Hedging activities: The group uses hedging to protect against downside oil price scenarios while retain partial exposure to higher oil prices. Hedging as at 30 June 2018 is as follows:


Hedging to offset the commodity price volatility (Source: Company reports)

Guidance: For fiscal year of 2019, the group expects to witness consolidation as the Sole Gas Project is finished while preparations are being made for an offshore drilling campaign to start the December quarter 2019 (subject to rig availability). The group forecasts a production of over 1.4 million boe from existing operations for fiscal year of 2019. This production guidance does not include gas produced from Sole, which is due to starting suppling gas to the Orbost Gas Processing Plant for commissioning purposes in the final quarter of the financial year. The production expectation incorporates gas production of over 6 PJ and oil production of over 230,000 barrels of oil. At the project level, the Casino Henry joint venture expects lifting output in FY19 while slightly lower output is expected from the Minerva and PEL 92 joint ventures. The group forecasts to incur a Capital Expenditure of $183 million for FY19. Cash capital expenditure for the year would comprise payment for capital expenditure incurred late in FY18 and paid in FY19 and is expected to total $234 million.


Capex by region (Source: Company reports)

Stock performance: The shares of Cooper Energy rose over 16.22% in the last four weeks alone (as of July 24, 2018) leading to a total rise of over 30.3% in this year to date. The group upgraded production guidance and is within schedule and budget for their core project, the offshore Sole Gas Project. The group’s workover at Casino and the new Otway gas contract is driving their revenue and production during the quarter. The successful completion of the Sole-3 production well is a major milestone to the firm while their production well is ready to go with proven capability for project requirements and with performance and gas composition entirely in line with project expectations. The project continues to progress within the group’s budget and schedule, inclusive of the completion of Sole-3 after year end. Sole-4 drilling has resumed and is progressing well. The group’s gas tendering during the quarter has confirmed the south-east Australian gas market which is continuing to evolve consistent with their strategy. The group sees the securing of agreement with BHP to acquire the Minerva Gas Plant to be a great advance to their plans for the development of an Otway Basin supply hub. We believe there is more potential in the stock despite their recent rally. The group’s hedging activities would also help protect their portfolio from the rising concerns over the recent commodity price fluctuations. We give a “Buy” recommendation on the stock at the current price of $ 0.45 (up 4.6% on July 25, 2018).
 

COE Daily Chart (Source: Thomson Reuters)

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