Date: 21 October 2024
Broker: Petra Capital

Overview

Cooper Energy Limited (COE) continues to show robust performance driven by its strategic initiatives in production and ongoing projects. As per the latest report, the company has demonstrated significant improvements in production volumes, particularly from its Orbost Gas Processing Plant, positioning it well against its FY25 production guidance.

Orbost Production Performance

• Record Production Levels: Orbost continued to set new production records, achieving an average production of 62.3 TJ/d in 1Q FY25, marking a 19% improvement compared to the previous best quarter (3Q FY24 with 52 TJ/d).
• Operational Efficiency: Improvements at Orbost included extending the period between necessary absorber cleans to up to 10 weeks and minimizing downtime, with one instance of a quick 8-hour shutdown. Historically, shutdowns averaged over 30 hours.
• Production Records: The plant achieved several records in 1Q FY25, including the highest ever monthly average of 66.2 TJ/d and a record average 90-day rate of 63.8 TJ/d. These milestones demonstrate the facility’s ability to maintain high output levels consistently.

Athena Field Production

• Stable Output: The Athena field, located in the Otway Basin, reported 1Q FY25 production of 10.3 TJ/d. The production follows a stable decline curve, typical for mature fields approaching the end of their productive life. The performance aligns with expectations and projections.

FY25 Production Guidance

• Strong Start to FY25: With a group production of 74.5 TJe/d in 1Q FY25, Cooper Energy is on track to meet or exceed its FY25 guidance range of 62 – 69 TJe/d. Petra’s forecast for the year stands at 71 TJe/d, reflecting optimism about the company’s ability to maintain strong production levels.
• Conservative Outlook: Given the solid performance in the first quarter, the guidance appears conservative. Cooper Energy needs an average of 62 TJe/d in the remaining quarters to hit the midpoint of its annual guidance.

East Coast Supply Project (ECSP)

• Development Plans: COE continues to progress the ECSP, focusing on a potential 3-well development. However, the execution of this plan hinges on finding a partner to fund 50% of the development costs. If no partner is found, the plan may revert to a single-well project.
• Drilling Campaign: A firm drilling slot is scheduled for late 2025, with two optional slots also planned, emphasizing the company’s ongoing commitment to expanding its production capacity.

Financial Updates

• Revenue and Earnings Adjustments: Based on 1Q FY25 results, the revenue forecast for FY25 was adjusted down by 2% to $258 million due to lower-than-expected pricing. Despite this, the company remains well-positioned to achieve strong EBITDA figures, with a forecast of $162 million for FY25.
• Net Debt Position: As of the end of 1Q FY25, net debt stood at $279 million, which represents the peak gearing for the year. The company anticipates reducing net debt throughout the remainder of FY25, projecting it to fall to $220 million by year-end. This is based on internal cash generation, existing debt facilities, and the potential for customer prepayments.

Key Initiatives and Future Prospects

• Debottlenecking Initiatives: COE is actively working on debottlenecking projects to improve gas flow and reduce inlet pressure, which could potentially increase production rates to approximately 70 TJ/d. More extensive improvements aiming for mid-70s TJ/d would require additional capital investment.
• Planned Maintenance: The company has scheduled a brief planned maintenance shutdown in 2H FY25, which is factored into the annual production and financial forecasts.
• Joint Venture Opportunities: COE is exploring opportunities to bring in a joint venture partner for the ECSP. The outcome of these discussions could influence the scale and funding of future development projects.

Conclusion

Cooper Energy Limited’s performance in 1Q FY25 indicates a strong start to the fiscal year, with record production levels at Orbost and consistent output from Athena. While financial forecasts have been adjusted slightly, the company’s strategic initiatives and ongoing projects suggest a positive outlook for the remainder of FY25.