Gulf Oil and Gas accountACCOUNT

Central Petroleum Announces Activities Report

Source: www.gulfoilandgas.com 10/30/2020, Location: Not categorized

Highlights
• Cash balance at the end of the September quarter (the quarter) was $26.3 million, up slightly from $25.9 million at 30 June 2020, with:
? $4.3 million net cash flow from operations (before exploration and finance costs)
? $2.6 million in net cash flow from operations (after exploration and finance costs)
• Principal repayments under debt facilities were $1.0 million, Macquarie pre-sale gas deliveries totalled 437 TJ, and 202 TJ of previously over-lifted gas was returned.
• Net Debt was $44.6 million at 30 September, down from $46.1 million at the end of June and $62.4 million 12 months ago.
• Sales volumes were 2.62 PJE (Petajoule equivalent), up 3.6% from 2.53 PJE in the June quarter, largely due to higher spot and as-available demand.
• Sales revenues totaled $14.8 million, up 5% from $14.0 million in the June quarter, reflecting higher realised oil prices and sales volumes.
• Unit sales price across the portfolio averaged $5.64/GJE, up from $5.55/GJE in the June quarter, reflecting higher realised oil prices which recovered most of the decline experienced in the previous quarter.
• Dukas prospect - Central reached agreement with Santos on the forward plan for the Dukas exploration well, targeting completion in 1H 2022 and a possible free carry of $3 million of Central’s future drilling costs.
• Amadeus to Moomba Gas Pipeline – Central executed a Memorandum of Understanding with Australian Gas Infrastructure Group with the aim of becoming a foundation customer of a proposed new gas pipeline from Central’s Amadeus Basin fields to the Moomba gas hub, providing a more efficient route to the larger east coast gas markets.
• New Gas Sales Agreement (GSA) - In October 2020, a new GSA was signed for the sale of 3.5 PJ of gas over CY2022 and CY2023, to be pre-paid in full in December 2020.
• Extension of loan agreement – In October 2020, Central reached agreement to extend its $69.8 million finance facility for a further 12 months to 30 September 2022.
Message from Managing Director and CEO
After the challenges of the last two quarters of FY2020, the September quarter provides cause for optimism, with key positive commercial developments since June providing momentum for our growth strategies. The recently-announced Federal Energy Plan provides a clear emphasis on the development of gas resources as a transitional fuel and the Amadeus Basin is emerging as a credible cost-efficient solution. The Amadeus Basin has several attractive attributes when compared to unconventional basins, being largely under-explored yet having been a proven, reliable and low-cost oil and gas production source for over 30 years.

Our agreement to work with Australian Gas Infrastructure Group as a potential foundation customer for the proposed Amadeus to Moomba Gas Pipeline (AMGP) promises to provide the single biggest paradigm shift for Central’s Amadeus projects. The AMGP promises a shorter, more cost-efficient route for Central’s gas to the deeper, higher-priced southern markets. The gas resources of the Amadeus Basin have another opportunity to become a cost-efficient part of the solution to Australia’s looming gas shortfall along the east coast.

In addition to the AMGP agreement, we have taken other key steps to progress our growth strategy. In August we reached agreement with Santos, our JV partner in the promising Dukas prospect, on a pathway for recommencing a drilling programme in early 2022 with a potential partial carry of well costs.

In October we announced the sale of 3.5 PJ of gas, with proceeds paid up-front and used to fund drilling of two new production wells and recompletion of four other wells within the productive Mereenie Field in 2021. These new wells could make an additional 40 PJ of gas (20 PJ net to Central) available for marketing from 2022, including into markets potentially accessible from the proposed AMGP from 2024.

We also took the initiative to extend the term of our finance facility by 12 months to September 2022. With almost 2 years of term remaining, this reduces refinancing risk, and combined with our cash-generating production assets, provides a solid financial base from which to progress our growth activities.

We continue to progress and refine the Amadeus exploration programme and the associated farm-out process remains active with encouraging progress.

Our resilient production activities continue to generate positive cash flows, with slightly higher gas demand and a rebound in the oil price contributing to an improvement on the June quarter’s results. Overall, we were net cash positive in the September quarter, with $26.3 million of cash on hand at quarter’s end providing a solid base from which to position the Company to maximise long-term shareholder value.

Production Activities
SALES VOLUMES
Sales volumes were 2.62 PJE (including 0.18 PJ of overlift repayment gas), up 3.6% from 2.53 PJE in the June quarter, as demand for spot and as available gas improved. Weak customer nominations from the Dingo field adversely impacted sales volumes, but any contractual shortfall is expected to be fully recovered via the take-or-pay mechanism in January 2021.

Firm long-term gas supply contracts accounted for 94% of September quarter volumes. The current portfolio of firm gas supply contracts has various terms that extend beyond 1 January 2023. Challenging market conditions are anticipated to persist for at least the next couple of quarters, with sales during this period comprising largely of firm contracted volumes.

New firm sales contract
In October 2020, Central signed a new agreement for the sale of 3.5 PJ of gas over calendar years 2022 and 2023. The new gas sale agreement increases Central’s firm contracted gas sales to 7.5 PJ in CY2022 and 5.2 PJ for 2023, demonstrating strength in the term gas market from 2022 whilst preserving Central’s firm contracting capacity for deliveries through the proposed AMGP from 2024.

SALES REVENUE
Total sales revenue in the September quarter was $14.8 million, up 5.3% from $14.0 million in the preceding quarter, reflecting the combination of higher sales volume and oil prices over the quarter.
Average unit prices were slightly higher (1.6%) during the quarter, as oil prices recovered (up 31%) from the historic lows last quarter. Average unit pricing for gas was steady, reflecting the fixed-price nature of Central’s term sale contracts.

MEREENIE OIL AND GAS FIELD (OL4 AND OL5) – NORTHERN TERRITORY
CTP - 50% interest (and Operator), Macquarie Mereenie Pty Ltd - 50% interest
The production capacity of the Mereenie field was approximately 36 TJ/d (100% JV) at the end of the quarter. Mereenie field production was 13% higher than the previous quarter, averaging 29.1 TJ/d (100% JV) (June quarter: 25.8 TJ/d) as demand for spot and as-available gas improved. The field remained market-constrained and operating below capacity, reflecting challenging market conditions.

Planning activities continued for recompletion of four existing wells and two new crestal production wells in 2021 which are expected to return the Mereenie field’s gross production capacity to over 45 TJ/d.

PALM VALLEY (OL3) – NORTHERN TERRITORY
CTP - 100% interest
Palm Valley field production capacity was 9.0 TJ/d at the end of the quarter and actual production averaged 10.0 TJ/d, down 5.7% from the June quarter due to natural field decline.

DINGO GAS FIELD (L7) AND DINGO PIPELINE (PL30) – NORTHERN TERRITORY
CTP - 100% interest
The Dingo gas field supplies gas directly to the Owen Springs Power Station in Alice Springs. Average gas production was 2.9 TJ/d, 7% lower than the previous quarter’s average of 3.1 TJ/day due to lower customer nominations. The daily contract volume of 4.4 TJ/d is subject to take-or-pay provisions under which Central will be paid in January 2021 for any gas nomination shortfall by the customer.

Development Activities
RANGE GAS PROJECT (ATP 2031) – QUEENSLAND
CTP - 50% interest, Incitec Pivot Queensland Gas Pty Ltd (“Incitec”) - 50% interest The 77km2 tenement (ATP 2031) is strategically located in the heart of Queensland’s coal seam gas (CSG) province which hosts thousands of CSG wells producing from the same coal measures at similar depths. The Range Gas Project contains an estimated 270 PJ of 2C contingent gas resource (Central share 135 PJ). Activity to progress a three well appraisal pilot and FID for the Range Gas Project was paused in late March 2020 in response to business uncertainty associated with the COVID-19 pandemic and severe market downturn.

Central remains committed to this important project and has been actively exploring opportunities to recommence Range activity as soon as business conditions permit.

The Surat Basin remains one of Australia’s premier gas production precincts, with the Range Gas Project positioned for development to take advantage of an expected shortfall of gas supply in eastern Australia from 2023.

Amadeus to Moomba Gas Pipeline
In August, Central (as a potential foundation customer) executed a Memorandum of Understanding with our Mereenie JV partner, Macquarie Mereenie Pty Ltd and Australian Gas Infrastructure Group (AGIG) to progress towards FID for the development of a new gas pipeline from the Amadeus Basin to the Moomba gas hub.

The proposed Amadeus to Moomba Gas Pipeline (AMGP) would cut 1,250 km from the current route to Moomba, offering more costefficient access to the deeper, higher-priced gas markets of south-eastern Australia. The AMGP is planned to be a 950 km pipeline, up to 16-inch in diameter with free-flow capacity of 124 TJ/day (45 PJ per year), and would be expandable with compression.

The AMGP project is already well defined, having previously completed front-end engineering and design as the subject of a firm offer by AGIG under the North East Gas Interconnect selection process conducted in 2015. The AMGP project is targeting FID in late 2021, which AGIG advises would enable commencement of construction in 2022 and deliveries of first gas in Q1 of 2024.

Central’s operated fields in the Amadeus Basin have approximately 200PJ of uncontracted conventional gas reserves (gross JV) which can be supplied to market through the AMGP.

In addition to the existing reserves, Central’s planned Amadeus Basin exploration program to be completed in 2021 consists of three exploration wells and two appraisal targets, aiming to mature over 100 PJ of 2C resources (gross JV) and 590 PJ of prospective gas resources (mean unrisked, 100% Central). Gas discoveries resulting from this exploration program, as well as all of Central’s future NT exploration activity in the underexplored, but highly prospective Amadeus Basin (such as Dukas), would directly benefit from the AMGP.

Exploration Activities
AMADEUS EXPLORATION PROGRAMME – NORTHERN TERRITORY
Central’s planning is well-advanced for a major exploration programme in the Amadeus Basin. Work continued on delivering up to three high potential gas prospects for drilling and an appraisal program of the Stairway Sandstone at Mereenie. If successful, the programme has the potential to more than double Central’s gas reserves.

Work to progress the exploration programme continued during the September quarter, finalising well designs and lodging applications for the various approvals required for exploration in the Northern Territory.

FARMOUT PROCESS ADVANCED
Central’s formal farm-out process to fund the forthcoming exploration programme continued throughout the quarter, having attracted strong interest from several local and international industry specialists. Central and our advisors, Flagstaff Partners, have been assisting interested parties with their due diligence on the exploration programme and associated operating assets (Mereenie, Palm Valley and Dingo). Whilst COVID-related travel restrictions have impacted the farmout schedule, including more detailed due diligence, discussions are progressing well with a view to completing a farm-out transaction to fund the exploration program in a way that is value-accretive to Central’s shareholders.

DUKAS-1 (EP112) – NORTHERN TERRITORY
CTP – 30%, Santos (and Operator) – 70%
Dukas-1 is a gas prospect with multi-TCF potential located approximately 175 km south west of Alice Springs. The structural closure appears to be in excess of 400 km2, making it one of the largest-known onshore conventional gas prospects in Australia.

The Dukas-1 exploration well was suspended at a depth of 3,704m in mid-2019, after encountering hydrocarbon-bearing gas from an over-pressured zone close to the primary target. In July 2020, Central and Santos reached agreement on a forward plan for Dukas and during the quarter, work progressed on assessing various options to intersect the target formation using specialised highpressure drilling equipment. A decision on the preferred option is expected by the end of 2020. Central and Santos are targeting 1H of CY2022 to drill the follow-up to Dukas-1. This schedule allows the opportunity to consider the various options and associated well designs, permits and approvals, and sourcing of specialist high-pressure equipment and drill rig.

Santos can elect, prior to 31 July 2021, for Central to be carried for the first $3 million of its well costs ($10 million gross JV). In return for a carry by Santos, and if Santos so elects, Central will transfer an additional 30% equity in EP82 to Santos (excluding the Orange prospect in which Central has a 100% interest). This would ensure consistent equity interests across all Central/Santos JV tenures in the middle Southern Amadeus Basin. Santos would also pay to Central certain back-costs associated with the transferred interest for field activities conducted in EP82 from July 2020.

Should Santos not elect to carry Central’s expenditure in Dukas in exchange for the option to have 30% equity in EP82, then the equity interest in EP112 (with Dukas-1) will revert from 70% Santos / 30% Central to 55% Santos / 45% Central.

EP115, AMADEUS BASIN – NORTHERN TERRITORY
CTP – 100% interest
Following promising indications and technical data derived from the Dukas-1 drilling results to date, Central is now considering the opportunity to accelerate exploration in EP115 which contains several other large subsalt leads. Central has commenced planning to acquire a minimum of 500km of 2D seismic data to identify a drilling location.

Health, Safety and Environment
Central recorded one MTI / LTI during the quarter and no reportable environmental incidents. The Company’s TRIFR (Total Recordable Injury Frequency Rate) is currently 4.2, reflecting just one incident in more than a year.

Corporate
CASH POSITION
The Group held cash of $26.3 million at the end of the quarter, slightly higher than the $25.9 million at the end of June. Central was able to maintain a solid cash balance over the quarter, with a net cash inflow of just $0.4 million at a Group level, after payment of all costs and debt service. The net cash inflow from operations for the quarter was $2.6 million after exploration and interest costs. Key amounts included:
• Cash receipts from customers during the September 2020 quarter of $12.6 million, higher than the previous quarter due to higher gas sales volumes and higher realised oil prices (no cash is received for the 437 TJ of Macquarie pre-sale gas delivered during the quarter)
• Exploration preparation costs of $0.8 million for the forthcoming Amadeus exploration program and planning for Dukas drilling
• Cash production costs of $6.7 million for the current quarter, inclusive of $1.0 million of payments associated with joint venture gas balancing arrangements
• Staff costs, including separation costs of $1.3 million, with savings to be realised in future periods • Receipt of JobKeeper subsidies of $0.9 million
• Interest costs of $1.0 million, reflecting the benefit of reducing debt levels and softening interest rates.

The debt facility is efficiently priced (5.6% at quarter end) and tied to the variable BBSY interest rate which remains at historic low levels.

Principal repayments under Macquarie debt facilities totalled $1.0 million during the quarter. The total outstanding balance of the Macquarie facilities was $69.8 million at quarter end. Fees, salaries and superannuation contributions paid to Directors during the quarter amount to $0.292 million as disclosed at item 6.1 of the Appendix 5B. The statement of cash flows for the quarter and financial year to date are attached to this report at Appendix 5B.

EXTENSION OF FINANCE FACILITY
In October 2020, subsequent to the end of the quarter, Central reached agreement (subject to certain conditions precedent) to extend the $69.8 million debt facility with Macquarie Bank for another 12 months to 30 September 2022.

There is no change to facility pricing and the finance facility will have a restructured repayment profile which continues repayments at $1.0 million per quarter for the next four quarters, increasing to $2.0 million per quarter on and from 31 December 2021 through to the end of the facility term in September 2022.

BOARD MATTERS
The Board welcomed Mr Michael (Mick) McCormack to the Board in September. Mr McCormack retired last year as Managing Director and CEO of the APA Group, one of Australia’s leading energy infrastructure businesses and ASX Top 50 Company. Mick’s insight into the Australian domestic energy sector and his hands-on experience, including developing gas pipelines and gas processing infrastructure across Australia, will be invaluable as Central looks to both develop the Range Coal Seam Gas Project in Queensland and progress the proposed Amadeus to Moomba Gas Pipeline which promises to provide a more direct and cost efficient route to the larger east coast markets from Central’s gas fields in the Northern Territory

GAS MARKETING
Central continues to actively market gas to domestic customers, particularly in relation to current non-firm capacity.

In October 2020, Central signed a new agreement for the sale of 3.5 PJ of gas over calendar years 2022 and 2023. Under the gas sale agreement, Central will, subject to certain conditions precedent having been met, be paid in advance for the gas as a lump sum in December 2020 and supply 3.5 PJ of gas to Macquarie (or its nominee) over calendar years 2022 and 2023. The gas sale agreement removes Macquarie’s existing option to purchase additional gas in 2022 and 2023.

The funds for the gas paid in advance will be used by Central to fund its share of costs associated with recompleting four existing wells to produce gas currently behind pipe and drilling two new crestal production wells at the Mereenie field in 2021 (subject to JV approval). The increased production capacity resulting from this investment will increase the quantity of firm gas available for marketing from 2022, including into markets potentially accessible via the proposed AMGP from 2024.

Spot and as-available sales are expected to continue to be weak through 2020, with a recovery potentially gaining traction next year. The market for firm term gas sales is expected to remain resilient, particularly in relation to gas supply from 2022.

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