Amplitude Energy Limited (AEL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Cooper Energy Limited Orbost Gas Processing Plant Phase 2b Work Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Derek Piper, Head of Investor Relations. Please go ahead.

Thank you, Darcy, and good morning, everyone. Thank you for joining the webcast this morning. Yesterday afternoon, we released a presentation which outlined the upcoming work activities to be undertaken at the Orbost Gas Processing Plant. This morning, Mike Jacobsen and Dean Johnson will talk through the presentation, and we'll take questions at the end. Mike is our General Manager, Projects and Operations; and Dean is our Operations Manager, and both have been very involved in the planning of the Phase 2b works. David Maxwell, our Managing Director, is also here and will make some introductory remarks. We're conscious that our results are out on Monday, so we do ask when it comes time to -- for Q&A that you just keep questions focused on this morning's presentation, please. On that note, I'll hand over to David for some opening comments.

Thanks very much, Derek, and let me add my welcome to everybody that is listening to the call live and those that will listen to it when it is posted later on. It's been a busy week for the oil and gas industry. We prepared today's presentation to convey the reasons why we have a high level of confidence in successful outcomes from what we refer to as the Orbost Phase 2b works. We thought that a separate session focused just on the workforce would be valuable rather than combining this with the broader results presentation, which Derek referred to, and will be on Monday. And we trust that you, with today's messages, get the focus that they deserve and you get to understand the reasons why this confidence from a Cooper Energy point of view. The Phase 2b works harness our learnings from the past 6 months and provide a line of sight to improve stability, less frequent cleaning cycles and higher processing rates in the absence of finding the root cause of foaming and fouling at Orbost. Mike and Dean are here to talk you through the presentation and then answer questions. Both, as Derek mentioned, have been heavily involved in the planning phase of Phase 2b and the reviewing of the testing that's being undertaken. We'll take questions at the end, and I'll now hand over to Mike.

Thank you, David. Good morning, everyone, and thank you for joining the call today. As David said, I'll be running through the pack that was released last night, detailing the works -- the Phase 2 works that will be undertaken at Orbost. I will follow the slides. And I've just moved on to the key messages slide, Slide #2 on the pack. Just at the outset, I'd like to recognize that, certainly, Cooper Energy management team would like to recognize that this has been a frustrating period for investors. The aim of this presentation is to explain what has been happening over the last 9 months, what we have learned and what we are planning to do to address Orbost's underperformance. The key messages that I would like to leave you with today are that our understanding of the Orbost Gas Plant has gradually improved through 2021, and we have learned much. The recent performance and the average gas processing rate has improved through 2021. So for example, the first -- sorry, the first half of this financial -- of the '21 financial year averaged 23 terajoules a day. Since the first of July 2021, we have averaged 40 terajoules a day. The recent improvements are mostly due to the regular cleaning cycles that are now being employed by APA, the operator of the Orbost Gas Plant. The absorbers have regularly demonstrated that they can operate at 34 terajoules a day each when clean. The key to improving performance is to reduce the foaming and the solids accumulation also known as fouling. The Phase 2b works primarily target a reduction in the fouling. Numerous trials have been conducted at Orbost to define the most suitable technology application to remove the sulfur. And independently, the root cause analysis continues. Next slide. Thank you. The Phase 2b works are the works following the Phase 2a works, which were completed at the end of calendar year '20. They were to reconfigure both of the absorbers such that we could run them in series and parallel mode. The Phase 2b works can be broken up or grouped into 2 scope packages. Firstly, the solids removal, which is, as the name suggests, to remove the solids from the process to prevent fouling within the absorbers. The secondary scope is to install spray nozzles within the absorbers to suppress fouling. The cost is estimated up to $20 million, and that is to be shared equally between Cooper Energy and APA, with the Cooper Energy share funded from the escrow account with minimal impact on our cash reserves. Owing to the complexity of the solids removal technology, the lead time is much longer than from the spray nozzles. The spray nozzles will be installed at the end of August, early September, with the first to be installed in that first week of September. And then the solids removal technology will be -- will then be installed in Q3 of FY '22. The main objective is to improve plant stability and performance and to extend absorber cleaner -- clean cycles. Next slide. Thank you. Just to recap on how the Orbost Plant is designed to extract H2S from the main plant. The Sole gas contains H2S, which needs to be removed. The technology uses naturally occurring bacteria to convert H2S into solid sulfur. The bacteria lives in the process solution, which circulates in a closed loop between the absorbers and the bioreactors shown diagrammatically in blue, so the absorbers in blue, and the bioreactors in gray. The absorbers operate at high pressure to absorb the H2S from the raw gas in the solution. The solution then passes into the bioreactors where the bacteria converts the absorbed sulfur into solid sulfur. A small proportion of the solution, sometimes called slip stream, is taken off the loop to remove the solid sulfur from the solution. The solution then returns into the absorbers where the process is repeated. The issues that we've experienced at Orbost, there is -- which has to do with the foaming and the fouling, is the sulfur particles at Orbost are larger than other plants around the world, including Australian plants. These larger sulfur particles settle in the absorbers, which upset the solution flow, upset the gas flow and limit the ability to absorb H2S. And that has required the need to regularly clean out the solid sulfur that lands within the absorbers. Next slide, please. One of the clean -- one of the key learnings from the last 6 to 9 months is that the absorbers, when clean, can process Sole gas very well. Keeping the absorbers clean of sulfur is the primary objective of Phase 2b, and that is demonstrated on the production profile seen on Slide 5. Next slide, please. Talk about the solids removal package, which is the lion's share of the Phase 2b works. The package consists of multiple individual filter cartridges that cycle between filter modes and backwash modes, seen diagrammatically there in yellow. The important point to make here is that all of the solution will now be passed through the filters, whereas previously, a slip stream was taken off to remove the solid sulfur. The solids removal package is designed to remove solid sulfur above the size of 1 micron as being 1,000th of a millimeter. And that has been based on the testing that APA have employed over the last 6 months. All of the solution will now be filtered, as I said, before it reenters the absorbers. The reverse flow backwashes the cartridges after each cycle to remove the sulfur from the system. The technology selection has been based on extensive testing at Orbost using the actual technology that will be used. Over 12,000 liters of the Orbost solution filtered through a single cartridge on test -- has been tested with no performance loss witnessed. The testing also indicates that the solids removal package can significantly extend the time between the absorber cleans and also potentially eliminate the cleans entirely. Next slide. Thank you. This slide demonstrates a number of the tests that have been performed at Orbost recently. The photos on the left-hand side show a fouling simulation test. On the left-hand side of those 2 photos shows the unfiltered solution passing through an absorber simulator. As can be seen at the top of the slide -- or of the photo, rather, the sulfur lands and deposits within the contractor rings within the absorber. This is not good. This is what leads to fouling. It will lead -- it also leads to the breakthrough of H2S and require the absorbers to be cleaned. The slides on the right of those 2 of that pair shows the same simulation but now with filtered solution. And as can be seen, solid sulfur is no longer landing out within the contractor rings. The second photo on the right, so the photo on the far right, shows a simulation of what we believe is happening within the absorber columns. The system foam builds up, comes to the top of the absorbers, and with it, it brings solid sulfur. The red box highlights the solid sulfur that is lifted up within the foam. Next slide, please. The spray nozzles, which is the secondary part of the Phase 2b works, will be installed earlier. The process -- so currently, the solution is gravity-fed through the absorber columns -- to the right. The solution is fed to the top of the absorbers, and it uses gravity to fall through the absorber, contracting the gas as it rises to absorb the H2S. The nozzle that will be installed, the first one to be installed at the end of August. We'll use -- we will spray the solution under pressure. And that process -- so this spraying action is expected to suppress the foam within the absorbers, and it may also have a positive impact on fouling. Sulfur particles have been found within the foam at Orbost, and there is an interrelation between foaming and fouling. Spray nozzles in the first absorber will be installed in late August, with the second to be installed later after the results of the first nozzle are known, most likely at the end of September when the first and the second spray nozzle will be installed. Next slide, thank you, to Slide 9. Key messages that I would like to leave you with today is that the absorbers have proven regularly that they can operate at 34 terajoules a day each when clean. The Phase 2b works is primarily targeted at reducing the fouling, hence, keeping the absorbers clean. Trials have been conducted at Orbost, which have most -- which are best defined the suitable technology that we rolled out to remove the sulfur. Based on these points, we are optimistic that Phase 2b will improve the performance at Orbost and at the very least, extend cleaning cycles. On that note, I would like to open the lines for Q&A.

[Operator Instructions] Your first question comes from Nik Burns from Jarden Australia.

Just wondering how long each work scope here will take in terms of any planned downtime. Should we expect production to be interrupted for a few days or a few weeks for this?

Yes, Nik, it's Michael, I can take that call -- take that question. The first part, the spray nozzles will be undertaken during the regular cleaning cycles, so we won't see production going off during those works. For the solids removal part of the scope, the detailed planning is still ongoing, but we would expect that to be in the range of 3 to 4 weeks.

Got it. And on the solids removal technology, has this been done anywhere else in the world to give you and APA confidence of a successful outcome here?

Certainly, the technology has been used in other applications. It's used widely in water treatment. It's been used around the world and also in Australia widely in that application. It hasn't been used with sulfur that is produced in this type of plant in this [ biotech ] plant. So that's why we've gone to such lengths to test the compatibility to be able to filter the solids that we are -- that are being produced at Orbost and then the ability to backwash it. So yes, the technology is used widely. First time it's been used with this type of sulfur removal plant.

Okay. That's clear. And just one final one. Are the components you're installing here, are they off-the-shelf parts? Or are they being fabricated for you? I'm just wondering, have the parts -- have you ordered the equipment? And any concerns around ordering time given COVID restrictions around the world at the moment?

Yes. Look, Nik, this is -- when they're not -- this is not an off-the-shelf item, but they're standard designs. So the -- so yes, they have been ordered. The large -- or the contract for the large package has been left, and there's a contract out for that now. So all of the components that go into the solids removal are all standard designs, the valves, the cartridges, they're all standard designs, but they need to be ordered. So it's not a case of taking equipment off the shelf and bringing it together. It does need to be [ brought in ]. But the order has been placed, and that ball is rolling.

[Operator Instructions] Your next question comes from Jon Bishop from Euroz.

Just a couple of questions. What's Shell's involvement to this point? And have they sort of the QC-ed the proposed works at all?

Yes. So Shell has the -- sorry, APA has the license with Shell. The joint venture company of Shell [ Pikel ] who is really the custodian of the technology, has been actively involved with APA through the selection of the technology and the modifications to Phase 2b. So the expertise for the technology is generally with [ Pikel ], the Shell joint venture company. So in answer to your question, yes, the owner of the technology has been involved with these Phase 2b works.

And how are they sort of feeling? I mean, obviously, the root cause analysis is ongoing. How are they sort of feeling about performance of the plant? And this obviously is quite unusual. There's anything like this elsewhere. I mean the process of elimination, are you getting any closer from their perspective?

They haven't seen this before, Jon, in other plants. Other plants have experienced foaming and fouling. And they have been -- we're not really so not fouling but certainly foaming. So -- and they have dealt with them, and they've been able to rectify the situation. They haven't seen the extent of the issues that Orbost have seen. They have -- as you know, they've been involved with the root cause analysis since the get-go. They haven't been able to point to the actual root cause. So yes, I think they're probably feeling -- I wish they knew -- they wish that they knew the answers. But the root cause analysis that APA and Cooper Energy jointly kicked off recently or, I guess, a part of the root cause analysis is we've hired a surfactant chemist specialist. That person is based in Australia. And they are going through all of the test results, all of the analysis and working through what they believe to be the issue. Foaming is sort of where they're starting their thinking. So that work is ongoing now, and we expect through the rest of this year to see the results of that work, of that specialist's work. And we're optimistic that, that work will point to us or get us closer to the root cause of the foaming as well as the fouling.

Okay. And then just on the Phase 2b works. There's been some discussion on and off about potentially considering an amine unit. Where is that in the joint venture reckoning at the moment?

Yes. There's been a number of different technologies or a number of modifications that we have looked at. Amine is one of them. I mean that is a total redesign of the Orbost Gas Plant and -- which comes at a cost. It comes at -- so there's a number of options that have been looked at. Amine is one of them. The other option that has been looked at is a third absorber. And if the cleaning cycle, at the very least, can be extended, then a third absorber from the work that we've done is probably the most economic of all the options that we looked at to date.

Okay. And look, just 1 final question, if I might. And this is probably the $68,000 question. Completing this work this year, what is the sort of gut feel as to where this sits? Obviously, each unit, as you've stated, can do 35 terajoules a day once clean. Where do you expect this sort of work to take you to? Is this sustainably above 50? Or is it just too early to say at the moment?