Amplitude Energy Limited (AEL) Earnings Call Transcript & Summary

Good day, and welcome to the Cooper Energy Limited operations update. [Operator Instructions] and finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome David Maxwell, Managing Director, to begin the conference. David, over to you.

Thanks very much, and let me add my welcome to those listening live and also those that will listen later when it's posted on our website. And as the moderator said, this is David Maxwell. We've received a number of questions and queries about the Orbost Gas Processing Plant, which is now owned 100% by Cooper Energy. The plant was by APA, and they operate the plant until the Major Hazard Facility license is transferred to ourselves. That's a process which is mandated and a process which takes a particular period of time. The purpose of today's webcast is to provide information on our plans for the plant and the well-qualified people who have been assembled: firstly, to manage the transition of the plant to Cooper Energy as soon as possible and, obviously, in a court with the regulator's process; secondly, to continue the improvement of the existing plant operations. And when we talk about improvement, we talk about stability and rate and further increase and optimize the gas processing rate. So those 3 areas will be covered on the webcast this morning. You'll note we talk about rates on the call on the webcast. And when we talk about rates, we talk about the average rate. Therefore, rates on a day may be higher or lower than what is referenced when people talk about an average rate. At the end of the presentation, we'll open for questions. The presentation will be quite short. And the real value, I think, will be in the questions. In addition to those who will speak to the short presentation, we have others available to answer specific technical or operations questions if needed. I'm going to draw your attention to the disclaimer slide and the paragraph on forward-looking statements. As we're sharing with you today, our plans on the Orbost Gas Processing Plant and the approach that we're taking to improving stability and processing rates when we become the operator of the plant. I'm now going to hand over to Mike Jacobsen, our General Manager of Projects and Operations, to take over from here.

Thanks, David, and good morning, everyone, on the call. Before we get into Cooper Energy's strategy for Orbost, I would like to take the time to explain some of the recent planned performance issues. We had a solid month in September while APA had the polisher unit back online. The average rate across the month was nearly 56 terajoules a day. Then in October, the polisher was taken off-line due to higher differential pressures, which was not totally unexpected. This decreased the average rate for the month to 46 terajoules a day. At the start of November, a series of plant trips caused several unplanned outages. These trips were not related to the sulfur processing part of the plant, which has seen much improved and predictable performance this financial year. The recent trips have mostly been with the power generators. This succession of trips has contributed to slugging issues in the plant front end before the sulfur processing section. The slugging issues have limited production rates to around 45 terajoules a day. During October, the media in the polisher was replaced and the unit brought back online on the 4th of November, and APA advised they will take a short shutdown over the weekend to clean out some of the filters in the plant front end, and we expect the recent issues to be resolved thereafter. While these events are all part and parcel of gas plant operations, it is fair to say that there has been more than normal in this short time period. While we do build in allowances for trips into our forecasts, the number of trips over this short time frame has been very frustrating. My team and I give great credit to the team on the ground at Orbost for responding quickly to identify the faults, taking corrective action and consulting with us. I want to stress that this recent spate of trips does not point to a systemic issue at the plant, and we do not expect this to continue. Just to restate, the recent planned trips are not related to the sulfur processing part of the plant, which gives us the confidence to expect a quick return to the higher rates seen in September. Moving into next week and next month. Day-to-day plan is for the plan to return to the 21-day absorber cleaning cycle with the polisher online and polisher media change-out every 30 to 45 days. This is expected to give an average rate across Q3 FY '23 in the low to mid 50 terajoules per day. This compares to the FY '23 average to end October of 50 terajoules per day. Next slide, please. What we will spend some more time on today is to outline our strategy to deliver higher rates at Orbost with improved reliability and greater stability. Our strategy is based around a 3-pronged approach, as you see on this slide, all running concurrently, starting firstly with the transition of operatorship to Cooper Energy; secondly, operational excellence to deliver reliable production from the existing plant, which includes the solids removal package. And thirdly, production optimization, which will optimize the plant configuration for the medium and longer term. But first, I would like to introduce key members of the team who will help deliver the strategy. Next slide, please. The strategy is delivered by our people working in 4 main categories as shown on this slide. The transition team is tasked with Cooper Energy becoming the operator of the Orbost Gas Plant as quickly as possible. Ilija Grgic leads his team of nearly 20 people. Ilija has over 25 years of experience working in technical and asset management roles for the likes of Shell, Chevron and ExxonMobil. He led the Shell Regional Reliability Excellence team in the Upstream and Integrated Gas Business and also headed up engineering at Geelong refinery for Shell. We will hear from Ilija shortly. The operations team is headed up by Dean Johnson. Dean has over 20 years of experience in gas plant operations and leadership, working previously with BHP, Lochard and KBR. Dean has previously held roles as plant manager at the Iona Gas Plant and at the Minerva gas plant. We'll also hear from Dean shortly. Thirdly, Nathan Childs, who leads our technical and engineering function in support of the operations and project teams. Nathan has over 25 years of experience in the oil and gas industry in major organizations, including ExxonMobil and Santos. Previous roles include VP Production Midstream with Santos overseeing the performance of the Moomba and [indiscernible] gas and liquids processing plants. Mark Ripper, our engineering services team leader, brings 23 years of experience in operations, project management and engineering leadership in oil and gas with ExxonMobil and in the paper industry. Previous roles include refinery technical manager and process engineering team leader at the Altona Refinery. Our technical team will lean on external experts for specialist work streams as required, which includes [indiscernible] developers of the fire pack process that is used at Orbost and a surfactant chemistry expert. At this point, I will ask Ilija and Dean to provide more details on our 3-pronged strategy. Next slide, please, and over to you, Ilija.

Thank you, Mike. I'll focus on the integration plans currently being executed in transitioning of the Orbost Gas Plant into Cooper Energy's based business. As introduced by Mike, my experience includes senior technical leadership roles within Victoria on Major Hazard Facilities along with other oil and gas processing expertise in Australia and internationally. Also, as Mike mentioned, this includes the role of leading the engineering, maintenance and projects team at [indiscernible] Shell, now Viva Energy Oil Refinery in Geelong, Victoria, as well as asset engineering and operations support of the OMV assets at Maui and Pohokura in New Zealand, to name a couple. APA continues to be the operator of the Orbost Gas Plant whilst we prepare all of our regulatory approval submissions and organizational readiness for Cooper Energy operatorship in the second half of FY '23. This is a standard process and a process used whenever a facility which requires a Major Hazard Facility License to be transferred from one party to another. Cooper Energy went through the same process when the Athena Gas Plant was successfully transferred from BHP to Cooper Energy. The Major Hazard Facilities License transfer submission will be made in early December 2022, in the next week or so. The consultative nature of the approval process with WorkSafe Victoria, this reassures Cooper Energy that we will receive continuous engagement with WorkSafe Victoria on the verification steps being undertaken and then we are and will be on track to achieve the Major Hazard Facility License approval in second half of FY '23. Cooper Energy has existing relationships and experience with the approval of Athena Gas Plant Major Hazard Facility Licence as well as APA currently holding compliance in Major Hazard Facility Licence for the Orbost Gas Plant. We have had and will continue to have significant engagement with WorkSafe Victoria across all levels of WorkSafe Victoria, including the Director of Facilities, Simon Farrar. The integration team has significant experience in transitioning, updating and operating under the Major Hazard Facility License in Victoria and across Australia. This has enabled Cooper Energy to prepare a very detailed, comprehensive and technically credible submission to WorkSafe Victoria. Concurrently, a dedicated and experienced technical support team is being established and onboarded, ready for operation support and plan to improving initiatives, as mentioned earlier by Mike. The caliber of resources is extremely high with experience in complex production assets seen as essential and evident in key positions currently filled, such as Mark Ripper, mentioned earlier. Cooper Energy continues to monitor APA's operational performance during the short term prior to operatorship transfer to Cooper Energy, as production returns to periodic absorber cleaning and polisher media change, in line with Mike's earlier comments. As part of this process, we are in regular contact with the APA operations team on site and those supporting the operations team. Recent events have shown APA's continued dedication to improving operational performance and reducing the number of these unplanned events. This is being undertaken with added assistance from Cooper Energy as Cooper Energy's technical support organization has and continues to grow. I will now hand over to Dean Johnson to discuss our drive to operational excellence post Major Hazard Facility License transfer. And thank you.

Thanks, Ilija. A key part of the strategy for improving Orbost performance and ensuring safe and stable operations is to build on the work of APA to date and instill a continuous improvement mindset and disciplined operating model. These aspects will be supported by an expanded operations and technical support team, along with having Cooper Energy leadership at the plant at the time of the Major Hazard Facility transfer. Disciplined operations means having the right people, processes and systems in place, which will be delivered through integration and then executing effectively and efficiently from that point forward. Having our own people in place to lead this execution allows us to drive focus in the areas that not only are the most value for Cooper Energy, but to do this safely, more quickly and efficiently and in the Cooper Energy way for both the plant and our people. Operational discipline allows people the time and space to focus on improvement rather than seeking to continuously solve the media issues. This drives outcomes where we're able to address the incremental improvements that not only make our assets safer, but more efficient and effective. Addressing the numerous opportunities we expect will lead to improved plant reliability, predictability and stability and, ultimately, higher overall uptime. An example of the expected improvement initiatives that will be prioritized and addressed include the commissioning of the sulfur removal package. This involves onboarding a construction and commissioning team to install the final piping tie-ins, which will require a brief shutdown, testing all the new equipment and then integrating the fluid flow into the system as we transition the unit into full operation. Another example is the ongoing optimization of the various plant parameters involved in the sulfur removal circuit. This will include the involvement of our in-house technical personnel, supported by external expertise as needed such as a surfactant expert. This work will be focused to reduce or eliminate the timing failing in the sulfur removal system. An outcome of the targeted focus on achieving safe and stable operations at the plant will be the delivery of higher overall production in a more stable and predictable way. My team and I are very excited to bring Orbost Gas Plant fully under our control and stewardship. As an operations group, and personally, we relish the challenge and look forward to ongoing safe production and improving rate of reliability and stability. I'll now hand back to David.

Thanks very much, Mike, Ilija and Dean. And as I said, at the outset, there's 1 or 2 others available as well to answer questions. So at this point, recognizing these 3 separate work streams here. We open the lines for questions.

[Operator Instructions] And your first question comes from the line of Gordon Ramsay from RBC Capital Markets.

I'm just going to follow up on a question that I asked you before, David. So I apologize it's not related to the presentation right now. It's got to do with the gas price and potential for a gas price cap. I'm just getting increasing feedback that that's going to happen. And I know at the time, last time we spoke about this, you said there was one already in place at $40 a gigajoule. Well, clearly, it's going to be less than that, but it looks like one is on its way. Can you just comment on what you're expecting now and if anything has changed in that environment?

Yes. Thanks, Gordon. I'm a little bit surprised as to what you are hearing. And I think just maybe 2 conversations going on 2 levels. What the politician might say and the manufacturer might say, as opposed to the conversations that are going on with the advisers and politicians themselves and the group of decision-makers. I think -- look, at the end of the day, it's going to be decisions for government. The background to my earlier statement is that the conversations we've had and the conversations I've had with other industry colleagues, as the government realizes the significant impact a low gas price would have on the industry. You might solve one very short-term problem and create a much bigger longer-term problem. And then that's the first issue. The second issue is how might this be implemented. I think that's a real challenge. Now separate to that, there may be bipartisan arrangements established between, for example, the LNG export projects in Queensland and the government, but that's not a regulation. That's an agreement and just willingly between the parties and, in that case, wouldn't impact ourselves. The other comment I'd make is that I do expect there to be some changes as a result of all the commentary. And if I was a guessing person, I would say that the code of conduct that is out there at the moment will -- which at the moment is a voluntary code of conduct for gas price negotiations or gas contracting -- gas supply negotiations will become more a mandatory code of conduct, which is not an issue for us because that's the way that we work anyway. And the second is that the pricing principles within that code, and it's out there for all to see, it's available publicly, might be strengthened, tightened a little bit to reflect the key principles that must be followed when negotiating price. And I wouldn't be surprised if the ACCC has a role in adherence to that process, but that's where I think things are more likely to end up if I was a guessing person at the moment. A price cap, I'm happy to go on record, a price cap at some of the silly low levels that people are talking about at the moment would be very damaging for Eastern Australia, let alone -- not just the gas industry, but Eastern Australia. We've got a situation where shortfall on supply, that shortfall is getting tighter, and what we need is more supply. The government recognizes that, the government said that. And therefore, we've got to have the environment which encourages that, that more supply. To go counter to that is fraught with all sorts of issues. I'm very happy for that to be quite...

I appreciate that. And just lastly, just on the Hazard License, are you going to be giving updates on the timing on that as it gets closer? It just seems to be a bit of a rubbery date at the moment. Do you expect to be able to fine-tune that over time?

There is a -- I'll make some comments, and then I'll hand over to Ilija to add anything else. There is a defined process that WorkSafe Victoria needs to go through, which has a time line attached to it. They have to reply -- they have certain time bounds within which they reply. And then we have time bounds within which we answer any queries that they might have. We've said, and as we said this morning that it's within the first half of calendar '23. So by June of '23, our own target is May, and that's an achievable target in our minds. And that's always been the case, and that's worked off a time line, which is consistent with the time line at the time we purchased the plant. Ilija, I welcome any comments that you've got and any other sort of reflections on the time line. Sorry, just before I do that, I answer the other part of the question. Yes, we can and will answer provide information on the transfer date clearly as a part of our quarterly reports. But if things change, because it's a material event, we will be required to keep the market informed.

Yes. So just adding to David's comments there, we will be in continuous communications with WorkSafe, including when they will complete our verification process of our submission through the very early part of next year, considering the holiday season about to approach. So we have a submission meeting in early December where we will go through the time lines and also get some further responses and be able to update, as David said, throughout the approval process with WorkSafe. I hope that answers your question, Gordon.

Your next question comes from the line of Nik Burns from Jarden Australia.

Thanks for the rundown today, Mike, David and the rest of the team. A couple of questions from me. First one on the most recent plant performance issues. Do you have any idea what's caused those trips at the power gen unit? You seem to roll out any link to the gas polishing unit, but I was just wondering if there's any indirect link, whether changing load on the plant, et cetera? And how do you know they won't -- these most recent trips won't reoccur over the next few weeks?

Yes, I ask Dean, our Operations Manager, to answer that one.

Nik, yes, most of the trips on the power gen -- so there are a couple of different ones that occurred. One was inadvertent smoke from testing that went -- where it wasn't supposed to, which, unfortunately, these things do happen occasionally. So that's being rectified through procedures and processes. The other trips are around individual elements like power gen, the units are very similar to your engine on car. They're not super complex bits of kit. But the number of sensors and devices on those things mean that occasionally there's trips that do go wrong and you rectify and replace those sensors. There was also some cool and temperature issues on those that have been rectified. So very much isolated to the units themselves and not in any way related to the sulfur removal section and reasonably easy to fix, but with complex bits of kits with all the sensors and things, things do go wrong occasionally. And unfortunately, there was a few of those all combined together.

And the comment about do we take account of interruptions?

Yes. So we -- in any gas plant or any process facility, there's always an assumption of downtime. So we do include an amount of unplanned downtime within our estimates. And it varies depending on the complexity of the plant and what it is. So we do carry those estimates in our budget and forecast processes.

I'd like to just also add -- we've got Nathan Charles on the phone, and he might want to add some other comments to what I'm about to say. When we prepare guidance, we look at a range of scenarios, a range of scenarios in terms of rate, in terms of reliability. So the interruptions and cleaning cycles. And this has all been run through a Monte Carlo model. And then we take the bounds of that model, which is almost from, say, I can say it's pretty much from the P5 to P10. So highly unlikely or high side to the very, very -- proven side to be 90 to 95. We run the Monte Carlo scenarios -- I'm sorry, Monte Carlo analysis to come out with the range. And that takes account of all of the factors that can go into determining the ultimate average rate over a period. Nathan, I don't know if you wanted to add anything to that.

Thanks, David. Yes, just to reiterate your points, so we take into account the inherent uncertainty in our production forecasting, the uncertainty in terms of reliability and availability events that occur in the processing plants. So we take an informed view as to what they are, apply probabilistic analysis that informs our production forecast. And as you said, our guidance and the recent events are in line with those expectations that we've built into the forecasting approach.

That's great. My second question is just on the gas polishing unit. Forgive me if I'm wrong, but I think last month you were saying you expected to change the media there every 45 to 60 days. And I think here you're saying 30 to 45 days. Just wondering what's driven this change in the time line and what confidence you've got that the unit can be operating for that period?

Yes, you're correct. The media cycle has -- change cycle has shortened. And I invite Dean to explain the background to that.

Yes, yes. So I've had to do change-outs now of that media. So as with anything, when you get inside and get to have a look at the mechanisms for the -- I want to use a different word to failure, but we'll call it failure for now, but the degradation of the media. So we've done that twice now. So we've got more information from both those events. And there were modifications put in place after the first event that has allowed us to increase the cycle a bit further out. The reason for shortening the cycle, though, is around uncertainty. There's uncertainty over the reliably good plant, so we don't want to run for a longer period of time and then have an unplanned outage. So we've much rather plan for these things. The activity is not necessarily simple and straightforward. So having a planned approach to ensure that it can be done efficiently and safely. So that's why that cycle has been brought in to the 30 to 45 days.

And I would add that the 30 days is an addition from ourselves. So it's a little bit more conservatism that's been put into our own planning. If it's found that it doesn't need to be 45 days, it can be an extended period, then the time that would be modified. I think it's one of those things in some respects it's a bit like the absorbers experience tells you what the sustainable cycle might be.

[Operator Instructions] Your next question comes from the line of Nik Burns from Jarden Australia.

Sorry. I just thought I'd jump in with one more while I had the chance. Just on your Slide 6, I think it is just talking about production optimization longer term. Previously, I think you've talked about the possibility of adding a third absorber unit. It's pretty high-level comments in there. I'm just wondering if that still forms part of your longer-term ambitions or do you think you can achieve the mid-60s rate without any material capital expenditure on the plant?

I'll say some things and then invite Mike and Dean to also comment as well. There's a range of possible scenarios. And there's a fair bit of work to be done to determine what is the right thing. And it's a combination of cost, reliability and value that goes into that. With the right -- so let me come back a step, the 3 tiers, the 3-pronged approach that's being followed is designed deliberately to make sure that we're getting as much of the low-hanging fruits as possible, as early as possible in terms of stability and rate. And then whilst that work is being implemented, in parallel, they're looking at, okay, what step change opportunities are available to us. So in some respects, there's a bit of preplanning. In the preplanning, if everything goes well in the second prong, then you're reducing your dependence on the third prong, but you don't want to be held back. So that's the reason for taking the approach that we have. We've got reason to be confident that getting into the mid-60s without step change such as third absorber or other events has got a very good chance. But until the work is done, until we've got ourselves through what the plant is able to operate at stably and in the -- I'm going to call it, the sweet spot, the operations folks will give it some other better phrase. So what we can get out of that second prong is really the -- where the priority sits. I'm going to -- it's a bit of a sort of roundabout way to answer the question, but certainly invite Mike or Dean or Nathan to add anything else they wanted to that. You go Mike. Yes, Mike, you go ahead.

I think, Nik, we still see quite a lot of upside with the existing plans and the facilities that we have there, which includes the sulfur removal package. So the second prong operations excellence, we still see that we can get a lot out of this plant, doing things in a disciplined way, bringing on the [ SRP ] At the right time. We still see we can get a lot more from this plan. But we, as David mentioned, is there other things that we can be doing? Is it a third absorber? Is it something else? We will have a dedicated team that will look at all options, and that will be running parallel with the operations excellence, but also building on what they find during that process. So the -- everything will be rolled in at the start. And as we go, we'll be rolling things out in the optimization phase to get this plant longer term or in the medium term at least to stable higher rates into the 60s and highly reliable. So we're not rolling the third absorber out. It will be in the mix, but we will consider it alongside all the other potential options that we have, and we'll do the economics on them. We'll do the technical justification and move forward on that basis.

Yes. And just echoing Mike's words, so through that, part of that operations excellence stream is, like I said, to allow that time and space for the folks down on site to get the head space and enable that head space through having an expanded team around them, to let us know their ideas. So a lot of ideas in these sort of complex facilities come from people that are doing it every day. And ultimately, an operator's goal generally -- operation's goal generally is to do the minimum amount possible. And that usually leads to higher-value out of the operation. So getting that sort of started and then that feeds into the streams. And we won't end up with a list of 1,000 different items. Some of those -- the vast majority of those will be free and simple that is getting that time and space to do those. And then at the bottom of the list are the big-ticket items that are the step changes that may be required that ideally would not be because we've addressed all the little things. It's very much [indiscernible] in these circumstances that ideally get us to the place of optimum value and stability and reliability for the system as a whole.

So one thing I want to add to that, I don't -- Mike and Dean might not want to say, but I will, those and being alluded to it, the [ Facom ] site at Orbost have a lot of ideas themselves. And from the heart, there has been and ask to give us the engineering support will allow us to get on and do what we think is needed with this plant. And we've taken -- we've listened to that. And therefore, the people that we're putting in place specifically there to support the operators and get the rates up. So to give the team the engineering resources -- experienced engineering resources to manage the plant and operate the plant as best as it possibly can.

There are no further questions at this time. I turn the call back over to Managing Director, David Maxwell, for closing remarks.

I'm going to pass it on pretty quick to Mike. Mike, would you like to wrap up?

Sure, David. Thanks for everyone's time to listen in. We understand the last month has been extremely frustrating, and we share those frustrations. But we look to the period prior to this in sort of the August, September period. And we see that the way that we're going to be operating until we transfer the license over. So the 3-pronged approach, as we've outlined, we are running all those in parallel, and we see that there will be gains over this period of time to deliver higher rates, improve reliability and stability for the gas plant. So on that note, thank you, everyone, for listening in, and we'll call in into that.

This concludes today's conference call. You may now disconnect.