Central Petroleum Limited (CTP) Earnings Call Transcript & Summary

Good day there. My name is Matt Brann. Welcome to the program. Farmers have headed to the Federal Court to try and stop carbon dioxide being been pumped into the Great Artesian Basin. It's a fight, which the NFF says is of national significance.

This is the greatest water resource in the driest continent on earth. It is being disrupted by what amounts to a science experiment. This can't go ahead.

Also today, what's it like to sit down and eat a Wagyu steak with 60% marbling put this question to the Chief Executive of the Wagyu Association. He's in Cairns for the industry's annual conference and awards. Strike up the barbecue. This is all coming up on the country hour. We're broadcasting across the territory on the ABC Good day to those who have tuned in via our podcast. How's this, Power and Water has signed a deal to take gas from the middle of the country to make sure it can generate enough electricity for homes and businesses in the top end. Power and Water has long relied on Eni's Blacktip field to supply gas, but that field is struggling. It continues to underperform. And you might remember in recent times, that's actually forced Power and Water to go and buy emergency gas from the big LNG players, Santos and [ Impax ]. Well, today, Central Petroleum, which operates the Mereenie gas field to the Southwest of Alice Springs, it has signed a gas supply agreement with Power and Water. To learn more about this. Dan Fitzgerald just had a chat to Central Petroleum's Chief Executive, Leon Devaney.

So the arrangement is as available gas supply agreement, which means that it's fairly flexible or it is very flexible. PwC can ask for gas. And if we have it available, we make it available. And so the volume is really dependent on the day on what PwC need and what we have. So it's a bit flexible. But we expect to be supplying potentially the balance of the gas that we have uncontracted currently, which is around 10 to 15 TJs a day that potentially could get sold under this contract.

But roughly, what sort of a portion is that of the NT market?

So the NT market ranges from about 60 to 80 TJs a day in total. So it's a reasonable portion of that. The current supply dynamics in the NT are such that there's a slight oversupply. So we currently have tail gas from DLNG coming into the market. It was previously going off as LNG, but that field and that LNG plants now shut in, the field is declining and will be offline. So as that tail gas supplies the NT market, we're currently in a state where there's a bit of oversupply while the NGP is still shut.

And that Santos there you're referring to, that's currently supply...

That's correct.

Yes, Power and Water to supply electricity for the NT market. What happens when that supply finishes?

Yes. So that's the -- I guess the reason the NT is in a bit -- is a bit fluid and there's some changes happening in the market. The obvious one is Blacktip, which we've talked about, is producing much lower than originally anticipated. And this tail gas from DLNG is filling in the gaps. That's expected to decline over the coming months. We're not sure exactly when that will reach a point where it's not economic, and it shuts off, but we expect it probably to happen over the next few months. So that will have a big impact on the market. It's currently supplying about 30 TJs a day. And as I said, that's about almost half of the current NT demand. So when that goes off-line, there'll be a real change in the market at that point.

And that's when we might potentially see the Northern Gas pipeline, that pipeline between Tennant Creek and Mount Isa reverse its flow. So the Queensland to supply gas to the northern territory, how big of a deal could that be if that happens?

Yes, that's exactly right. So as a backstop or as an alternative source of supply, the Jemena, who own DNGP have been looking at making it reverse flow. That would allow the NT import gas essentially from the East Coast to backfill any shortfalls that they might have as DLNG volumes come down. So I understand that's a project that's underway and should be potentially available from midyear. Obviously, that is probably going to be expensive. The NT -- or the East Coast market is fairly tight. It's been sort of double digits when you look at pricing down at Wallumbilla. But then you've also got to now transport it all the way to the Northern Territory. So that adds a few dollars to the delivered price of gas, which is obviously not ideal, but it is a bridge that allows to keep the lights on and keep gas customers supplied.

If the Northern Territory does end up having to buy gas from the East Coast, what could that mean for power prices?

Well, that's a good question. Obviously, energy costs under that scenario would probably be materially higher than what we've seen in the past. We think that we can mitigate that quite substantially our gas fields down the Amadeus Basin can increase production by up to 20 TJs a day by drilling some new wells. Those wells are drilled ready and can be online and commencing gas supply within sort of 9 months. And 20 TJs a day is -- it's about 1/3 or 1/4 of the NT demand, and it probably offset the need for most, if not all, of that importing from the East Coast. So we're certainly very hopeful and working hard to make the decision or have a final investment decision that would allow us to drill those wells and increase production into the NT as quickly as possible. The key thing we need for that, though, is an offtake arrangement in transportation. So we know we have a place to put that gas. The NT government through [ TGN ] control majority of the gas demand. So they're the obvious counterparty, and we have been engaging with them. And hopefully, if we can get a firm long-term gas supply agreement with them in place quickly, we can get drilling, and we can actually increase production from our fields in the Amadeus Basin and alleviate that need for higher imported gas from the East Coast.

Right now, in the short term, over the next few months, is the NT gas market in a bit of a precarious position?

I'd say it's in a situation where it's dynamic and a bit fluid. And certainly, the production from Blacktip remains unknown. It's been much lower than anticipated. They are doing some work out there to try and increase production. We probably won't know if that's successful until the end of the year, and that is a question mark. We also don't know the rate and timing for gas from the LNG field when that will decline and seize production. Obviously, we're trying to be in a position where we can start drilling and increase our production by up to 20 TJs a day. And then you've obviously got the import from the East Coast, which is available, and the pricing is probably not known at this point, but certainly probably on the higher end. So you've got a few dynamics. There's no question the market is in a state of flux. And gas prices certainly through the rest of this year are going to be probably volatile to say the least.

It was Leon Devaney, who is the Chief Executive of Central Petroleum, which today has signed a gas supply agreement with Power and Water. The country has contacted the operator of the Northern gas pipeline Jemena for comment, and we're still waiting. We've also sent some questions to Power and Water Corp. and Dan Fitzgerald has come running into the studio. We've just received a response from Power and Water. What's it saying...

Yes. This response here from a spokesperson, Matt. I will share some of it with you. It says that production issues from Eni's Blacktip field were first identified in 2021, and we have been working with Eni since that time to resolve the issues and return the gas supply to contractual levels. And they go on to say that to ensure there's been no impact to territory homes Power and Water has been working to source gas from other suppliers, and this has entered into that gas sales agreement with Central Petroleum. Now I ask them about what this could mean for power prices and especially if it comes to the fact that, that Northern gas pipeline needs to be reversed and to taking gas from Queensland, what that would mean? Well, the response is electricity retail prices for commercial and residential customers using less than 750 megawatts of electricity are regulated by the NT government's pricing order. So a bit of a nonanswer there.

Ok. Central Petroleum has signed this deal with Power and Water. As we go to where this afternoon, shares in Central Petroleum are down by 8.2%. Work that one out.