Shares in Cooper Energy were up more than 7% yesterday after it surprised with its second upgrade in three weeks, thanks to surging demand for gas, but especially prices in NSW and Victoria.
The driver of the surge in demand for gas and prices has been high levels of exports and a couple of weeks of cold fronts, snow and chilling winds across both states, as well as parts of WA, South Australia and southern Queensland.
NSW and Victoria though are the states key to Cooper’s sales and it told the ASX on Monday that “Since the Company’s FY22 guidance was last updated on May 16, there has been continued improvement in average processing rates at the Orbost Gas Processing Plant (OGPP) (owned and operated by APA Group (ASX: APA)) and a substantial increase in actual and forecast wholesale spot prices for gas in Sydney and Victoria, in both cases beyond what had been expected as at the date of the last guidance update.
Investors liked the 23% estimated rise in revenue for the year and sent the shares up 7.4% to 29 cents – within sight of the most recent highs of 31.5 cents in mid-April.
“In May, the average gas price in the Victoria and Sydney spot markets continued to increase and were $32.95/Giga Joule (GJ) and $29.87/GJ respectively.
“During May, Cooper Energy sold 367 Tetra Joules (TJ) of production surplus to Gas Sales Agreement nominations into the spot market at prices aligned with these averages (less transport costs). All daily nominations for Sole customers continue to be met, averaging 47.3 TJ/d for May.
“Cooper said it saw record gas production at 80.7 TJ/d on May 21.
Cooper said that as a result of these changes, production guidance and sales volume guidance have been revised to the upper half of the previous range.
“The guidance range for underlying EBITDAX (that’s earnings before interest tax depreciation, amortisation and exploration expense) has been revised upward to $70 – 78 million, reflecting a reasonable expectation of continuing the improved performance at OGPP and of continuing higher realised Australian east coast wholesale spot gas prices.”
That’s a 23% increase from the range in the May 16 update of $58 million to $68 million. That’s a 3% rise in the forecast production for the year to June 30 of 3.3 to 3.4 million barrels of oil equivalent (MMboe) from 3.2 to 3.4 MMboe.
Cooper Energy said its June 30 guidance on capital expenditure of $19 – 21 million remains unchanged.
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The Cooper Energy announcement yesterday and news of a surge in revenue from higher prices without a big rise in volumes will be repeated by other gas companies in coming months, which in turn will raise pressure on the sector from politicians and consumers.
Santos, the biggest gas player on the East Coast, has read the outlook and concluded that with prices rising (and no doubt earnings) it had better look busy to relieve pressure from politicians for ‘something to be done’ by the industry.
Santos, along with its joint venture partner Beach Energy, is moving to increase domestic gas supply – not immediately, which would take pressure off prices, but later this year and into early 2023.
The measures include bringing a fifth drilling rig into the Cooper Basin and optimising well connections, aim to deliver an extra 15 terajoules of gas a day by the end of the year, Santos said in a statement. I
It said the company will spend more than $300 million in the basin this year.
“This investment will deliver more gas to the domestic market, which is desperately needed,” Santos CEO Kevin Gallagher said in the statement.
Santos last week entered into a new agreement with a unit of Yara International to supply natural gas to the Norwegian company’s liquid ammonia plant in Western Australia.
Santos shares rose 2% to $8.57. Beach shares were up 1.3% at $1.845.
