You would think they sold the gas to MCQ at a floating price,...

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numeraire

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28/09/18

08:21

Post #: 35898107
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Originally posted by brucesterfer ↑

Have been looking at this.

Key details per the announcement:
1. Gas sales of 5.2PJ of prepaid to be supplied over 3 years, with option of 3.5PJ of further gas possible over 2 subsequent years
2. Central receives immediate payment for the pre-paid gas
3. Proceeds from agreement enable CTP to fully fund the deferred purchase price of $10m for the Mereenie oil and gas field....as well as new reserve growth activities.
4. Saved $2.5m to $8.75m exposure to the production bonus

Ok, sounds fine so far but looking into it a bit further:
1. The 3.5PJ option over 2 subsequent years. This appears to be at MacQuaries option at an agreed future price. What is this agreed future price?
2. The recorded liability on balance sheet in Jun-16 of $11.8m for pre-paid 5.2 GJ agreement implies $2.07 per GJ on a discounted present value ex-field basis. This is the discounted fair value of the gas that CTP is required to supply either in physical gas at Ballera (on an ex-field priced basis) or via financial settlement. The risk of this agreement comes to light in Jun-17 with the liability blowing out to $21.8m, implying a discounted present value ex-field price of $4.19 per GJ...still a very low, ex-field gas value. From what I can tell, this is unwinding at c. 14% and therefore, all things equal would imply an ex-field price of $4.80 and $5.13 per GJ at Jun-18 and Dec-18 respectively...

My issue is two-fold:
a) I don't know about you guys, but i'm expecting an ex-field gas price of more than $5.13 when the NGP goes live and a price above $5.13 will further highlight what a bad deal this was - every $1 increase over the $5.13 will cost us $5.2m (5.2PJ x $1m)
b. The liability wouldn't be so bad if we were just supplying gas to MacQuarie as it would be more of a paper loss and effectively some expensive financing. However, MacQuarie has the option to receive this the gas as a financial settlement - this would hit our cashflow fairly hard to the extent of c$9m annualised (and increasing through discount unwind) commencing H2 FY19 - this is at $5.13 GJ. If MacQ choose the cash option, this leaves us exposed to having to find a buyer for the gas - if we don't, it comes out of a IPL cashflow. The recent presentation so far indicate that we will be delivering the gas to MacQ however i remember reading comments from the chairman somewhere that our cashflow will initially be impacted due to the pre-paid gas arrangement....maybe he was just referring to the lower cash margin since we have already received cash.

In summary, the way i see it is RC foresaw the East Coast gas crisis and effectively shorted 5.2 PJ of gas supply at $2.07 a GJ. Someone please tell me i have this wrong.

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You would think they sold the gas to MCQ at a floating price, recieving prepayment on the proceeds based on a haircut to the prevailing price at the time of the deal.
If they did sell this at a fixed price we should be seeing a larger financial loss in the liabilities.

CTP Price at posting: 14.0¢ Sentiment: Buy Disclosure: Held
2 Upvote

0 Great analysis

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You would think they sold the gas to MCQ at a floating price,...

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