""Richard Cottee cold calling as Macquarie deal falters Richard...

""Richard Cottee cold calling as Macquarie deal falters


Richard Cottee is working the phones in a bid to save Central Petroleum's deal with Macquarie.


Kirk Gilmour


Matthew Stevens AFR Woodcut by Matthew Stevens

Macquarie Group does not often fail to get its way. But the runes of protest are pointing to the upset of the Millionaire Factory's plans to capture value from the east coast gas supply crisis by taking control of the Northern Territory junior Central Petroleum.

But, wouldn't you know it, Macquarie might well fabricate a path forward from defeat that leaves losing merely a better way of winning.

Macquarie likes lending to Central so much that it now wants to buy the business. Having extended $84 million to finance Central's acquisition of a half share in the mature, but far from exhausted, Mereenie gas project in central Australia, Macquarie has now offered the driller's shareholders $87 million and a share of future value for control of their company.

When the Macquarie Group offer of 20¢ a share finally arrived in March it appeared to most of us to be rather generous.

When the Macquarie Group offer of 20¢ a share finally arrived in March it appeared to most of us to be rather generous.
When the Macquarie Group offer of 20¢ a share finally arrived in March it appeared to most of us to be rather generous. Bloomberg

The price was, for example, 14 per cent higher than the price flagged when Central's financier first approached board and management with an expression of acquisitive intent. It was also 21 per cent higher than the then share price and a cool 60 per cent higher than Central shares were changing hands at back when Macquarie's interest became known last November.


Last updated: Sun Aug 12 2018 - ‎8‎:‎38‎:‎22‎ ‎AM


Little wonder then that the March confirmation of an offer on the table arrived with the unequivocal endorsement of Central's board and management, which is led by Australian gas maverick Richard Cottee.

Back then the Macquarie offer looked like encirclement completed.

Having become Central's sole source of debt funding from June 2015, the famously canny investor went on to fill the interregnum between takeover approach and firm offer by becoming the joint-venture partner in the gas production that Cottee imagined would generate the cash flow necessary to transform his growth narrative into productive reality.

But there looks to have been a messy and unanticipated slip between cup and lip. Recent weeks have seen Cottee making personal entreaties for support to senior owners on his massively retail register and making cold calls to smaller owners. That is because both Macquarie and Central increasingly fear the disruptive traction that has been developed by two apparently unrelated groups of refusnik shareholders.

OptionCo has previously flagged an interest in retaining Cottee, whose past success in transforming Queensland Gas from ...
OptionCo has previously flagged an interest in retaining Cottee, whose past success in transforming Queensland Gas from penny dreadful to $6 billion takeover target delivers him considerable currency in the exploration and production game. Jim Rice

One group, working in the name of management past, has run an online campaign to foment a no vote while a second group, calling itself OptionCo, has gathered the 5 per cent support necessary to force Central to call an extraordinary general meeting where the board will face a spill motion.

That meeting will occur only if the Macquarie offer is rejected by owners at the scheme vote meeting called for late next week. The spokesman for the shareholders who support OptionCo is Stuart Howes. He is apparently increasing confident of victory.

"All the indications are the current proposed scheme will fail," he told me earlier this week. "And there is increasingly likelihood that shortly thereafter the present board will be removed," he said before urging us to "provide a more balance view" of the Central dilemma.

To deflect claims by OptionCo that he might be ambivalent about the risk of a board spill, Cottee has made it plain that he will retire from the fray if change is forced on the board. I am guessing though that he would not linger too much longer than failure of Macquarie's takeover. Cottee has said a forced retreat from Central will close his career in public companies.

OptionCo has previously flagged an interest in retaining Cottee, whose past success in transforming Queensland Gas from penny dreadful to $6 billion takeover target delivers him considerable currency in the exploration and production game.

Howes expresses comfort in the options ahead if Cottee fulfils his commitment to resign (and he will).

"Mr Cottee has indicated he will leave if the present board is replaced, and while we reject that Mr Cottee feels this way, [we] have plans in place to suitably accommodate the situation with our own shortlist of current internal and external candidates," he said.

"If the board is replaced this will be one of our new board's first priorities," he said before a harsh assessment of what he assesses as Cottee's missteps in dealing with Macquarie.

"The fact of the matter is that, unfortunately, Mr Cottee was outmanoeuvred by Macquarie when he went looking for finance to secure Santos' half of Mereenie," Howes assessed. "His endorsement of, and continued support for, this low takeover offer is quickly eroding the support base he enjoyed with shareholders since joining in 2012."

Howes earlier offered responses to our view that there were three possibly uncertain foundations to the argument that Macquarie should be dismissed.

For the record, to my mind, those pillars are, in order, that the rejectors are confident that Central has more gas than the certified numbers indicate; that the gas shortage is worse than anticipated and will thus result in higher prices than Central and its independent expert have flagged; and that market regulation will allow producers to recapture some of the excessive rents being charged by the pipeline operators.

Howes told me that OptionCo is working on the belief that Central's reserve will "most likely" hit the 1000PJ that Cottee himself predicted in October of 2015.

That forecast remains just that. The exploration and appraisal drilling necessary to translate informed estimate to bankable reserves just has not happened, in large part because funding was too hard to come by.

Central asserts a future world where gas prices average about $8 a gigajoule and that simply doesn't cut the mustard when you are being asked to spend more than $5.20/GJ transporting gas and you need a ex-field price of better than $4/GJ to even start generating a return.

Howes says that Macquarie itself has forecast $9/GJ and that the costing for transport has been inflated because a material volume of gas needs only to be transported to Mount Isa rather than make the expensive journey to the national gas hub of Wallumbilla. Howes also raises the potential of backhaul to return additional value to the producer. For mine, he overstates the capacity of the Mount Isa market to take his gas and thus make backhaul relevant to the volumes Central can push down the new NT gas pipeline that should enter service from 2018.

The other point to make here is that talk of a spot price is, to some degree, taking a step away from harsher realities. As the market is presently constituted, only those with pipeline access can participate in spot markets. Central does not yet own pipeline capacity.

So, whether or not Central's progress is bankable will be determined by the term pricing that is established by firm contracts rather than the shorter market dynamics reflected by the spot price. And just what that term pricing might be is going to depend a whole lot on when Central is able to get its gas to market.

The second part of my introduction raised the possibility that Macquarie might still end up a winner even should shareholders reject its offer. The thesis there is sustained by the fact Macquarie is Central's joint-venture partner in Mereenie, that from 2019 at the latest the financier owns all of the cash flows generated by any gas Central sends down the new NT pipeline, that Macquarie is owed $84 million by Central and that Central needs $42 million to develop the fields that might send gas eastwards.

Looked through this daunting prism, it seems almost a bit of a kindness that Macquarie has arrived offering Central's owners anything at all for a business whose fate, for the moment, sits already wedded to the financier's whims.

Asked about a future life living in the grip of a potentially disappointed suitor, Howes confirmed that OptionCo had not yet approached Macquarie to discuss its plans.

"We currently don't intend to directly engage with them until the scheme vote has been held," he said. "We are not naive to the challenges posed going forward, however."

That is a relief.""
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And he finishes/closed his article with 4 simple words:

""THAT IS A RELIEF""

Based on many investors/shareholders past experiences, I am sure he is right.

Dear of me..........Go Figure!!!!