Predicting Australia’s east coast gas crisis has proved a canny bet for Cooper Energy boss David Maxwell — but that early call over a decade ago nearly didn’t happen.
After losing out in PNG to the world’s biggest oil company, ExxonMobil, Maxwell turned to what he describes as his Plan B: Queensland’s emerging coal-seam gas deposits.
Foiled in PNG, BG wasn’t about to sit on the sidelines in Queensland. Once Maxwell arrived in Brisbane in early 2008, BG took a 10 per cent stake in the Richard Cottee-run Queensland Gas Company, which controlled sizeable tracts of unconventional gas reserves.
Three months later it lobbed a $14 billion bid for Origin Energy — which proved unsuccessful — but, undeterred, scooped up QGC in a $5.3bn deal that laid the foundation for Queensland’s first LNG export plant, to be built at an eye-watering cost of more than $US20bn ($27bn).
Despite the risk involved in paying such huge sums, Maxwell said he was confident from the start the development of coal-seam gas would prove a winner given an underlying squeeze in the east coast market.
“It wasn’t a punt,” Maxwell tells The Australian. “The story has unfolded almost exactly as we predicted. You could see the low-cost gas was drying up, LNG was needed to get the coal-seam gas volumes growing and scale was needed to get the costs down. Once that happened, there was always going to be a shortage in eastern Australia.”
The federal government has seized on the role export plants like BG’s — later acquired by Shell — played in causing chaos in Australia’s gas market by exporting supplies, causing shortages domestically and introducing international prices for local users.
But it’s a charge Maxwell dismisses.
“Prices were always going to go up. If the LNG projects hadn’t got going supply was going to be tight. Frankly I think it probably would have been more volatile without LNG in my view. Having said that, in hindsight there would be less LNG trains than there are today,” he says in reference to the three export plants that sit side-by-side in the Queensland port town of Gladstone.
Maxwell signed off from BG in early 2011, seeking a new opportunity. He received a call from Cooper asking for ideas on strategy. Despite its historic connection with the prolific Cooper Basin, the company had spread itself across the globe with mixed success.
Maxwell suggested Cooper go back to its roots in South Australia and Victoria and look to grab exposure to an inevitable tightening of the east coast gas market.
Cooper liked his pitch so much he was appointed managing director to reshape the company in October 2011.
“What I kept coming back to was, there was an opportunity that others were not moving on,” Maxwell said. “My advice turned into implementation and we exited the international assets, moved the company from Perth to Adelaide and started again.”
Several institutional shareholders backed the strategy switch from the start, which Maxwell admits required a leap of faith given its meagre gas resources at the time.
It also needed Cooper’s tight-knit team of just 45 people to stick together and see the journey through. When the oil price crashed to just $US26 a barrel in early 2016, Cooper’s entire staff, including Maxwell, volunteered to take a 10 per cent pay cut given uncertainty over the length of the crude slump.
“Everybody volunteered, everyone contributed and in less than nine months they got more than that back in short-term incentive payments because of the performance of the business,” an emotional Maxwell recalls. “That, I think, was an incredibly unifying action. Everyone wore a little pain for the goal which meant the goal became even more focused and tighter.”
Cooper zeroed in on developing the $600m Sole gas field in the Gippsland Basin and its conservative balance sheet helped the company keep control of its most crucial asset through that market volatility.
“We expected we would end up with 35 per cent of Sole after the collapse in the oil price. But the support from staff and shareholders meant we were able to secure 100 per cent of it and have it fully funded,” Maxwell says. “At a time when the oil price was in the toilet and others were hurting. That gave us a huge sense of encouragement.”
It also embarked on a radical sales pitch. Rather than waiting until it started producing gas from Sole in mid-2019 to line up customers, Cooper entered five-to eight-year contracts several years ago with fuel-hungry power retailers including AGL Energy, EnergyAustralia and Alinta Energy to lock in supply, and departed from the norm of pricing gas on oil-linked contracts.
“What customers were saying to us in 2014 and 2015 was, ‘We want stability and certainty’,” Maxwell says. “We said we can provide a long-term contract with gas prices not linked to oil or the consumer price index. It helped us differentiate us from the competition.”
Instead, prices were struck at the start of the deal with a review four years in. The move also gave its financiers peace of mind over its revenue flows.
With gas on the east coast now changing hands at up to $11 a gigajoule — three to four times historic levels of $3 — Maxwell admits it may lose out on some upside. But he considers it a worthwhile trade-off to gain a sense of market control.
With Sole production now on the horizon, Cooper is looking to exploration in the offshore Otway Basin with Japan’s Mitsui and is looking at the Manta gas field in the Gippsland Basin as another avenue for growth.
It might not quite be job done, but Maxwell is well advanced in seeing through his business pitch from seven years ago. And he’s actively weighing up the next leg of the Cooper adventure.
COE Price at posting:
44.5¢ Sentiment: None Disclosure: Held
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