The following outlines my focus on obtaining the best possible picture of CTP’s pathway to achieving sustainable flow rates across their gas fields in addition to increased reserve certification.
Page 2 of the recent Entitlement Information Booklet shows the following reserves that should follow a successful appraisal drilling.
“When considering Central’s existing total 2P Reserves of 125.9 PJv, a successful drilling programme Implies total potential 2P Reserves, net to Central, of between 352.9 – 541.4 PJ.”
IMO on the risk side Mereenie is a tired gas field and sustainable flow rates may be hard to achieve and given that the concept of horizontal drilling to take advantage of natural fractures was probably on the table at the time the CTP board agreed to the SOA there something doesn’t seem to stack up.
I trust psi81 will not mind me quoting him at this time.
Post from PSI81 on 11/12/16 to give you some idea of where I am coming from with respect to sustainable flow rates.
“No, I wouldn't add much to a valuation to account for the exploration plays. Typically a company making a TO won't pay money for wildcat plays like the ones Santos is discussing because they are high risk and that risk is difficult to quantify accurately. It's considered a bonus if they come off but you don't pay much to buy into them because they usually fail.
The reason for this becomes clear if you actually do the maths on the EMV of a prospect like this. The discount factor, E&A costs and the low COS all hit you pretty hard at such an early stage of exploration. It's after you do the exploration and get a successful outcome that the EMV starts to look attractive because the exploration costs are sunk and the COS goes up. Re PE ratio, keep in mind that a company will only have a PE of 15 in this industry if its production is sustainable. A company that can earn $40M p.a. for 5 years is not going to have a market cap of $600M. So we really need to know firstly whether CTP is going to be able to earn $40M p.a. NPAT from the gas and secondly how long it can be sustained.”
And another post from PSI81 on 12/12/16
Yes, 550 PJ would support a PE of 15. But they don't have 550 PJ yet. They have about 130 PJ from memory and a fair chunk is already contracted domestically in the NT. It's going to cost a lot of money to prove up 550 PJ with no certainty that they will get there.
You are right that if everything works for CTP then there is much greater potential than a 50c share price. But you need to be careful in assuming that just because the MD of a junior gas company writes something in a presentation, it will come true - even when that MD is Richard Cottee. A lot of people on HC place too much faith in these presentations, when in reality I reckon not one in 20 of these junior energy companies ever comes close to fulfilling those grand plans. QGC did, Arrow did, but there are literally dozens that didn't.
There are a lot of unknowns around CTP's project but there is one thing I can say with confidence - CTP will not get anywhere remotely close to $40M NPAT p.a. on the back of $60M revenue through the NGP.
Rev 1 of draft List of Questions for Webinar
This list is by no means complete but I genuinely hope it can provide CTP with an opportunity to update the information provided at the time of the SOA and restore shareholder confidence.
1.0 Is the primary CTP strategic plan primarily biased towards appraisal drilling and reserve certification in order to increase the chance of an acceptable takeover based on certified reserves rather than on potential future profits?
2.0 Is Macquarie making any contribution to the 4 well appraisal program and if so what is it?
3.0 Are the 4 new appraisal wells capable of being used as full production wells?
4.0 How many horizontal wells does CTP expect we will need to sustain an initial gas flow of 70 TJ/day from Mereenie and what rate of additional drilling will be needed in the future to maintain this production rate?
5.0 Under the Joint Marketing/Gas Sharing Agreement/s between CTP/MAC, is there presently any restriction on CTP taking up all of the presently available capacity of the NGP (60 TJ/Day) from Palm Valley, Dingo and Ooraminna gas fields?
6.0 The latest presentation states that if haulage pricing in our favour, Mereenie Gas (including ex field costs) can be delivered at around $5/GJ to Sydney so is this our best possible delivered Cost leaving about a $3.00-$4.00 Profit /GJ to CTP based on a long term $8-$10/GJ at City Gate ?
7.0 The best extrapolation I could do on the SOA document seemed to indicate a Cost of Production in the range of $1.20-1-50/GJ. What is the present expected range of Cost of Production of Gas at Site Gate for each of the CTP gas fields at about the time the NGP is commissioned?
8.0 What is the expected cost of future expenditure required on Mereenie Surface and Gas Processing Facilities to cope with the 70 TJ/day mentioned in the latest CTP presentation?
0.0 Since there is an underlying concern that cost of achievement of adequate sustainable Gas flow rates rather than reserves is a significant risk, would CTP be prepared to be much more transparent with shareholders on the expected range of flow rates (Depletion curves) for each of the gas fields?
10.0 Would CTP be prepared to format the financials of future quarterly Reports with Gas sales treated as oil with number of GJ and average price /GJ clearly stated, ideally for each gas field?
11.0 Would CTP be prepared to provide a simple graphic and easy to understand description of the proposed horizontal appraisal wells so that all shareholders have a clear idea of what is going to happen?
12.0 What is the location of the appraisal wells?
13.0 What is the extent of surface and gas processing facilities that are likely to be needed if the Palm Valley and Ooraminna are commercially viable as production wells?
14.0 Since we already have the funds, have we already started lease construction for the 4 appraisal wells and if not will the access roads, drilling pads, pits, & cellar conductors Etc. that need to be constructed before the wet season commences. (NT Wet season Nov-April)?
15.0Have we ordered the Drilling Rigs Casing Blow-out Preventers Etc. and if not when will this be done?
16.0 Have we also checked the availability and delivery times for fishing tools Etc. for the particular type of wells we are drilling in case we have a few drilling problems?
17.0 Since I seem to recall that Ooraminna needs to be spudded by the end of April in order to maintain CTP’s tenure, why not program it as early as possible it to eliminate the risk of unforeseen hold up/s since we are operating in the wet season (NT Wet season Nov-April)?
18.0 If a positive result on the Ooraminna reserve certification and depletion curve indicates that commercial development is feasible why have we not programmed this appraisal well to facilitate the earliest possible (FID) final investment decision for funding and construction of the Ooraminna surface facility and delivery pipeline?
19.0Have we already started the Ooraminna pipeline approval process just in case?
20.0 On the basis of a rough profit estimate allowing for NT gas sales to pay the rent Etc., and a profit of $3.00 GJ down the NGP with a probable capacity limitation for 3-5 years of half of the remaining capacity of 60 TJ/ Day to CTP giving about $30 Million/year profit, how does CTP propose to achieve a share price greater than say 20C during this period?
Any comments or help would be much appreciated
Regards
OGP
CTP Price at posting:
9.5¢ Sentiment: None Disclosure: Held
