Commentary and Outlook (continued)
The recent announcement by Jemena, whereby it has rescheduled its work priorities does not impact the date at which the pipeline is expected to be completed.
The East Coast Gas Market continues to tighten with energy security becoming a mainstream issue.
We are now seeing both government and supplier responses to the issue such that Central no longer needs to be loud amongst the few voices calling for necessary change. Consequently, the Company now expects the market imbalance to last for 5 to 7 years before returning to historical trends.
Markets always balance over time and the real question remains to what extent the rebalancing is caused by permanent demand destruction versus increase in supply.
Two points should be noted as a result of this belief, namely it is imperative:
1. To have the capital to develop the maximum reserves in time for sales in the second half of next year;
and
2. Any delay in proving up reserves that cause the sales to be contracted after 2021 may be at historical
trend price rather than that obtaining during the shortfall.
Total has advised its intention to withdraw from Stage 2 of the Southern Georgina joint venture.
The consequences of this are:
1. Central retains a 100% interest and all obligations associated with the permits; and
2. Central no longer has to pay its last portion of Stage 1 of the farm-in, which was over $2 million.
The Company believes that the acreage remains prospective. We will likely redesign our ongoing efforts to target lower-risk prospects. However, given we are in advance of the required permit spend, Southern Georgina will not be a priority for the Company for the foreseeable future.
Discussions are continuing with Macquarie on a potential scheme of arrangement. The Directors are aware that the shareholders are the ultimate owners of the Company and, if an offer is made that is, in their opinion, in the best interests’ of the Company, then the shareholders should be given an opportunity to have their say.
In August last year, the Council of Australian Governments (“COAG”) commissioned a report from Dr Michael Vertigan to look at ways by which the cost of transportation of gas to the major demand could be lessened by regulation change or otherwise. In December, Dr Vertigan gave his report to the COAG Energy Ministers, which adopted his recommendation. The import of his recommendations were that, instead of further regulation, they would create an easy access arbitration route which arbitration would, based on to-be-established economic
principles, be available for pipelines greater than 15 years old. Those principles would recognise the capital which had been paid back and would cover ancillary services and back haul.
COAG commissioned Dr Vertigan to establish the arbitration mechanism and the economic principles to be considered at the mid-May COAG meeting. The effect of this should be a material decrease in tariffs imposed in getting to Tennant Creek and from Mt Isa to either Sydney or Melbourne as these are all currently back haul.
Central will continue to play its role in the Vertigan formulation of arbitration and economic principles.
The Company will also be making representations into the Northern Territory Hydraulic Fracking Inquiry even though it is presently not covered by the moratorium.
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