Originally posted by brucesterfer
Gidday PSI,
"My understanding is that is not how a take-or-pay contract in O&G usually works. If you don't take, you pay a fee but don't get to take it at a later date."
That is my understanding too, but it appears we have c. $13m of cash up front at Jun-18 to be
spread over multiple years of gas delivery. I believe some of this is from the PWC gas sales agreement and c. $10m of this was received as part of the
EDL gas sales contract in April 2017 - I guess they have also structured this that if they don't take the gas, they still keep the money.
Therefore, CTP have a future obligation to make the gas available for delivery and appropriately they recognise the cash received that relates to future gas delivery, as a liability. If the customer doesn't take it, they still recognise the revenue but just don't deliver the gas. Note 15 (b) also provides the following text, confirming your thoughts - they won't get to take it at a later date:
"Take‐or‐Pay proceeds are taken to revenue at the earlier of physical delivery of the gas to the customer or upon forfeiture of the right to gas under the contract."
I'm sure it's obvious, but in summary:
1. If CTP deliver the gas, they recognise the revenue but will incur opex costs to produce the gas, or;
2. If CTP don't deliver the gas, they STILL recognise the revenue but won't incur the opex costs as no additional gas needs to be produced.
Both scenarios mean we don't receive any additional cash from the gas sales (other than net opex savings in scenario 2).
I can't find any reference in the AR to the EDL contract having any pre-payment, do you have a source? It looks to me that the three deferred commitments are to PWC, Macquarie's pre-purchase, and Mereenie gas balancing (also to Macquarie, as JV partner).
In the AR, the first line of Note 15 appears to contradict your interpretation of 15 (b):
"Proceeds received under Take-or-Pay contracts where gas is able to be taken by the customer in future periods:"
So reading Note 15 in its entirety it appears that CTP recognises revenue when PWC forfeits delivery under take-or-pay, but that PWC is entitled to take that gas at a later date (which, as discussed, is unusual for a take-or-pay contract). It appears that PWC has on-sold the gas and received revenue for it, so CTP needs to deliver that gas at its own expense, which is presumably the liability on the balance sheet.
I don't recall RC or the company ever explaining this was a deferred delivery take-or-pay contract, except buried in this note in the Annual Report.
