At the risk of being flamed, I thought I'd share my thoughts on AWE's decision to walk away from p67. At the outset let me make it clear that these are my thoughts alone. Any action you may take after reading this is your own responsibility, not mine. All I'm doing is sharing some thoughts and speculation after I've done a little research. Ignore them if you want. Anything beyond that, as ever, is totally your call.
P67 is an attractive strategic gas asset. It had a useful upgrade following the 3D survey, and is geographically well positioned to serve the expected East Coast gas shortfall over the coming years. I don't think there is too much argument about that. Why would AWE walk away after paying the majority of the successful 3D survey costs? I think it's down to capex requirements. Their own, and that of their partners. Ever since AWE announced the Waitsia discovery in WA the prospect there has been a growing risk that they would be capital constrained by the costs of developing that field, and the more recent decline in oil price has only exacerbated this. Originally one of the reasons AWE got involved with p67 was it's proximity to the Casino project in which AWE holds 25%. Santos owns 50% of Casino, and Mitsui the other 25%. Presumably the plans was to tie p67 into the Casino infrastructure. As AWE's comfort in holding 60% of p67 began to slip towards the 30%, it'd make some sense to try to get Santos, as the major partner, directly involved in taking up the project slack, and perhaps even taking more equity from WHL through the next stage of the farm out that we know is ongoing. I believe WHL alluded to such discussion with Santos, along with discussions with BHP and Origin, in the AGM presentation by saying they were engaged with:
"Three Companies would qualify as potential replacement operators, each aligned with one of the existing infrastructure/development options, and have further partners to complete the farmout target."
In the last few weeks as I'm sure you all know, Santos has had to slash it's capex budget for 2015 by $700m following the withdrawal of it's Euro 500m hybrid bond issue in early December. This I think would have pulled the rug out from any discussions that may have been ongoing with WHL, and, and they say, that was that.
Irrespective of whether the above speculation is correct or not, AWE withdrawing was a blow. Being jilted at the altar is never a nice feeling. With some luck, however, the longer term outcome might yet be reasonable. We're now sitting with 100% of an asset with recent good 3D work having been done at only a fractional cost to us. TAP might take 10% (or 15% if they really want) from us, but if they do or don't they owe us the option premium of US$2.95m. So we're left with at least 85% of an attractive asset close to 2 major energy suppliers with whom we already have had an engagement of farm out. Having seen AWE remove itself (and it's relationship with Santos) from the picture might make putting something together with BHP or Origin that much easier (indeed WHL suggested this in it's release on Friday).
So, yes, we've been jilted at the altar, but perhaps for the best of reasons. It's them, not us. And they've left us with a project that's looks quite attractive overall, and one where hopefully we can sell it (all or in parts) for a second time.
I'd rather be talking about AWE turning up to the ceremony and saying yes, but after a weekend of reflection, I don't believe it's all over yet.
Now, more than ever, DYOR. Just my thoughts.
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