Just had the time to sit down and assess the recent deal with...

Just had the time to sit down and assess the recent deal with EIR so a few thoughts/comments below (all imho only).

Firstly it’s extremely positive to see Gillespie bring to the table his wealth of experience in the sector and, for central to have achieved highly desirable terms to the negotiations. As usual, I believe the market has discounted the impact this deal may deliver to CTP’s bottom line (as it seems 9/10 just want to see drilling). Put simply, the company has further strengthened its fundamentals via this potential farmin, and, the upcoming campaign will play an interesting role towards future developments in EP130 which I’ll quickly outline below.

Now using other CBM drilling models as a basis of assessment and applying it towards this deal, Central and EIR should potentially be able to delineate 1 TCF per annum at 3P level by undertaking a series of 25 flow tested exploration wells plus a further 15 barrel cores, thus a total of 40 wells. This would be completed with two rigs at work, one undertaking the exploratory drilling and flow testing whilst the other is out coring.

For diagrammatic purposes let’s assume each well costs a total of $1m, hence the total outlay is $40m per TCF at 3P level (realistically the wells may cost around $1.2m-$1.5m with flow testing but this is indicative only). At the proposed 2.4:1 promote level (or 60:40) farmin terms outlined in this agreement, the cost to CTP to delineate 1TCF at 3P level will be a total of $16m, with EIR contributing $24m.

In addition to this, as per the announcement EIR will be paying a “Reserve Premium” of $10m per TCF of 3P reserves delineated, thus reducing CTP’s expenditure to a mere $6m per TCF. This potential financial outcome to CTP alone is one of significance.

Looking into this further, from an in ground value perspective the potential delineation of 1TCF (or 1000 PJ) per annum is quite significant, and we all know recent deals in the sector have been very compelling at the least.

For information purposes I’ve attached a breakdown of some of these recent industry transactions based on 2P reserves below. This is calculated on $/GJ value as paid by the acquirer.



As we can see, recent deals for 2P reserves have ranged from $1.67 GJ (QGC/SHG) to $4.91 GJ (Petronas/STO) with the mean price of these transactions approximately $2.90 GJ.

Secondly (and more appropriate for CTP holders at this point in time) a breakdown of recent 3P reserve transactions in $/GJ follows;



As we can see from this graph, recent deals for 3P reserves have ranged from $0.40 GJ (BG/PES) to $3.10 GJ (AGL/SGL) with the mean price of these transactions approximately $1.25 GJ.

Now if we were to apply $0.40 GJ to reserves delineated by CTP/EIR in EPA130 and, the company did have the capacity to delineate 1 TCF per annum at 3P level based on the drilling model specified earlier, then this would equate to the identification of approximately $400,000,000 per annum of in ground resource.

Keep in mind, CTP will fund $6-10m maximum per TCF and will retain a 55% interest ($220m) in EPA130. EIR will retain a 45% interest ($180m) through both EIR itself (25%) and its wholly owned subsidiary GSG (20%).

I personally believe that should the company find positive results in the upcoming programme of 5 fully cored CBM’s plus the flow testing of Blamore 1, this may provide encouragement towards accelerating the campaign for EPA130. With several rigs simultaneously at work, the capacity to delineate 2 or even 3 TCF per annum at 3P level is not impossible.

Clearly, achieving the 1TCF figure per annum on that drilling model is subject to successfully identifying the current unknown factors such as the gas saturation of the coals, thickness of the coal beds, properties of the coal, potential for fracture stimulation and assessing flow rates et al. (Testing the saturation level last campaign was not possible as the core barrels utilised were for oil and not specifically CBM, thus the results returned were inconclusive). Other issues such as the granting of EPA130 and CLC clearances are also a risk however I expect these to be minimal.

That said, in my opinion only, overall any CBM drilling is still a limited risk venture given the extensive seismic/geological models, successful historical/recent drilling demonstrating the blanket nature of the coal over the pedirka (and even the simpson for that matter), identification of its partial sub-bituminous qualities, and, the fact that the coals in the Pedirka are correlated to that of the Ipswich which are known to be some of the most volatile in the country.

As a refresher from memory (don’t quote me), the results of the recent campaign were:

Blamore: 132m net/233 units
CBM93001: 138m net/190 units
Simpson: 7m net/130 units

(Where the net figure is in seams >2m and the gas is measured as units of 100pm)

Anyway there’s a bit to digest for now however imo, once executed to a formal agreement, this deal with EIR will turn out to be a VERY significant and positive transaction for CTP.

Have to run, but advanced apologies if the post is a little disjointed as I’m a little tied for time to proofread!