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http://www.theaustralian.com.au/business/mining-energy/csg-riches-confounded-by-states-of-play/story-e6frg9df-1226604560676

CSG riches confounded by states of play

by:Andrew Fraser
From:The Australian
March 25, 201312:00AM


CONSIDER the recent performance of two companies involved in the coal-seam gas industry.

Titan Energy Services, which provides support services to CSG companies in Queensland, announced a profit upgrade at the start of the week and saw its share price soar to a high of $2.03 last week -- a 20 per cent rise in the week and up more than 100 per cent since the start of the year.

On the other hand, Metgasco, which had planned to extract CSG in northern NSW, has seen its share price head in the other direction, down to 6.8c last week after it announced it would cease operations following NSW government regulatory changes and community pressure. Its stock is down more than 64 per cent since the start of the year.

It could be said that CSG is proving as divisive on the bourse as it is in the community, with Queensland companies generally representing a sound investment while those with operations chiefly in NSW are looking especially weak.

The state-based differences are a lesson for investors. In Queensland, CSG is a mature industry with three large, committed export projects, each involving investments of more than $20 billion and a strong domestic supply market.

In NSW, despite there being a similar amount of gas underground to Queensland, the state can supply only 5 per cent of its domestic needs -- it gets most of the rest from the Moonie fields in South Australia -- with no export industry attached.

Melbourne-based RBC Capital Markets energy analyst Andrew Williams said most companies active in NSW exploration, such as Comet Ridge, Santos and AGL, all had assets in other states, but that any who were dependent on NSW -- such as Metgasco -- were in trouble.

"There hasn't been much happening in NSW for three years, but most of the companies have other sites where they can progress work. Comet Ridge, for example, has got deposits in the Galilee Basin, which could be promising," he said.

Titan is not directly involved in the mining industry, but has emerged as the first company to provide integrated support services, ranging from operating drilling rigs to camps, cooking and equipment hire, to the industry, which is growing rapidly -- in Queensland at least.

Managing director Jim Sturgess said the company would be pretty busy in Queensland in the next few years, but he also saw potential growth for Titan in NSW in the longer term.

"People care about the environment, there's no question about that. But just wait until their power bills start being four times as much as they are now. Then you'll see more demand for gas, which is actually far cleaner than coal, anyway," he said.

Titan has no direct competitor in any of the four fields in which it operates, rather it competes against several larger companies, many of them multinationals, in each of its four areas. And although it is not the largest service provider in any of the four areas, it has an advantage in the synergies of providing several services to the one company.

While CSG is the subject of strong community protest in NSW, in Queensland it is largely established. The three major plants at Curtis Island in Gladstone Harbour are already well under construction and due to be finished in 2015 or 2016, and all have signed contracts that obligate them to supply a certain amount of liquid natural gas from that time onwards. So there is a requirement to guarantee a constant supply of CSG.

At the same time, there is a strong domestic requirement for gas, to the extent that the concern in Queensland is there will not be enough gas left over from the export drive to supply the domestic market.

So, for the past few years, about 700 wells have been dug annually in Queensland, but by 2016 this will rise to about 2000 each year, with this forecast to continue for a few years before dropping back to about 1000 a year.

Generally there are about a dozen wells grouped around the one larger pumping station, and that's generally enough for a work camp. But so far in the industry, there have been at least a dozen contractors required to service the requirements of the camp.

Sturgess, who was previously chief financial officer for Flight Centre, says: "We want to be the main contractor for those operations."

The companies that sit under the Titan banner are Atlas Drilling, Nectar Catering, Resources Camp Hire (or RCH Camps) and Hofco Equipment Hire.

While the company competes directly with big multinational drillers such as Lucas and Century for the drilling business, Sturgess says that having a presence there means the company can move into the related areas of camps and catering.

"The mining industry is one where there is huge emphasis on safety, and we are able to pre-qualify for a lot of the safety requirements because of Atlas. It's really the linchpin of the whole company," he says.

While there are still several parts of the mining operation that Titan has not got covered, Sturgess says its priority now is to bed down the acquisitions in their current form and work on integration. "You never say never to a good stock, but we're not actually looking for any more acquisitions at the moment.

"We've grown very quickly, but what we really want to do is concentrate on getting the right people in the right places over the next few months. It's been a pretty busy time, so we just want to get right."

Titan listed at the end of last year at $1, shortly after it acquired RCH, and since then has acquired Hofco Oilfield Services, which is basically an equipment hire business.

It originally forecast EBIT of $7m-$8m for the current year.

However, it made one upgrade of this forecast and on Monday last week announced a further upgrade.

Its full-year EBIT is now forecast to be $10m-$11m, which is $1m above the company's previous guidance.