Please find below a partial transcription of the Central Petroleum Sydney presentation on 27 October 2016 in Sydney.
As soon as I have access to the transcript of the 14th March 2017 Sydney meeting I will make a comparison of the October meeting and the March meeting
The reader will no doubt observe that there is a complete 180 degree turnaround in the ability of CTP to achieve its anticipated goals as presented in October 2016 to a articulated position of gloom and doom that has caused the board of directors to recommend a derisory offer from Mac Bank in March 2017.
The transcripts for both meetings have been supplied by another HC poster, and I thank him for the work he has done.
Jocular statements have been removed along with other irrelevant material.
If anyone wants a copy of the audio of either of the meetings I suggest you
contact CPSA and ask them to email a copy.
I have underlined what I see are important representations of Richard Cottee.
Background
I was present at this meeting and have no reason to doubt that what was represented at that meeting was not an accurate position of the company as at that date.
A very rosy picture was presented, and publicly stated that the company could become “a boring annuity company”.
Apparently the lost riches of Eldorado were at last within our reach, and rightly so after many years of turmoil and consolidation and loss of share value.
On the basis of these public representations set out below, I (and I am sure others) made a conscious decision to stay as a shareholder of CTP, and according to what was represented by Richard Cottee, all we had to do was to simply wait for the monumental benefits to be reaped in the next 12 to 18 months.
Critical to this was the looming national gas shortage and the economic detriment that could (or would) cause massive unemployment.
Business would close down never to be resurrected.
It was critical that the gas shortage be addressed.
CTP was in a perfect position to satisfy that demand and reap the rewards.
An estimate of the potential rewards was articulated by Richard Cottee at 23:01 of the transcript.
“We’ll reopen WM 19, with Mereenie 19 pretty soon, if that comes in we’llprobably drill a specific well on the stairway formation,
its an appraisal program and would bring our reserves over 300
PTJ, so if you think about 300 PTJ if you sold it at $1PTJ profit
that’s 300 million, if you sell it at $2PTJ profit $600 million”
And
“If I contract now, I give away that $600 million unless someone blinks, Iwill never get the revenuebefore the pipeline is built, and I have perfect optionality, $600 million to this company is worth
getting out of bed for, especially when you already have your field
gathering already in place.”
So, between $300 million and $600, million “is worth getting out of bed for” I agree.
Particularly when I and family members and friends own part of the company that can make such a return.
43:05 “It’s not often that a penny dreadful gets the endorsement for the corroborative halo of the chairman of the ACCC after a twelve
month inquiry.
It is gob smacking to me that our share price has not reacted to the facts, and the facts will not change, the share price will“.
So let me now draw the reader’s attention to even more the parts of Richard Cottees presentation that gave me great comfort that the investment decision I made many years ago was the correct one.
Transcript of meeting 27 October 2016.
27.10.16 Richard Cottee CTP Sydney Presentation The numbers on the left are the approximate time that part of the presentation appears on the recording. You should be able to move the bar to that point in time.
Keynotes:
2012 – RC joins CTP, known for running QGC and delivering outstanding results.
9:35 RC: “The position that the company has gotten itself into, I think is close to perfect optionality and it has taken a long while to get all the pieces in place. But once you are able to get the pieces into place, you don’t know precisely what opportunities will come about.
So, looking back, we as a board and management took the view in 2013 that the oil price was unsustainably high and that it would collapse to $55 a barrel from $120 a barrel. And that there was only one safe haven for that which was the domestic gas market…
10:28 RC: “The primary reason we were interested in the domestic market was that no one else was, secondly that you get 10 year contract in AUD escalated in accordance with Australian inflation and a company with our balance sheet could not take the exchange rate risk or oil price risk of being tied to oil.”
11:40 Jemena has been awarded the contract, if it does not deliver in accordance with that contract then the (unintelligible) phosphate mine will close and they will be paying liquidated damages nearly equal to the pipeline cost, to both PWC and IPL.
In addition to that, last Tuesday 1/3 of the actual steel pipes where unloaded in Darwin…..and delivered in the next couple of weeks.
12:45 RC:”Construction contracts have been let, to unwind the, would require them to pay unliquidated damages” The pipeline is capable of delivery 90TJ a day…. 36.5 PTJ per annum.
At $1 a GJ you get $1 Million a PTJ. The pipeline has been committed and CTP was pretty central to making it happen.
No need for CTP to underwrite pipeline with our reserves.
ACCC confirmed that a major gas shortfall was looming.
CTP is conventional gas.
23:01 RC “Presently we have the blue (referring to a power point slide on screen in presentation) which is Santos farm out areas and the red (a power point slide) which is Total, which means we don’t have any exploration commitments to speak of and that we own three prime sites, Mereenie, Palm Valley and Dingo.
Within those current those current reserves we have 207 PTJ 2P, 234 PTJ of 2C, proximately half of which are held back by lack of markets. With no further expenditure.
Because Mereenie was supplying 50 odd TJ a day before it lost the contract in 2009 and there’s not much salt water in the centre of Australia, we have a field gathering and other facilities there between 45-55 TJ a day, and there is only capacity in the line for 60 TJ a day, so its not likely to be capitalised apart from the mothballing, there is a lot of prime opportunities Ooraminna a retention lease
The one which is really exciting to us is the stairway formation which overlies the existing Mereenie field, we’ve gone back in and reopened it with the existing well and had quite an exceptional results given it was never targeted for that zone.
We’ll reopen WM 19, with Mereenie 19 pretty soon, if that comes in we’ll probably drill a specific well on the stairway formation, its an appraisal program and would bring our reserves over 300 PTJ, so if you think about 300 PTJ if you sold it at $1PTJ profit that’s 300 million, if you sell it at $2PTJ profit $600 million, etc. etc.
The present market price in Sydney is $8 a GJ, but you have to get it there and I will get there later on. If you look at the underlying EBIT given for exploration and we don’t have any exploration commitments in the near term…
27:40 RC ”we are now at a point where most of our strategy has been put to bed, if I had told you three years ago that we would cause or be part of causing the NT interconnect to the Eastern sea board and no financial commitments in that regard, that there would be spare capacity just able to be filled by ourselves, because everyone else could not explore, and that there would be a shortfall in 2018 confirmed by the ACCC of quite gigantic proportions, that would cause a Vertigan inquiry that may take $2 per GJ off our transportation costs to Sydney you would have certified me.
But at that point in time, that is where we have actually got to.
So we are basically in a position where we can use this optionality, to try and drive the best economic deal, that we can get to deliver our gas to Sydney.
Primarily our gas is always going through a back haul arrangement.”
28:52 RC”Let me explain how a back haul means because in Australia you charge back haul in the same a as a forward haul because its unregulated. In every other country, it is close to nominal, if you take Mt Isa it is a 40 PTJ pa market, markets won’t change. Now you’ve got the NGP coming in the phosphate hill contract, and there will be 10 PTJ coming across. That means where there was 40 PTJ going up the line there will be 30 PTJ coming up the line, the owner of the Carpentaria gas pipeline will under those circumstance will get 47 million a year, RC explains inequalities of current back haulage rates.
30:30 RC “a $2 reduction a GJ reduction to the ACCC number, not mine, if it was regulated in accordance with international practice for back haul we would get an extra $2 a GJ over 300 PTJ that is $600 million.
If I contract now, I give away that $600 unless someone blinks, I will never get the revenue before the pipeline is built, and I have perfect optionality, $600 million to this company is worth getting out of bed for, especially when you already have your field gathering already in place.
We have existing equity 175 totally uncontracted, 207 um and we believe that we can get to 300 out of the stairway and if we do that most only need one well which will do next year, .. that would get us to 300 PTJ and filling up the pipeline, if aaah we would then move to Ooraminna and do an appraisal well there if it came in it would be there blinkity smith.
So you can see that looks pretty good, and there are a lot of leads close and very close to the pipeline.
Ooraminna is 10 KM worth of pipeline through desert.
The ACCC report is the most fundamental thing that has happened to this company. Its key findings were that new gas supplies are urgently needed, new gas suppliers are urgently needed, new gas suppliers are urgently needed, any new supply is better than none, the right pricing signals are not coming through because supply is not increasing and monopolistic pipelines are holding back that pricing signal…. 69% decrease of onshore gas exploration despite the doubling of the price, the invisible hand is not going up the kilt and is not a market clearing mechanism and you can see something is rotten in the state of Denmark according to the ACCC…
41:38 RC “ When I was at QGC I had dreams that I would get $3 GJ, it was the absolute definition of Nirvana.
44:20 RC” you are talking about a seismic in what could be transportation tariffs, and its going to happen relatively quickly, what has happened in this country is that essentially we live off Bass Straight and Cooper Basin and they both started to get into decline at the same time and the resource and under resource economics the next most marginal field will be simulated on, the most marginal fields, CSG where all exported.
So when the decline came in, you had to jump a generation on the next most marginal field to come on. Those fields are either geologically or geographically disadvantaged compared to the incumbents.
The issue then is geographical everywhere else in the world to stop the shock.
If the price in Sydney goes above $10, there will be permanent destruction of that industrial sector. Permanent destruction.
If we don’t want it to go above that, we don’t want to see that sort of unemployment.
You must decrease pipeline tariffs must come down for geographically marginal so that you don’t create demand destruction.
But that doesn’t happen only in Australia, it happens in NZ, USA, Canada, UK, China and Japan.
43:05 Basically what does that have to do with us. Most of the pipelines are over 15 years old, we are in a position where the shortfall in the Australian Gas market is of an annual size of about 200 PTJ, we can supply about 22 PTJ, but we are about the only company that hasn’t committed into the market.
If others are able to get there, there is a lot room for everyone else to come.
We could see a substantial drop in the transportation, which should change the tyranny of distance from the NT and economically relocate our fields through backhauling to the outskirts of Sydney.
That would then mean that the acreage size that we have where there is a lot of near term prospects and with the cash flow of even if we lose, even if we lose, presently we expect to make a profit of $2-3 a GJ on the present pricing and the rest is cream.
So if you think about us selling 15PTJ p.a. you can see that we can either making in 2018 when the pipeline is commissioned that is in the first quarter, we should be able supply the 15PTJ at what margin depends on whether the politicians can act, and I always acknowledge that politician are the only ones to wear their cricketers box back to front because they are not interested in protecting the crown jewels but are only interested in protecting their seats and are therefore the possibly the million jobs maybe sufficient to cause some action, but particularly as the present Australian government can say this problem was inherited from the Rudd Gillard Government allowing to many LNG plants and the Bligh government sanctioning the QLD projects, if they do nothing they own the problem, if they do something they are seen to trying to fix it, if they want to protect their seats, guess which way they will go, in the national interest of course.
That is really where we have got to, I have always in my working life tried to create optionality, but this is close to the most perfect optionality that I have ever seen in my working life, we have the reserve, we have the infrastructure in place, for when the shortage occurs at historically high prices and no competition to meet that demand that even has Rod Sims saying that we are the only ones that can supply that short fall and we’ve got to do something to make sure that the NT can save the country.
It’s not often that a penny dreadful gets the endorsement for the corroborative halo of the chairman of the ACCC after a twelve month inquiry. It is gob smacking to me that our share price has not reacted to the facts, and the facts will not change, the share price will.
And when it does it will move in an interesting way. So that is basically what my presentation is about.
1:00 Question of Take over risk. RC” At this stage, I think that any potential predator would prefer for me to be alive than dead, and I don’t want that to sound arrogant, but at the end of the day how many other people have busted through the barriers of entry, that been able to influence governments from a position of penny dreadful,… so the idea is to keep me alive until anyone can do it, so that remains the appropriate thing, I guess I hope that the stock market reacts to the fundamentals quicker than the market companies have and the only defence I have is that this is a seven dimensional chess game and a predator can’t play it.
1:06:10 CamdenBob asks ”talk about a pipeline going from CTP tenements to Moomba” RC” I think if we can get the appropriate price for our gas and get a wriggle on in our exploration, but I couldn’t get capital and could only borrow from production, if we start to get those cash flows and Santos believes in the Southern Amadeus and is one of the few they have not tried to exit at all, they see many TCF I actually think the NGP is just the end of the beginning, not the beginning of the end, the end game still remains getting to Moomba, and will look at it over time if the pricing signal is allowed. 1:08:36 “ The certainty is that there is 207 PTJ available for the short market, that we can make at present marginal cost somewhere between $1-2 because the capital is already put in their, there is no new capital, your marginal cost could come down, the present price in Sydney is about $8, about 40% if we don’t win any of the battles, so that’s $3.20 (in transport costs )we have about $2 ish.
Conclusion .
So Mr Cottee please explain why, given the glowing presentation you gave in October as to the riches at the end of the tunnel and the predatory offer from MacBank we shareholders should not now VOTE No?.
As you are aware, should the NO vote succeed, it will be naturally be seen as a vote of no confidence in the current board of directors.
It is a time honored tradition that when a no vote gets up contrary to the recommendation of a Board of directors that they automatically resign as a matter of corporate honor.
It is assumed that you will NOT resign prior to the vote being conducted.
So as to ensure that resignations follow, please accept this document as being an automatic demand for your and the boards resignation in the event that the NO vote prevails.
I am personally very disappointed in the position of the board in
1) recommending acceptance of the offer and
2) signing such an biased deed which placed CTP at the potential
of great financial costs.
Those clauses alone should have been sufficient to reject the MacBank offer and allow the company to move forward with its anticipated plans.
I cannot but fail to ask myself.
What would CTP have done for the next 12 to 18 months if MacBank had not made any offer?
The only answer I can sensibly arrive at is that the BOD would have continued to move forward to achieve the results articulated in October 2017.
Given your comments in October that
“the only defence I have is that this is a seven dimensional chess game
and a predator can’t play it”.
So why are you now handing the predator MacBank the handbook on how to play the “seven dimensional chess game”?
The answer must in my opinion be as reported in the media that all CTP staff will be employed and continue running the company as a private company.
Never in my life have I seen such a capitulation (or reversal) as I have since October 2016 to the detriment of long suffering shareholders.
So why did the BOD of directors not reject the 2nd offer at least on the basis of the reimbursement and costs of holding the vote clauses in the deed and keep moving forward?.
(20min delay)
