The collapse in oil prices is helping rather than hindering Cooper Energy's ambitions to develop a $1 billion gas project off Victoria's coast, according to chief executive David Maxwell, who says the venture is attracting plenty of interest from potential customers, partners and financiers.
Mr Maxwell said with east coast gas prices still firmly on the way up and softening costs in the service sector, the Sole gas project and was among the most competitive sources of supply of gas for the south-eastern states and offered returns "well into double digits".
Cooper has kicked off a process to bring in another partner to the venture, with a deal targeted for February-March. That would help with funding for Cooper's share of the first, $550 million phase of the investment, which is due to reach a final investment decision in the September quarter of 2016.
Cooper owns 50 per cent of Sole and the onshore Orbost gas plant, and 65 per cent of the nearby Manta field, which would be developed about two years after Sole. Mr Maxwell said a stake of about 40 per cent across the assets would be more suitable for the junior, which has a market value of about $54 million.
According to estimates given in May 2014, the Sole project would cost about $550 million, although the deflation in the services sector points to a potential reduction in costs. Development of the Manta field would cost another $500 million or so.
The gas market along the eastern seaboard has tightened markedly over the past 12 months, with the gradual start up of the Queensland LNG export projects that are set to triple demand within a two-year period. That means wholesale prices for gas in the eastern states, at least for contracts that are not indexed to oil, are still rising even though the crash in global crude oil prices has cut Asian LNG export prices.
'STRAIGHT CASE OF SUPPLY AND DEMAND'
"If you're not linking the gas price to oil, then it's a straight case of supply and demand," said Mr Maxwell, a former executive of Woodside Petroleum and BG Group. He said the company still expected wholesale gas prices to head towards $7 to $8 a gigajoule. That compares with historical prices in the domestic market on the east coast of about $3.50 or $4.
Negotiations with potential customers were "in the final throes", Mr Maxwell said, with one initial sales agreement signed so far with glass container manufacturer O-I Australia.
The Sole and Manta fields hold a combined 360 petajoules of gas and Ord Minnett analyst John Young said Cooper will need to contract the bulk of resources before an investment decision can be taken.
Meanwhile, feedback from financiers to provide funding "has been very positive because of the economic strength of the project", he added.
Cooper is partnered by Santos at the Orbost plant and in Sole, while Beach Energy has a stake in Manta. Seven Group Holdings, a 19.9 per cent shareholder in Beach, owns the Longtom field that also used to supply gas into Orbost but is currently shut down.
Mr Maxwell said he was keen to see an alignment of interests across the assets, which would help with maximising synergies across the venture.
According to Cooper, gas buyers are seeking supply in the 2016-2025 time frame and beyond to replace contracts set to expire. But existing producing fields are in decline, while the drop in oil prices is also likely to reduce available gas supply. The company does not expect the North East Gas Interconnector, to be built between the Northern Territory gas pipeline and Queensland, to do much to help meet demand in NSW.
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