Comet Ridge Limited (COI) - QLD developments are more attractive...

Comet Ridge Limited (COI) - QLD developments are more attractive

STO’s Investor Day highlighted its renewed emphasis on upstream QLD CSG growth to supplement its underutilised GLNG facility. STO is rapidly improving drilling outcomes across its QLD gas portfolio, a well-timed endeavour as third-party supply contracts roll off over the coming years, providing the impetus to pursue regional growth options incl. Mahalo (Figure 1). While STO’s growth hopper is relatively full with Barossa, Papua LNG, Alaska and Dorado in particular, we believe the low-cost, well understood nature of its QLD CSG assets will aid Mahalo development over projects battling crippling offshore regulatory regimes, such as Dorado. COI, STO and Jemena are currently in negotiations for connecting pipelines from Mahalo. BUY, PT A$0.38/sh (unch).

Key takeaways from STO investor day

• STO has a high-quality growth portfolio, including Barossa (FID), Alaska (FID), Dorado (FEED), and Papua LNG (FEED). Figure 2.
• Notwithstanding, post-FID regulatory reversals are impeding development; Barossa is stalled and Dorado deferred indefinitely until more regulatory clarity exists.
• FCF remains strong; FY23 annualised US$2.1bn (Figure 4) & gearing comfortably inside 15-25% target range (Figure 5), leaving optionality for future growth.
• Mahalo is a relatively simple, low-cost development option that will help to offset GLNG underutilisation.
• Nevertheless, COI is pursuing an initial 10TJ/d Mahalo North devt with 100% ownership and operatorship.

QLD CSG drilling improvements

• STO only produces ~70% of gas delivered to GLNG; its purchase contracts are expiring over the coming years. STO needs to replace two key contracts for ~160TJ/d.
• Recently, STO’s ability to produce more gas from individual CSG wells has improved markedly (Figure 6).
• This is bringing QLD growth back in focus (Figure 7).
• We believe this bodes well for future development, particularly for gas beyond 2026 as contracts roll off, with STO able to leverage recent success at new fields.

Negotiations continuing on offtake & pipeline

• COI has signed a GSA with CleanCo for 21 PJ; MoU with Orica for prepayment + offtake. Binding terms are being finalised.
• MoU with Jemena for pipeline into QGP. STO/COI/Jemena discussions continue on the design.

Key Dates Ahead

• Ongoing – Binding offtake + prepayment with Orica.
• Ongoing – Jemena pipeline FEED.