Why I'm Buying CTP

Have recently started buying CTP and put together some notes as part of my own research, others may also find them useful and be able to expand or correct in areas.

CTP - Central Petroleum Limited have over the past year or two been progressively scaling their production capabilities and are now at the point where their large investment is going to pay off. The majority of CAPEX costs have been sunk and revenue is now gearing up rapidly which will drastically reduce the cost of production. IMO CTP are undervalued as a producer and have near zero upside priced in from their free carried exploration which is being funded by Santos in the NT and Incitec Pivot Limited in QLD. From what I’ve found in my assessment of the company and state of play I think that there are very few companies on the ASX which currently present the same upside potential with minimal downside risk.

Stats
Total shares on issue: 711,029,976
Share price 14c
Market Cap $99.5m
Cash $11m
Debt $86m
EV $174.5m

Post upgrade installed capacity 83TJ/d (32.1PJ p.a), currently producing ~1100TJ net to CTP per month with PV13 I expect to add a further 200+

2P reserves 169 PJ (further upgrades likely)

NGP pipeline access which began in January 2019 allows for market pricing, CTP gas has historically been sold to ‘local’ users at sub market pricing. New contract negotiation underway with EOY expiration of current contract, contract pricing now materially higher although still discount due to location. Expect circa $6-8GJ as transport costs are circa $4/GJ to get to the east coast.

CTP have contracted the majority of their production but have the ability to renegotiate shortly, recent firm contracts such as the STO-NCZ contract have been done at over $10/GJ
https://www.santos.com/media-centre...domestic-gas-deal-with-new-century-resources/

Gas Sales Contracts

IPL Gas Sales Agreement and Queensland Acreage Farmin
Central Petroleum Limited (“Company” or “Central” today has executed a Gas Sales Agreement (“GSA” with Incitec Pivot Limited (“IPL” whereby Central will deliver at least 20 TJ/d of gas to IPL on an ex-field basis from its Palm Valley and Mereenie fields. The gas will be delivered from the commencement of commercial operations on the Northern Gas Pipeline (currently anticipated to be December 2018) till 31 December 2019.

Central Petroleum Limited announces that the Gas Supply Agreement with EDL NGD (NT) Pty Ltd for the delivery of 9.85PJ of gas over five years described in the 26 April 2017 ASX Announcement has become unconditional. The start date for gas supply is anticipated to be 1 June 2017.

2 free-carry exploration drilling programmes

Dukas Prospect – EP112 - Free carry with STO farmout to 70%

Data suggests the potential for 2.4Tcf (~2,400PJ) gas and 493Bcf Helium (10 x gas value)

Helium is worth about 10 times the gas price, because it is not often successfully trapped, however in the Southern Amadeus Basin there is a pervasive salt layer that, based on the scant few wells drilled to date, has acted to trap the gas.

Drilling April – 9 week drill with results circa June, early indications likely earlier

https://icn.org.au/news/northern-territory/central-unveils-helium-numbers


Queensland Surat basin CSG – Range Gas Project – ATP 2031 – Free carry IPL 50% farm out
Targeting 150-180 PJ potentially recoverable ($1.2-1.4b at $8/GJ)

9 well drilling program in the Surat basin beginning April, costs covered by IPL ($20m)

1 March 2018 a 50:50 joint venture arrangement for ATP(A)2031 in Queensland (the “Qld Acreage” has also been agreed with IPL, allowing the fast tracking of the Qld Acreage. Under the joint venture arrangements, IPL will contribute up to $20 million for appraisal drilling costs during the initial exploration period.

March quarterly will show the market what the numbers look like with +260% production rates. Expect cost of production to reduce significantly.

June quarterly will show a further increase in production rates with PV flowing. Expect cost of production to reduce again. Palm Valley was drilled and flowed in October at 12 mmscfd rates (12.8TJ/d), this well is expected to come online in April and is likely to boost production to 1300-1500TJ a month depending on settle out flow rates. PV is 100% owned by CTP

In summary CTP have 2 free carried and high impact drilling campaigns underway, production assets to bring online, a material uplift in revenue from increased production and a further revenue uplift in revenue from renegotiation of contracts. Timing wise the majority of these positive events occur over the next 4 months which in my view will lead to material movement in the share price. I have begun to buy with the intent of de-risking from around 20c where I think the SP can head over the next few months.



For the more visual creatures this chart showing the upcoming positive news flow I anticipate acting as catalyst's over the next few months may be of use.