Central Petroleum Limited

Commencement of New Exploration Programs: Central Petroleum Limited(ASX: CTP)is engaged in development, production, processing and marketing of hydrocarbons and associated exploration. Recently, the company cited its CY2020 exploration program, which consists of five high-graded drillable prospects and two appraisal tests in Central’s Amadeus Basin tenements in the Northern Territory (NT).

FY19 Financial Highlights for the period ending 30 June 2019:Central Petroleum declared its full-year financial results wherein the Company reported sales of $59.36 million as compared to $34.94 million in FY18. Sales increased by 70% on y-o-y basis, driven by increase in gas sales volumes to a record level of 10.2PJ, up 111% from the prior year of 4.8PJ. During FY19, CTP posted a statutory net loss after tax at $14.5 million as compared to the $14.08 million in FY18, primarily due to the inclusion of exploration costs of $15.8 million as per the Company’s accounting policy. EBITDA came in at $6.74 million, up 204% from FY18, aided by higher volumes of gas sold via the Northern Gas Pipeline, following its commissioning in January 2019. The company reported capital expenditure of $16.18 million as on 30 June 2019. The business reported net cash inflow of $2.46 million during the financial year 2019.


FY19 Financial Highlights (Source: Company Reports)

Operational Highlights for FY19:

(a) The Company reported successfully resume operation at Palm Valley gas field during the year. However, current operation is at a slower pace than anticipated rates. The Company cited the above operation is resulting in reduced reserves and lower production plateaus.

(b) During the year, the Company successfully drilled 2,242 meters across Palm Valley 13 and tied into production facilities during May 2019.

(c) In the West Mereenie, the company drilled 26 appraisals but encountered minimal gas flow due to mineralization. As per the updates from the Management, material 2C resources are currently booked in the Stairway formation, which overlies the existing production zones. The Company is further evaluating alternative approaches to recover gas from the Stairway formation.

(d) Central Petroleum Eastern Pty Ltd, a wholly owned subsidiary of CTP, was awarded ATP 2031 by the Queensland Government for a period of 12 years. The permit lies within the north-eastern Walloon Coals Fairway, surrounded by acreage held by QGC, Arrow and APLNG.

(e) During the year, the Company successfully delivered Mereenie Expansion Project with firm plant capacity of 44TJ/day, within the scheduled date.

Outlook:The Management has targeted CY2020 exploration with a low to moderate-risk opportunities, which have been prioritized based on compelling investment justifications, including rapid commercialization, brownfield economics, proximity to existing infrastructure, and drill-ready in CY2020. The CY2020 exploration program is estimated to have a total cost of $51 million.

Stock Recommendation:The stock of CTP is quoting at $0.180 with a market capitalization of ~$122.81 million. The 52-week trading range of the stock stood at $0.125 to $0.220. The stock is currently trading above the average of its 52-week ‘high’ and ‘low’. The stock has delivered decent returns of 25.93% and 9.68% during the last three-months and six-months, respectively. The enterprise value to sales (EV/Sales) multiple of the stock stands at 2.2x on TTM basis as compared to the industry median of 2.1x. The Company has completed its strategic portfolio review and will focus on defining a CY2020 exploration program, which is likely to provide reinvigorate exploration across Central’s Amadeus Basin permits. Considering the aforesaid facts, recent price movements, and business prospect, we have a wait and watch stance on the stock at the current market price of $0.180, up 5.882% as on 11 October 2019, owing to the release of CY2020 exploration programme for new growth phase.

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