Central Petroleum Limited

Expecting Gas Sales this year backed by commencement of Commercial Operations: Central Petroleum Limited (ASX: CTP) is an Australian based oil and gas explorer and producer which focuses on supplying the Australian gas market. Recently, the company announced that its customer Incitec Pivot has proposed to the group that its Gas sales agreement with Incitec has been started from 3rd January 2019 along with the commencement of commercial operations with Northern gas pipeline. The company’s new field boost compressor which is located in Mereenie has now successfully into production. This represents that all the processing and production equipment is accessible for gas delivery. In June 2018, the company has entered a new Gas Sales Agreement (GSA) with Incitec Pivot Limited (IPL) for 20TJ/d starting on completion of the NGP (Northern Gas Pipeline). As per the management, this deal is the company’s first gas sales agreement into the east coast market, and after commencement, this will contribute to an almost tripling of the company’s gas sales under the contract. This deal will fundamentally change the future financial performance of the company, and it will contribute to stronger cash flow in years to come. The company also announces that the Mereenie Facility Upgrade was delivered only 8 months after ordering long-lead items, which is at least 3 months earlier than its schedule. This represents that Mereenie Facility Upgrade and Palm Valley Restart Projects have now been brought into production and expect gas sales this financial year. Once the run testing of the new Field Boost Compressor (FBC) is complete, the Mereenie Gas Field will be capable of delivering 44 TJ/d of sales gas on a firm basis along with an additional capacity on a non-firm basis. In addition to this, the Palm Valley facility now has 15 TJ/d of sales gas capacity.

Over the past three years, the margins of the company have improved but are still below the industry medians. During FY18, the company reported gross and EBITDA margin of 34.8% and 0.8% respectively as compared to the industry median of 45.5% and 31.9% respectively. Similarly, Net Margin also improved from -99.7% to -4.3% in FY18 over the prior year. The aforesaid parameters indicate that the company’s operational health is improving but not up to the industry standard.

Key Financial Metrics (Source: Company Reports)

On the other hand, the company has appointed Mr. Stuart Baker and Ms. Kathy Hirschfeld as a Non-Executive Director, effective from 7 December 2018. The company has ~709.99 million shares outstanding with the market cap of ~$110.05 million, and a beta of 2.81x (5-Years, Monthly basis). During the past six months, the stock has generated a positive yield of 19.23% and is trading toward higher level. At the current level, we presume that the price has discounted all the positive developments. We, therefore, recommend the investors to keep a watch on the stock at the current market price of $0.155 as the group is expecting Gas Sales this year backed by commencement of commercial operations.
 

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