Central Petroleum Announces Activities Report and ASX Appendix 5B

Source: www.gulfoilandgas.com 5/20/2021, Location: Not categorized

Highlights
Activities Report and ASX Appendix 5B
• Cash balance at the end of the March quarter (the quarter) was $37.7 million, compared to the $38.5 million balance at 31 December 2020, reflecting:
• $7.4 million net cash flow from operations (before exploration and finance costs) which includes $2.9 million under the take or pay provisions of gas supply contracts for CY2020
• Increased exploration activity ($2.5 million expended) as the Range pilot drilling campaign commenced
• Preparations for commencement of the Mereenie Development Program (included in $2.0 million of capital expenditure)
• Principal repayments under debt facilities of $1.0 million. Pre-sale gas deliveries totaled 437 TJ, and 180 TJ of previously over-lifted gas was returned.
• Net Debt was $30.8 million at 31 March, down from $31.1 million at the end of December and $45.6 million 12 months ago.
• Sales volumes were 2.59 PJe (Petajoule equivalent), 4% higher than the 2.49 PJe sold in the December quarter which had been impacted by scheduled maintenance on the Northern Gas Pipeline and at the Mereenie and Dingo fields.
• Sales revenues totaled $15.5 million, up 9% from $14.1 million in the December quarter, reflecting the higher sales volumes and higher gas and oil prices.
• Unit sales price across the portfolio increased by 5% to an average of $5.97/GJe, up from $5.69/GJe in the December quarter, reflecting stronger demand from higher-priced contracts and a firmer oil price.
• Farm-out progressing – Central continues to progress a farm-out transaction, with an outcome from the formal tender process anticipated before mid-year.
• Range Gas Project Pilot – Subsequent to the end of the quarter, Central and Incitec Pivot Limited commenced a three well appraisal program, with drilling of the first two wells completed as at the time of drafting this Report.

Mereenie Development Program – Subsequent to the end of the quarter, Central commenced its 2021 Mereenie Development Program. The first of four recompletions was completed as at the time of drafting this Report, to be followed by three more recompletions and two new production wells.

As we successfully emerged from the severe market downturn in 2020, we announced an aggressive plan for near-term development and exploration activity. I am pleased to say we remain on track for delivering on this and laying the groundwork for our next phase of growth.

In the Surat Basin (Qld), drilling is now underway on our three well Range pilot, which will provide key production data for the front-end engineering and design necessary to reach a final investment decision for the Range Gas Project next year.

At Mereenie in the Northern Territory, we have now commenced a development program which will see four existing wells recompleted and two new production wells drilled by mid-year. The program is expected to boost field production capacity towards 45 TJ/day and is targeting recovery of more than 40 PJ of gas for future sale (20 PJ net to Central).

And finally, our planning and preparations for new exploration wells targeting known productive formations in the Amadeus Basin later this year continues to build in anticipation of the completion of the farm-out process which, although taking longer than anticipated, continues to progress well. We remain optimistic that a valueaccretive transaction can be announced in the June quarter and that we can preserve a target exploration drilling commencement date in Q4 2021.

Elsewhere, Santos have not yet concluded their work on a return to the Dukas-1 well. We will continue to work constructively with them to progress a forward plan for this prospect. However, as a minority non-operator, we cannot dictate the pace at this time. As a result, we have prioritised our assessment of the larger Zevon subsalt lead located in EP115 (100% interest), with a seismic line now being planned for later this year in order to refine the acquisition parameters for a more substantial seismic exploration program.

As oil markets have recovered and COVID restrictions continuing to ease since 2020, the first quarter of CY2021 has seen improved demand for gas across our portfolio with increased sales generating positive cash flow before capital expenditure. Accordingly, our cash flow and balance sheet at the end of the March quarter are in a solid position to fund the growth initiatives now underway, with net debt standing at $30.8 million on a cash balance of $37.7 million.

We have made good progress to date in 2021 and I join our Board and shareholders in looking forward to delivering on a very exciting year for the Company.

SALES VOLUMES
Sales volumes were slightly higher in the March quarter at 2.49 PJe, (including 0.17 PJ of overlift repayment gas). The Mereenie and Palm Valley fields were producing at close to capacity through the quarter and firm long-term gas supply contracts accounted for 96% of March quarter volumes. Increased customer demand for gas from the Dingo field offset the natural decline experienced at Palm Valley.

SALES REVENUE
Total sales revenue in the March quarter was $15.5 million, up 9.4% from $14.1 million in the preceding quarter, reflecting stronger demand from higher-priced contracts and a firmer oil price.
MEREENIE OIL AND GAS FIELD (OL4 AND OL5) – NORTHERN TERRITORY
CTP - 50% interest (and Operator), Macquarie Mereenie Pty Ltd - 50% interest
Mereenie field production was steady through the March quarter, with average gross production of 30.2 TJ/day, 8% higher than the December quarter’s maintenance-affected 27.8 TJ/d.

The production capacity of the Mereenie field was approximately 31 TJ/d (100% JV) at the end of the quarter.

In April, subsequent to the end of the quarter, work commenced on the first of four well recompletions at Mereenie. Two new crestal production wells will also be drilled in mid-2021. The recompletions and new wells are expected to return the Mereenie field’s gross production capacity to around 45 TJ/d (100% JV) in the second half of CY2021 and produce at least an additional 40 PJ of gas over their lifetime (20 PJ net to Central).

PALM VALLEY (OL3) – NORTHERN TERRITORY

CTP - 100% interest
The Palm Valley field produced at an average of 8.4 TJ/d over the quarter, down from 9.2 TJ/d in the December quarter due to natural field decline. Production capacity was approximately 8 TJ/d at the end of the quarter.

DINGO GAS FIELD (L7) AND DINGO PIPELINE (PL30) – NORTHERN TERRITORY CTP - 100% interest
The Dingo gas field supplies gas directly to the Owen Springs Power Station in Alice Springs. Higher customer nominations resulted in a 41% increase in gas production to an average 4.0 TJ/d over the quarter. The daily contract volume of 4.4 TJ/d is subject to take-or-pay provisions under which Central is paid annually in January for the previous calendar year’s shortfall. In January 2021, Central received $2.9 million for the 2020 gas nomination shortfall.

Appraisal Activities

RANGE GAS PROJECT (ATP 2031) – QUEENSLAND
CTP - 50% interest, Incitec Pivot Queensland Gas Pty Ltd (“Incitec”) - 50% interest
Work continued during the quarter on activities required to reach a final investment decision (“FID”), including preparations for a three-well appraisal pilot program and approvals and permits for project development.

Site preparation for the pilot was completed and temporary water storage infrastructure was installed. The Range pilot will consist of three wells closely spaced at 200m apart to accelerate the dewatering process, a production water tank, flare and associated pipework.

Drilling of the pilot wells commenced in April, subsequent to the end of the quarter. The first well, Range-6 was drilled to a depth of 675m and several Drill Stem Tests were conducted on the coal seams to obtain permeability data.

The Range-7 well was also drilled in April, reaching a depth of 680m. Each well will be completed with a slotted liner over the three seams of the Walloon Coal Measures and a downhole pump will be installed.

Testing of the pilot is expected to commence in June and provide production data for approximately three months to support a FID in 2022. The pilot will provide key information regarding reservoir productivity (initially via water rates), gas desorption (when gas is first produced), zonal contribution (how much each coal seam is contributing) and the initial production profiles of gas and water ramp up.

The 77km2 tenement (ATP 2031) is strategically located in the heart of Queensland’s coal seam gas (CSG) province which hosts thousands of CSG wells producing from the same coal measures at similar depths.

The Range Gas Project contains an estimated 270 PJ of 2C contingent gas resource (Central share 135 PJ).

The Surat Basin remains one of Australia’s premier gas production precincts, with the Range Gas Project positioned for development to take advantage of an expected shortfall of gas supply in eastern Australia from 2023.

Health, Safety and Environment
Central recorded no MTI / LTIs during the quarter and no reportable environmental incidents. The Company’s TRIFR (Total Recordable Injury Frequency Rate) is currently 4.2, reflecting one incident in the last year.

FARMOUT PROCESS ADVANCED WITH PREFERRED BIDDER
Central is well advanced in a formal farm-out process for an interest in its Amadeus Basin producing tenements to fund a planned exploration program in 2021. Progress with a preferred farm-out partner is tracking well with a target of second quarter CY2021 to announce agreed terms of this transaction, allowing for exploration drilling to begin in Q4 CY2021.

Exploration Activities

AMADEUS EXPLORATION PROGRAM – NORTHERN TERRITORY
Work continued on planning, approvals and procurement for Central’s multi-well exploration program in the Amadeus Basin which targets proven hydrocarbon-bearing formations that can be tied-in to existing infrastructure. Orders have now been placed for some of the key long lead items required for the exploration wells.

The exploration program is subject to the farm-out process currently underway, with a target commencement of drilling in Q4 CY2021.

DUKAS (EP112) – NORTHERN TERRITORY

CTP – 30%, Santos (and Operator) – 70%
Dukas is a gas prospect with multi-TCF potential located approximately 175 km south west of Alice Springs. The Dukas-1 exploration well was suspended at a depth of 3,704m in mid-2019, after encountering hydrocarbon-bearing gas from an over-pressured zone close to the primary target.

Santos, the operator of the EP112 joint venture, has been assessing various options to intersect the target formation using specialized high-pressure drilling equipment, and advised in February that it requires further time to complete technical studies. No definitive guidance has been provided by Santos as to when this work might be completed and a decision on Dukas remains outstanding at this time.

EP115, AMADEUS BASIN – NORTHERN TERRITORY

CTP – 100% interest
The Zevon sub-salt lead in EP115 has been defined as a very large closure (circa 1,600 km2 ) from seismic and gravity studies and is located in the north-western section of the Amadeus Basin between the Mereenie Oil & Gas Field and the Surprise Oil Field. Planning has commenced for a 30km seismic survey for Q4 CY2021 to acquire data which can be used to optimize the acquisition parameters for a subsequent larger seismic program.

CASH POSITION
The Group held cash of $37.7 million at the end of the quarter, down slightly from the $38.5 million at the end of December. The net cash inflow from operations for the quarter was $3.9 million after exploration costs and finance charges. Key amounts included:
• Cash receipts from customers during the quarter of $14.7 million, which includes $2.9 million take or pay receipts for contract shortfalls in CY2020.
• Increased exploration expenditure of $2.5 million as activity ramped-up on site preparation and procurement for the three-well appraisal pilot program at the Range Gas Project.
• Cash production costs of $6.2 million for the current quarter.
• Staff and administration costs of $1.1 million.
• Interest charges of $0.95 million. The debt facility remains efficiently priced (5.54% at quarter end) and tied to the variable BBSY interest rate which remains close to historic low levels.

Capital expenditure amounted to $2.0 million, with increased activity focused on preparations and procurement for the new production wells and recompletions at Mereenie. An additional $1.6 million was lodged as security for future remediation obligations in the Northern Territory.

Principal repayments under the loan facility totaled $1.0 million during the quarter. The total outstanding balance of the loan was $67.8 million at quarter end.

Fees, salaries and superannuation contributions paid to Directors during the quarter amount to $0.268 million as disclosed at item 6.1 of the Appendix 5B.

The statement of cash flows for the quarter and financial year to date are attached to this report at Appendix 5B.


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