Cooper Energy likes APA’s Orbost gas processing plant Victoria so much that it is risking itself to control the facility.
In fact, the terms of the purchase revealed on Monday, resemble a corporate deal version of Buy Now Pay Later for Cooper Energy – an upfront figure followed by four other payments.
Total cost could end up more than $300 million, a steep ask for a company with a value of $514 million before Monday’s announcement.
Cooper Energy’s brokers are splitting its $244 million equity raising to buy the plant into an $84 million institutional placement, a $99 million institutional entitlement offer and a $61 million retail entitlement offer.
The fund raising will be priced at 24.5 cents a share, a 22% discount to the last sale last Friday of 31.5 cents.
Additionally, Cooper Energy announced a new, fully underwritten $400 million revolving corporate debt facility and $20 million working capital facility which will refinance the existing syndicated debt facility, conditional on completion of the Orbost purchase.
Monday saw Cooper Energy ask for trading in its shares to be halted ahead of an announcement concerning the Orbost asset. That was granted and around three hours later APA revealed the deal and the terms in a separate statement.
Cooper’s statement and details of the fund raising and new debt deal emerged soon after.
APA though said in its statement that Cooper Energy had agreed to acquire the company’s Orbost Gas Processing Plant for between $270 million and $330 million via four instalments.
The upfront payment to APA will be $210 million followed by a series of deferred payments to APA as follows:
- A first post-completion payment of $40 million within 12 months of completion (being the date on which ownership of the OGPP transfers from APA to Cooper Energy).
- A second post-completion payment of between $20 million and $40 million within 24 months of completion
- A third post completion payment of up to $40 million within 36 months of completion.
“The final amounts of the second and third post-completion payments are subject to post-completion plant performance and will be calculated at the point when APA ceases operating the plant,” APA said on Monday.
“The current book value of the OGPP is $236 million. It is expected the proceeds from the sale will exceed the current book value plus the remaining forecast capital expenditure of for the business.
“Financial impacts of the sale for the year ending 30 June 2022 will be determined as part of APA’s year-end processes,” APA explained.
Media reports late last year said Cooper Energy had been talking to APA about buying the plant.
The rising demand for gas and prices saw Cooper Energy issue a second upgrade for 2021-22 earnings in three weeks in early June.
The drivers for the rise in demand for gas and prices have been high levels of exports and weeks of colder than forecast weather across NSW and Victoria, as well as parts of southern Queensland.
NSW and Victoria, though, are the states key to Cooper’s sales and it told the ASX that “Since the Company’s FY22 guidance was last updated on May 16, there has been continued improvement in average processing rates at the Orbost Gas Processing Plant (OGPP) (owned and operated by APA Group and a substantial increase in actual and forecast wholesale spot prices for gas in Sydney and Victoria, in both cases beyond what had been expected as at the date of the last guidance update.
“In May, the average gas price in the Victoria and Sydney spot markets continued to increase and were $32.95/Giga Joule (GJ) and $29.87/GJ respectively.
“During May, Cooper Energy sold 367 Tetra Joules (TJ) of production surplus to Gas Sales Agreement nominations into the spot market at prices aligned with these averages (less transport costs). All daily nominations for Sole customers continue to be met, averaging 47.3 TJ/d for May.
Cooper said that as a result of these changes, production guidance and sales volume guidance have been revised to the upper half of the previous range.
“The guidance range for underlying EBITDAX (that’s earnings before interest tax depreciation, amortisation and exploration expense) has been revised upward to $70 – 78 million, reflecting a reasonable expectation of continuing the improved performance at OGPP and of continuing higher realised Australian east coast wholesale spot gas prices.”
That’s a 23% increase from the range in the May 16 update of $58 million to $68 million. That’s also a 3% rise in the forecast production for the year to June 30 of 3.3 to 3.4 million barrels of oil equivalent (MMboe) from 3.2 to 3.4 MMboe.
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Meanwhile, APA said in a separate statement on Monday that it had executed 30-year Gas Transportation and Storage Agreement and a Development Agreement with Snowy Hydro Limited (Snowy Hydro), to commence the development of a pipeline connection, called the Kurri Kurri Lateral, which will include storage, to the proposed Hunter (gas) Power Project.
Snow Hydro is building the gas-powered plant which will have a capacity of more than 600 megawatts.
APA said it will build, own and operate the Kurri Kurri Lateral, a gas transmission pipeline approximately 20 kilometres in length, which will connect the Sydney to Newcastle Pipeline to the Hunter Power Project at Kurri Kurri in NSW, and a 70 TJ gas storage facility to service the Hunter Power Project, which are targeting completion by late 2023.
The pipeline and associated works will cost around $264 million, according to APA.
APA estimates construction jobs will peak at almost 400 workers when construction of the pipeline connection, storage and compressor station overlaps.
