Was Carnarvon Energy trailing a very transparent coat on Tuesday with a distinctly un-newsworthy statement on its attractiveness and that of its key assets?
Or was it really urging partner Santos to focus on the $2.7 billion Dorado oil project, now in limbo after the final go-ahead was delayed in August?
From the contents of the statement and comments by CEO Adrian Cook, Tuesday’s ASX filing had a bit of Kath and Kim about it – ‘look at us, look at us’ – to remind investors that the energy tiddler was still a player with a stake in two discoveries and potential projects now being delayed by inflation and supply chain problems
The company has a stake in the delayed Dorado oil project off the northwest WA coast, as well as several smaller prospects (such as the smaller Pavo discovery) and in the statement, talked up the “long held view is that liquid fuel demand will continue to be robust into the foreseeable future, notwithstanding concerted efforts to advance alternative energy transition products.”
“With this focus, the Company is in a very strong position having a well-advanced oil development project in the Bedout basin with resources net to Carnarvon (2C resource) from Dorado and Pavo aggregating 82 million barrels of oil equivalent. Testing of further development potential upside at Pavo is also currently under consideration.
“The proven and potential gas resources in the basin, which are currently under assessment by the Joint Venture for future exploitation, also offers a highly attractive investment proposition,” Carnarvon said in Tuesday’s statement.
“This has been evidenced by studies that show, despite strong electric vehicle take up, oil consumption has not materially changed,”
Well, that was not quite right because electric vehicle (EV) sales are still in their very early stage except in Norway and China which are the two countries where electric vehicles of differing types have been selling well.
But even in China where six million or more New Energy Vehicles will be sold this year, (NEVS), around 20 million ICE (internal combustion engine) powered vehicles will also be sold.
EV sales are only starting to grow in the US (Tesla has been the lone success story), the EU, UK and Japan and Australia. NEVS include pure battery powered EVs, plus plug ins and hybrids (like the range Toyota makes).
Carnarvon though, in extolling the virtues of its solidly carbon-based attractiveness, couldn’t really afford to ignore renewables, so it spoke about progress in “its work on and investment in transition fuels that are strategically linked with and produce products that are currently selling at premiums to their equivalent oil related products.”
“Recently the Carnarvon team met with parties to assess markets and operations in Europe, the USA and Asia where the demand for low carbon intensity energy products, like renewable diesel and sustainable aviation fuel, materially outstrips supply.
“This growing market presents a very strong investment opportunity and one in which Carnarvon has already positioned itself with its focus on technology-led solutions, and by securing land in the Shire of Narrogin and material feedstock supply for its first project.”
Carnarvon insisted it remains committed to building its resource and reserve base in the highly prospective Bedout (off the NW WA coast) basin through the exploration, development and production of both oil and gas, which have been proven to exist in the basin.”
Carnarvon said in the statement that around 100 prospects had been identified in the Bedout basin, enhancing its attractiveness.
The big attraction of the Bedout basin is the Dorado oil project – 20% owned by Carnarvon and 80% by Santos. An expected approval of the $2.7 billion project mid-year didn’t happen and both Carnarvon and Santos revealed in early august that the final decision had been put on hold.
The partners blamed the surge in costs and supply chain problems for that decision, saying in statements “On 17th August, Carnarvon and its Joint Venture (Santos) partner advised that the project had substantially completed the Front-End Engineering and Design phase, however the current inflationary cost environment and supply chain uncertainty do not support a FID in 2022.”
“Notwithstanding this decision, the project remains an important development for both JV partners who are seeking to balance the timely sanctioning of the project with important fiscal discipline in this current inflationary environment. The JV will continue to assess the cost environment into the new year, with some potential easing signs recently becoming apparent, and progress finalisation of the remaining regulatory approvals.”
Carnarvon also talked up the attractiveness of the recent Pavo discovery (around 43 million barrels of oil estimated), gas and other products that could be used to improve the attractiveness of the Dorado development.
“The Carnarvon team is also actively working on a number of initiatives which aim to enhance the funding position for the Dorado development as well as pursuing opportunities that have the potential to generate earnings and cash flows ahead of that currently planned from the Dorado field, including the potential for earnings from the production of renewable fuels.,” the company added.
CEO Adrian Cook said in the statement
“Carnarvon is in a very strong position at the current time with significant oil and gas resources being progressed for development, a basin holding position with exciting exploration potential and a transition plan that is product led, earnings focused and capable of significant expansion.
Supporting these activities is a strong balance sheet with over A$100 million in cash and no debt.
Whilst the Dorado development FID has been delayed, it is for good reason and one in which we believe will stand us in a robust position through being financially disciplined.
The Dorado and Pavo fields are unquestionably world class, capable of delivering quality product over an extended period of time, with huge potential upside from yet to be discovered additional fields, and we look forward to providing updates as we continue to progress this work.”
The bullish statements had no impact on the Carnarvon share price – they closed Monday at 14.5 cents each, rose to 15.5 cents in early trading Tuesday, when dipped back, leaving shares almost 66% lower than the 52-week high of 43.5 cents.
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Meanwhile Carnarvon’s bigger partner, Santos yesterday confirmed market rumours on Monday that the state-owned energy company of Papua New Guinea had offered $US1.7 billion ($A2.2 billion) for a 5% stake in the PNG LNG project.
Santos said it had “received a binding conditional offer from Kumul Petroleum Holdings Limited (Kumul) to acquire a 5 % project interest in PNG LNG for asset value of $US1.4 billion, including a proportionate share of project finance debt of approximately (around $US300 million).
Kumul is Papua New Guinea’s national oil and gas company and existing partner in the PNG LNG project.
Kumul has paid a $US55 million deposit to Santos which will be held in escrow to be released to Santos as a deposit for part payment of the offer price if it accepts the offer.
The Offer is conditional on Kumul obtaining the waivers of certain pre-emptive rights by each other PNG LNG project participants such as Exxon and Totalenergies) under the project operating agreement to allow the transaction to proceed.
The Offer is irrevocable, except in limited circumstances, and will remain open for acceptance until the end of this year. Santos said it has agreed to deal exclusively with Kumul during this period regarding the sale of equity in PNG LNG.
The proposed transaction will have an effective date of December 31, 2022 with Santos to retain all 2022 cash flows.
The potential sale would increase the equity interest of the PNG government to around 22%. Following the transaction, Santos would have a 37.5% stake in the project.
The cash from the sale wqon’t be received until very late this year but it could help finance the Dorado project in WA that Carnarvon Energy seems very desperate to get back on track.
Santos shares rose 1% to $6.95. They were up just over 2% at one stage during the session.
