Central Petroleum has locked in a multi-year gas sales agreement with the Northern Territory Government, underpinning new well investments at Palm Valley that could boost production capacity by 40%. The company reported stable cash flows and increased full-year revenue despite lower quarterly volumes.
- New 10.5 PJ gas sales deal through 2034
- Palm Valley drilling underway for two new wells
- June quarter sales revenue $10.9m, down 3.9%
- Gas overlift liability fully repaid, cutting costs
- Loan facility increased to $15 million
Multi-Year Gas Supply Agreement Drives New Wells
Central Petroleum (ASX:CTP) has secured a significant multi-year Gas Sales Agreement (GSA) with the Northern Territory Government to supply up to 21 petajoules (PJ) of gas through to the end of 2034. Central's share of this is 10.5 PJ, which underpins a final investment decision for two new wells at the Palm Valley field. This deal features a fixed market price with CPI escalation and take-or-pay provisions, providing a solid revenue foundation for the company’s planned production expansion.
The new wells, with drilling having commenced on 25 July, are expected to restore Palm Valley’s sales capacity to approximately 14 terajoules per day (TJ/d) at the facility limit. If successful, these wells could increase Central’s share of total gas production capacity across its three producing fields by around 40%, a substantial boost for the company’s output profile.
Quarterly Production and Revenue Reflect Maintenance and Preparations
During the June quarter, Central supplied 1.0 PJ of gas and oil, a 7.3% decline from the previous quarter. This drop was primarily due to a scheduled five-day shutdown at the Mereenie field and pre-emptive maintenance at Palm Valley to prepare for the new well connections. Despite the lower volumes, realised gas and oil prices rose by 3.6%, partially offsetting the volume decline.
Sales revenue for the quarter was $10.9 million, down 3.9% from the March quarter. However, full-year sales revenue rose 3.7% to $43.9 million, boosted by a 10% increase in realised prices that more than compensated for a 6% volume reduction, which was affected by oil offtake constraints and pipeline restrictions earlier in the year.
Cost Savings from Overlift Liability Extinguishment
Central completed repayment of its gas overlift liability in mid-May, a commitment that had been absorbing 2 TJ/day of production since 2020 without net revenue. This extinguishment is expected to reduce operating costs by approximately $7 million annually, with only two weeks of this benefit reflected in the June quarter results. The full cash flow uplift is anticipated to be visible from the September quarter onward, enhancing the company’s free cash flow position.
Cash Position and Financing to Support Growth
The company ended the quarter with a cash balance of $20.4 million, up from $19.5 million at the end of March, and net debt of $5.0 million. Operationally, Central generated positive net operating cash flows of $3.6 million after exploration and interest costs. Capital expenditure of $1.6 million was invested in surface facilities for the Palm Valley wells and sustaining assets.
To support the accelerated drilling program, Central increased its loan facility to $15 million, available for drawdown until December 2026, with principal repayments commencing in March 2027. The facility terms remain consistent with the existing secured term loan from Macquarie Bank, which carries a floating interest rate of 12.5% as of the quarter-end.
Strategic Exploration Moves and Asset Rationalisation
Central terminated its conditional agreement to sell interests in two Amadeus Basin exploration permits (Dukas and Mt Kitty) and withdrew from the Dukas joint venture after reassessing the permits’ prospectivity and drilling costs. The company remains committed to the Mt Kitty appraisal well, expected to be drilled by early 2028, and is seeking farmout partners to share exploration risk and capital.
Exploration continues in the Otway and Cooper Basins, where Central holds interests acquired from ADZ Energy and Cordillo Energy. Work is underway to progress an exploration well at Enterprise North in Victoria and to reprocess seismic data to optimise drilling locations in the Cooper Basin, indicating a methodical approach to unlocking value from these permits.
Operational Challenges in Oil Sales and Safety Record
Oil sales from the Mereenie field remain constrained due to revised oil specifications, leading to an indefinite suspension of oil offtake from mid-June. Central is actively seeking alternative commercial arrangements to resume oil sales, but this remains an area of uncertainty for near-term revenue.
On the safety front, Central recorded no reportable incidents during the quarter, maintaining a Total Recordable Injury Frequency Rate (TRIFR) of zero, reflecting ongoing operational discipline.
Bottom Line?
Central Petroleum’s new gas sales agreement and well drilling mark a pivotal phase, but execution risks and oil sales suspension warrant close attention.
Questions in the middle?
- Will the new Palm Valley wells achieve their targeted production capacity and timing?
- How soon will the full cash flow benefits from the overlift liability repayment materialise?
- What commercial solutions will Central find to resume oil sales from Mereenie?