Pinned straw:
Great milestone today for Amplitude with binding JV agreement signed with new 50/50 partner in the Otway Basin, OG Energy (who will replace Mitsui).
This finally clears the way for the company's major growth project, the East Coast Supply Project (ECSP) to provide much needed gas into VIC / South-East Aus markets which are facing pretty dire forecast gas supply shortages.
Jane's presentation well worth reviewing, and a copy of today's briefing will be posted on company's website later today.
Key Takeaways/Highlights:
- Finally will have aligned JV partner with matching appetite to drill & get these fields into production. Both parties keen to do the full 3-well program.
- Very promising seismic data, and high probability of success (15 of 16 wells drilled in Otway by the company & others have been successful).
- All fields very close to existing subsea infrastructure and can be easily tied in - all can flow through existing Athena Gas Plant with substantial untapped capacity.
- Expected to increase life of Athena by minimum of 10 years, and boost production by 90TJ/day.
- Strong interest from foundational gas customers - should see signed GSAs for targeted 70% of gas production to underpin project. (Company likes to keep 30% for higher margin spot sales & value-add such as peak power generation opportunities).
- Rig arriving soon & first well (Elanora & Isabella fields) to be drilled later this year.
- Other two wells to drill CY2026 (Juliet & Annie - both high probability of success & easy to tie into existing nearby lines).
- First gas from growth projects would flow in 2028, perfectly timed to help meet the precipitous drop off in supply forecast for 2028 onwards.
- Amplitude can comfortably fund its share of cap-ex for both Phase 1 & Phase 2 works (P1 = $240-$270M in CY2025 & 2026, P2 = $140-185M in CY2027 & 2028), from mix of existing cash reserves, operating cash flow from existing operations (existing FCF forecast at comfortably $150M p.a.) & existing debt facilities (which are steadily reducing from peak-debt Sep 2024 post BMG decommissioning works & at $254M net debt as at Dec 2024).
- ECSP forecast to increase Group Production to over 100TJ/day, double FY24 group Revenue & triple FY24 group earnings (i.e. Game Changer!)
- Long lead time capital items & regulatory approvals for ECSP already underway.
- OG Energy to reimburse 50% of any cap-ex already spent on ECSP (currently circa $25M) when it receives final approvals for its purchase of Mitsui's Otway Basin interests (gas fields & Athena Gas Plant).
- Pricing on new GSAs likely to be materially above current GSA's (see p7 slide in presentation).
- Key slides p22-24 of presentation help illustrate the likely cash flow bridge & net debt path to production.
Basically this is a key milestone for the company, to finally clear a firm pathway to unlock the full potential of its gas plant infrastructure (Athena has only had around 20TJ/d of its 150 TJ/day capacity utilised to date). Economics should be very attractive on this, and on top of having finally gotten on top of production issues at its other Orbost gas plant (from Sole gas field) - should now very much be on analysts radar (indeed all covering analysts on the call sounded excited about the potential & congrats to management etc).
I believe the current market cap substantially undervalues the company's existing assets (substantially below replacement value of gas plants themselves - were almost being priced as stranded assets due to no visible pathway to bringing much needed extra gas supply to plant & very hostile VIC government - who's chickens for years of policy failure are finally coming home to roost and force a more balanced mindset if they want to maintain any industry & jobs it provides in the state at all).
Very hard to put a valuation on the company - but can see it being steadily re-rated over the next 6-18 months to 30c+ as the ECSP takes shape & prospective gas resources de-risked & confirmed with drilling campaigns. Can comfortably see 40-50c+ once ECSP production kicks in in 2028 and earnings expand (forecast to triple).
Very comfortable buy/hold & put away in the drawer, for anyone with a 3+ year horizon (and even as a 12-month trade for those with shorter horizons).
Some Broker Forecasts on Amplitude following latest announcement on OP Energy partnership...
Amplitude Energy (ASX: AEL) Broker Ratings - 26th March 2025
And interesting coverage/assessment of broker & market's reaction to it in MarcusToday newsletter this week.
- Amplitude Energy (AEL) is now partnering with O. E. Energy who replace Mitsui for the East Coast Supply Project. The project will begin in the second half of 2025 with the first gas expected by 2028. Brokers seem unmoved by the project with Bell Potter’s target price for Amplitude remaining unchanged and Macquarie slightly reducing their target price from 31c to 30c. While the joint venture will reduce maintenance costs for Amplitude and is expected to increase revenue, there is a suspicion that the CAPEX and the resulting net debt may largely cancel out these positives.
It's probably only natural after such a difficult few years for the company (in which former management torched its reputation & institutional investor goodwill) - that the market is taking a cautious & less trusting approach to company forecasts.
Although I personally believe the new CEO Jane & her Exec Team are a very different kettle of fish from the former guard. Under her relatively short time at the helm - Jane has built a highly competent team around her, empowered them to make decisions but made clear they are very accountable for outcomes. She has methodically worked her way through the many challenges facing the company when she took over (Orbost Gas Plant sulphur/fouling/performance issues + delivering on the large & complex BMG decommissioning project) - and delivered or exceeded on all goals & strategies she has set herself and her team, with clear shareholder communication along the way.
I personally have faith she can & will deliver for Amplitude, and feel a lot more comfortable around the company's future & potential under her leadership, than did under previous management.
Guess time will tell - but I suspect Ord & BP's more skeptical analysts will end up chasing a climbing SP over the next 12 months & end up having to revise their target prices materially upwards in turn.