Pinned straw:
A very strong set of 1H results released this morning for Amplitude Energy (AEL).
Production & Financial Momentum
Can see the excellent improvement in operations and financial profitability AEL has made over recent years since Jane took over from the previous CEO & her team got on top of the historical Sulphur & fouling issues at the Orbost gas plant they acquired from APA several years back.
I have drawn in estimated full-year FY26 outcomes based on current half’s production. Note this doesn’t include any upside likely from 20% increase in pricing flagged on number of Sole GSA contracts due to kick in from 1st Jan 2026.
Balance Sheet:
Can see the significant inroads they’ve made from the historical debt for purchasing the Orbost gas plant from APA several years ago (c$460M by memory), and the major decommissioning liability (old BMG field) they had to fund this past 1-2 years out of operating cashflow ($200M+). Have had a little help on this front also from their recent capital late last year (done at $2.695 to help supersize their exploration program & add in a 5th well “Nestor” with their Otway 50% business partner OG Energy).
Orbost (Sole Gas Field) Production Performance
Clear momentum as they have successfully gotten on top of the historical sulphur & fouling issues that plagued the plant under APA’s ownership & AEL’s early ownership.
They have already had the plant producing above its 68 TJ/day nameplate capacity (recent record of 71 TJ/day), and are looking at low-cost options to potentially increase Orbost’s production capacity higher.
Realised Gas Pricing steadily increasing with inflation & SE Australia market demand
They are also making extra margin on their increased spot gas sales through catering for additional peak demand periods & through partnerships with VIC gas peaker plants to assist with VIC’s intermittent power generation issues from high renewables (especially wind).
Growth Plans
The East Coast Supply Project (ECSP) is their major growth initiative, designed to backfill the substantial latent capacity available at their other major gas plant (Otway) of c130-135TJ/day (currently only processing 15-20TJ/day).
They own this plant outright – and with declining production from existing fields - getting additional gas volumes through the plant is the obvious high-value & low-risk growth option available for Amplitude.
The project stalled under historical 50% joint-ownership with Mitsui (didn’t have the desire to commit capital / risk appetite to proceed) in recent years. Mitsui finally sold their 50% interest in the offshore Otway fields to a new JV partner OG Energy, who after significant due diligence were keen to proceed & took over Mitsui’s interest. As part of this they also agreed to repay/match Amplitude’s cap-ex on the project to date with a free carry ($28M), after which time both parties share costs equally (recent exploration is still being funded under this carry arrangement).
Potential Re-Rate Catalysts
I think lot of analysts & investors were blind-sided by the first well of their big ECSP growth project (Eleanora) coming up a dud. Market reaction was savage (likely suddenly questioning the likelihood of success in the other 3-4 main exploration wells) which had been partly factored in as their major new growth engine.
The ECSP’s next exploration well results (Isabella) are due within days (likely to drop within the next 3-7 days). Given how soon they’ll have this input into their models (and having recently been burned) – I suspect some analysts may await this news, before updating their models & making any bold new calls / price targets (hence potential window of opportunity!).
Second half of year (July-Dec 2026) will see the other 3 exploration wells tapped. If successful, this is likely to de-risk Amplitude’s growth prospects considerably, and result in a material positive re-rating for AEL.
Rest of business is absolutely humming – with increased gas pricing on lot of their contracts from 1st Jan 2026 – so expecting 2H FY26 to be very strong.
Given ongoing strong performance from their core Sole gas field, may also see another reserves upgrade for it (basically extending its production life) in 2H FY26, which Jane has flagged as a possibility. Would also be well received.
Core business is going great – really for the market I think it’s just laser focused on Amplitude’s future growth project (ECSP) being de-risked and proved up. Once that happens – and depending on the number of successful exploration wells - I think we could easily see a SP 50% above its current levels.
Near Term Price Target: (partly dependant on imminent success with Isabella): $2.50-$2.80
Upon further Exploration success in 2H of CY2026 (other 3 wells): Easily see $3.30-$3.60.
Downside (assuming all ECSP wells fail): $1.80-$2.00 (underpinned by existing very profitable business & reserves). Would also have fallback position of either further exploration (require additional cap-ex) or simply 3rd party gas tolling through Otway (low-risk but not as profitable) for Beach or others looking to bring online new fields in the area.
Not without risk – but risk-weighted rewards skewed firmly in favour of upside IMO.
Disclosure: Held in SM & IRL portfolio.
Big surge of around 10% in Amplitude today (on fairly regular volume) following yesterday's half year results.
Analysts must have updated their share price targets overnight after digesting the results.
Probably realising just how much of an over-reaction there had been to recent 1st exploration well fail (Elanora).
2nd exploration well in offshore Otway basin (Isabella) initial results should be due any day now … perhaps there are some early indications to the guys on the rig that it’s likely to be successful (i.e. early telltale signs of gas - having broken through the top seal of the reservoir)?
Anyway, been a roller coaster few weeks - but still very confident on the core business performance & management - but a little luck on the drilling front would be very well received by the market. Stay tuned...
Amplitude's 2nd exploration well (Isabella) for the ECSP looks like a potential winner - the rig has hit gas-bearing reservoir early yesterday morning.
Only indicative at this stage - and needs further analysis and potential flow-testing to validate the reservoir's potential - but pleasing early signs.
Amplitude not directly exposed to global LNG trade so not expecting any direct "Iran effect" as likely with Beach/Woodside (but certainly won't hurt sentiment).
But fundamentals and forecast supply deficits in gas supply in SE Australia still very positive & supportive of bringing on additional local gas supplies from offshore Victoria, and Amplitude firmly dialed into this & looking to bring additional much needed gas supply to market through its existing VIC gas plant infrastructure.
Amplitude today released disappointing flow test results for their 2nd exploration well (Isabella) being part of their big growth project (East Coast Supply Project) to help backfill the Athena gas plant at Otway & utilise its substantial latest capacity.
Incredibly disappointing - and with the program having always been split into two phases - that means Phase 1 (2 wells, Eleanora & Isabella) has been a flop. Phase 2 (drilling the other two exploration prospects + definite reservoir) won't commence until end of this calendar year (Transocean Rig now goes off to other parties for 4-6 months).
Management were very effusive & positive on high probabilities of success based off promising survey data and past success (15 from 16 past wells were successful with similar prospects) - so they now rightly lose some credibility with the market, and market will likely now adopt a wait & see approach (show us positive exploration results on your next wells, then we'll think about re-rating your shares).
Rest of the company's activities performing very strongly with Orbost Gas Plant continuing to set new monthly production records (above nameplate capacity) after a multi-year program to debottleneck the plant & get on top of issues.
FCF still very strong & debt will be continuing to reduce - just a real shame to have thrown some of this CF into dud wells ... but such is the life of O&G exploration.
Expecting SP to drop back below $2.50 now & drift, with little near-term positive catalysts on the horizon, other than likely strong winter spot gas prices.
Still think Amplitude would make a great acquisition target for Beach one day (it could backfill Athena with some of its own Otway reserves) - but sure it will want to bed down its ramp up of Waitsia to full production first. However AEL could complement its strong West-Coast footprint nicely with additional SE Australian assets (a market it is already very familiar with & active in).
Not a sell catalyst, but putting AEL on the back-burner on a low simmer for 6 months....
