Hi all,

I recently opened up a position on Central Petroleum (CTP) IRL and here in SM.

Keen to explain that thesis and test it - to see what folks thought...it's an unusual position for me as I generally don't buy mining stocks.

Central Petroleum is a gas producer/explorer with gas reserves in the NT. Market cap is around $40m (maybe a little less today) - share price of 5 cents.

In summary, the thesis is:

1. NT Gas market is changing and CTP may be left as one of the few sources of extra gas to meet demand for the NT market for the short term (and maybe even longer term with some luck)
2. They've signed an agreement with NT Government but also have uncontracted gas to sell on the open market - given supply demand in NT this uncontracted gas may get better pricing, leading to better revenues for same/similar cost base
3. Supply-side is constrained as the major supplier, "Black Tip" is experiencing declining production levels
4. CTP was supplying in to the NGP (a pipeline between Tenant Creek and Mt Isa), but that was disrupted heavily during the year, which crimped CTP's revenue. They no longer sell into this. This had a significant impact on prior year revenue and production levels.
5. Further development of gas in NT looks a little ways off - Beetaloo is most likely, but there is some debate about the economics (noting the Australian had a positive article on this last week).
6. They are basically debt free, with net cash of $1m at 30/6/24. They just rescheduled their main debt to FY29, meaning the chance of cash available to pay dividends is improving
7. Turns over $40m and trades on EBITDAX multiple to EV (i.e. EBITDA before exploration costs) of 3x. Before anyone jumps on me about self serving adjustments that management use - the comments from the company are that exploration expenses will be lower in future - the commentary is that they will farm in where they can, and lessons learnt from previous misadventures means they are a lot more cautious...SMer's should ignore the historical PE, this years result includes the sale of a substantial asset at a good profit and therefore not repeatable (but does reduce demand on cash for exploration). Free cash flow wise it trades around 10 times, but that is on higher exploration expenditure, so I am looking for much improved FCF in FY25.

Risks and where it can go wrong:

1. Black Tip finds a way to get more gas into the NT domestic market.
2. Exploration expenditure is higher than management indicate, for the reasons explained above I think the wood is on them to be more careful about this
3. Beetaloo or another source comes along earlier than expected and competes with CTP

The main catalyst for a rerate is a dividend and a half year result showing they are past the NGP issues. Management have indicated they are thinking about a dividend, but haven't yet announced anything firm. Given the cash position, possible improved revenue this half and net cash flow (from reduced exploration expenditure), and taking into account amortising the updated loan facility, I'm hoping that this will be announced when they produce their half year sometime in the next few months. Doesn't impact underlying value, but does show the market how sustainable management think cash flow is, in my view.

Does anyone else have them on their radar? If so, I'd love to compare notes,

Rich