East Coast gas crunch hasn't gone away, and neither has Comet Ridge

By 2039, there could be demand of 4.57 times available supply of gas on the east coast of Australia – and that is if all development ready reserves are brought into production.

Comet Ridge (ASX: COI) is aiming to develop their Mahalo Gas project, which is broken up into the Mahalo JV Project, where COI have a 57.14% interest, and the Mahalo, North, East and Far East Projects.

The company’s net reserves across the entirety of the tenements amount to 195 petajoules (PJ) in 2P and 372 PJ in 3P, with net contingent resources of 211 PJ in 2C and 416 PJ in 3C. The bulk of this is in the Mahalo JV Project, of which Santos (ASX: STO) is the JV partner, contains most of these resources, accounting for net reserves of 152 PJ in 2P and 262 PJ in 3P, and net contingent resources of 180 PJ in 2C and 294 PJ in 3C. It also has all of the required environmental approvals and is licensed for production.

The scale of the project should not be underestimated. As Dan Porter from PURE Asset Management put it, “Comet Ridge has a project that is potentially so large that it could solve the entire East Coast supply gap once its all turn on”.

He estimates that COI could be producing larger daily volumes of gas than Santos’ $3.5 billion Narribri project in NSW – at around one third of the capex. Santos has already spent more than $1.5 billion on Narribri over the past ten years, and while they received National Native Title approval late last year, they still have a fair way to go in terms of pipeline approval and construction. Dan notes that Comet Ridge does not have the issues with activists that Santos has faced.

As flickers of a supply crunch progressively make their way into the market, projects like Narribri and Mahalo will become increasingly important in order to avoid market discfunction and continued government intervention in pricing.

PURE has provided a $10 million senior secured loan to Comet Ridge with a 12% coupon, that came with 66 million warrants at a $0.15 strike price – which are currently in the money.

Pure Asset Management previously funded the buyout of APLNG’s (Origin) 30% stake in the joint venture to bring Comet’s holding to 70% (up from 40%), with the remaining 30% being held by Santos. This allowed the project to move to two parties with prospects of development and hopefully fulfil the potential of the Mahalo gas area. Santos have since increased their commitment to the project, which in turn has increased their percentage of ownership.

Click here to view more videos from Daniel Porter‘s The Insider: Meet the Fund Manager session.

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