Coogee Resources turns it around

Coogee Resources Ltd chairman Gordon Martin has described last year’s failed public share offer as “probably the best thing that could have happened” to the company, which is proceeding with its $800 million oil project in the Timor Sea under private ownership.

At the time, the cancellation of the $380 million public share offer was labelled a major setback, but Mr Martin said the company had a bright outlook.

The big increase in oil prices during 2007 has strengthened the project’s commercial prospects, despite the near doubling in its capital costs over the past 12 months.

Mr Martin said the cost of its Montara project was expected to be about $US700 million ($A800 million), which was double the estimate published in last year’s prospectus.

However, the project is due to produce its first oil in the third quarter of 2008 and expects to produce 20 million barrels in its first two years.

With oil currently trading around $100 per barrel, it will have a strong revenue flow.

Apart from Mr Martin and his family, who remain the major shareholders in Coogee Resources, the other big winner is likely to be investment group Babcock & Brown, which agreed earlier this year to invest more than $250 million in the company.

Mr Martin said this gave Babcock a 36.2 per cent shareholding in Coogee Resources and one board seat.

“They are a minority holder, one person on the board, [with] none of the rubbish that goes with an IPO and a public float,” he said.

Mr Martin said Coogee was still planning to utilise the floating gas-to-methanol technology, which it acquired from BHP in 2000 in its first move into the oil and gas sector.

The technology was designed so that stranded gas fields could be commercially developed.

Its immediate focus is the Montara oil project.

Coogee also holds a 75 per cent interest in the producing Challis and Jabiru oil fields in the Timor Sea, which had been developed by BHP.

These assets were progressively acquired between 2001 and 2003, when oil prices were trading between $US20 and $US30 a barrel.

The company tried to find a joint venture partner in 2004 to help it develop the neighbouring Montara and Skua fields but did not succeed.

“We opened a data room, we got lots of interest but at the end of the day the offers were…not reasonable in terms of value,” Mr Martin said.

Therefore it decided to demerge Coogee Resources from Coogee Chemicals, so that the ‘baby’, which was hungry for capital, did not put the parent at risk.

It also commenced a drilling program to prove up more oil, to make the project more robust.

Mr Martin said the failure of the float was very disappointing.

“The day before, the book build prices were not what we expected, so we pulled the float,” he said.

“It was called an absolute failure. It was probably the best thing that could have happened. This is where lady luck really does shine on you.”

The rising trend in oil prices was crucial.

“The big picture factor that we got right, was that…everyone was talking about oil prices moving [up], there was going to be scarcity,” Mr Martin said. “Why not add 3 per cent real inflation to the value of oil and all the figures started to look a lot better.”

After the float was canned, Coogee borrowed some money and continued with development of the project.

It later completed a $US500 million (financing which included the equity investment by Babcock & Brown).

“We are still on track to be in production in third quarter of next year,” Mr Martin said.

The FPSO (floating production, storage and offtake) vessel Montara Venture is being modified in Singapore, the wellhead platform is being built in China, and parts are being made in Thailand and Bhutan.

“In the first two years we should pull out just under 20 million barrels, so it gives you some idea of the upside and why I’m a little critical of some of the media comment that was made when we…pulled the float. Lady luck,” Mr Martin told WA Business News.

He said that having three production facilities in close proximity was a big advantage.

“The significance of that is if we find two to three million barrels you can connect it back and it goes immediately into reserves.

“You spend $25 million on the well and $25 million to connect and at $100 a barrel it’s a very profitable venture, compared with having to find 15 or 20 million barrels as a stand-alone operation.”