Albanese’s gas price cap a “distinct negative” for Cooper Energy: Macquarie

Macquarie Bank sees long-term earnings potential for Cooper Energy (ASX:COE) down as much as 30% underneath the Albanese government’s gas price cap scheme. 

The forecast is one shared by the market: Cooper's share price is down -15% on a one-week basis.

The Albanese government this week legislated a gas price cap for east coast producers with companies not being able to charge more than $12/GJ—less than half the 3Q average at $26/GJ. 

The bank had considered Cooper’s long-term earnings potential being as high as $400m following its purchase of the Orbost gas plant; a figure reached on the assumption high spot prices would stay. 

The government had different ideas. Chris Bowen’s $12/GJ cap now leaves Macquarie to forecast Cooper’s long-term earnings will be around $280m. 

Bull case deteriorated 

The bank outlined its assessment Cooper’s FY23 will trend towards the worst-case scenario.

“The bull case for Cooper has deteriorated,” analysts at Macquarie Bank wrote today. That bull case assumed rising gas prices and spot market leverage, but despite key exemptions, the cap has still reverberated into the spot market.

Source: Macquarie Bank

Macquarie had previously forecasted Cooper’s FY23 earnings to an upper end of $150m, but now forecasts the company making $137m, best case. 

On Monday, the day the price cap came into effect, Cooper Energy made its stance clear: the government’s price cap undermines its own desire to secure an internal domestic gas supply. 

Share price target retained

Macquarie retains its $0.25/ target for the company’s share price; an increase of 39%. 

“We expect [the Otway gas field] economics are still acceptable with a breakeven at $6-7/GJ,” the bank wrote, adding the company has already contracted “50-70%” of Otway gas to AGL (ASX:AGL). 

Regardless, the bank described the gas cap as a “distinct negative” for Cooper. The remaining Otway gas produced not subject to an existing offtake agreement will be impacted by the price cap, Macquarie forecasts. 

Dim days for Cooper Energy, clarity needed 

The bank sees reduced incentive for Cooper to move ahead with exploration and a ceiling for the internal rate of return for shareholders, particularly with regards to the Orbost plant. 

Of additional complication to the company is that Cooper’s Athena gas plant remains underutilised as the company produces less from its offshore Otway gasfield asset containing the Annie-1 well. 

Additionally, the recently acquired Orbost gas plant is subject to an ongoing maintenance program which is hampering full nameplate capacity potential. 

The bank also says more clarity is needed from the ALP government. 

A look at Cooper Energy's six month charts