Cooper Energy Faces Setback as Decommissioning Costs Surge

Highlights:

• Cooper Energy Shares Plummet: Cooper Energy faces a 28% drop in shares as decommissioning costs for its Basker-Manta-Gummy operation surge to $280 million, exceeding initial estimates.
• Operational Challenges Delay Progress: Decommissioning efforts encounter setbacks, progressing "significantly slower" than anticipated, partly attributed to the late arrival of a contracted vessel.
• Financial Stability Amid Uncertainty: Cooper Energy assures investors of being "well-funded" through existing cash reserves and a $400 million debt facility, while actively pursuing a claim against PT Pertamina Hulu Energi for a share of decommissioning costs.

Cooper Energy Limited (ASX: COE) shares witnessed a significant slump, plunging by up to 28%, following the announcement of escalated decommissioning costs for its Basker-Manta-Gummy operation off the Victorian coast.

Decommissioning Costs Surge:

Cooper Energy, a junior oil and gas producer, revealed an increase in the decommissioning costs for its seven wells, estimating the expenses to range between $240 million and $280 million. This surge, sharply exceeding the initial estimate of $193 million to $198 million, triggered a market response, causing a substantial decline in the company's shares.

Operational Delays and Potential Cost Escalation:

The company initiated decommissioning efforts on the first well, encountering challenges as the process progressed "significantly slower" than anticipated. Delays were attributed to the late arrival of a contracted vessel, resulting in additional holding costs for other contractors. Cooper Energy, while expressing commitment to completing the decommissioning, cautioned about the potential for further cost increases, citing factors beyond its control.

Financial Position and Debt Facility:

Cooper Energy reassured investors about its financial stability, asserting that it remains "well funded" through existing cash reserves, positive cash flow, and a secured $400 million debt facility. The company is actively pursuing a claim against PT Pertamina Hulu Energi for a portion of the decommissioning costs.

Analyst Concerns and Share Performance:

Despite the company's assurances, RBC Capital Markets analyst Gordon Ramsay expressed skepticism, predicting that Cooper Energy might need to draw additional debt to complete the decommissioning within this financial year. The analyst highlighted the potential delay in a growth project that the debt was initially secured for. As a result, Cooper Energy's shares, which recently reached a seven-month high, experienced a sharp decline of 25.9%, reaching 10.75 cents in early afternoon trading.

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