Senex Energy Limited (ASX: SXY), an oil and gas explorer and producer, announced on 1st May 2019 that the company entered a domestic gas sales agreement with Orora Limited (ASX: ORA). The sales agreement for up to 9.9 petajoules of natural gas marks a second indigenous gas contract for the company’s flagship-Project Atlas, the natural gas development agreement.
As per the company, the agreement is for the initial tenure of two-years, and as per the terms, Senex will supply Orora with 1.1 petajoules of natural gas from 1st January 2020. Senex will provide the rest 2.2 petajoules of natural gas in 2021 from 1st January 2021. As per the company, it entered a mechanism that could extend the contract between both the counterparties by six years for up to 6.6 petajoules of natural gas; the six years extension could take effect on and after 1st January 2022.
As per the contract, the company will supply the gas at Wallumbilla Gas Hub in Queensland at a fixed price which will be taking the current market prices into consideration. The fixed price will be indexed annually. The indexation of the price trend will provide the company exposure to the market price trend, which in turn, exposes the company to the market risk and the price risk.
After securing sales agreement with CSR Limited (ASX: CSR) a contract from Orora marks a significant achievement for the company’s flagship. With the second contract from Project Atlas, the company is moving towards its aim to partner with domestic commercial and industrial customers directly for long-term.
As per the Managing Director and CEO, Ian Davies, the gas sales agreement is innovative in its flexibility as it allows the addition of a material quantity of natural gas in the contract. Mr Davies expressed satisfaction over the establishment of another long-term partnership after CSR Limited, with major manufacturing business-Orora, which has a substantial footprint in Queensland.
Orora is a manufacturer of cardboard, glass and aluminium packaging product and Mr Davies was delighted to secure a contract with the company, which has an exposure over millions of Australians. As per the company’s notification, Orora hosts three manufacturing plants and employs over 3,000 people in Australia.
Mr Davies also mentioned that the two-gas sales agreement, i.e., One with CSR Limited and one with Orora Limited, coupled with the drilling planned for May, signifies a rapid development for the Project Atlas, which will start selling its first natural gas by the end of the year 2019.
Market Trend of Natural Gas:
The current market trend of natural gas is weak, and the prices have witnessed a significant drop since November 2018. The NYMEX Natural Gas Future prices dropped from the level of $4.929 (November’s high) to the level of 2.478 (April’s low). The market prices of the commodity marked an approx. of 50% loss in value in six months. However, the current high prices of other energy resources such as crude oil are prompting energy investors to shift towards alternative energy resources such as Natural Gas.
The shares of the Senex Energy Limited were trading at A$0.365 (as on 1st May 2019, AEST: 03:48 PM), up by 2.817% as compared to its previous close. Also, the shares of the Orora Limited were trading at A$3.060 (as on 1st May 2019, AEST: 03:48 PM), up by 0.99% as compared to its previous close.
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