Australia’s APA Group has braced investors for a hefty impairment related to troubles experienced with the commissioning of its Orbost gas plant in the state of Victoria.
APA confirmed this week that it anticipates booking a non-cash impairment of around A$249 million (US$194.1 million), pre-tax, for the first half of the Australian financial year, which ends 30 June.
APA said the impairment reflects the increased capital expenditure and reassessment of the Orbost gas plant’s future cash flows following commissioning work last year.
Orbost handles production from the Cooper Energy-operated Sole gas field, however performance of the plant has been impaired by foaming in the sulphur recovery unit’s two absorbers.
This saw APA undertake works in November and December to reconfigure the absorbers to enable their operation either independently, in parallel or in series.
“The impairment charge reflects the continuation of production levels and expenditure based on the current performance of the asset since re-configuration and resumption of processing at the processing plant,” APA said.
Cooper also revealed in its financial results earlier this month the commissioning problems had weighed on its results, with costs associated with reconfiguration and commissioning of the plant contributing to a 40% decline in underlying earnings before interest, depreciation, amortisation and exploration.
Yet to hit production potential
APA bought the mothballed Orbost plant from Cooper after agreeing a A$20 million deal in 2017, with the former carrying out upgrades to the plant to enable the processing of up 70 terajoules of gas per day.
However, the plant is yet to achieve plateau production, with output required to hit 68 TJ per day for commissioning to be deemed complete.
“APA and Cooper Energy continue to work together to improve the plant’s operation and processing capacity, with the objective to achieve nameplate capacity of 68 TJ per day,” APA said on Thursday.
“APA and Cooper Energy have a transition agreement in place and root cause analysis is under way to address gas processing issues to support a reliable and sustainable production rate.”
The issues with the plant saw Cooper sign a transition agreement with APA in August last year to jointly complete the commissioning of the plant so Cooper could deliver on its long-term gas sales contracts from its Sole offshore project.
The agreement provides for revenue and cost sharing mechanisms during commissioning of the plant, with APA to contribute towards costs incurred by Cooper in sourcing alternative gas, if required, to meet its Sole gas sale agreements.
APA will release its half year results to the Australian Stock Exchange on 23 February.