Power and Water Corporation (PWC) informed Incitec Pivot Limited (IPL) today of a reserves shortfall under the gas supply agreement for the Phosphate Hill plant (Gas Supply Agreement).
Southern Cross Fertilisers Pty Ltd (IPL’s wholly owned subsidiary) and PWC now supply gas to IPL’s Phosphate Hill plant under a long-term gas supply agreement. PWC obtains most of its gas from Eni Australia’s Blacktip gas field in the Northern Territory. PWC informed IPL that it had received news from Eni Australia that there is an unexpected possible decline in the gas reserves available from the Blacktip gas field based on recently acquired interim data. Following Eni Australia’s communication to PWC, PWC advised IPL of a decrease in expected gas supply under the Gas Supply Agreement beginning in June 2023.
IPL previously stated that the impact of the curtailments is expected to be $60-$70 million until June 2023. According to PWC’s notification today, IPL estimates the extra cost of sourcing shortfall gas for the balance of FY23 to be $15m-$20m, increasing the overall FY23 EBIT (earnings before interest and tax) effect to $75m-$90m. Phosphate Hill plant’s full-year production stays steady at 900-930k tonnes.
PWC has also said that the reserve shortfalls are projected to continue after FY23 for the remainder of the Gas Supply Agreement’s term (until mid-2028). This is based on Eni Australia’s preliminary analysis of the reserves at the Blacktip gas field following a recent workover and drilling effort.
The financial impact of the ongoing curtailments under the Gas Supply Agreement beyond FY23 will be determined by several factors, including the actual level of curtailments by PWC (which will be based on Eni Australia’s confirmed position on the Blacktip reserves) and the cost of alternative Phosphate Hill supply arrangements.
IPL has been procuring substitute gas from various third-party sources to compensate for the shortage and assure the plant’s continued operation. IPL plans to carry on obtaining substitute gas from other parties and evaluating future alternative gas possibilities for Phosphate Hill’s supplies.
According to IPL, it has a specialised gas team evaluating the company’s commercial and legal possibilities in connection to the reserves shortfall notice and future supply and will keep the market informed of any substantial changes in due course.
