PGAS conf call highlights by Dee Senaratne - CLSA

Jayden, Amie and Dee participated on a PGAS conference call this afternoon on the company’s attempt to calm down investors post the heavy selling after it was reported upstream regulator BPMigas would potentially look to re-price key gas supply contracts that are currently priced at legacy rates below US$3mmbtu (this covers Conoco and Pertamina which represents currently ~70% of current supply).

The content of the call was somewhat fluid and not a whole lot was revealed or answered on the key concerns. Here are a few key points (see attached for details)

PGAS steered the call away from key cost concerns and towards the fact that it was looking to secure a new contract with Conoco at US$17mmbtu for an additional 100-120mmscfd. This represents ~15% additional volumes from current levels.
This potential new supply was originally allocated to a Singapore buyer who has expressed an interest to get out of the contract and instead PGAS would take the supply.
However reading into this issue a bit deeper it potentially allows everyone to save face. As PGAS would then be paying a blended Gas cost to Conoco ~US$6mmbtu (blending the US$1.8 + the new US$17) allowing the company/BPMigas to not have to break the original contract while PGAS pays market price.
PGAS gets additional supply but regardless the process is still margin destructive as their gas distribution margin will fall.
While we have been modeling lower margins for PGAS in our model in the outer years, this development now ultimately brings forward that margin compression much more quickly.
They also commented that they remain on track with regard to the construction of the LGN terminal which should start 1Q12.
Sounds like there will continue to be negative overhang as long as there is not clarity on the issue of gas cost increases.