Central Petroleum

Central Petroleum has had huge ambitions. Leasing swathes of land in remote areas of central Australia, the business has been hunting for giant oil or gas deposits for years. Under former management, that task followed a predictable fashion: raise plenty of cash, spend it drilling, announce no significant results with great fanfare, and repeat. For a time, it was among our most stridently avoided stocks.

Now the case for pessimism isn’t as clear. The assets remain the same, but new management could make all the difference. Richard Cottee, an industry figure famous for making millions from coal seam gas before selling it off to the big boys, is now in charge. Cottee is wealthy enough to never have to work again. Taking the reins of this one time basket case means he has an action plan.

The differences are already evident. Costs have been cut, a greater discipline with capital is clear and ambitions are now more realistic. Though actions speak louder than words, the company may even produce something, although the remote properties make this challenging. Nevertheless, this is a better business than it was. It’s off the list of our worst businesses but not yet onto our buy list.

The asset quality is poor, but Cottee has a tremendous track record and speaks sensibly. Although his actions are worth watching, we’re maintaining our distance. AVOID.