Comet Ridge (ASX: COI) takes 100% of Mahalo as Santos exit clears path to FID

Comet Ridge Limited (ASX: COI) has completed its acquisition of Santos Limited’s 42.86% interest in the Mahalo Gas Project, giving the junior gas developer 100% ownership and operatorship across the broader Mahalo Gas Hub in Queensland. Comet Ridge paid A$24.42 million in cash, including the A$2 million deposit already paid, and issued approximately 83.78 million new shares to Santos as upfront consideration.

The transaction also carries up to A$30 million of additional contingent cash consideration. Those payments are divided into three A$10 million instalments linked to cumulative sales gas reaching 10 petajoules, 20 PJ and 30 PJ, meaning a substantial part of the acquisition economics becomes payable only if Mahalo moves beyond development and begins generating commercial gas sales.

Following completion, Comet Ridge controls approximately 1,850 square kilometres across the Mahalo Gas Project, Mahalo North, Mahalo East, Mahalo Far East and Mahalo Far East Extension areas. The portfolio contains approximately 361 PJ of proved and probable, or 2P, reserves and 676 PJ of combined 2P reserves and 2C contingent resources.

Why does 100% ownership materially change the Mahalo development?

Before completion, Comet Ridge needed to coordinate major development, funding and commercial decisions with Santos in the core Mahalo Gas Project. Owning the asset outright removes that joint-venture layer and gives Comet Ridge direct control over project sequencing, capital allocation, development planning and negotiations around future gas sales.

That is valuable as Mahalo approaches the point where technical resources must be converted into a fully financed commercial project. A single owner can potentially move faster on field-development plans, pipeline arrangements and offtake negotiations because decisions no longer require alignment between partners with different portfolio priorities.

Full ownership, however, works in both directions. Comet Ridge now captures 100% of project economics if Mahalo succeeds, but it also carries 100% of the equity funding requirement and a larger share of development risk. Removing Santos from the project simplifies governance while simultaneously increasing the capital burden on a much smaller listed company.

That tension is arguably more important than the ownership percentage itself. Comet Ridge has gained control of a meaningful eastern Australian gas resource at a time when east-coast supply remains strategically important, but control only creates value if the company can finance development on acceptable terms.

How expensive could the Santos acquisition ultimately become?

The cash component paid upfront is A$24.42 million. If Mahalo subsequently reaches all three sales milestones, another A$30 million becomes payable, taking potential cash consideration to A$54.42 million before considering the value of the 83.78 million shares issued to Santos.

The contingent component is therefore larger than the initial cash cheque, equal to about 123% of the A$24.42 million upfront cash consideration. That structure is relatively favourable to Comet Ridge from a development-risk perspective because nearly A$30 million of additional cash does not become due unless commercial gas sales actually materialise.

Santos also remains exposed to Comet Ridge through the equity consideration. The share issuance means the former joint-venture partner has converted part of its direct project interest into an interest in the listed company rather than exiting Mahalo entirely in economic terms.

For Comet Ridge shareholders, the trade-off is dilution. Issuing more than 83 million new shares reduces existing investors’ percentage ownership, but it also avoids paying the entire acquisition value in cash at a stage when the company still needs substantial capital for development.

What do Mahalo’s 361 PJ of 2P reserves actually represent?

The 361 PJ figure refers to 2P reserves, which combine proved and probable reserves and therefore carry substantially greater commercial confidence than early-stage prospective resources. The wider 676 PJ figure combines those reserves with 2C contingent resources, which still require additional commercial or technical conditions before they can be classified as reserves.

That distinction matters because simply adding every gas-resource category together can overstate what is immediately available for development. Investors should treat the 361 PJ 2P number as the more relevant foundation for near-term commercial planning while viewing the additional contingent resource as potential upside.

The size of the reserve base gives Mahalo enough scale to matter strategically, particularly given its proximity to Queensland gas infrastructure and the Gladstone LNG precinct. The project does not need to establish an entirely new gas market; its challenge is connecting commercially recoverable reserves to existing demand and export infrastructure.

The development case could strengthen further if additional drilling and technical work converts more of the contingent resource into reserves. That would increase the volume available to support long-duration gas-sales agreements and infrastructure investment.

Why is proximity to Gladstone important for Mahalo’s economics?

Gas resources have limited value without an economically viable route to customers. Mahalo’s Queensland location places it relatively close to established gas pipelines, domestic consumers and LNG infrastructure around Gladstone, reducing one of the disadvantages faced by remote greenfield discoveries.

Pipeline connectivity is still not automatic. Infrastructure capacity, connection expenditure, transport tariffs and commercial agreements can materially affect the price that ultimately flows back to the producer.

The broader development environment is nevertheless becoming more supportive. Infrastructure planning around the Mahalo area has advanced, including work on potential pipeline connections that could improve access to existing transmission networks. That gives Comet Ridge several commercial pathways rather than requiring construction of an entirely isolated gas system.

For a project of this scale, infrastructure and offtake are likely to become as important as geology. The reservoir is increasingly defined; the investment case now turns toward what it costs to move each gigajoule to market and the price customers are prepared to pay.

What is the next major valuation milestone for Comet Ridge?

Completion of the Santos acquisition is strategically important, but it is not the same as a final investment decision. Comet Ridge still needs to demonstrate a bankable development configuration, sufficient funding and commercial arrangements capable of supporting construction.

A credible FID would therefore be a much more consequential milestone than reaching 100% ownership. It would show that Mahalo has moved from an asset-control story into an executable gas-development project.

The contingent acquisition payments create an interesting alignment around that transition. Comet Ridge does not owe the final A$30 million merely because it owns Mahalo; those amounts are triggered progressively after gas begins flowing and cumulative sales reach defined thresholds.

Comet Ridge has therefore bought control before buying all of the economic consideration. That gives it greater flexibility today, but the transaction becomes progressively more expensive if Mahalo succeeds. For shareholders, that is a reasonable problem to have only if the project reaches FID without requiring financing that overwhelms the value created by owning 100% of the gas.