Arrow gas for export market in multi-billion dollar LNG export deal
Arrow Energy N.L. will supply gas to a new liquefied natural gas (“LNG”) export facility planned for Queensland’s Port of Gladstone in a multi-billion dollar deal that has the potential to more than double Arrow’s forecast production and provides leverage to soaring oil prices.
Under a Heads of Agreement (“HOA”) signed with LNG International Pty Ltd (“LNGI”), supported by the world’s largest independent owner of LNG transportation, Golar LNG Limited and a high investment grade Japanese LNG buyer, Arrow proposes to supply 55 petajoules of gas per year for a 12-year period from late-2010, with an option for another 55 PJ per annum from as early as mid-2011, subject to a second LNG train being developed.
The first stage of the facility is designed to produce around 1 million tonnes per annum of LNG with an option to expand to 2 million tonnes. Arrow’s gas will be supplied at a base price with an upside linked to oil prices, providing the company with significantly higher prices than gas priced for electricity generation.
Chief executive Nick Davies said, “This is the breakthrough we’ve been looking for and planning towards over the past 15 months.”
“Our strategy has been to seek a viable export project for our coal seam gas (“CSG”) from the east coast of Australia that would give us exposure to oil pricing and to help us to break out of the low gas price environment in the eastern states caused by the wide availability of coal.”
Currently forecasting production of a net 60 PJ of gas by 2010, Mr Davies said Arrow’s strategy had been building up its resource position in preparation for the groundbreaking deal.
“Last year’s merger with CH4 Gas Limited, the investment and farm-in to Pure Energy Resources Limited Bowen Basin CSG acreage and the $265 million investment by Sweden’s Energy Infrastructure Group AB in our acreage were all designed to get us a critical mass of reserve certification options aimed at supplying the Port of Gladstone so that we could export gas as either LNG, CNG (compressed natural gas) or GTL (gas to liquids),” he said.
Arrow also has the option to aggregate the gas supply from multiple sources (including joint venture parties) which, importantly, will provide the impetus for development of Arrow’s Bowen Basin, Coastal Queensland and Pure Energy joint venture coal seam gas holdings plus associated major pipeline infrastructure, Mr Davies said.
LNGI is a wholly owned subsidiary of ASX listed company, LNG Limited, which is 20% owned by Golar, the world’s largest independent owner of LNG shipping transportation with a project portfolio, which fully covers LNG mid-stream activity – liquefaction, shipping, trading and regasification. Golar has confirmed its “in principle “ interest in investing in the Gladstone LNG project; purchasing the LNG offtake in addition to assisting with shipping solutions.
Discussions are currently underway with relevant authorities regarding a likely facility location in the Gladstone Port area.
Mr Davies said, “Arrow is drawing up a 2008 financial year exploration and appraisal programs targeting net 2P (proved and probable) reserves of 1,500 PJ, with a target for gross un-contracted reserves that could access the Port of Gladstone, of around 1,100 PJ during the year.
“That reserve level would be more than adequate to meet the needs of the first LNG train, with any additional reserves required for the second LNG train to be added in FY2009. The significant field development that will follow on immediately from this reserve certification program is also being assessed for implementation in the FY2009 and FY2010 years.”
Financial close for the LNG terminal project is targeted for September 2008 with a development timeline to enable first deliveries of LNG in late 2010.
“Arrow continues to focus on new business with higher margins, both in product selection in terms of GTL, LNG or CNG, and internationally, where we’ve signed CSG exploration deals in the high-growth Asian markets of China, India and Indonesia,” Mr Davies said.
“This LNG export agreement shows our ability to execute on our strategy and we anticipate significant growth in shareholder value as we move towards our goal of becoming the Asia-Pacific region’s leading independent CSG producer.”