The sale price for the acquisition by Arrow is as follows:
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Subject to provision of LNG Ltd shareholder approval to the sale, reimbursement of actual costs incurred to date on the Gladstone LNG Project, estimated at A$45 million;
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US$10 million licensing fee for Arrow’s use of LNG Ltd’s OSMR ® technology for the first LNG train, with US$5 million to be paid by Arrow to LNG Ltd by 28 February 2010 and a further US$5 million payable at notice of readiness to proceed to construction of the first LNG train;
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An additional US$10 million license fee is payable for each additional LNG train developed at the project site using the OSMR ® technology;
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Milestone payments comprising:
o
A$24 million payable at the earlier of:
i) Arrow’s final investment decision for the first LNG train; and
ii) Arrow reaching its FID milestone date under its agreement with Shell;
o
A$24 million when the LNG project first produces 1 million tonnes per annum of LNG; ando
A$63.5 million when the LNG project first produces 3 million tonnes per annum of LNG.
Royalty payments comprising:
o
A royalty of 0.9%, adjustable based on the final development costs of the first LNG train (adjustable to a minimum of 0.7%) and related infrastructure and calculated on the difference between the prevailing oil price, at the time of each LNG shipment, and “US$60/bbl”oil price for the first 1.7 mtpa (MMBtu equivalent) of LNG produced in each contract year. The first LNG train has been designed to produce between 1.5 mtpa and 1.7 mpta. Refer to the below examples #;
o
A royalty of 0.9% calculated on the difference between the prevailing oil price, at the time of each LNG shipment and “US$50/bbl” oil price for the next 1.8 mtpa (MMBtu equivalent) of LNG produced; and
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The royalties are for a period of 20 years from the first LNG shipment and are payable within 7 days of receipt of payment for the relevant LNG shipment.
#1 Example (production rate of 1.7 mtpa):
Assumptions: Oil price: US$80/bbl
LNG shipments: 1.7 mtpa (~88 million MMBtu)
USD/AUD: 0.80
Annual Royalty = (US$80 – US$60) *0.9% * 88 million
= US$16 million (or A$20 million)#2 Example (production rate of 3.5 mtpa):
Assumptions: Oil Price: US$80/bbl
LNG shipments 3.5 mtpa (~180 million MMBtu)
USD/AUD 0.80
Annual Royalty = (US$80–US$60)*0.9%*88 million
+ (US$80–US$50)*0.9%* (180 - 88) million
= US$41 million (or A$51 million)
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Subject to the provision of LNG Ltd shareholder approval to the sale, a grant to LNG Ltd of 12.5 million options to acquire Arrow shares at an exercise price of $3.50 with a 14 May 2010 expiry date.