11/02/2010 - 10:19

Arrow's $51m buys LNG's Fisherman plant

11/02/2010 - 10:19

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A month after announcing an equity investment restructuring at its Fisherman's Landing LNG plant, Liquefied Natural Gas has agreed to sell the plant and associated infrastructure to Arrow Energy for $51 million.

Arrow's $51m buys LNG's Fisherman plant

A month after announcing an equity investment restructuring at its Fisherman's Landing LNG plant, Liquefied Natural Gas has agreed to sell the plant and associated infrastructure to Arrow Energy for $51 million.

The upfront purchase, through the acquisition of LNG's wholly-owned subsidiary Gladstone LNG, includes the reimbursement of actual project costs incurred to date, estimated at $45 million, an initial $US5 million licensing fee for use of the OSMRTM technology and a grant of 12.5 million options to acquire Arrow shares at an exercise price of $3.50 with a 14th May 2010 expiry date.

This agreement supersedes the previously announced InfraCo/TrainCo release on 4 January 2010 that contemplated ongoing equity investment in the Gladstone LNG project by LNG.

Further payments to LNG will be made once certain milestones are reached including $24 million at final investment decision (FID), an additional $US5 million licensing fee for the use of OSMRTM technology at FID, $24 million when the plant reaches one million tonnes per annum LNG production and $63.5 million when the plant reaches three million tonnes per annum LNG production (through a second train).

Arrow said its decision to acquire the Fisherman's Landing LNG Project is testament to the significant achievements of LNG in bringing this project to an advanced state of development using their own proprietary OSMRTM technology realising Arrow's objective of a smaller train size, a critical success factor for the world's first Coal Seam Gas (CSG) to LNG project.

The agreement is subject to Arrow completing its confirmatory due diligence and LNG gaining shareholder approval for the sale

Arrow Energy chief executive, Nick Davies said Arrow is excited to be taking full control of the construction and future operation of the world's first CSG to LNG facility.

"Initial site works have already commenced at Fisherman's Landing and project design and planning is well advanced," he said in a statement.

LNG managing director, Maurice Brand said with no further funding commitments for the Gladstone LNG project, no debt and significant revenue upside to the further milestone payments and royalty, LNG will be well placed to pursue the next phase of its corporate development, including the active marketing of LNG's OSMR® LNG process technology and pursuit of other mid scale LNG opportunities.

"Importantly, post completion of this sale transaction, LNG Ltd's estimated cash position will be ~ A$85 million, plus 12.5 million Arrow options," Mr Brand said in a statement.

Shares in both companies moved up following the news, Arrow gaining four cents, or 1.18 per cent, to $3.44 and LNG moved up by 7.5 cents, or 10.79 per cent, to 77 cents per share at 1315AEST.

 

Full announcement(s) below:

Arrow Energy to Acquire Fisherman's Landing LNG Project.

Arrow Energy Limited (ASX:AOE, Arrow) today reached agreement with Liquefied Natural Gas Limited (ASX:LNG, LNG Ltd) to acquire the entire Fisherman's Landing Liquefied Natural Gas (LNG) plant and associated infrastructure through the acquisition of LNG Ltd subsidiary Gladstone LNG Pty Ltd (GLNG). This agreement supersedes the previously announced TrainCo/InfraCo ASX release of 4 January, 2010 that contemplated increased equity participation in the project by Arrow.

The agreement is subject to the completion of confirmatory due diligence by Arrow and LNG Ltd gaining shareholder approval for the transaction at a meeting expected to be held within the next 45 days.

Arrow Energy Chief Executive Officer Nick Davies said "Initial site works have already commenced at Fisherman's Landing and project design and planning is well advanced".

"Arrow is excited to be taking full control of the construction and future operation of the world's first CSG to LNG facility. This further simplification of the Fisherman's Landing LNG development and the elimination of the commercial agreements with LNG Limited, will improve the ability to construct, finance and ultimately allow for greater flexibility in the operation of the plant. This project offers Arrow investors an extremely attractive path to profitable monetization of the company's vast gas resource in conjunction with Arrow's existing domestic gas supply and power generation business. In the meantime we would like to recognize the significant achievements of the LNG Ltd. team in bringing this project to an advanced state of development using their proprietary OSMRTM technology".

Arrow will be acquiring the LNG Ltd subsidiary Gladstone LNG that holds the rights to develop the Fisherman's Landing site, all approvals and the pre-development work. The upfront purchase price for the acquisition is A$51million, being the reimbursement of actual project costs incurred to date, estimated at A$45million, an initial US$5million licensing fee for use of the OSMRTM technology and a grant of 12.5million options to acquire Arrow shares at an exercise price of A$3.50 with a 14th May 2010 expiry date.

Further payments will be payable to LNG Ltd once certain milestones are reached:
- A$24million at Final Investment Decision (FID)
- An additional US$5million licensing fee for the use of OSMRTM technology at FID
- A$24million when the plant reaches one million tonnes per annum LNG production
- A$63.5million when the plant reaches three million tonnes per annum LNG production (through a second train)

Arrow will also pay LNG Ltd a minimum royalty of 0.7 percent (capped at 0.9 percent) calculated on the oil price differential above US$60/barrel for the first train. The higher royalty of up to 0.9 percent will be payable if the capital expenditure on the Fisherman's Landing development is materially lower than current estimates. Royalty principles have been agreed with LNG Ltd for a second LNG train.

Arrow will now focus on full integration of the design and construction plans for the Fisherman's Landing LNG facility into its overall project development plan under Arrow's LNG Project Director.

This will include an assessment of the previously announced 31 March 2010 FID date and any project enhancement opportunities that may be available on an integrated basis. The completion of the upstream and midstream components of the FID work remains on track. Arrow will advise the market of any revision to the target FID date in the near future. At this stage first LNG production is still expected in late 2012.

As a result of the above restructure, Golar Energy Ltd (Golar) and Arrow are in discussions to transfer the existing LNG Off-take Heads of Agreements with Golar / Toyota Tsusho to Arrow.

Arrow's decision to acquire 100 per cent of the Fisherman's Landing LNG Project is testament to the significant achievements of LNG Ltd in bringing this project to an advanced state of development using their own proprietary OSMRTM technology realising Arrow's objective of a smaller train size, a critical success factor for the world's first Coal Seam Gas (CSG) to LNG project.

The Fisherman's Landing site in conjunction with the use of the OSMRTM technology developed by LNG Ltd provides significant development advantages to the project, not only facilitating the smaller 1.5 mtpa train size, but also delivering an integrated LNG project at a capital cost that will be in the range of A$2.1billion - A$2.2billion net to Arrow, based on the latest upstream, pipeline and downstream capital expenditure estimates. In terms of funding, the overall project estimate remains within Arrow's financial capability and within the scope outlined in the ASX release of 2nd February - Funding for the Fisherman's Landing LNG Project.

The Project will make a significant contribution to the local, regional, state and national economies, both in the construction phase and through its operational life. It will also provide employment, business and industry opportunities benefiting the wider economy.

 

 

SALE OF GLADSTONE LNG PROJECT TO ARROW ENERGY LIMITED

Liquefied Natural Gas Limited (ASX:LNG "LNG Ltd") has executed a conditional Heads of Agreement with Arrow Energy Limited (ASX: AOE, "Arrow") to sell the entire Fisherman's Landing liquefied natural gas project ("Gladstone LNG Project") through the sale of LNG Ltd's 100% owned subsidiary Gladstone LNG Pty Ltd for a combination of cash, milestone payments, royalties and Arrow options. This agreement supersedes the previously announced InfraCo/TrainCo release on 4 January 2010 that contemplated ongoing equity investment in the Gladstone LNG project by LNG Ltd.

The agreement is subject to Arrow completing its confirmatory due diligence and LNG Ltd gaining shareholder approval for the sale, with a shareholder meeting planned within the next 45 days.

There are a number of very good reasons for the sale to Arrow including:
 It simplifies all the disparate commercial agreements to provide a simplified integrated project structure and facilitate progression of the Gladstone LNG Project to full construction.
 It eliminates the need for any further capital expenditure by LNG Ltd for the Gladstone LNG Project.
 It gives LNG Ltd a very strong cash position and balance sheet, together with the retained rights to its OSMR® technology.
 It allows management to redeploy its focus to the marketing of its OSMR® technology and pursuit of other mid-scale LNG opportunities, while still retaining significant revenue upside to the Gladstone LNG Project through agreed milestone payments and royalties.

The sale price for the acquisition by Arrow is as follows:
 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;
 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;
 An additional US$10 million license fee is payable for each additional LNG train developed at the project site using the OSMR® technology;

 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; and
o 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
o 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.

 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.

As a result of the above restructure, Golar Energy Ltd ("Golar") and Arrow are in discussions to transfer the existing LNG Off-take Heads of Agreement to Arrow.

LNG Ltd's Managing Director Maurice Brand said "Importantly, post completion of this sale transaction, LNG Ltd's estimated cash position will be ~ A$85 million, plus 12.5 million Arrow options. Furthermore, with no further funding commitments for the Gladstone LNG project, no debt and significant revenue upside to the further milestone payments and royalty, LNG Ltd will be well placed to pursue the next phase of its corporate development, including the active marketing of LNG Ltd's OSMR® LNG process technology and pursuit of other mid scale LNG opportunities".

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