30/07/2015 - 15:29

Buru, Alcoa terminate agreement

30/07/2015 - 15:29

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Buru Energy has announced the termination of its gas sales agreement with Alcoa of Australia.

Buru, Alcoa terminate agreement

Buru Energy has announced the termination of its gas sales agreement with Alcoa of Australia.

Buru is now set to pay Alcoa $40 million over the next three years in order to return Alcoa’s prepayment.

The sales agreement was made between ARC Energy (now Buru) and Alcoa in 2007 to ensure Alcoa a future long-term 500-petajoule supply of gas.

While the final investment decision date was extended several times in the subsequent years, the deal is no longer needed after Alcoa secured a domestic gas supply agreement in April with Apache Energy for the years beyond the 2020 end of its current Santos deal.

Alcoa will continue to have a right to purchase up to 100PJ of gas, should Buru develop a gas supply that links to the Dampier to Bunbury Natural Gas Pipeline.

As part of the ongoing negotiations, Buru had placed $20 million into escrow as security, $15 million of which will be paid to Alcoa next week.

The remaining $7.4 million, which includes interest accrued, will be used by Buru to contribute towards the Laurel formation tight gas pilot exploration program.

At the end of each of the 2017 and 2018 financial years Buru is set to pay $12.5 million to Alcoa, to bring the repayment to the $40 million total.

Buru says that it currently has more than $40 million in cash, excluding the escrow payment.

Buru shares ended the day up more than 2.5 per cent at 40 cents a share.

Only four months ago, Alcoa signed a new gas supply agreement with Santos amid concerns about whether large gas users in WA could afford and secure enough product from Western Australia's domestic gas market.

The five-year contract, which is expected to supply Alcoa with 18 per cent of its needs, was viewed at the time as Alcoa's commitment to continue operating in WA.

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