15/11/2012 - 11:57

FMG diversifies into shale gas

15/11/2012 - 11:57

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Iron ore miner Fortescue Metals Group has dipped its toe into the onshore gas exploration sector after taking an 18 per cent stake in Melbourne company Oil Basins, which holds acreage in the Canning Basin in Western Australia's north.

Fortescue's $4.2 million investment in Oil Basins comes as interest intensifies over massive unconventional gas reserves in the Canning Basin.

It has subscribed for shares in a placement priced at 3.5 cents per share, representing a 40 per cent premium to Oil Basin's recent seven day volume weighted average price.

"The funds raised by the placement will support future funding requirements in the Oil Basin's Canning Basin assets and assist in further expanding its portfolio within its existing core areas of interest," Oil Basin said in a statement.

Fortescue's cornerstone stake could expand further under options attached to the deal.

Oil Basins said it was the first investment by Fortescue in the upstream energy sector and Fortescue's first investment outside its iron ore mining business.

Under the agreement Oil Basins will offer Fortescue the right to appoint one senior representative to the Oil Basins board.

Oil Basin said it seeks to "rapidly become the new third force in exploring and developing Canning Basin unconventional gas".

It comes a week after oil and gas producer Buru Energy and Mitsubishi Corporation struck a deal to develop massive unconventional gas reserves and build a pipeline in the Canning Basin.

Last week BHP's Petroleum boss Mike Yeager said the Canning Basin in Western Australia was the most likely region where BHP's American shale operations could be deployed in Australia.

Fortescue recently shelved $US1.6 billion of spending and cut about 1,000 jobs, as it downgraded expansion plans. However managing director Nev Power hinted yesterday that was likely to be reversed following the recovery in iron ore prices.

At 1430 AEDT Fortescue shares were 3.5 cents lower at $3.96, while Oil Basin's shares were 0.9 cents higher at four cents.

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