Icon Energy Signs LNG Supply Deal with Shantou SinoEnergy (China)

Icon Energy Limited today signed a binding LNG Sales Agreement (LNG Supply Agreement) with Shantou Sinogas Energy Co., Ltd (Shantou SinoEnergy) in Shantou City in Guangdong Province in China to supply 40,000,000 tonnes of LNG over 20 years, subject to certain conditions precedent.

Shantou SinoEnergy has also advised that China Guodian Corporation has taken a direct interest in its LNG Receiving Terminal Project as a joint venture partner. Guodian is a Government owned corporation with an asset backing in excess of $USD 90 billion and is one of China’s largest electric power generators

HIGHLIGHTS

• 40 million tonnes of LNG over 20 years

• China Guodian Corporation joins Shantou SinoEnergy in joint venture

• Shantou SinoEnergy to build a $USD 727 million receiving terminal and regasification facility on Nan’ao Island near Shantou

• Price reviews every three years

• Commissioning Cargo and First Delivery by 30 June 2016

• Icon Energy negotiating to ship LNG on a Free On Board (FOB) basis

• Gas reserves need to be a minimum of 2 Trillion Cubic Feet (TCF) of Proven and Probable Reserves (2P) certification

• The gas contract price is linked to the price of Tapis crude oil in Singapore

• The agreement is an offtake agreement only

The signing of the LNG Supply Agreement comes just twelve months after Icon Energy entered into a memorandum of understanding (MOU) with Shenzhen SinoGas back in April 2010.

Shantou SinoEnergy assumed all rights from Shenzhen SinoGas under the 8 April 2010 Memorandum of Understanding with Icon Energy and has since entered into a Framework Agreement with the South Branch of China Guodian Corporation in relation to the construction and operation of the Guodian Shantou Nan’ao Island LNG Terminal. The Nan’ao Island LNG Terminal is aimed at meeting the energy demands of a rapidly growing industrial and residential market, as well as the future construction of gas fired power stations to be operated by China Guodian Corporation in eastern Guangdong Province.

Under the terms of the LNG Supply Agreement:

• Icon Energy has agreed to supply Shantou SinoEnergy 40 million tonnes of liquefied natural gas (LNG) over a 20 year period, commencing no later than June 2016.

• The price has been competitively set, having regard to the price of LNG supplied into China. Thereafter, the price will be reviewed every 3 years.

• Icon Energy is free to source feedstock gas from its own or third party tenements, subject to the gas and LNG meeting the international standard LNG specifications to be determined by accredited experts appointed by Icon Energy. Icon Energy Managing Director, Ray James, said today’s achievement of securing a significant LNG opportunity for the Company was the culmination of months of intense negotiations and numerous meetings in China and elsewhere, and sets a clear strategic driver for Icon Energy’s operational focus to secure and develop gas reserves to meet its obligations under the contract.

The supply terms give Icon Energy flexibility to supplement its own resources with suitable contracted third party feedstock gas and which could serve to unlock stranded gas in Queensland and elsewhere.

“I envisage commencing discussions with identified and prospective co-venturers in the next couple of months, with a view to building Icon Energy’s gas bank”, Mr James said.

“Another critical term of the agreement with Shantou SinoEnergy is that Icon Energy is not locked into supplying LNG from a single nominated port. We have already considered Queensland and South Australian based options and are currently in the process of reviewing co-operative arrangements with one of the many Gladstone LNG projects for supply out of Queensland.

Icon Energy Managing Director Ray James said from China that the LNG Supply Agreement needs to be considered as a valuable commercial asset which Icon Energy has only been able to secure after months of negotiations both in China and Australia.

The agreement has been negotiated in parallel with our drilling development plans. Reserves cannot be certified unless a market exists for those reserves in accordance with international protocol.

“This is an exciting growth project for Icon Energy and comes at a time when the Company is just about to launch the most vigorous drilling programme in the Company’s history.

“We will commence drilling in the Surat Basin ATP626P tenement in mid-April this year. A Chinese delegation consisting of Shantou SinoEnergy and China Guodian Corporation staff and relevant Chinese government officers will visit our offices on the Gold Coast and our field operations in Queensland during May 2011”, Mr James said.

“Our strategy to pursue targeted commercialisation opportunities in parallel with our operations, rather than waiting to identify markets subsequent to drilling, has paid off”, Mr James said.

“Following our operations in the Surat Basin, where we have a contract to drill up to five wells, we will be looking to commence drilling in the Cooper-Eromanga Basin ATP855P tenement around June or July and thereafter in our Gippsland PEP170 tenement. The recent Queensland floods are still affecting operations in the Cooper-Eromanga Basin.

Icon Energy’s LNG Project has also taken on a significant dimension with the Chinese state owned China Guodian Corporation entering into a joint venture with Shantou SinoEnergy and agreeing with Shantou SinoEnergy to construct and operate the proposed LNG receiving terminal to be located on Nan’ao Island, Shantou.

“Shantou SinoEnergy and its joint venture partner, China Guodian Corporation, plan to construct an $A727 million LNG receiving terminal capable of ultimately loading and off-loading and re-gassing up to 3 million metric tonnes per annum. The proposed receiving terminal would receive LNG supplied by Icon Energy and facilitate the distribution of gas to commercial and residential customers in the Shantou City area”, Mr James said.

Under the Framework Agreement, China Guodian Corporation also envisages constructing and operating gas fired power stations to meet growing industrial and residential energy needs in China.

Mr James said that he would elaborate on prospective feedstock, supply, development and tolling options as soon as discussions were at a more mature stage. Until each of these options had been explored in detail by the Board, it was also premature for Icon Energy to make any comments on funding and investment options, although Mr James indicated that he was already in discussion with preferred advisors with a view to securing project investment.

Mr James said that a more detailed briefing on the LNG Sales Agreement and various development, funding and investment options would be provided to the market in due course.

[mappress]

Source: Icon Energy, March 29, 2011;