LNG Limited: Quarterly Report December 2010 (Australia)
LNG Limited today announced activities report for the quarter ended December 31, 2010.
• On 27 January 2011, the Company signed a Share Placement Term Sheet (Term Sheet) with China Huanqiu Contracting & Engineering Corporation (HQCEC). HQCEC is a wholly owned subsidiary of China National Petroleum Corporation (CNPC), which is China’s largest producer and supplier of crude oil and natural gas. The legally binding Term Sheet includes, amongst other things, the terms upon which HQCEC will subscribe for 53,250,000 shares in the Company, being equivalent to approximately 19.9% of the total issued shares in the Company following the placement (Placement).
• Metgasco Limited – the Company continues to hold a 5.07% shareholding in MEL and remains its largest shareholder. MEL has certified gas reserves and 2C contingent resource of 3,416 petajoules (PJ) and an “internally estimated” overall “P10 unrisked original gas in place (OGIP)” of 15,265 PJ. The Company’s LNG project at Fisherman’s Landing, Port of Gladstone, Queensland, Australia (Gladstone LNG Project) requires ~3,600 PJ of gas feedstock for its currently approved 3 million tonne per annum LNG production capacity.
• Oil Basins Limited (OBL) – the Company holds a 7.51 % shareholding in OBL and remains its largest shareholder. OBL has prospective oil and gas permit interests in the offshore Gippsland Basin of south-eastern Australia, the onshore Canning Basin of Western Australia and the offshore waters of the Carnarvon Basin.
The Company’s focus in the later part of the December 2010 quarter, and to date in 2011, has been the consummation of the Term Sheet with HQCEC. Aside from the proposed Placement the Term Sheet covers the following key terms:
• Application of the Placement proceeds to the development of the Company’s wholly owned 3 million tonne per annum Gladstone LNG project at Fisherman’s Landing, Port of Gladstone, Queensland, Australia (Gladstone LNG Project).
• Appointment of a HQCEC nominee as a Non Executive Director to the Company’s Board. • Appointment of a HQCEC nominee as an Executive Director to the Company’s Board and Co Chief Executive Officer of the Company, to work with the existing Managing Director/Chief Executive Officer, Maurice Brand.
• Appointment of HQCEC, or an affiliate of HQCEC or CNPC, as the sole Engineering, Procurement, Construction and Commissioning (EPC) contractor for the Gladstone LNG Project, conditional on HQCEC providing a competitive EPC proposal based on the Company’s wholly owned OSMR® process technology.
• Agreement to negotiate preferential terms for HQCEC, CNPC and their affiliates to use the Company’s OSMR® process technology.
• Consideration by HQCEC and CNPC, or an affiliate of CNPC, as to their involvement in the Gladstone LNG Project, including direct investment in the project, purchase of the proposed initial 3 million tonne per annum LNG production capacity from the project’s first two LNG trains and provision of project financing.
• The Company’s ongoing pursuit of gas supply for the Gladstone LNG Project’s first two 1.5 million tonnes per annum LNG trains.
The Term Sheet is, amongst other things, conditional on:
• HQCEC obtaining relevant approvals (on terms satisfactory to HQCEC) from the Australia Government’s Foreign Investment Review Board, China’s Ministry of Commerce and National Economic Reform Commission and CNPC; and
• The Company obtaining shareholders’ approval, if required.
HQCEC and the Company are now advancing various definitive agreements, including a Share Subscription Agreement, based on the agreed Term Sheet. The parties are targeting completion of the Placement in the second quarter of 2011.
2. Gladstone LNG Project
In conjunction with finalisation of the Term Sheet with HQCEC, the Company’s main focus has been on securing gas supply for the Gladstone LNG Project and maintaining the ability to recommence construction when gas supply negotiations are concluded.
The Company remains confident in the value and deliverability of its Gladstone LNG Project, given the:
• strategic mainland location of the project site and existing access to key infrastructure and services;
• advanced nature of the project including environmental approval, completion of front end engineering and design and detailed costing, based on a firm engineering, procurement and construction proposal;
• low project development cost compared to cost estimates for larger traditional LNG projects (assessed on a cost per annual production tonne basis);
• highly efficient plant, low emissions, and industry low operating cost, based on the use of the Company’s OSMR® technology; and
• continually increasing gas reserves in both Queensland and New South Wales which are not committed to one of the proposed large Curtis Island LNG projects, in the Port of Gladstone.
The Company considers that financial and technical credibility of HQCEC, and the CNPC group, will substantially enhance the prospects of securing gas supply for the Gladstone LNG Project.
3. Metgasco Limited
During the quarter MEL and the Company continued to progress a joint feasibility study on the viability of gas production, transportation, liquefaction and sale of LNG, based on gas supply from MEL’s 100% owned coal seam reserves and conventional gas resources in the Clarence Moreton Basin, in Northern NSW (including potential supply of gas to the Company’s Gladstone LNG Project).
Kingfisher (conventional gas): MEL is continuing the Kingfisher E01 Stimulation Program in the Clarence Moreton Basin, with the well currently producing gas and introduced fluid to surface. The well will shortly be placed on a longer term production test to measure sustainable flow rates and confirm reservoir properties.
Eden Creek (coal seam gas): Metgasco expects to commence the drilling of its Eden Creek multilateral pilot well program this quarter, subject to ground conditions being suitable. The coal seam gas pilot program will entail drilling three dual lateral wells and the completion of Corella P18 as a single lateral well.
The wells are located in the area of Corella P11 where Metgasco has had its lead pilot production well on continuous gas production for approximately 2 years. The Corella P11 well is a single lateral well completion into the Walloon Coal Measures with approximately 680 metres of in-seam exposure. The Eden Creek pilot wells have been designed as dual lateral wells with approximately 1,000 metres of in-seam exposure per lateral (2,000 metres in total).
Casino (coal seam gas): Metgasco drilled an appraisal well in the Casino Gas Project area resulting in the production of small quantities of gas. The tests also showed that the coal seams were relatively dry and the presence of additional coals is considered significant enough for further testing. This well has been plugged and abandoned as planned.
Based on its current certified gas reserves and contingent resources, see tables below, MEL has the potential to supply sufficient gas for the currently approved 3 million tonne per annum LNG production capacity of the Company’s Gladstone LNG Project. MEL, in recent presentations has included an “internal estimate” of 14,478 billion cubic feet (15,265 PJ) of “P10 unrisked OGIP”.
4. Oil Basins Limited
The Company holds a 7.51% shareholding in OBL and is the largest single shareholder. OBL recently completed a placement of shares that raised $840,000 to “Sophisticated Investors” and “Professional Investors”. The Company participated in the placement to maintain its shareholding level at 7.51%. The placement proceeds are, amongst other things, to assist OBL fund the ongoing Backreef-1 well technical assessment work and pursue other value creating project opportunities.
OBL is involved in the exploration for oil and gas in the offshore Gippsland Basin of south-eastern Australia, the onshore Canning Basin of Western Australia and more recently the offshore waters of the Carnarvon Basin. All areas of interest are situated in proven hydrocarbon regions of Australia and nearby to established infrastructure hubs. OBL’s key assets comprise:
• 12.5% Rights to Vic/P41 situated in the offshore Gippsland Basin;
• 17% Vic/P66 situated in the offshore Gippsland Basin;
• 100% beneficial interest in the Backreef Area, in the onshore Canning Basin;
• 50% interest in 5/07-8 EP situated in the onshore Canning Basin; and
• 100% Retention Lease R3 situated in the offshore Carnarvon Basin.
OBL completed the Backreef-1 well in November 2010 which, based on OBL’s ASX release, delineated some 223m of continuous hydrocarbon fluorescence, some 49m of reservoir and some 39.8m of oil bearing dolomites with the lower circa 10% free moveable oil. The well has been cased and suspended at 1155m PBTD for future re-entry and production testing/evaluation in 2011.
A Strategic Alliance Agreement was signed with OBL, during the December 2010 quarter, to jointly investigate the development of an LNG project in North Western Australia (Kimberley LNG Project). The Kimberley LNG Project is based on utilising the potential large resources of conventional and unconventional gas contained within the Canning Basin, including gas contained within OBL’s acreage and that of its joint venture partners. The proposed Kimberley LNG Project will benefit from the advanced development work undertaken by the Company for its Gladstone LNG Project. Such development work includes completion of front end engineering and design and provision of a fixed price EPC proposal for the first 1.5 million tonne per annum LNG train. A
ctivities under the Strategic Alliance Agreement with OBL are temporarily on hold pending further evaluation of OBL’s recently completed Backreef-1 exploration well (which on the data provided to date appears to have some oil potential but limited gas prospects).
5. Company’ Other LNG Activities
Based on the completion of the Gladstone LNG Project front end engineering and design and procurement of fixed EPC pricing, the Company is actively evaluating other LNG project opportunities both in Australia and overseas. While the Gladstone LNG Project is based on 1.5 million tonne per annum LNG trains, the LNG plant design and technology is flexible and can be scaled (increased or decreased) to meet the specific requirements of each LNG project.
6. LNG Technology Pty
Ltd LNG Technology Pty Ltd, owned 100% by the Company, is the LNG technology research and development entity within the group and the owner of the Company’s OSMR® LNG process technology. The OSMR® technology is an enhanced LNG liquefaction process which delivers higher operating efficiency and lower greenhouse gas emissions than traditional LNG processes.
The OSMR® technology has been developed and refined over numerous years and was the foundation of the completed LNG plant front end engineering and design for the Company’s Gladstone LNG Project. During, and subsequent to, the development of the OSMR® technology, it has been the subject of numerous satisfactory peer reviews, including endorsement of its cost, reliability and efficiency. These reviews were required to satisfy the Company as to the validity of the technology and the stated benefits, and prior to the Company commencing an active marketing programme.
The Company continues to further its international patent applications, which cover two engineering design features (being the basis of the Company’s OSMR® technology), entitled:
• “A Method and System for Production of Liquid Natural Gas”.
• “Boil-Off Gas Treatment Process and System”.
Source: LNG Limited, January 31, 2010;