UPDATE: Australia's Arrow Still In Gas Sale Talks With Shell
26 August 2009 - 5:48PM
Dow Jones News
Arrow Energy Ltd. (AOE.AU) Wednesday said it's still in talks
with Royal Dutch Shell PLC (RDSB.LN) about possibly supplying it
with feed gas for its proposed LNG project at Gladstone in
Queensland state.
But Arrow said it may consider selling gas to rival projects if
the price is right.
Shell bought 30% of Arrow's local coal seam gas reserves last
year but will need more feedstock if it goes ahead and builds four
LNG processing trains at Gladstone to plan.
Arrow has also agreed to provide gas to a smaller-scale
Gladstone project being built by Liquefied Natural Gas Ltd. at
Fisherman's Landing and plans to take a 20% stake in that project
early next year.
Its failure to come to some sort of supply agreement with Shell
to date has led some analysts to ponder whether Arrow and the
Anglo-Dutch company are having difficulty agreeing on a price for
Arrow's gas.
Arrow's Australian Chief Executive Shaun Scott told analysts
that any plan to possibly sell gas to rival projects was only at
the "conceptual" stage.
"The reality is we're really still all guns blazing on what
we're trying to do with Fisherman's Landing, and still deep in
discussion with Shell," he told reporters on a conference call.
Although Arrow would like to do a deal sooner rather than later,
Chief Executive Nick Davies said there was plenty of time to
organize something with Shell.
"We're talking 2014, 2015 so there's no rush to conclude
commercial negotiations," Davies told reporters, referring to
Shell's target date for first LNG from its proposed plant at
Gladstone.
"We want to get it right for both sides," Davies said.
Arrow shares have rallied in recent weeks amid speculation that
Shell could make a full takeover for the company. The speculation
was stoked earlier this month when Arrow issued a statement that
said it's had discussions about a possible change of control
transaction with "parties" but hasn't received any firm offers.
When asked to comment on the discussions by reporters Wednesday,
Davies didn't give much away.
"I think you may be reading too much into that statement," he
said. "The main thing for us is that we're extremely focused on
delivering the Fisherman's Landing LNG project and then the later
the Curtis Island project."
"But as a matter of course we will always be checking the market
to see what the viable alternatives are."
Around a dozen LNG projects are earmarked for construction in
Australia and Papua New Guinea with five of them hoping to build at
Gladstone using Queensland's coal seam gas reserves as feedstock.
Coal seam gas has never been used as feedstock for an LNG
plant.
The untried nature of the process and fears of a possible LNG
supply glut have raised doubts that some plants will find customers
and financing.
Shipping company and major Liquefied Natural Gas Ltd.
shareholder Golar LNG has agreed to buy gas from the Fisherman's
Landing project but it's still looking for an end customer to on
sell the gas to.
Scott said potential financiers are showing strong interest in
the Liquefied Natural Gas Ltd. project and the associated pipeline
infrastructure and upstream development component of the project to
be borne by Arrow.
Fisherman's Landing is seen by some financiers as a "great entry
point," he said.
"It's a smaller commitment from them that really establishes
their credentials in financing for the Gladstone LNG projects," he
told reporters.
"My feeling at the moment is very positive but it's still
relatively early in the process."
Arrow on Wednesday reported an expected surge in full-year
profit after it sold 30% of its local and 10% of international coal
seam gas assets to Shell last year. Net profit for the year to June
30 surged to A$366.9 million from A$37.2 million a year
earlier.
Earnings before interest, tax, depreciation and amortization
excluding proceeds from asset sales fell to A$20.6 million from
A$59.6 million, but rose to A$59.6 million excluding non-recurring
foreign exchange losses and the impact of planned maintenance on
the Townsville Power Station.
Revenue rose to A$112.3 million, from A$91.6 million in fiscal
2008.
The Brisbane-based company said it's on track to make a final
investment decision on the upstream component of the Fisherman's
Landing plant in the first quarter of 2010. Liquefied Natural Gas
Ltd. is targeting a final decision on the downstream component in
December.
-by Ross Kelly, Dow Jones Newswires; 61-2-8235-2957;
ross.kelly@dowjones.com
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