OilVoice - Arrow Energy to Acquire Fisherman's Landing LNG Project

Arrow Energy to Acquire Fisherman's Landing LNG Project

Thursday, February 11, 2010

Arrow Energy Limited has reached agreement with Liquefied Natural Gas Limited to acquire the entire Fisherman's Landing Liquefied Natural Gas (LNG) plant and associated infrastructure through the acquisition of LNG Ltd subsidiary Gladstone LNG Pty Ltd (GLNG). This agreement supersedes the previously announced TrainCo/InfraCo ASX release of 4 January, 2010 that contemplated increased equity participation in the project by Arrow.

The agreement is subject to the completion of confirmatory due diligence by Arrow and LNG Ltd gaining shareholder approval for the transaction at a meeting expected to be held within the next 45 days.

Arrow Energy Chief Executive Officer Nick Davies said:
'Initial site works have already commenced at Fisherman's Landing and project design and planning is well advanced'.

'Arrow is excited to be taking full control of the construction and future operation of the world's first CSG to LNG facility. This further simplification of the Fisherman's Landing LNG development and the elimination of the commercial agreements with LNG Limited, will improve the ability to construct, finance and ultimately allow for greater flexibility in the operation of the plant. This project offers Arrow investors an extremely attractive path to profitable monetization of the company's vast gas resource in conjunction with Arrow's existing domestic gas supply and power generation business. In the meantime we would like to recognize the significant achievements of the LNG Ltd. team in bringing this project to an advanced state of development using their proprietary OSMRTM technology'.

Arrow will be acquiring the LNG Ltd subsidiary Gladstone LNG that holds the rights to develop the Fisherman's Landing site, all approvals and the pre-development work. The upfront purchase price for the acquisition is A$51million, being the reimbursement of actual project costs incurred to date, estimated at A$45million, an initial US$5million licensing fee for use of the OSMRTM technology and a grant of 12.5million options to acquire Arrow shares at an exercise price of A$3.50 with a 14th May 2010 expiry date.

Further payments will be payable to LNG Ltd once certain milestones are reached:
• A$24million at Final Investment Decision (FID)
• An additional US$5million licensing fee for the use of OSMRTM technology at FID
• A$24million when the plant reaches one million tonnes per annum LNG production
• A$63.5million when the plant reaches three million tonnes per annum LNG production (through a second train)

Arrow will also pay LNG Ltd a minimum royalty of 0.7 percent (capped at 0.9 percent) calculated on the oil price differential above US$60/barrel for the first train. The higher royalty of up to 0.9 percent will be payable if the capital expenditure on the Fisherman's Landing development is materially lower than current estimates. Royalty principles have been agreed with LNG Ltd for a second LNG train.

Arrow will now focus on full integration of the design and construction plans for the Fisherman's Landing LNG facility into its overall project development plan under Arrow's LNG Project Director. This will include an assessment of the previously announced 31 March 2010 FID date and any project enhancement opportunities that may be available on an integrated basis. The completion of the upstream and midstream components of the FID work remains on track. Arrow will advise the market of any revision to the target FID date in the near future. At this stage first LNG production is still expected in late 2012.

As a result of the above restructure, Golar Energy Ltd (Golar) and Arrow are in discussions to transfer the existing LNG Off-take Heads of Agreements with Golar / Toyota Tsusho to Arrow.

Arrow's decision to acquire 100 per cent of the Fisherman's Landing LNG Project is testament to the significant achievements of LNG Ltd in bringing this project to an advanced state of development using their own proprietary OSMRTM technology realising Arrow's objective of a smaller train size, a critical success factor for the world's first Coal Seam Gas (CSG) to LNG project.

The Fisherman's Landing site in conjunction with the use of the OSMRTM technology developed by LNG Ltd provides significant development advantages to the project, not only facilitating the smaller 1.5 mtpa train size, but also delivering an integrated LNG project at a capital cost that will be in the range of A$2.1billion - A$2.2billion net to Arrow, based on the latest upstream, pipeline and downstream capital expenditure estimates. In terms of funding, the overall project estimate remains within Arrow's financial capability and within the scope outlined in the ASX release of 2nd February - Funding for the Fisherman's Landing LNG Project.

The Project will make a significant contribution to the local, regional, state and national economies, both in the construction phase and through its operational life. It will also provide employment, business and industry opportunities benefiting the wider economy.

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