Shell, Arrow Energy sign coal seam methane deal

Arrow Energy has signed a major agreement with Shell Exploration under which Shell will pay up to $776 million (Aus.) for interests in Arrow's Australian and international coal seam methane projects.

Jun 8th, 2008

Rick Wilkinson
OGJ Correspondent

MELBOURNE, June 8 -- Arrow Energy, Brisbane, has signed a major agreement with Shell Exploration Co. BV under which Shell will pay up to $776 million (Aus.) for interests in Arrow's Australian and international coal seam methane (CSM) projects.

The preliminary agreement specifies that Shell will acquire 30% of Arrow's Australian upstream permits for an initial sum of $435 million (Aus.). An additional $209 million is payable when a final investment decision has been made and production begun from an LNG project in Gladstone, Queensland, proposed by LNG Ltd. (LNGL), Perth.

LNGL and Arrow already have a cooperation agreement for Arrow to supply CSM feedstock from its Surat basin fields to LNGL's Gladstone project. The two companies have discussions in progress to increase capacity of the first proposed LNG train to 1.5 million tonnes/year from 1.3 million. A potential second train in Gladstone to be added as further gas reserves are proved would have a similar capacity.

In a rider to the Shell-Arrow agreement, Shell also will pay another $132 million (Aus.) to buy a 10% share in Arrow International, which holds all of Arrow's overseas assets.

In addition, Shell will have a 5-year option to back into any Arrow International project for 50% of Arrow's interest by paying 50% of past costs, although this excludes three CSM licenses in India.

Shell will transfer senior management personnel into the projects, establish a research and development program, and reserve the right to offtake LNG produced from CSM feedstock sourced from the Arrow-Shell permits.

Under the deal, Arrow will remain operator of the upstream assets.

News of the Shell move comes on the heels of the recent announced agreement between Santos and Malaysia's Petronas in which Petronas will take a 40% interest in Santos' proposed Gladstone CSM-LNG project for $2 billion (OGJ, May 19, 2008, p. 32).

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