18 Nov 2009 07:00
Altona Energy Plc / Index: AIM / Epic: ANR / Sector: Exploration & Production
18 November 2009
Altona Energy Plc ('Altona' or 'the Company')
Binding Agreement signs with CNOOC-NEI for the Joint Venture Terms to develop the Arckaringa Project
Altona Energy Plc, the AIM listed Australian based energy company, through its wholly owned Australian subsidiary Arckaringa Energy Pty Ltd ('Arckaringa Energy'), has signed a binding agreement with CNOOC New Energy Investment Ltd ('CNOOC-NEI') that agrees the terms of the Unincorporated Evaluation Joint Venture Agreement ('the UEJV' or 'the Agreement'). Through the UEJV, the parties will evaluate the maximum development and commercial potential of the Company's estimated 7.8 billion tonne coal resource (based on non-JORC standards) in South Australia ('the Arckaringa Project') and will carry out detailed studies covering resource extraction and optimisation, project development options and chemicals and other coal conversion studies. CNOOC-NEI, a subsidiary of China National Offshore Oil Corporation, one of the three largest state owned oil companies in the Peoples Republic of China, specialises in and is dedicated to developing alternative energy sources, renewable energy, energy-efficient products and innovative technologies. The UEJV will be executed by an Australian subsidiary of CNOOC-NEI, upon its incorporation.
Overview
Terms of the UEJV finalised and agreed with CNOOC-NEI to evaluate the Company's estimated 7.8 billion tonne coal resource (based on non-JORC standards) in South Australia
Under the terms of the UEJV, a subsidiary of CNOOC-NEI will fund the bankable feasibility study ('BFS') for the Arckaringa Project and will act as the operator, not only to carry out the staged evaluation work under the BFS, but also to take responsibility for assessing the full potential of the coal resource and bringing projects to development, in return for a 51% interest in Arckaringa Energy's exploration licences
CNOOC-NEI's expertise, resources, and stature will be instrumental in moving the Arckaringa Project forward. CNOOC-NEI's role as the operator in the study, management and operation of the Arckaringa Project, in particular, will accelerate its commercialisation
Strategic partnership has been established between CNOOC-NEI and Altona by signing the UEJV
Under the terms of the Agreement, the subsidiary of CNOOC-NEI ('CNOOC-NEI-Sub) will fund a BFS for a coal mine and an integrated value-added project. The BFS will determine the optimum way to maximise the value in the Company's coal energy bank, of which 1.287 billion tonnes at the Wintinna Deposit has been brought up to current JORC standards. It is noted that in late 2008 the Company completed a tender process for the role of Study Engineer to complete a BFS for the 'Base Case' Arckaringa Project of an integrated mine at Wintinna and 10 million barrel per year Coal to Liquids ('CTL') plant with a 560 MW co-generation power facility. CNOOC-NEI-Sub will complete the BFS in accordance with the UEJV and will, in step with international and local market demand and the need to adapt to climate change, proceed selectively and progressively with coal development, CTL and/or Synthetic Natural Gas ('Syngas' or 'SNG'), power co-generation and a range of other clean energy projects. The scope of the BFS under the UEJV may redefine the 'Base Case'.
In the event that CNOOC-NEI-Sub and Altona decide to proceed with the commercial development of any project, the parties will negotiate and enter into a development agreement for each project, under which CNOOC-NEI-Sub's interest would increase from 51% to 70%. CNOOC-NEI-Sub and Altona will work together to obtain funding for the development of any project. In the event that CNOOC-NEI-Sub wish to proceed to the development phase of a project prior to the finalisation of the BFS, CNOOC-NEI-Sub will procure the provision of debt funding for both parties to develop the project.
Altona Chairman Chris Lambert said, "The UEJV is a major milestone for Altona as it secures the funding of the BFS and the pathway for the development and financing of what we believe to be one of the world's largest undeveloped energy banks. We are delighted to have secured a partner of CNOOC-NEI's major stature and it has been a pleasure to work with its technical and commercial teams over the past year, to advance our joint understanding in unlocking the vast potential and value of the Arckaringa Project. Its valuable expertise, managerial skills and resources will be instrumental in bringing a CTL project to fruition, and also in adding further value through the development of ancillary products derived from the large scale production of Syngas and the potential for developing additional projects utilising the Syngas. With financing for the BFS and professional management from CNOOC-NEI, the Board believes the potential for a re-rating in the value of the Company is highly evident.
"We have always understood that this project may play a significant role in solving the energy requirements of South Australia and as a result we will be working closely with our colleagues at CNOOC-NEI to assist in the application to the Australian Foreign Investment Review Board. Our goal is to ensure that CNOOC-NEI's investment and professional management will benefit all stakeholders and assist in crystallising the value of the Arckaringa Project."
Further Details of the Agreement
Arckaringa Energy holds 100% of three exploration licences (EL3360, EL3361 and EL3362) in the Arckaringa Basin region of South Australia and has undertaken extensive pre-feasibility studies into the commercialisation of the coal deposits contained within those licences. Under the terms of the Agreement, the two parties will establish an unincorporated joint venture in order to undertake certain joint works in respect of the exploration licences held by Arckaringa Energy ('Arckaringa Licences'), which will be carried out in two stages:
Stage 1: complete a BFS in relation to a project to develop a mine to extract coal from the Arckaringa Leases ('Mining Development Project') and a further pre-feasibility study in relation to at least one other value added project, such as a CTL, SNG and integrated power generation project ('Nominated Project').
Stage 2: complete a BFS in respect of the Nominated Project(s) identified in Stage 1 to enable both parties to secure debt funding for the costs of the Nominated Project(s).
Interests in the UEJV
In consideration of CNOOC-NEI-Sub undertaking, subject to mutually agreed budgets and certain other limitations in the Agreement, to meet the full costs of the Stage 1 and 2 works (as described above), Arckaringa Energy will transfer to CNOOC-NEI-Sub a 51% beneficial interest in the Arckaringa Licences. Further detail on this funding commitment is outlined below.
If the parties decide to adopt and implement the Mining Development Project or a Nominated Project, they will then negotiate and enter into a development agreement in relation to each project (a 'Development Agreement'), under which CNOOC-NEI-Sub's interest in the relevant project can increase to 70%.
Management of the UEJV
The UEJV will be governed by a management committee ('Management Committee') which will be constituted by four representatives of CNOOC-NEI-Sub and three representatives of Altona.
While general business decisions may be determined by a majority of the Management Committee, certain key decisions must be taken unanimously by the Management Committee, including: any expenditure or contract in excess of AUD5m, and entry into material related party contracts.
The Operating Team of the CNOOC-NEI-Sub will be in charge of the overall process of the Arckaringa Project, including the BFS and future construction work, production management and product sales.
Funding Commitment by CNOOC-NEI-Sub
If, following completion of the Stage 1 and 2 works, the parties enter into a Development Agreement in relation to a Nominated Project, any CNOOC-NEI-Sub expenditure in respect of the Stage 2 budget that is relevant to that Nominated Project will be credited as a contribution to CNOOC-NEI-Sub's share of the costs of that Nominated Project.
The funding obligations of CNOOC-NEI-Sub will cease on the earlier of:
completion of both the Stage 1 and Stage 2 Works;
in respect of the Stage 1 Work, when the funds expended by CNOOC-NEI-Sub exceed the total of the funds agreed in the Stage 1 budget;
in respect of the Stage 2 Work, when the funds expended by CNOOC-NEI-Sub exceed the total of the funds agreed in the Stage 2 budget;
if during the Stage 2 Period and prior to completion of the BFS, CNOOC-NEI-Sub procures the funding from third parties (in the form of debt or otherwise) to enable both parties to complete the development of a Nominated Project and the relevant financing documents have become unconditional; or
if the Joint Venture terminates upon a withdrawal of CNOOC-NEI-Sub.
Conditions and Regulatory Consents
The Agreement is conditional upon the receipt by the parties of the relevant third party consents, including from the Chinese government and the Australian Foreign Investment Review Board. These consents are to be obtained within 180 days of signing the Agreement; however this may be extended by mutual agreement of the parties.
Termination of UEJV
The Agreement is capable of termination by written agreement of the parties or if either party fails to pay an amount owing under the Agreement, commits a material breach or is in default or becomes insolvent.
CNOOC-NEI-Sub also has the right to withdraw during Stage 1 or Stage 2 on 30 days notice. Following termination CNOOC-NEI-Sub will have no further obligation to provide funds, except in respect of liabilities and obligations that have already arisen or been incurred and which cannot be avoided and are directly attributable to the termination.
If termination occurs during Stage 1 and CNOOC-NEI-Sub has committed less than 30% of the budgeted expenditure, CNOOC-NEI-Sub must at its own cost transfer back to Arckaringa Energy, free of all consideration, its 51% interest in the UEJV.
If termination occurs after CNOOC-NEI-Sub has committed all of the Stage 1 budgeted expenditure, CNOOC-NEI-Sub will be entitled to retain its 51% interest in the Joint Venture Property. If termination occurs after CNOOC-NEI-Sub has committed between 30% and 100% of the Stage 1 budgeted expenditure, CNOOC-NEI-Sub will be entitled to a pro-rata interest in the Joint Venture Property.
If termination occurs during Stage 2 then both parties must use reasonable endeavours to find a mutually acceptable replacement for CNOOC-NEI-Sub. If no replacement can be agreed, Arckaringa Energy may opt to purchase CNOOC-NEI-Sub's interest at a fair market value determined in accordance with the Agreement.
**ENDS**
For further information visit www.altonaenergy.com or please contact:
| Christopher Lambert | Altona Chairman | Tel: +44 (0) 20 7024 8391 |
| Christopher Schrape | Altona Managing Director | Tel: +44 (0) 20 7024 8391 |
| Samantha Harrison | Ambrian Partners Limited | Tel: +44 (0) 20 7634 4705 |
| Alexandra Carse | Ambrian Partners Limited | Tel: +44 (0) 20 7634 4705 |
| Paul Youens | St Brides Media & Finance Ltd | Tel: +44 (0) 20 7236 1177 |
| Hugo de Salis | St Brides Media & Finance Ltd | Tel: +44 (0) 20 7236 1177 |
Notes to Editors:
About Altona
Altona Energy Plc is an Australian based energy company that was admitted to trading on AIM in March 2005. Its primary focus to date has been the completion of a bankable feasibility study for its wholly owned Arckaringa Project for an integrated 10 million barrel per year coal to liquid ('CTL') plant with a 560 MW co-generation power facility.
The Company holds, through its wholly owned subsidiary Arckaringa Energy Pty Ltd, a 100% interest in three exploration licences covering 2,500 sq. kms in the northern portion of the Permian Arckaringa Basin in South Australia. These include three coal deposits, Westfield (EL3360), Wintinna (EL3361) and Murloocoppie (EL3362). All three lie close to the Adelaide to Darwin railway and the Stuart Highway. Containing more than 7.8 billion tonnes of coal (based on non-JORC standards), these coal deposits are effectively one of the world's largest undeveloped energy banks, capable of conversion into clean liquid fuels, low cost power and high value industrial feedstocks.