Armour Energy Ltd. reported Thursday that the firm has entered a non‐binding Memorandum of Understanding (MOU) with MMG Century Pty Ltd (MMG) to work together towards gas supply arrangements from Armour’s exploration tenements in North West Queensland in Australia to MMG’s Queensland operations.
MMG’s Century Lawn Hill mine site is located on Armour Energy’s 100 percent owned ATP1107 which covers 3,066 square miles (7,943 square kilometers) and is pending grant by the Queensland Government. ATP1107 lies adjacent and south of Armour’s 100 percent owned ATP1087 which covers 2,756 square miles (7,138 square kilometers). ATP1087 was granted on Jan. 1, 2013.
On July 16, Armour Energy reported Contingent Resources of 364BCF 3C; 154BCF 2C; 33BCF 1C within ATP1087 relating to the Egilabria 2 DW1 (lateral) well drilled and hydraulically stimulated in 2013.
The initial stages of the MOU will involve a scoping study by the parties to evaluate project feasibility and economics of gas supply for potentially expanded on site power generation at MMG’s Lawn Hill site, or development of new power generation facilities either on the Century mine lease or at greenfield sites between the mine and Mount Isa. Scenarios to be evaluated will include for MMG’s current and possible future needs and potential third party customers’ requirements.
The study will evaluate gas supply volumes of up to 7‐9 Petajoules per annum plus an overlay for potential third party requirements. Pricing will be determined so as to achieve a minimum return on invested capital for both Armour and MMG while providing “most favorable” price status to MMG compared with other gas sales contracts signed by Armour (other than contracts with upstream equity participants). Should Armour farmout interests in its tenement to third parties, gas supply to MMG would relate to Armour’s equity gas only, unless a future upstream partner elects to participate pro rata in the sale of gas to MMG.
The Century ore body, one of the most exciting base metals discoveries in Australia, has produced over 6 million tons of zinc in concentrate to date. While last production from the Century open pit is expected during 2015, MMG is continuing to investigate a number of options to further utilize its extensive infrastructure in the Gulf. An important driver of the feasibility of future projects for MMG is cost and availability of energy.
As previously reported, Armour has identified a number of stacked play targets within ATP1087 including conventional and underlying unconventional accumulations in the highly prospective Lawn Hill and Riversleigh Shales. Following historic gas flows from Australia’s first lateral, multi‐stage hydraulically stimulated well, Egliabria 2, in 2013, the Company continues to evaluate core and log data taken from the Lawn Hill and Riversleigh Shales in the Egilabria 4 well in 2013. Total Organic Carbon (TOC) contents from these shales are world class and among the highest TOC of any shale play in Australia. Gas samples from wells drilled to date show very high methane content, ethane, helium, and very little CO2 and other inert gases.
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