Nexus Energy Reports on Australian Development Projects
Nexus Energy has provided an update on its field development operation in Australia for the first quarter ended in March.
Longtom gas project (Nexus 100%) VIC/L29 -- Gippsland Basin, Victoria
Development of the Longtom gas project continued with first gas expected in mid 2009. The project is forecast to be delivered within its budget of A$300 million (gross).
Activity during the March quarter included:
Onshore construction work for the upgrade of Santos' Orbost gas plant continued.
Aussie-1 pipelay barge set sail from Singapore to the Longtom site. Post quarter end the pipelay operations commenced.
Crux liquids project (Nexus 85%) ** AC/L9 -- Browse Basin, Western Australia
Nexus has completed the technical definition for the Crux liquids project. The Crux project is technically ready for the final investment decision ("FID") with completion of the commercial arrangements for the charter of the floating production storage and offloading ("FPSO") and financing for the project the key remaining hurdles.
Activity during the March quarter included:
Award of Production License designated AC/L9 by the Delegate of the Joint Authority of the Offshore Area of the External Territory of Ashmore and Cartier Islands. The license has an indefinite term and applies to the entire area previously defined by the AC/P23 exploration permit. Award of the Production License is the final regulatory approval milestone to permit sanction of the Crux liquids project.
Settlement agreement finalized with Viking (formerly Vanguard) Oil and Gas International and Viking Shipping Limited (together, "Viking") following the termination of the Memorandum of Agreement ("MOA") for the supply of a FPSO. Nexus to pay Viking US $12 million, in respect of services received and all claims under the MOA, with a further contingent payment of US $5 million to be made in 2009 only on certain major divestment and liquidity events. Currently US $10 million is outstanding, to be paid by end June 2009.
On March 18, 2009, Nexus announced that the Crux liquids project would be placed on hold and that the company was minimising future capital expenditures, to enable Nexus to retain flexibility and maximize the inherent value of the Crux asset, until market conditions improve. Due diligence is ongoing by a number of oil companies however the asset is not being actively marketed.
In addition Nexus has commenced consideration of alternative options available to it under its existing contractual arrangements.
The terms of the arrangements with Shell with respect to Shell's rights to gas in the AC/P23 permit (now AC/L9), include provisions for the circumstance should the liquids joint-venture (Nexus 85%, Osaka Gas Crux Pty Ltd (a subsidiary of Osaka Gas Co., Ltd.) (“Osaka Gas”) 15%) unanimously decide not to progress with the extraction of the liquids recoverable through a liquids stripping project, and notify Shell of the same prior to December 31, 2020. These provisions include the ability for Nexus and Osaka Gas, upon transfer of the AC/L9 license to Shell (with the above mentioned notification triggering earlier access for Shell to the permit, at its option) would retain various contractual rights to participate in the production of any future liquid hydrocarbons in a future gas commercialization project initiated by Shell until the end of the project life (and the January 1, 2021 cut-off would not apply to such contractual rights).
These contractual arrangements de-facto create a "floor valuation" to the recoverable liquids contained within the AC/L9 license and therefore to Nexus' interest in the same. This approach also exposes Nexus to a much larger reserves base given it will retain contractual rights in any liquids from further appraisal and future gas discoveries in the event a gas commercialisation project is initiated by Shell. Furthermore given Nexus' funding constraints and the general illiquidity in capital markets this option allows Nexus to retain contractual rights to a material reserves base without the requirement to any significant capital expenditure in the near term.
Post the end of the quarter, as a result of a failure to agree various matters primarily relating to the financing of the drilling contract with Transocean Inc.'s, Sedco Forex International for the deployment of the rig 'Transocean Legend' to work on wells at the Crux Field, Nexus has been put into the position where, until those matters are agreed, the company may not be able to proceed with its drilling program associated with the Crux project, including the Auriga structure and a further appraisal/development well as it intended under the contract. Discussions and correspondence are continuing with Transocean.
**Nexus holds an 85% interest in the liquids in AC/L9 which may be recovered via a liquids project prior to 2021 (together with the contractual rights to liquids described above).
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Company: Nexus Energy more info
- Nexus Resumes Production at Longtom-4 Well in Gippsland Basin (Mar 12)
- Nexus Updates on Plans to Divest its Crux, Longtom Assets in Australia (Feb 21)
- Santos Suspends Production at Patricia-Baleen Gas Processing Plant (Jan 14)