Arrow Energy (AOE) Update

Submitted by Jim Thesiger on 3 June, 2008 - 16:32

Arrow Energy (AOE) has a maintained Buy High Risk Recommendation and a $5.45 share price target from Australian stockmarket analysts from Citi.

Arrow Energy Limited (AOE): Arrow LNG - Go Well Go Shell!

Shell Partners Arrow with its Gladstone LNG Project — Arrow achieves a $776M payment from Shell for 30% equity in all of its SE Qld csm assets and a 10% equity stake in their International operations. This has materially lifted our target price from $3.41 to $5.45/share. We maintain our Buy High Risk Recommendation.

Execution Risk Reduced — Shell is the World’s largest listed producer of LNG with ~23Mt/yr of LNG capacity (at end 2008) and presently has 5 new LNG liquefaction trains that are presently under construction.

Funding Risk Reduced — We estimate full life upstream capex of $2.9Billion to develop to supply csm to a 2-train facility with capacity 2.6Mt/yr of LNG. In total the deal is worth $776M of which $575M could be received by FID. The delta is conditional upon various performance criteria. These funds will likely underwrite Arrow’s equity requirements for project financing.

Lower Project Risk — With execution and funding risk reduced we have increased the probability that a 2-train 2.6Mt/yr LNG project will be developed.

Shell's Aspirations will be beyond 2.6Mt/yr — Arrow recognises that more liquefaction trains could result now that Shell is a partner. Pre the Shell deal Arrow had csm acreage totaling 71,000km2 and with certified reserves on only 2% of the land under tenure – supply risk seems low.

Remember Woodside? — A couple of decades ago Shell backed a little offshore LNG producer called Woodside Lakes Entrance NL.