Shell Strikes Deal in Coal Seam Methane Projects

Submitted by Craig Strzelecki on 3 June, 2008 - 11:11

Royal Dutch Shell has become the third company to strike a deal for coal seam methane projects that are rapidly evolving in the Queensland area. It struck a $776 million deal with Arrow Energy (AOE) to improve setting up of multiple LNG plants in the region. It now holds 30 percent stake in Arrow’s CSM licenses in the state. The deal is yet to be examined by the Foreign Investment Review Board.

Currently, Shell has signed a preliminary agreement with Brisbane-based Arrow Energy’s assets with an upfront payment of $345 million. It shall pay $139 million subsequently once the project gets an approval from FIRB and $70 million when it starts producing a million ton of LNG. It shall also pay $132 million for 10 percent stake in international assets.

This deal makes three major players in Queensland that would be competing with each other for exporting liquefied coal seam gas to booming Asian economies. Origin Energy (ORI) has already rejected the A$13.6 billion takeover bid while Santos (STO) has struck a deal with Malaysian government owned Petronas to hold 40 percent of its stake in the company.

Queensland area holds a vast reserve of natural methane gas in its coal reserves. This gas is of relatively superior quality and is quite near to the surface which makes it easy to extract. Methane can be easily compressed to liquefied natural gas which is in high demand especially in booming Asian countries. This has made global oil majors to make a beeline to the coal seam methane industry in Queensland.

Past week has witnessed share prices of Australian companies involved in CSM sourced LNG spinning to soaring heights. Australia’s second largest oil company, Santos, set a bench mark last week when it signed a $2.5 billion deal with Malaysia’s Petronas and sold its 30 percent share.

Arrow Energy’s share price soared 14 percent to close at $3.79 after trading as high as $4.11. On the other hand, shares of LNG ltd. rose 12 percent to $1.05. LNG plans to build a new plant in Gladstone that would produce 1.5 million tonnes liquefied natural gas annually.