Liquefied Natural Gas Limited (LNG) has executed a conditional Heads of Agreement with Arrow Energy Limited (AOE) to sell the entire Fisherman’s Landing liquefied natural gas project through the sale of LNG Ltd’s 100% owned subsidiary Gladstone LNG Pty Ltd for a combination of cash, milestone payments, royalties and Arrow options. This sale simplifies all the disparate commercial agreements to provide a simplified integrated project structure and facilitate progression of the Gladstone LNG Project to full construction. It eliminates the need for any further capital expenditure by LNG Ltd for the Gladstone LNG Project. It gives LNG Ltd a very strong cash position and balance sheet, together with the retained rights to its OSMR® technology. It allows management to redeploy its focus to the marketing of its OSMR® technology and pursuit of other mid-scale LNG opportunities, while still retaining significant revenue upside to the Gladstone LNG Project through agreed milestone payments and royalties.
The sale price for the acquisition by Arrow consists of reimbursement of actual costs incurred to date on the Gladstone LNG Project, estimated at A$45 million; US$10 million licensing fee for Arrow’s use of LNG Ltd’s OSMR® technology for the first LNG train, with US$5 million to be paid by Arrow to LNG Ltd by 28 February 2010 and a further US$5 million payable at notice of readiness to proceed to construction of the first LNG train; and an additional US$10 million license fee is payable for each additional LNG train developed at the project site using the OSMR® technology. Milestone payments comprise of A$24 million payable at the earlier of Arrow’s final investment decision for the first LNG train; and Arrow reaching its FID milestone date under its agreement with Shell. It also included A$ 24 million when the LNG project first produces 1 million tonnes per annum of LNG; and A$63.5 million when the LNG project first produces 3 million tonnes per annum of LNG.
Golar Energy Ltd and Arrow are in discussions to transfer the existing LNG Off-take Heads of Agreement to Arrow.