afr article today

Gas sale seen as favoured option from Arrow talks
PUBLISHED: 9 hours 35 MINUTES AGO | UPDATE: 7 hours 18 MINUTES AGO



Edited by Sarah Thompson, Anthony Macdonald and Gretchen Friemann

After plenty of discussions and deliberations the Arrow Energy venture in Queensland between Shell and PetroChina is nearing decision-time on the fate of its coal-seam gas resources, with an outright gas sale shaping up as the most likely outcome.

Arrow is understood to have held talks in March with all three of Queensland’s LNG projects under development, BG Group’s Queensland Curtis venture, Santos’s GLNG and Origin Energy’s APLNG.

A range of options have been canvassed, from a straight sale of gas resources, to some broader deal that would give the Arrow partners a stake in an LNG plant, or some LNG supplies.

However the former is now looking more likely, greatly simplifying the deal. Shell and PetroChina have spent about $7 billion between them on building up Arrow and developing their LNG plans, so were thought to at least want to see some LNG for their money. But a straight gas sale would avoid their having to stump up any more funds, and make a complicated transaction that would deal them a stake in an LNG train unnecessary.

Whether the Arrow partners are fully aligned in that way of thinking is another matter, with Shell seen more keen just to realise value for its gas, while PetroChina could still be pushing for some LNG out of its investment.

It is believed Shell wanted $8.50 a gigajoule for Arrow gas, of which there is probably enough for up to one LNG train. That is still pointing to a potential deal of several billions of dollars.

The price is a hefty one that sources say Santos’s GLNG venture, as the one most reliant on third-party gas, is the most likely of the three to pay. It has already agreed to pay more than that for gas from WestSide’s Meridian project, although for a smaller volume.

Not all Arrow gas would need to go to one buyer, with Shell’s numbers man Simon Henry last month hinting more than one deal was being mulled. But the higher the price for the feed gas, the lower the rate of return on the LNG project, an issue that has been troubling the market.

The three parties are now waiting for Arrow to come back with its next move, which is expected to lead to more intense talks with one of them. Talks with the others would continue in the background, however, to avoid a repeat of last year’s situation when exclusive talks with APLNG came to nothing, leaving Arrow having to start again from scratch.

Meanwhile in NSW, letters of intent for Delta Coastal’s assets are due this week, ahead of indicative bids in early July. Final bids wouldn’t be due until the $1.5 billion sale of Macquarie Generation is wrapped up.