Eastern Corporation Ltd (ASX:ECU) encountered renewed market confidence last week after its 68 per cent-owned Galilee Energy Ltd received a $37 million investment from the astute industry leader AGL Energy Ltd (ASX:AGK). AGL is putting its money on a coal seam gas (CSG) production pilot and exploration and appraisal program with Beaconsfield Energy Development Pty Ltd and Capricorn Energy Pty Ltd, wholly owned subsidiaries of Galilee Energy, in Queensland's Galilee Basin. Galilee Energy holds two tenements covering approximately 10,000 square kilometres in the Galilee Basin - ATP 529P held through Beaconsfield and Capricorn and ATP 799P held directly. The farm-in agreement will see AGL acquire 50 per cent ATP 529P in the Galilee Basin for an expenditure of $37 million. The agreement is subject to Government approval for the transfer of the farm-in interest and confirmation that the conditions imposed on the ATP do not vary materially to those that currently exist. Under the terms of the farm-in, AGL will be the operator of the joint venture under a joint operating agreement. Stage 1 of the program will involve the Rodney Creek production pilot in ATP 529P and Stage 2 of the program will involve an exploration and appraisal work program. The parties have also entered into a 10-year gas marketing agreement. AGL will lead the two stage program under the joint operating agreement executed this month. Work on Stage 1 of the program is expected to commence before November. Galilee Energy chairman Rino Camarri said that the agreement with AGL was an excellent outcome for shareholders. "AGL is providing the capital to build on Galilee Energy's exploration and test work," he said. "As a major integrated energy company, AGL brings to the project its expertise in exploration, development, production and marketing. " With AGL engaged in ATP 529P, Galilee Energy will now focus on capital raising to fund further exploration and development in 799P," Mr Camarri added. As previously reported, consultants JR Holland & Associates concluded, in a preliminary Exploration & Well Completion Report for the Rodney Creek 8 well in ATP 529P, that: * The gas resource is substantial; * Is characterised by 24 net metres of gassy coal measures (considered thick enough to enable coal seam gas production); * Coal seams are dull, low in ash and exhibit strong cleating (fracturing); and * Gas composition is of pipeline quality with 97-98 per cent methane. The gas in place in ATP 529P and ATP 799P, as currently held, is estimated to be greater than 20 TCF, based on the observed coal thicknesses and the measured gas contents of the coals in Rodney Creek 8. ATP 529P is located 80 km northwest of Barcaldine where a gas power station is fed by a pipeline linked to Moomba and Brisbane. AGL managing director Michael Fraser said that the farm-in agreement builds on AGL's stated strategy to grow gas reserves through targeted exploration and appraisal drilling. "The two stage program (production pilot and exploration/appraisal) provides an appropriate balance for AGL between investment size, probability of success and overall valuation metrics and presents an opportunity for AGL to capture additional profit pools in its overall value chain. "This is an excellent transaction for Galilee Energy and also for ECU, its major shareholder, as it provides certainty for the next stage of development to prove up reserves, and provides a joint venture partner in AGL who has the capabilities to develop and commercialise gas discovered in the Galilee Basin," Mr Fraser declared.
SHARE PRICE MOVEMENTS *********************
Shares of Eastern Corporation jumped 10.5c to 38c on Friday after the AGL investment news. Rolling high for the year is 41c and low 10.5c. The company has 71.7 million shares on issue with a market cap of $27.7 million. AGL will fund the first production testing on Eastern's group. Eastern drilled a successful exploration well last year, but has yet to determine flow rates it could achieve. ECU managing director Campbell Smith said the agreement with AGL was an important development in ECU's strategy of building a significant energy company. "We welcome the association with AGL," he said. "A large and experienced integrated energy company, AGL brings both capital and expertise in gas exploration, development, production and marketing. "ECU is well positioned with coal seam gas assets in the Galilee Basin through its major shareholding in Galilee Energy. "As well as ATP 529P, we have a similar interest in ATP 799P also through Galilee Energy. "With AGL engaged in ATP 529P, Galilee Energy has advised that it will now focus on capital raising to fund further exploration and development in ATP 799P," Mr Smith said. Eastern business development manager Sam Aarons told the SMH that the coal seams in the Galilee were deeper and a bit further from pipelines that those in the Surat and Bowen basins. Eastern is excited by these developments because it is significantly under-explored.
BACKGROUNDS ***********
Eastern Corporation -------------------
Eastern Corporation, formerly Eastern Gold NL was listed on the Australian Stock Exchange on February 15, 1996. Eastern's strategy is to grow as a broad-based energy company by developing its CSG in the Galilee Basin and mining coal at Cascade and Takitimu in New Zealand. Eastern provides investors and potential joint venture partners with good value entry into coal seam gas. The company's Galilee Energy project (Eastern 67 per cent) presents opportunities in the rapidly emerging CSG industry in Queensland as the company moves towards reserves certification for its central Queensland project. In coal, Eastern is now established as a significant producer in New Zealand, supplying a range of domestic industrial applications following the company's acquisition of two operating coal mines and a coal blending and distribution facility. Eastern emerged as a New Zealand coal producer in June 2005 by acquiring the operating Cascade open cut coal mine near Westport on the South Island of New Zealand. In September 2006 Eastern acquired a second New Zealand coal mine, the Takitimu mine in the Ohai/Nightcaps area in the far south of the South Island. Also in September 2006 Eastern acquired a coal blending and distribution facility (Eastern Coal Supplies Ltd) at Timaru, on the central east coast, approximately mid way between the Cascade and Takitimu coal mines. In March 2007 Eastern was awarded the contract for coal supply to Fonterra's Clandeboyne plant on the South Island. In July 2007 Eastern recommenced exploration at the Galilee coal seam gas prospect, drilling the Rodney Creek 8 well. In early 2008 the company was sufficiently encouraged by the results from the Rodney Creek 8 drilling to devise a further program comprising a five-spot production pilot and four appraisal wells in the Rodney Creek area. Eastern is pursuing further acquisitions in Australia and New Zealand as it focuses on growth.
About Galilee Energy --------------------
It is not a publicly listed company, with only 25 shareholders of which the major stakeholder is Eastern Corporation Ltd. Galilee Energy has been engaged in coal seam gas exploration in the Galilee Basin in central Queensland since 1999. The company holds two tenements in the basin; ATP 529P and 799P. ATP 529P is held through Galilee's wholly owned subsidiaries, Capricorn Energy Ltd and Beaconsfield Energy Development Pty Ltd. Both tenements cover an area of approximately 10,000 square kilometres. Eastern Corporation originally acquired 51 per cent of Galilee in 2003 and has subsequently increased its stake to the present 68 per cent.
About AGL Energy ----------------
AGL is one of Australia's leading integrated energy companies and is taking action toward creating a sustainable energy future for its investors, communities and customers. Drawing on over 170 years of experience, AGL operates retail and merchant energy businesses, power generation assets and an upstream gas portfolio. It has Australia's largest retail energy and dual fuel customer base. AGL has a diverse power generation portfolio including base, peaking and intermediate generation plants, spread across traditional thermal generation as well as renewable sources including hydro, wind, landfill gas and biomass. AGL is Australia's largest private owner and operator of renewable energy assets and is looking to further expand this position by exploring a suite of low emission and renewable energy generation development opportunities.
COI Price at posting:
0.0¢ Sentiment: ST Buy Disclosure: Held
(20min delay)
