Here is the Chairmans Report
CHAIRMAN’S REPORT
Dear Shareholder
As you will be aware, the Australian oil & gas exploration industry has continued to weather an extended period of challenges, including Victorian Government drilling and well-stimulation bans, aggressive lobbyist actions and poor stock and commodity market conditions. In the face of these on-going issues, Armour has focused on striking a balance between continuing to advance its exploration and business strategies whilst maintaining a healthy working capital position by renegotiating its work program commitments and seeking a joint venture partner.
Recently Armour executed a Letter of Interest (LOI) with American Energy Partners (AEP), for AEP to apply state of the art US management, exploration and development strategies to unlock 21.5 million acres of Armour’s 34 million acre McArthur Basin Northern Territory exploration project. Subject to definitive agreements being entered into, AEP is to spend US$100 million on work programs over a maximum of 5 years in exchange for a 75% working interest in the agreed tenements. Full details are outlined in the Review of Operations.
The entry of AEP into the LOI with Armour vindicates Armour’s view that the McArthur Basin represents one of the world’s great opportunities for the discovery of a new frontier oil and gas province. Elsewhere in the world, the organic rich Proterozoic Basins in Oman and Siberia host several multi-billion barrel fields. In contrast, the McArthur has not really been touched. The AEP team built Chesapeake Energy, now a household name in the US oil and gas industry, and Armour fully expects AEP to apply the same effort to the McArthur Basin, and deliver the technical outcomes for which they are renowned.
In a broader sense, Armour continues to advocate that the domestic east-Australian market for gas is heading towards a 2016-17 supply shortage. The unwillingness of politicians and communities to exploit and produce from known gas deposits closer to populated east coast regions continued to play into Armour’s strategy of exploring a provincial position in a low-population region with anticipated access to domestic pipelines (via Mt Isa) or export markets (via the northern or eastern coasts). In this regard the Company will be seeking to continue to build on its agreement with APA to ultimately install gas pipelines to effect the delivery of up to 330 Petajoules per annum to Queensland customers and Gladstone based LNG producers.
The tender process associated with the Northern Territory Government’s proposed North East Gas Interconnector (NEGI) pipeline is nearing the selection of a preferred tenderer and pipeline route. This pipeline will be a strong enabler for the gas industry in the NT and Armour in particular to transport gas to the east coast for domestic and or export. Given the much lower environmental impact and the much lower costs of the northern route vs the southern route, it is expected that, if the pipeline goes ahead, the northern route will be selected. If adopted, the northern pipeline route is likely to traverse Armour’s tenement position, further strengthening Armour’s commercial position and value. Gas is the world’s most compressible, transportable and politically and environmentally acceptable form of fossil energy and we believe that the urbanisation of half of the world’s population over the next 30 years will continue to fuel a demand for gas that will outstrip supply.
As I write, Armour has received an unsolicited, hostile takeover bid from Westside Corporation Limited, a wholly owned subsidiary of Landbridge Group Co Ltd, a Chinese owned company. The offer is highly opportunistic and was delivered in the midst of Armour’s rebuilding strategy. The offer is conditional on the AEP deal not proceeding, which in my view underlines the desirability of those assets and the value of the AEP deal to Armour. Accordingly, we urge you to take no action in relation to the offer at this time. Armour will separately write to you in relation to the bid.
I would like to take this opportunity to acknowledge the efforts and dedication of my fellow Directors and the Company’s former and current staff during a challenging period within the industry. I remain confident that the Company faces an exciting period ahead. Once again I wish to thank you, as Armour’s Shareholders, for your support and faith in our ability to ultimately deliver on Armour’s strategy to emerge as a significant Australian gas production company.
Cheers
GF
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