Ann: Testing Operations Update - Ungani Far West 1, page-303

See extract from Quarterly Report below.

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Quarterly Report Period ended 30 June 2015
Corporate
Alcoa gas sales contract
Discussions with Alcoa in relation to the gas sales agreement between Buru Energy and Alcoa have now been concluded. The original agreement between ARC Energy and Alcoa was entered into in 2007. The gas sales agreement was for ARC Energy (subsequently Buru Energy) to supply up to 500 petajoules of gas to Alcoa at a gas price that reflected the long-term commitment between the parties and the realities of the Western Australian gas market in 2007. Under the terms of the original agreement, Alcoa made a $40 million prepayment for gas which was to be repaid if a final investment decision (FID) to supply gas did not occur by agreed dates. The FID date for the gas project has been extended a number of times, and was recently extended to 31 July 2015 to allow discussions between the parties to be finalised. 5
As part security for the potential repayment obligation if FID was not reached by the agreed date, Buru Energy subsequently placed $20 million into an escrow account which currently, with interest and agreed withdrawals, contains some $22.3 million. Given Alcoa's recent alternative gas supply arrangements and the evolution of the gas market since 2007, the current agreement under which Buru Energy essentially had the ability to "put" 500 PJ of gas to Alcoa is no longer appropriate for Alcoa’s requirements. The parties have therefore agreed to terminate the current gas sales agreement and to a staged repayment of the gas prepayment funding.
However, the parties will continue their relationship in regard to gas supply, and Alcoa will retain a right to purchase up to 100PJ of gas at market related pricing and terms subject to Buru Energy undertaking a gas development that delivers gas into the Dampier to Bunbury Natural Gas Pipeline.
The company currently has in excess of $40 million in cash (excluding the escrow funds). Under this revised agreement the termination of the current contract will lead to the repayment of the gas pre-payment under the following terms, which mean that the first repayment of funds outside of the escrow funds will not be required for two years, in mid-2017.
(a) $15 million to be paid on 4 August 2015 from the existing ~$22.4 million of funds in the escrow account. The remaining funds in the escrow account will be used to pay for Buru Energy’s share of the TGS15 tight gas exploration program;
(b) $12.5 million to be paid on 30 June 2017; and
(c) $12.5 million to be paid on 30 June 2018, subject to certain financial criteria being met from December 2017.
Gas market dynamics
The Company is currently undertaking an independent review of the Western Australian gas market. Preliminary results suggest the potential for much higher prices to be achieved than those contained in the original Alcoa contract. There is also substantial potential for markets in the Pilbara which would provide significantly higher rates of return than delivering gas into the southwest of Western Australia, and the company is actively assessing these opportunities.
The Company is also assessing opportunities to supply gas in the Kimberley for use in power generation, transportation, and petrochemical (methanol) production. These projects have been subject to analysis by the Company over a number of years and have the potential to create considerable value for local communities and the wider region. Buru Energy has also identified a number of conventional gas opportunities in addition to its world-scale tight gas project and intends to pursue these aggressively in the next drilling season.