fact or fiction, page-79

I am enjoying all of the knowledgeable posts here of late and am excited about MEO's short term potential. There is a lot riding on the results of next 4-6mths, but fortune favors the brave sometimes and none of us would be hear if we didn't like the risk/ reward profile the company offers. Here's an article I found on TS from some time ago, its a good read. All the best to holders....

Wednesday, 30 November 2005

A SERIES of concrete islands planned for the tropical waters off the Northern Territory coast are capable of creating an investor's paradise, according to Methanol Australia (MEO) managing director Chris Hart. By CHRIS CANN RESOURCESTOCKS*

MEO was born in 2001 when Timor Sea Petroleum, via Natural Gas Australia, divested its interest in the Evans Shoal gas field joint venture with Shell to Santos, becoming an offshore mid-stream gas-to-liquids company. MEO plans to produce methanol initially, and liquefied natural gas eventually, from an operation in the Tassie Shoal area.

Tassie Shoal lies in shallow water about 275km north-west of Darwin in the Australian Timor Sea waters.

MEO couldn't justify the risks associated with floating methanol and LNG production units, so it decided on concrete islands grounded in shallow water with processing facilities laid out similarly to an onshore plant.

Methanol and LNG projects will one day sit side-by-side at Tassie Shoal, processing gas from regional reserves that Hart says could last more than 50 years.

The original plan was for just the methanol operation to be co-developed by MEO's 50-50 joint venture partner Air Products and Chemicals, with the plant to be fed by the carbon-dioxide rich gas from the Santos-operated Evans Shoal gas field.

But MEO's move on to the adjacent ground in exploration permit NT/P68 brought with it the potential for gas suitable for an LNG project as well as further methanol production possibilities.

The two major drilling prospects in NT/P68 – Seahawk and Epenarra – will be targeted with the same well around April next year. MEO has secured a drilling slot on the semi-submersible Stena Clyde rig.

"The acreage next door (NT/P68) has several large, gas-bearing structures on it, one of which has been tested by the Heron-1 well and confirmed as a gas-bearing zone," Hart said.

"We now have to prove the reserves and gas quality, and show that it can be commercially produced."

Heron-1 – drilled by Arco in 1972 – returned strong gas shows that almost disabled the rig because of severe gas over-pressure.

"NT/P68 potentially offers gas specifically for the LNG project," Hart said.

"But the deeper Plover Formation features – the Heron North and South structures – are on trend with Evans Shoals, and some would argue they're the western extensions of Evans Shoal. They are likely to be the same high CO2 gas that Evans Shoal has – very suitable for methanol production."

MEO is looking for a farm-in partner to drill the wells and earn equity in the permit and the LNG project. Several international corporations have shown interest, including India's National Thermal Power Corporation.

A follow-up is to drill the Heron South feature at the end of 2006 if a rig is available.

Success in either program could catalyse construction of the Tassie Shoal projects, which may fuel other developments in the eastern Timor Sea.

Once in production, the projects could hardly be better positioned.

"We're sitting on top of the gas," Hart said.

"We don't have to pay $US350m plus to pipe gas to Darwin and we're very close to the north-east Asian markets for methanol and LNG.

"We're about half the sailing time for our export tankers to supply north-east Asia, compared to product from the Middle-East. And we're about a third of the sailing days compared to supply from Chile. So there's a huge freight cost advantage."

So far the islands and plant facilities have required plenty of planning and will also need considerable funding. But MEO has secured strategic alliances with large international corporations, such as Air Products, and had success in traditional project financing.

Each island will be about 165m by 85m at the base and 176m by 97m at the deck.

They will be built in South-East Asia, then towed to the Tassie Shoal to be positioned over a prepared site and grounded by flooding their outer cells with seawater.

Additional solid ballasting will provide the required on-bottom weight needed to resist storm-wave loads.

The methanol project received its Commonwealth environmental approvals in December 2002. Establishment of the first methanol plant will precede the LNG project and cost about $950 million.

"Obviously the cap-ex is somewhat lowered by building in South-East Asia, but there are some cost penalties because we have to buy our real estate in effect – the concrete bases," Hart said.

"But the concrete gravity structures also give us low-cost access to the export jetty, provide all product storage, and give the foundation to site the methanol plant."

Hart said the conventional steam methane-reforming process MEO and Air Products plans to use is hugely receptive to high-carbon-dioxide natural gas, further reducing expenditure.

"When CO2 is around 25% of the gas, you're actually getting a whole bunch of carbon atoms coming into your reformer, which balances with the excess of hydrogen," he said.

"This results in about a 30% reduction in the size of the reformer while still producing the same amount of methanol.

"The heart and soul of a methanol plant is the natural gas reformer that makes up about 40% of your cap-ex. Reducing that cost by 30% is the real advantage in having high levels of CO2, so we're really attracted to the CO2 in either Evans Shoal gas field or from the Heron structures."

Two methanol plants are planned to each have a 5000 tonne per day methanol production capacity. The first plant is to be commissioned and operational as early as 2010.

The second island and methanol plant, along with the supporting gas production facilities, would be installed about four years later, raising the total methanol production to 10,000 tonnes each day or 3.45Mtpa.

The methanol operation could generate export revenue in excess of $1.1 billion a year based on current prices.

Environmental approvals for the LNG production plant adjacent to the methanol plants were granted in 2004 but costing and timing are subject to ongoing studies and confirmation of suitable gas in NT/P68.

Assuming a seamless path through project development, the processing plants would take advantage of strongly growing markets, particularly in north-east Asia, according to Hart.

Methanol is used as a chemical industry feedstock in making paints, resins, plastics, adhesives, silicones, solvents and window cleaners. It is also becining recognised as a highly efficient, low-emission fuel replacement for gas turbine electricity generation and emerging fuel cell technologies.

Hart forecast further increases in demand for methanol with clean air legislation throughout Asia, Europe and the US becoming more stringent.

Chrysler and Mercedes have introduced domestic cars using methanol-based fuel cell technologies with most other manufacturers expected to follow suit by 2007.

Hart said the forecast demand for methanol had "noticeably" outweighed current levels and predicted that methanol prices would maintain their current levels.

He described gas as the fastest growing component of primary world energy consumption, with natural gas to remain the fuel choice for electricity generation because of increasing concern for environmental considerations.

"We see a lot of growth for the company to be a really significant player in not only methanol but in LNG production," Hart said.

Methanol Australia…at a glance

HEAD OFFICE
Level 25, 500 Collins Street
Melbourne Vic 3000
www.methanol.com.au

DIRECTORS
Warwick Bisley, Chris Hart, Walter Dewé, Andy Rigg, James Willis

MARKET CAPITALISATION
$21 million

MAJOR SHAREHOLDERS
Santos Ltd 14.7%
Doravale Enterprises 10.4%
E G Albers 6.9%

*This profile, first published in a different form in ResourceStocks, was commissioned by Methanol Australia