JOINT COMPANY DEAL TO DEVELOP PLANT FUELLED BY SYNGAS Sydney -...

JOINT COMPANY DEAL TO DEVELOP PLANT FUELLED BY SYNGAS

Sydney - Tuesday - September 7: (RWE Aust Business News)
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OVERVIEW
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Carbon Energy Ltd (ASX:CNX) has executed a power station
development agreement with Arcadia Energy Trading that will result in the
development of both a 25MW and a 300MW power station fuelled by syngas
in Queensland.
Key terms include:
* Arcadia will enter long-term power purchase agreement to buy
the electricity produced by Carbon Energy's 25MW power station at
Bloodwood Creek;
* Upon Carbon Energy obtaining a mining lease for Bloodwood
Creek, Arcadia will purchase the 25MW power station from Carbon Energy
and enter a long-term gas supply agreement, subject to certain
conditions being met; and
* Carbon Energy and Arcadia will partner in the development of
Carbon Energy's 300MW power station at its proposed Blue Gum Energy
Park, adjacent to the Bloodwood Creek coal resource.
Carbon Energy is currently progressing plans for the staged
development of a number of power projects based on syngas produced from
its underground coal gasification (UCG) project in Queensland:
* Stage 1 - 5MW power station is currently in the final stages of
construction and commissioning at the company's Bloodwood Creek site,
with the electricity generated to be connected into the local electricity
grid and initially to be sold to Ergon Energy;
* Stage 2 - 25MW power station is in development, to be located
at the company's Bloodwood Creek site; and
* Stage 3 - 300MW power station is in planning, to be located at
the company's 'Blue Gum' property, located adjacent to the Bloodwood
Creek coal resource.
The power station development agreement provides a framework for
Carbon Energy and Arcadia to progressively develop the Stage 2 - 25MW
power station and Stage 3 - 300MW power station based on UCG syngas from
Carbon Energy's Bloodwood Creek coal resource near Kogan.
"This agreement is a significant development for the company as
it represents a clear development path for our Stage 2 and 3 power
generation projects," said Carbon Energy's managing director, Andrew
Dash.
"Additionally it presents the opportunity for Carbon Energy to
work with an experienced and successful energy trading company which
provides complementary market knowledge and financial capability, both of
which will assist in the successful progression of Carbon Energy's
development plans."

SHARE PRICE MOVEMENTS
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Shares of Carbon Energy yesterday rose 4.5c to 46.5c. Rolling
high for the year is 88.5c and low 29c. The company has 608.4 million
shares on issue with a market cap of $283.4 million.
Major corporate and institutional shareholders include Incitec
Pivot Ltd 11 per cent, Pacific Road Resources Fund 5.1 per cent, Pacific
Road Investor 4.9 per cent and the CSIRO 4.8 per cent.
Arcadia's general manager, James Garland, said the agreement with
Carbon Energy is the first step in Arcadia's plans to move from a pure
electricity trading position into a physical power business in the
Australian market.
"Since 2007, Arcadia Energy Trading has built a significant
energy trading portfolio with a wide range of Australian counterparties,"
Mr Garland said.
"We are looking to build on this by taking a physical position
through ownership of power generation capacity.
"The partnership with Carbon Energy offers both companies the
opportunity to deliver staged energy developments in an achievable time
frame," he said.
Arcadia Energy Trading is affiliated with UK-based Arcadia
Petroleum and is part of the Farahead Holdings group of companies owned
by Norwegian shipping magnate John Fredriksen that comprises a portfolio
of companies including Golar LNG Ltd, Arcadia Petroleum Ltd, Frontline
Ltd and Seadrill, with a market capitalisation in excess of $US11
billion.
Arcadia Petroleum itself has access to over $US4 billion in lines
of credit.
Arcadia will initially enter into a long-term power purchase
agreement to buy all the electricity produced form Carbon Energy's 25MW
power station, to be located adjacent to the company's existing 5MW plant
at Bloodwood Creek.
The power purchase agreement is expected to be executed by the
end of November.
Carbon Energy will develop the power station and related
infrastructure works initially for a capital cost expected to be between
$30-$35 million.
It is intended that Arcadia will acquire the power station once
Carbon Energy has secured longer-term tenure over its coal rights in the
form of a mining lease and subject to some commercial conditions being
met.
Carbon Energy would then supply syngas (under a long-term gas
supply agreement) to Arcadia as owners of the power station.
At the Blue Gum Energy Park, it is intended that Arcadia will own
the 300MW power station, estimated to cost approximately $350 million to
develop, and be the first customer to enter into a long-term gas supply
agreement.
A 300MW power station fuelled by syngas would require initial
field development by Carbon Energy of approximately $100 million in
capital expenditure, backed by a gas supply agreement.
Carbon Energy purchased the 517 hectare Blue Gum property in
January 2009 as the site for its planned industrial and energy park.
The company said its ability to provide both low-cost syngas and
power at this location provides an attractive basis for energy intensive
and chemical manufacturing industries to co-locate at this site, bringing
value added industries and jobs to regional Queensland.
This major development will be subject to Carbon Energy obtaining
a mining lease and associated approvals from the Queensland Government
including a satisfactory outcome from the technical and environmental
review of UCG as outlined in the Queensland Government's announced UCG
policy.
The Australian Energy Market Operator (AEMO), in its annual
Statement of Opportunities published on August 31, highlights that
Queensland may have a shortfall in power station reserve capacity of over
700MW in 2013/14.
Mr Dash said that Queensland is forecast to have the largest and
earliest shortfall in electricity supply of all States in Australia,
making Carbon Energy's planned 300MW power station a part of the solution
to the State's future electricity security requirements.
"Carbon Energy's cost of production of syngas will be lower than
that of other sources of gas in Queensland and will have a smaller carbon
footprint than traditional coal fired generation," he said.

About Carbon Energy
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Carbon Energy's purpose is to produce clean energy and chemicals
feedstock from UCG syngas.
Carbon Energy's unique approach to UCG and syngas production
produces a low-cost option for capturing carbon dioxide making it a
leader in clean coal technology.
Carbon Energy's ambition is for syngas to become the preferred
feedstock for creating clean coal power stations, and the production of
synthetic natural gas, an alternative to oil-based fuel, agribusiness
products (fertilisers and explosives), polyolefin products (such as
plastics) and allowing for economic carbon capture.
Carbon Energy's technological advantage comes from its
association with the CSIRO including world class geotechnical,
hydrological and gasification modelling capabilities.
Carbon Energy is building an international portfolio of coal
assets, suitable for UCG with close proximity to markets.

About Arcadia Energy Trading
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Arcadia Energy Trading is a wholesale commodity trading company
with specialist electricity, oil and environmental business streams.
Arcadia Energy Trading's activities include:
* The provision of structured electricity risk management
products to the Australian power sector;
* The purchase and supply of Australian federal and state-based
environmental energy certificates;
* The purchase and supply of certified emission reduction units
(CERs) in Europe and Australia;
* The supply of physical fuel oil and diesel to Australian and
Asia-Pacific customers; and
* The provision of oil price risk management products to a range
of power generation and transport companies.
Arcadia Energy Trading is undertaking due diligence on a range of
asset and infrastructure investments to support and grow its portfolio of
energy and environmental business activities.
Arcadia Energy Trading is a wholly owned subsidiary of Farahead
Holdings Limited and part of a group of energy and shipping companies
including Golar LNG Ltd, Arcadia Petroleum Ltd and Frontline Ltd

Meanwhile, Carbon Energy has begun legal proceedings in the
Supreme Court of Queensland against a power station contractor, Alexware
Consulting Pty Ltd, trading as Pangea Partners International, and John
Wedgwood, a former Carbon Energy employee.
Pangea was the contractor originally engaged to build and
commission Carbon Energy's 5MW power station.
This legal action is in relation to what Carbon Energy claims are
serious irregularities in the performance of the contract and
accordingly, Carbon Energy will be seeking damages.
Carbon Energy has suspended the contract with Pangea and has
exercised its right to step in and complete any work it deems appropriate
by way of variation to the contract.
The legal proceedings will not affect the revised timetable for
completion of the project.
The damages being sort are not material to the ongoing funding of
the company's activities.