nexus and shell agree on terms to extend crux

FYI - Felow holders!

Nexus and Shell agree on terms to extend Crux rights
Matt Chambers
From: The Australian November 26, 2010 12:00AM

NEXUS Energy and Shell have agreed on a three-year extension on its rights to the $1 billion Crux liquids project off Western Australia.
As part of the deal, Nexus Energy chief executive Richard Cottee plans to use as leverage to sell up to a 45 per cent stake in the project.

The Melbourne-based company said it had agreed to commercial terms with Shell for the $130 million of an option to extend its right to extract the field's liquids (light crude oil) until December 2023.

Under the complex petroleum licence agreement for the Crux field, Shell currently has the right to extract the gas after 2020, which is not seen as enough time for Nexus to comfortably get out the liquids.

Speaking after the company's Melbourne AGM yesterday, Mr Cottee said Nexus was keen, but not desperate, to sell down its 85 per cent stake in Crux to somewhere between 40 and 75 per cent.

He said several companies were doing due diligence on the project.

Mr Cottee said Nexus would always remain the biggest stakeholder in the project -- meaning he would have to sell down to more than one party if Nexus was to go to 40 per cent.

A sale would be desirable, he said, because it would reduce the risk of Nexus owning 85 per cent of such a large project.

But Mr Cottee stressed that if the company could not get the right price, he would be prepared to raise equity, through a rights issue or share placement plan, for the 40 per cent equity funding he expects the project will require.

Mr Cottee said about 60 per cent of the cost would be debt-funded. Nexus said the project would generate about $1bn in petroleum resource rent tax for the government at $US80 a barrel, indicating total revenue of about $2.5bn.

Shares in the company, which are up 85 per cent since Mr Cottee joined in May, slipped 2.5c, or 5 per cent, to 50c yesterday.

Deutsche Bank analyst John Hirjee said the three-year extension was a positive for the project but he was surprised by the royalties and payments needed to secure it.

Under the deal, Nexus has agreed to pay Shell an upfront fee of $US675,000 when it is finalised and an extra $US34.325m on a final investment decision, which is targeted for next calendar year.

Shell will also take a 3.5 per cent royalty which, based on current oil prices, would net about $93m.

Nexus chairman Michael Fowler said the three-year extension was necessary to meet the conditions for financing.