perfect pennant, page-3

From Ballieu Research 3 June 2011 (can be found on MEL's website under broker reports)


LNG opportunity
?? The only end market that has the potential to realise the full value of Metgasco’s huge gas resources is Asian LNG. The maximum value of Metgasco’s resource base is achieved at an annual rate of production of more than 50 Pj a year and production on this scale is only possible with an LNG off-take agreement.
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Metgasco’s gas resource is of a scale that it would provide sufficient gas – at the very least – to cover half the needs of a 4 mtpa LNG export facility. The volume of gas required in that scenario is approximately 112 Pj net (or 128.8 Pj gross, including gas used in production and transport). Production on that scale would require about 1,000 wells in production, an upstream investment of the order of circa $3 billion (including gas processing plant and compression).
E.L. & C. Baillieu Stockbroking Ltd ABN 74 006 519 393 www.baillieu.com.au Please read the disclaimer at the end of this report. Page 7
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Previously Metgasco has talked about being involved in a standalone LNG project, with development options including Fisherman’s Landing (Gladstone), the Port of Brisbane or floating LNG based off the north coast of NSW. While participating in greenfield LNG projects may offer higher economic returns over the very long run, they are not the only LNG monetisation options available.
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Most LNG projects need two or three trains to achieve excellent rates of return and yet three of the four projects currently planned for Gladstone lack sufficient gas to build two-train (2x4mtpa) facilities. However, most of these projects can become two-train projects with the volume of gas that Metgasco’s resources are capable of supporting.
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To participate in an LNG project Metgasco does not need to become an owner in the LNG train itself. There is no reason why Metgasco could not pay a simple tolling fee (as is common in other parts of the world where third-party gas is used in LNG production) to the plant owner to deliver an economic return. For the purposes of our financial modelling we have assumed that Metgasco is a pure upstream supplier to an LNG plant and pays a tolling fee that equates to 22 percent of the gross market price of LNG sold. In this scenario, instead of receiving the full LNG price of US$10.55/Gj, Metgasco would receive $7.25/Gj after tolling and pipeline charges.
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While to some Metgasco would be seen as “missing out” on some of the spoils of LNG production by being a mere third-party supplier to a LNG production syndicate, the “second prize” would be revenues of approximately $800 million a year. For Metgasco, winning second prize would be a sweet victory indeed.