2nd UPDATE: Arrow Energy Confirms It's Mulling Funding Options
February 01 2010 - 9:59PM
Dow Jones News
Arrow Energy Ltd. (AOE.AU) said Tuesday it is considering a
number of options to fund the proposed liquefied natural gas
terminal at Fisherman's Landing in Queensland state, including
sourcing more debt, issuing new shares, or selling down part of its
interest in the project.
The company didn't provide cost guidance for its share of the
LNG plant's development, other than to provide a A$1.32 billion
cost estimate for expenses relating to the production of feed gas
for the project and a pipeline from Arrow's gas fields to the
plant.
Arrow has a strong balance sheet, having sold a chunk of its
coal seam gas acreage to Royal Dutch Shell PLC (RDSB.LN) in 2008,
but LNG projects cost a lot of money to build and Arrow last month
raised its stake in the Fisherman's Landing development.
Brisbane-based Arrow restructured its agreement with Liquefied
Natural Gas Ltd. (LNG.AU) and will now own the LNG produced from
the first processing train of the plant. It also said it plans to
take an up to 100% interest in the first train, and a 30%-49%
interest in the plant's other infrastructure.
Merrill Lynch estimates that two, 1.5 million metric ton a year
production trains could cost around A$2.1 billion to build. It has
also estimated that the project's entire upstream and pipeline
costs could reach around A$2.9 billion.
Arrow said Tuesday that any share issue would likely be
"predominately entitlement based", which may have helped its shares
to rise 3.9% to A$3.69 by 0320 GMT, having fallen 9.7% on
Monday.
The group was responding to a share price query issued by the
Australian Securities Exchange, prompted by Chief Executive Nick
Davies telling Dow Jones Newswires on Monday that the company had
asked advisors to examine ways to raise funds.
Arrow confirmed Tuesday that by making a final investment
decision on the Fisherman's Landing project it will trigger a
previously agreed payment from Shell of US$133 million.
A final investment decision is still expected to be made by
March 31, it said.
Merrill Lynch analyst Mark Hume, however, warns of potential
delays.
"Given the recent restructure of the project we believe this now
represents a stretch target and would not be surprised if this
decision were deferred," Hume said in a client note.
"This in our view could place pressure on the share price and
could provide a more attractive entry point for long-term
investors."
Hume has initiated his coverage of Arrow with a neutral
recommendation and A$4.31 price target. He said takeover
speculation is clouding Arrow's valuation, but said it's unlikely
an offer from Shell will emerge with Arrow's share price as high as
it is today.
Credit Suisse analyst Andrew William kept an Outperform rating
on the stock and said he doesn't believe a share issue will be
necessary to fund the first train at Fisherman's Landing. "We do,
however, acknowledge that the full expansion options will leave
Arrow capital-constrained," Williams said in a client note.
Arrow also said Tuesday that it expects earnings before
interest, tax, depreciation and amortization before one-off items
for the six months to Dec. 31 of between A$10 million and A$12
million, compared to the previous corresponding period's A$5.5
million.
-by Ross Kelly, Dow Jones Newswires; 61-2-8272-4692;
ross.kelly@dowjones.com
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