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Sugarloaf AMI
AWE’s investment in the Sugarloaf shale gas project in the USA has been a success for the Company. At the time, it represented a significant investment for AWE in a new and developing business.
AWE acquired a minority equity interest in Adelphi, as part of the 2008 merger with Arc Energy Limited. In 2008, Adelphi acquired an interest in the US shale gas industry in a largely unknown play called the “Eagle Ford Shale” in southern Texas. Initial exploration drilling was undertaken during 2008 and 2009, which AWE supported through additional capital investment. Based on the assessment of the public data, AWE made a takeover offer for Adelphi in May 2010 which valued Adelphi at $75 million. At that time, the proposed takeover was considered, by a part of the investment community, to include significant risk.
AWE completed the takeover of Adelphi in September 2010 and subsequent drilling of the acreage during 2010-11 has delivered commercial production and increased the Company’s 2P reserves by 8.5 million BOE at 30 June 2011. Development drilling is planned to continue for a number of years, targeting increased production and development of AWE’s 8.7 million BOE of additional Contingent Resources. More recently, we have seen larger upstream oil and gas companies, including Marathon Oil, complete major acquisitions of acreage in the region at comparative prices well above the initial acquisition cost for AWE.
The Sugarloaf acquisition has provided AWE with a valuable investment in the relatively new unconventional gas industry. The Company is leveraging the technical knowledge and experience it is gaining from Sugarloaf and applying this to its shale gas and tight gas project in the onshore Perth Basin and to initial joint study opportunities with the government in onshore Indonesia. The investment is a good example of managing risk and delivering value for shareholders in the energy industry.
BassGas Project
The BassGas Mid Life Enhancement (“MLE”) project is a major development investment for AWE. The company holds a 57.5% interest in the project and AWE’s share of development expenditure during 2011-12 is forecast to be approximately $135 million.
The MLE Project was planned as part of the original BassGas development and will be undertaken in two phases over the next two years. Phase 1 involves the construction and installation on the existing platform of gas compression and accommodation modules, scheduled for the end of 2011. Phase 2 will include the drilling of at least two additional gas production wells on the Yolla Field during 2012-13.
Once completed, the BassGas facilities will be capable of producing the remaining reserves of the project over an asset life extending well past 2020. with gas compression and additional production wells, the platform facilities will be capable of producing at rates well above the current rate of approximately 50 tJ per day.
During the MLE Project, AWE will be pursuing additional value from BassGas through evaluation of oil discovered in the Upper EVCM sand in the Yolla Field which could be developed during Phase 2 MLE. With the forecast strengthening in Australian east coast gas prices over the next few years, additional potential value for AWE also exists in the sale of uncontracted gas beyond 2017 and the potential development of the neighbouring trefoil and white ibis discoveries in that time frame.
The BassGas Project has the potential to continue to deliver significant production and cash flow to AWE over the next two decades.
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