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Enterprise Metals Shares Soar 54% On Fraser Range Exploration Success

Liquefied Natural Gas Limited (ASX: LNG) has seen recent progress being made towards securing gas supply for its planned 3 million tonne per annum (MMtpa) Fisherman's Landing LNG Project in Gladstone, Queensland.

Of particular importance is the Australian Foreign Investment Review Board's approval for Molopo Energy (ASX: MPO) to sell its Bowen Basin coal seam gas assets in Queensland to PetroChina Australia, which has an agreement to work with LNG to secure sufficient gas for the Fisherman's Landing project's first 1.5 MMtpa liquefaction train.

The transaction now requires the approval of China's National Development and Reform Commission, which Molopo expects by the end of September 2012.

PetroChina is one of the world's largest oil and gas companies with experience and expertise in coal seam gas.

While the Letter of Intent is non-binding, Molopo's permit areas have the capacity, based on independent assessments, to produce and deliver up to 65 terajoules of gas per day.

This represents about half of the minimum gas delivery volumes required for a Final Investment Decision to be made on the first liquefaction train though it is subject to the agreement of Mitsui E&P Australia, which holds about 33% interests in the permits.

Adding to this is the New South Wales Government's announcement of new policies and regulation in relation to coal seam gas exploration and development in the state.

While oil and gas industry body the Australian Petroleum Production & Exploration Association (APPEA) warned the tougher regulations will cause project delays and increases costs, it acknowledged that it did allow the coal seam gas sector to start investing in the State.

This gives Metgasco (ASX: MEL) the clarity to structure and implement its future development plans. LNG Limited is Metgasco's largest shareholder, with a 10.2% shareholding.

Metgasco has also been granted renewal of its Petroleum Explorations Licences 13 and 16 as well as its first Petroleum Production Lease.

LNG Limited has a memorandum of understanding with Metgasco for the supply of 90 terajoules of gas per day that could be supplied via the Metgasco proposed Lions Way Pipeline that is planned between Casino in northern New South Wales and Ipswich in southern Queensland.

Metgasco potentially obtaining the green light to progress its NSW coal seam gas assets is also of interest as it could provide a potential supply of gas for LNG Limited in the future, possibly for the second or further expansion trains.

PetroChina agreement

Besides working together with LNG on securing gas for the first liquefaction train at Fisherman's Landing, PetroChina will also consider acquiring prospective gas assets and permit interests as well as reach gas supply arrangements with gas owners in Queensland.

These will then be subject to potential Tolling Agreements with LNG Limited for the subject gas to be delivered to Fisherman's Landing for liquefaction, storage and loading onto LNG ships arranged by PetroChina or PetroChina's designated LNG buyer.

LNG Limited and PetroChina are currently negotiating Tolling Agreement, under which LNG Limited will receive a fixed Capacity Reservation Fee and Tolling Fee, covering the Bowen Basin coal seam gas assets.

These assets are located just 150 kilometres from Gladstone and hold proved, probable and possible gas reserves of 812 petajoules net to Molopo.

WestSide Corporation

LNG Limited is also carrying out due diligence on WestSide Corporation (ASX: WCL) for a potential acquisition.

It had earlier this year made a indicative, conditional and non-binding proposal to acquire WestSide for a cash consideration of A$0.65 per share.

Westside has since granted LNG Limited and its associated parties non-exclusive access to conduct due diligence.

Westside had produced gas at an average rate of 11.4 terajoules per day during the June quarter from its Meridian SeamGas project in Queensland though its targeting production of 25 terajoules per day by the end of 2012.

This will put it well on its way towards its target 60 terajoules per day production to match pipeline infrastructure.

Fisherman's Landing

The Fisherman's Landing LNG project uses LNG Limited's OSMR process to produce LNG. This is based on a proven simple single mixed refrigerant system with the addition of conventional combined heat and power and ammonia refrigeration technology to enhance plant performance.

LNG Limited believes this could halve plant cost while producing lower carbon emissions.

This, together with the its plant modularisation and construction strategy is expected to improve project economics.

Each liquefaction train requires 260 terajoules of gas per day to produce 1.5MMtpa of LNG though the company's OSMR technology and lower capital costs will allow the train to be commissioned on just 65 terajoules per day and is capable of being economically viable at half its capacity.

China Haunqiu Contracting & Engineering Corporation, LNG Limited's largest shareholder (19.9%) and with ties to PetroChina, is currently preparing an engineering, procurement and construction proposal for the project.

Analysis

PetroChina's acquisition (and green light by FIRB) of Molopo's Bowen Basin coal seam gas assets is a quantifiable benefit to LNG Limited.

While the assets are currently assessed as being capable of producing just a quarter of the gas needed to operate one of the 1.5MMtpa liquefaction train at full capacity, it takes the company halfway to the minimum 130 terajoules per day it needs to make a Final Investment decision.

Further exploration and development work by PetroChina could further increase reserves and production of the Bowen Basin assets while the Chinese giant could also acquire additional assets to further increase output towards the required levels.

LNG Limited's proposed takeover of WestSide offers another route towards meeting this minimum gas supply level. With existing production and plans to take output up to 60 terajoules per day, the addition of WestSide's supply will take the company within grasp of the making the investment decision.

Given the participation by PetroChina we would be confident that a way forward will be found to gain sufficient supply of gas.

There is also a possible misconception as to LNG's role. Under the tolling agreement with PetroChina, LNG will not own the gas or be responsible to market the LNG that is produced by the Fisherman's Landing plant.

The building blocks are moving closer for a final investment decision by LNG. At this stage, we would expect the LNG share price to be significantly higher than the current $0.32, creating a current opportunity for investors.

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