Shaun welcome to FNN. You just sold you stake in Pure Energy to BG Group for $215 million. Did the economic slowdown have any bearing at all on the decision? Or do you have plans for the money?
Shaun Scott: I don’t think the economic situation we’re in at the moment had a big impact on the decision, but clearly having that amount of cash coming in versus the cash and dilution that would have come with being successful or continuing on in that process to acquire Pure was a consideration. And at the end of the day I guess, while we like the Pure assets and we saw a place for them in our portfolio, hence the reason we made the investment originally, it is just more of what we’ve already got a lot of in terms of good quality coal seam gas acreage. Having those funds and being able to deploy them into other things is positive, and as you’ll know we just recently announced that we signed an agreement with Beach Petroleum to acquire a 40 per cent interest in the Tipton West fields and surrounding exploration acreage that we already own the majority of and operate as well so quickly we we’re able to find a good use for the funds.
Clive Tompkins: Notwithstanding Shell’s $700 million investment in Arrow, resource projects require a massive commitment over many years. Will Arrow require additional investment to fund its LNG projects?
Shaun Scott: I mean we are certainly looking at all the options for financing the development strategy that we’ve got going forward, and you’re absolutely right these are big capital intensive projects that will take a long period of time to develop and clearly the pay back, you know once we do develop them, will be significant and the cash flow that will be generated will be a lot. So there is light at the end of the tunnel from that perspective with the money we’ve got from Shell and the Pure Energy funds that have come in. We have enough funding really to see through our current program for the next couple of years to get us forward, but as I say we are looking at a range of different options around how we might finance the development spending we’ve got – particularly the infrastructure pieces, so there’s pipelines, and then in terms of the downstream side as well, you know, looking at perhaps more traditional types of financing through banks, but all those options are being considered at the moment.
Clive Tompkins: Arrow’s Australian operations involve the sale of electricity into the Queensland grid and the development of downstream projects to facilitate the export of LNG. What percentage of revenue do you get from electricity?
Shaun Scott: Right now it represents the majority of our revenue stream – probably in the 80, 70 to 80 per cent range. And I guess at the end of the day what we’re really trying to do with LNG is very similar to what we’ve been doing with the power generation side, we’re a coal seam gas company, we’ve got a huge resource of gas there, really trying to find ways to monetize that, and realize the best price for energy. And so in terms of the generation side, it’s valuating on those gigajoules before we sell them, rather than just being a wholesaler of gas to someone else who’s going to you know strip that value out and therefore facing a different market. And obviously with generation and gas fire generation in particular, as we move now into the CPRS – the Carbon Pollution Reduction Scheme, and more emphasis on that side. Gas fire generation is going to play a bigger and bigger role and they all talk about gas fire generation is a transitional fuel – not sure quite what we’re transitioning to just yet, but we’re certainly happy to be more involved in that, and where there are projects that can be linked to our gas resources, generation projects, we’re certainly interested.
Clive Tompkins: Turning to your LNG projects, when do you anticipate your first export?
Shaun Scott: We certainly, for our Fisherman’s Landing project, which is the first one we’re working on now, we’re targeting first LNG in 2012 - still on track for that. Obviously a lot of work to be done between now and then, a lot of parallel activities that are going on at the moment, a lot of stuff that we’re doing, Arrow’s doing on the upstream, pipeline routes and so on, on the midstream, and then in conjunction with LNG Limited work that’s going on, on the downstream that hopefully at the end of this year or early next year will all come together and we’ll tick all the boxes and get ourselves into the starting blocks and start executing the project and be ready to go in 2012.
Clive Tompkins: Looking at your financials, excluding non-operating items which includes the Shell deal, total revenue was $48.2 million up 71 per cent on the same period last year, what were the drivers?
Shaun Scott: The primary driver for that change was really around the Enertrade acquisition, so we acquired Enertrade’s assets up in Townsville which includes the Townsville power station, and so through that we were able to face the electricity market for those gas volumes that previously we were just selling as a wholesaler of gas, so that had a big impact and that will continue to be positive for us. Also I think just the continued ramp up of our projects, so a lot of them were in sort of starting phase a year or 18 months ago and now are starting to get to their full contracted volumes, so that continued sort of growth will happen. We’ve got some new projects creating at the moment, about to complete on the Bremer 2 power station project which will start commissioning, or is commissioning at the moment, should be fully operational by the middle of the year and that will start to add to next year’s earnings and hopefully continue that growth until we get to the Fisherman’s Landing decision and then that will form sort of the next leg of our major growth.
Clive Tompkins: For those outside the industry, coal seam gas appears to have come from nowhere, how long has Arrow been exploring?
Shaun Scott: So Arrow was formed in 1998, but the bulk of the coal seam gas portfolio that they’ve got now probably put together about eight years ago, I’ll say seven or eight years ago, and been I guess pretty actively looking at coal seam gas projects for that period of time. Our first actual project was up and running in late 2004, so five years ago almost. The interesting thing about that, and I worked on that project sort of putting it together, you know the technical work had been done, took us about two years to get the commercial arrangements together so a lot’s changed obviously since then, but given it was probably the first commercialization of coal seam gas from the Surat Basin, you know there was a lot of doubt, a lot of skeptics and so it was an important step to I guess prove that commercially it could all work and that there was potential for it to be, hopefully it will be in the next few years as we move into LNG.
Clive Tompkins: What is the estimated size of the resource in Queensland?
Shaun Scott: There’s varying estimates but I think that probably the most relevant concept for people is that the estimate is that the resource size in Queensland is the same as the North West Shelf size wise, I mean obviously coal seam gas versus conventional and different conditions and so on, but you know I think that is a pretty good comparison that’s pretty relevant. For Arrow in terms of our own tenements we have about 70 TCF of gas as a resource potential on our acreage, in gross on our acreage, and that’s probably equivalent to 450 years of supply for Queensland at the current rate so you know there’s a lot of gas there.
