Both companies will supply about 74 petajoules (pj) of gas, with QGC using the agreement to underpin development of production from the new Argyle coal seam gas field in the Surat Basin near Chinchilla in south-east Queensland.
First gas deliveries are planned for late 2007, although under the agreement QGC is required to certify additional proved and probable reserves at the Argyle field by 30 June 2005 and secure conditional financing approval for the field development.
“There are now gas sales totalling 13 PJ pa conditionally contracted from two QGC-operated coal seam gas projects, representing over 10% of Queensland’s gas demand,” said QGC’s managing director, Richard Cottee.
The reserves expansion program at Argyle will involve drilling up to seven new wells, scheduled to start later this month with funding to be sourced from the issue of up to $5 million worth of unsecured redeemable convertible notes to Incitec Pivot.
Initial cost estimates indicate that development of the field will cost between $40 million and $50 million.
As part of ensuring QGC’s ability to finance the project, QGC and Australian Pipeline Trust have agreed to negotiate for APT to build, own and operate the central processing plant and connecting pipeline to the Roma to Brisbane Pipeline. The impact of this arrangement would be to halve the amount of capital QGC would need to raise.
QGC and joint venturer Pangaea Oil & Gas Pty Ltd (Pangaea) have agreed to terms under which QGC can fund Pangaea’s share of expenditure in ATP620P, with Pangaea to repay the amounts funded from future production with interest accruing at a rate linked to QGC’s weighted average cost of capital.
Proved and probable gas reserves of 67 PJ were certified at the Argyle field in ATP620P in May 2004 and Petroleum Lease applications have been lodged over the field. QGC has a 59.375% interest in the tenement, with Pangaea holding the balance.
Origin and its predecessor companies have had a long association with Incitec Pivot dating back to 1989, initially supplying gas to its Gibson Island facility out of the Surat Basin and currently supplying gas from the Cooper Basin as one of the South West Queensland gas producers.
Incitec Pivot will use the gas as the prime feedstock for its ammonia, urea and ammonium sulphate fertiliser manufacturing plants at Gibson Island, Brisbane.
“These agreements secure competitively priced gas for our Gibson Island plants until 2017 and strengthen our position as a low-cost Australian producer,” said Incitec Pivot’s managing director and CEO, Greg Witcombe.
“This is a very welcome development for the company and its distributors, as well as for farmers in eastern and southern Australia who need a secure domestic source of nitrogen fertilisers.”
