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BG Group and CNOOC close deal on Queensland Curtis LNG

BG to become first supplier of LNG in China

BG Group from UK and China National Offshore Oil Corporation (CNOOC) signed Heads of Agreement (HOA) about the Queensland Curtis Liquefied Natural Gas (QCLNG) project.

Both companies were already partnering in the QCLNG project, but with the agreed Heads of Agreement, BG Group and CNOOC manage to take a bigger role and to increase their cooperation.

Theses Heads of Agreement cover two aspects:

 – Transfer of working interests from BG Group to CNOOC

 – Long term contract for BG Group to supply LNG to CNOOC.

This transaction is strategic for both companies as QCLNG is the world first project to produce liquefied natural gas (LNG) from coal seam gas (CSG).

In 2010, BG Group had signed a first contract to ship 3.6 million t/y of LNG during 20 years to CNOOC.

In following, BG Group made the final investment decision (FID) to invest more than $20 billion capital expenditure in targeting the completion of the QCLNG project in 2014.

Since then BG Group signed other long term contracts for LNG deliveries with Tokyo Gas and Chubu Electric from Japan.

Compared with other LNG projects in Australia, mostly offshore, QCLNG finds its feedstock from onshore coal seam gas in the Surat Basin and the Bowen Basin in the Queensland.

This coal seam gas was developed by QGC since 1999 to supply Queensland with natural gas.

With BG Group‘s friendly take over QGC in 2008, the coal seam gas turned to be developed in addition for export LNG to Asia.

After a first treatment of the raw natural gas, the natural gas is exported to the Curtis Island through a 450 kilometers gas pipeline.

Then the natural gas is liquefied on the Curtis Island with two LNG Trains to be shipped to Asia with LNG tankers.

CNOOC to take 50% interest in QCLNG project

BG Group and CNOOC expect to convert the Heads of Agreement into final contract before mid of 2013.

According to the terms of the contract:

 – CNOOC will increase its working interests in QCLNG Train 1 from the actual 10% to 50%

 – CNOOC will also scale up its shares of the certain reserves in the Surat Basin from 5% to 25%

 – CNOOC will take 25% interests in the certain reserves of the Bowen Basin

 – CNOOC will pay $1.93 billion compensation to BG Group

 – CNOOC will have the option to take 25% position in the first of any expansion with new LNG Train in QCLNG

 – BG Group will supply 5 million t/y of LNG to CNOOC from QCLNG in addition to the previous 3.6 million t/y signed in 2010. With 8.6 million t/y in total, BG Group becomes the largest supplier of LNG to China.

 – BG Group and CNOOC will jointly add two LNG carriers to the two previous ones already in construction.

When the contract will be finalized, BG Group will still remain as operator of the QCLNG project and keep 74% of the proven reserves.

BG Group will also retain 100% interest and operatorship role of the:

 – 450 kilometers export pipeline

 – LNG storage facilities on the Curtis Island

 – Export jetty

 Through this agreement, CNOOC takes a strategic position in a complex coal seam gas project that could be used as a full scale learning case for further similar project in China, while BG Group restores its cash position, takes Chinese LNG market leadership and maintains its leading position in the giant QCLNG project to come on stream in 2014.

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