Yesterday morning Metgasco said it had been offered the cash offer to hand back PEL 13, PEL 16 and PEL 426, three permits that once contained the state’s largest 3P gas reserves.
It effectively leaves Santos’ project at Narrabri and AGL Energy’s Camden project as the only real CSG initiatives left in the south-eastern states.
Metgasco CEO Peter Henderson told ICN sister publication Energy News that he accepted that there would be some shareholders angry at the company has chosen to sell out, especially after more than $120 million has been spent to date, but he said it was the best outcome considering all of the factors involved.
“A lot of shareholders will be angry and disappointed by this, and it was a difficult decision, but the board recognised that were we likely to get $25 million or in the court, while we were funding conducting our field activities?” he said.
Legal action could have taken years and cost hard-won blood and treasure.
Henderson said the value of the gas in the ground needed to be risked for the gas price, approval timing and the investment environment.
With the Northern Rivers community and surrounding areas prepared to protest once again against Metgasco’s planned drilling, and a worsening macroeconomic environment, Henderson said it was a case of money in the hand being the lowest risk option for shareholders.
The sum offered to Metgasco is more than 100 times the sum offered to other small explorers, but reflects a fraction of the funds spent by Metgasco since it was founded.
It now wants shareholders to vote in favour of the proposal at a planned meeting.
The settlement offer comes after protracted discussions that have been ongoing since July this year, following the junior’s win in the court against the government for the last minute decision by the Office of Coal Seam Gas to cancel drilling approval for the Rosella conventional/tight gas well near Bentley.
Anti-CSG activists, Gasfield Free Northern Rivers, said the community was “jubilant” at the news.
“This is a day that people around our region have worked for and wanted for over three years. We’re over the moon that the government and the company have finally seen the light and decided that the community’s rejection of unconventional gas could not be overcome,” co-coordinator Elly Bird said.
Ross Joseph, a landholder who lives within one of the licences said, he was grateful to the government for finally acting to cancel these licences, and for stopping the drilling at Bentley last year.
“More than that, we’re just so proud of our community for coming together to turn away unsafe and unwelcome industrialisation of our beautiful region.”
Bird said she was hopeful that the government would not approve new leases in the region, and she called on a legislative response banning gas exploration in in the Clarence Moreton Basin.
In addition to the cancellation of the permits, Metgasco will also terminate its legal action seeking compensation for the Rosella well and its stalled licences.
It ends any plans for a power project at Casino and several pipeline opportunities, and even an LNG project the company briefly considered in happier times.
The NSW government will also return $400,000 in bonds.
Metgasco will be responsible for the decommissioning of its remaining two CSG wells, with NSW government refunding the remainder of the securities it holds, a further $240,000, on completion of the two well program.
Based on the $7.1 million cash held by Metgasco on September 30, the result of the proposal, if accepted, will be to give the company a cash backing of $0.074/share, compared to its Friday closing price of $0.048 per share.
Henderson said the $25 million would be put towards some other use, and while he was cagey on where Metgasco might look, he said the company should be able to say something prior to December’s planned meeting.
There remains a lot of gas in the Northern Rivers region, but development needs government support, which is lacking, Henderson said.
He said the cashed-up company would look worldwide for new opportunities in what is quickly becoming a buyer’s market.
Earlier in the year the junior had considered a merger with Elk Petroleum, and the company has assessed several projects over the past two years.
Santos continues to press ahead with its Narrabri CSG pilot, with five wells delivering gas to the Wilga Park power plant.
The company is expected to start work on its Leewood Park water treatment facility expansion before the end of the year.
Santos is also preparing its environmental impact statement for Narrabri, although there is no due date on that, with the company keen to prepare a comprehensive document given the sensitivities of CSG in Australia and the proximity of the Pilliga Forest.
AGL is also scaling back its NSW CSG interests.
It is keeping the Camden CSG development, the proposed Gloucester gas project, and the recently opened Newcastle gas storage facility, but it has sold back PELs 2, 4 and 267 which hold the Camden North and the Hunter gas projects back to the NSW government, for around $600,000.