Pre-commercialisation Activity
Systematic pre-commercialisation planning has been undertaken to permit discoveries in the Canning Basin to be commercialised in a timely and cost-effective manner. The key initiatives undertaken to date include:
- Progressing the pre-FEED process for the 400km Great Northern Pipeline (“GNP”) between Broome and Port Hedland that will allow any gas discoveries to be delivered into the Dampier to Bunbury Natural Gas Pipeline and transported to the Perth and wider South Western Australian gas market;
- The design and development of a gas recycling system to allow rapid commercialisation of liquids rich gas discoveries;
- Executing a memorandum of understanding with Energy World Corporation to jointly assess the feasibility of small scale LNG production from gas discoveries in the Canning Basin; and
- Access to the Mobile Early Production System design, originally developed by ARC Energy for use in the Perth Basin, that would facilitate bringing new oil discoveries into production as soon as possible.
The Alcoa Gas Sales Agreement ("GSA")
As part of its focus on the early commercialisation of any hydrocarbons it finds, Buru has assumed the Alcoa GSA from ARC Energy. The Alcoa GSA provides for Buru to deliver up to 500 PJ of gas to Alcoa from discoveries made prior to 2013 on Buru’s interests in the Canning Basin. The Alcoa GSA provides significant flexibility for the commercialisation of any gas resources in the Canning Basin and allows the early conversion of contingent gas resources into bankable gas reserves. Importantly, Alcoa is a “blue chip” customer and the contract is of sufficient size that it will provide the financial security required to develop the GNP.
- The GSA is for 400 PJ with Alcoa having the option to take another 100 PJ.
- Alcoa has made a $40 million prepayment for gas to be delivered under the GSA. These funds have been used to accelerate the regional Canning Basin exploration program.
- Alcoa may require the repayment of the $40m if Buru, prior to 2013, is unable to deliver $40m of gas from the Canning Basin. Alcoa have an option (at their call) to extend this date by twelve months.
- Buru has placed $20 million in escrow as security against the need to make the repayment.
- If Alcoa requires the $40 million to be repaid, the repayment will be funded from the $20 million held in escrow (plus interest accrued on that amount) with the balance to be drawn from Buru’s cash reserves or the issue of new Buru shares.
- Buru has the option to repay any difference between the escrowed $20 million (plus interest accrued on that amount) and the $40 million due by issuing Alcoa new shares in Buru.