CHINESE BACK ICON IN A LONG WAITING GAME
Written on the 4 July 2014 by Nick Nichols
ICON Energy is playing a long waiting game to shore up commercial reserves from its potentially lucrative southern Queensland gas permit – and it appears the Chinese are just as patient.
Icon this week extended its 20-year gas sales agreement with China’s Shantou Sino Energy to the end of June next year.
The deal was signed in March 2011 and has been extended previously as the Chinese continue to back Icon’s pursuit of commercial gas reserves to fulfill their agreement.
Under the deal, Icon has agreed to supply Shantou with 40 million tonnes of gas over 20 years to meet what Icon Energy managing director Ray James says is a supply void that exists in the China market for liquified natural gas (LNG).
Shantou is located about 250km north of Hong Kong and the local government there is keen to create an LNG hub similar to those that exist in coastal cities to the north and south of it.
Over the past three years, Icon has been working to shore up production reserves to fulfill its gas sale agreement – and it sees the most likely source of that gas coming from the ATP 855 permit along the Nappamerri Trough in the Cooper Basin.
James estimates that China has a 170 million tonnes of gas a year that is “uncontracted”, or that the market is still looking to fill.
Under the terms of Icon’s agreement with Shantou Sino Energy, the Gold Coast company will supply 2 million tonnes a year of that shortfall, although
James says Icon will have the capacity to lift that by 50 per cent from day one should commercial reserves be established.
Icon has a 35.1 per cent interest in ATP855, sharing it with Beach Energy and US energy giant Chevron which is the project operator.
Part of the delay for the partners lies with the technological challenges encountered at ATP 855, although the reasons behind this could possibly lead to big riches for the gas partners.
Chevron has assembled a team of 60 staff in Perth to focus on the resource, bringing what Ray says is a “wealth of knowledge” to the effort.
Independent experts have estimated ATP 855 could contain between 21.48 and 37.74 trillion cubic feet (Tcf) of gas. Its best estimate is 28.49Tcf recoverable prospective resource.
This compares with the 10.8Tcf of gas estimated to have been recovered in the Cooper Basin over the past 50 years.
James says the resource estimate is a significant step towards Icon’s goal of proving 2Tcf of 2P reserves in ATP 855 to meet its commitment in the Chinese gas sale agreement.
The ATP 855 gas reserves are much hotter and under greater pressure than that found in other similar fields, he says.
“It indicates the gas hasn’t gone out. No basin like this has ever been encountered in terms of the geological complications.
“It’s unique in a good way, but because of that no one else has ever tackled this before.”
As a result, the drilling has required special equipment to cope with the conditions.
Icon is currently waiting on a new rig to come from the US, expected by September when it hopes to start a vertical drilling program targeting four sites. Initial results from this program are not expected until about November.
“We’re very comfortable with progress to date, but that’s because we’re doing something that’s never been done before,” says James.
The waiting game has taken its toll on Icon’s share price, which has sat around 13c for more than a year. This could easily make the company an attractive takeover target.
But the spoiler for any suitor is the 30 per cent interest held by the company’s top five shareholders – with four out of those five being Chinese and the other James himself.
As long as the Chinese see its potential and are willing to wait on an outcome, it is unlikely that Icon could fall to a predator despite its current market value of $84 million.
Author: Nick Nichols