Chief executive Nick Davies said the program would be funded through a $125 million placement, a $25 million share purchase plan, and $75 million from financing arrangements through Swedish farm-in partner Energy Infrastructure Group, along with $69 million in cash and cashflow from production operations.
This $294 million war-chest has been allocated as follows: domestic exploration, $62 million; domestic development, $174 million; international projects, $18 million; and offer costs $5 million.
Davies said the program represented a change in the coal seam gas producer’s growth, both domestically and internationally.
“This capital raising will help Arrow execute its current domestic growth plans in eastern Australia to benefit from a tightening of gas prices as we build towards a 2P [proved and probable] net reserve target of 1550 petajoules by the end of fiscal 2008,” he said.
“We also will accelerate the exploration, development and appraisal of our acreage for the proposed Gladstone LNG project in partnership with LNG International and Golar LNG, which will give Arrow exposure to oil pricing and potentially more than double production.”
He said Arrow’s reserve certification had been obtained from less than 2% of its 90,000 square kilometres of exploration acreage, and the company will spend around $110 million over the next 12 months to ramp up its reserves and develop new projects.
“Our Daandine project is set to expand to 11.5PJ per annum from 2PJ, while Tipton is set to nearly double to 17PJ from 9PJ per annum,” he said.
Average earnings before tax and depreciation per petajoule would also double to $2.50 from fiscal 2012 as Arrow gains exposure to export pricing and electricity markets, as well as operational economies of scale, according to Davies.
He also argued that scrapping the proposed Papua New Guinea pipeline on top of supply uptake from other proposed Queensland export LNG projects could be expected to produce rising east coast gas prices.
“Arrow is continuing to pursue high margin opportunities as shown by our pre-feasibility study with Alcan over a gas to liquids project, the LNG feedstock deal with Liquegas Energy from our Daandine field, and the compressed natural gas feasibility study to supply New Zealand,” Davies said.
Arrow is also continuing to secure strategic acreage in high-growth Asian countries, including China, India, Indonesia and Vietnam. Recent Indian spot gas sale prices of $13 per gigajoule reveal the opportunities available overseas, compared with the average of $2.50-$3.50 in eastern Australian markets, according to Davies.
“Our international exploration will commence later this year and we expect rapid development of reserves through to production, with a significant production contribution from our international operations expected within four years,” he said.
“Last year’s merger with CH4 Gas Limited, the establishment of a sustainable production level from our core acreage with significant projected growth, and a solid fourth quarter have positioned Arrow for rapid growth,” Mr Davies said.
Pricing for the bookbuild will range from $2.20 to $2.35, with pricing for the share purchase plan to be based on the lesser of the placement price and the placement discount to the 10-day volume-weighted average share price. Citi and Wilson HTM are joint lead managers in the placement.
