Crux Asset AC/L9
(Nexus 85%, Osaka Gas 15%)
The Crux field is located in Production Licence AC/L9 in the Browse Basin, offshore Western Australia and was acquired by Nexus in January 2006.
Nexus is operator of AC/L9 and holds 85% equity in the liquids resource with joint venture partner Osaka Gas holding the remaining 15%. Shell Development Australia holds the rights to 100% of the gas resource within the permit and under the current contract can access the gas in 2021. Average water depth is around 170 meters with the major Crux reservoir at 3,800 meters.
Five intersections of the Crux field have been drilled to date and around 280km2 of 3D seismic has been collected to delineate the structure. Importantly the Crux reservoir has high permeability and high porosity and the gas is low in CO2 and other impurities. In addition to the Crux gas condensate resource, upside potential has been identified around the undrilled Auriga and Caleum structures.
On 19 January 2012, Nexus signed a non-binding Heads of Agreement (HOA) with Shell and Osaka Gas to exclusively pursue a Shell-led integrated gas and liquids development to commercialise the Crux asset. The non-binding HOA was executed after fully considering the standalone liquids project versus an integrated development case with Shell.
The agreement once finalised, and subject to a number of conditions (including regulatory approvals), will result in the following:
- A new joint venture will be formed to consolidate the existing gas and liquid interests: Shell currently holds 100% of the gas interests, with Nexus holding 85% of the liquids interests and Osaka Gas the remaining 15% of the liquids interest.
- Once binding agreements are signed, targeted for April 2012, participating interests for the new Joint Venture will be Shell (becoming Operator) holding 80%, Nexus 17% and Osaka Gas 3%. Nexus also has a 12-month option to sell 2% of its participating interest in the new Joint Venture to Shell for A$75 million. Exercising this option would reduce Nexus’ participating interest to 15%.
- Shell will become operator of the AC/L9 Crux title from Nexus after settlement, which will require approval from the relevant Federal Government authorities. An amendment of the terms of the licence consistent with the integrated project will also be required.
This deal provides certainty for the commercialisation of the Crux asset and creates a transparent value for Nexus’ share of the project. Furthermore, this transaction will enable the new joint venture to evaluate the Crux exploration prospects in AC/L9 and potentially increase reserves. The deal also involves Nexus’ interest in Crux being converted from a liquids only interest into a liquids and LNG play.
The base case development option is for Crux to become part of the Prelude Floating LNG project currently under development by Shell. This provides Nexus with exposure to future LNG sales in proportion to its equity interest in Crux. As indicated by Shell, Crux gas is an integral part of its groundbreaking Prelude Floating LNG development, as it intends to use gas from Crux to ensure the Prelude Floating LNG facility continues to remain at full throughput for as long as possible.
In advance of executing binding agreements, a process to review all existing long lead items has commenced with a view to preparing them for sale.
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