Shell Takes Majority Share of Crux Natural Gas Fields, Plans Gas Supply to Prelude

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Researched by Industrial Info Resources Australia (Perth, Australia)--Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands), via Shell Development Australia, has signed a non-binding heads of agreement with Nexus Energy (ASX:NXS) (Melbourne, Australia) and Osaka Gas Company Limited (TYO:9532) (Osaka, Japan) to commercialise the Crux fields, with Shell taking operatorship of the project.

The deal will see Shell take the operator role, with an 80% share of the Crux reserves, assuming the federal government approves production. Nexus Energy and Osaka Gas will decrease their project shares to 17% and 3%, respectively.

The Crux gas field is in the remote offshore Kimberley region of Western Australia, approximately 600 kilometers from the coastal town of Broome. Shell intends to utilise conventional natural reserves in the field to tack on to its wholly owned breakthrough Prelude project, currently under development to be the first floating LNG (FLNG) production plant in the world, which is scheduled to be operational and supplying LNG to market by the beginning of 2017. The Prelude field, along with the Concerto natural gas field (which will supply a small amount of resource to be processed on the Prelude FLNG), are situated closer to land, between 125 and 160 kilometres from the Crux field. The reserves in the Prelude and Concerto fields are expected to see operations through to the next decade, before flow rates decrease to a level whereby a new natural gas supply will become necessary. The Crux reserves will ensure continuation of Prelude FLNG operations.

Nexus Energy has put a number of failed attempts to commercialise the Crux natural gas in the fields behind it. The most recent plan for the Crux project was to be a liquid stripping project that incorporated a natural gas re-injection system as part of a floating production storage and offloading (FPSO) vessel LNG production floating platform. McDermott International Incorporated (NYSE:MDR) (Houston, Texas), J P Kenny (Aberdeen, Scotland), which is a subsidiary of Wood Group plc (LSE:WG) (Aberdeen), and Fluor Corporation (NYSE:FLR) (Irving, Texas) had been working on the engineering works and feasibility study that were necessary to see the Nexus run project through to the final investment decision in the first quarter of this year.

Richard Cottee, former Executive Chairman of Nexus Energy, was a full supporter of this development plan and opposed the change in ownership share; however, the board decided the deal with Shell would be the highest-value option and was therefore in the best interests of Nexus Energy shareholders.

Michael Fowler, the current Nexus Chairman, spoke of the Shell-led integrated development deal as a conversion of Nexus' interest in Crux into a highly attractive asset of global relevance. Fowler feels that "[Nexus Energy] Investors should rejoice rather than be disappointed about the liquids project."

The details of the new development schedule of the Crux reserves will be decided upon over the coming months. Nexus and Shell are to work together with and make plans known to the public by mid-2012.

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