BG Group and CNOOC Sign 20-year LNG Sales Contract

BG Group plc today announced it had signed a Liquefied Natural Gas (LNG) sales contract with the China National Offshore Oil Corporation, ("CNOOC"), concluding negotiations announced in May 2009 for the supply of 3.6 million tonnes per annum (mtpa) of LNG over a 20-year period.

Under the terms of the sales contract, CNOOC will be supplied with LNG manufactured at the Queensland Curtis LNG ("QCLNG") facility on Curtis Island, near Gladstone in Queensland, Australia. Additionally, BG Group may also supply CNOOC from the Group's global LNG portfolio.

The QCLNG facility is being developed by BG Group's wholly owned Australian subsidiary, QGC Pty Limited ("QGC") and will be supplied with coal seam gas from QGC's extensive acreage in the Surat Basin. BG Group expects to sanction QCLNG this year upon receipt of Queensland and Australian government environmental approvals, and the plant is planned to come onstream by 2014.

The BG Group-CNOOC LNG sales agreement is one of the largest LNG contracts in Australia and was signed on 24 March 2010 in Beijing by the CNOOC President Fu Chengyu and BG Group Chief Executive Frank Chapman. It is the world's first fully-termed sale and purchase agreement for the supply of LNG from coal seam gas, and marks the first sale of LNG from coal seam gas into China, the fastest-growing gas market in the world.

In addition, under the terms of parallel agreements between BG Group and CNOOC executed today:

CNOOC will acquire a 5% equity interest in the reserves and resources of certain BG Group tenements in the Walloons Fairway of the Surat Basin in Queensland. The total book value of the assets being sold is approximately US$ 270 million;
CNOOC will become a 10% equity investor in QCLNG Train 1, the first of two liquefaction trains which will form the first phase of the QGC-operated QCLNG development. CNOOC will reimburse BG Group for 10% of costs incurred in respect of Train 1, payable in cash at the point of Final Investment Decision, expected later this year; and
BG Group and CNOOC have agreed jointly to participate in a consortium to construct two LNG ships in China that will be owned by the consortium.

All of the agreements are conditional on Chinese, Queensland and Australian government approvals and on BG Group making the Final Investment Decision on QCLNG, expected later this year.

BG Group Chief Executive Frank Chapman said:

"These agreements are a landmark development in the relationship between our two companies, building on what is already a close and productive partnership in deep water exploration, offshore China. CNOOC is a highly accomplished company and we look forward to working together as we bring this new ground-breaking LNG project to fruition."

BG Group and CNOOC have been in partnership in offshore exploration in China since 2006, and in 2008, the two companies agreed to explore further opportunities for strategic cooperation.

QCLNG is underpinned by BG Group global LNG supply agreements for up to 8.3 mtpa, consisting of the 20-year 3.6 mtpa agreement with CNOOC announced today, a 21-year 1.7 mtpa supply agreement to Chile and a 20-year agreement to supply up to 3 mtpa to Singapore.

BG Group plc is a world leader in natural gas, with a strategy focused on connecting competitively priced resources to specific, high-value markets. Active in more than 25 countries on five continents, BG Group has a broad portfolio of exploration and production, Liquefied Natural Gas (LNG), transmission and distribution and power generation business interests. It combines a deep understanding of gas markets with a proven track record in finding and commercialising reserves.

Published 24/03/2010

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