Arckaringa Unincorporated Evaluation Joint Venture (AUEJV) Structure

Two partners are involved in the Arckaringa Unincorporated Evaluation Joint Venture (AUEJV) for the Arckaringa Project. These are Altona Energy Plc (Altona) through its 100% Australian subsidiary Arckaringa Energy Pty Ltd and CNOOC New Energy Investment Co Ltd (CNOOC-NEI), a subsidiary of the China National Offshore Oil Corporation (CNOOC). CNOOC-NEI owns 51% of the AUEJV and Altona 49%.


The Rationale and Functions of the AUEJV

Whilst Altona managed to develop a sound technical footing for the final stage of the BFS, the company recognised that it would need a substantial partner to fund the BFS completion and to commercialise the Arckaringa Project. CNOOC-NEI is that partner.

Under the terms of the UEJV, the Australian subsidiary of CNOOC-NEI (CNOOC New Energy International (Australia) Pty Ltd or CNOOC-NEIA) will fund the BFS for the Arckaringa Project and will act as the operator, not only to carry out the staged evaluation work under the BFS, but also to take responsibility for assessing the full potential of the coal resource and bringing projects to development, in return for a 51% interest in Arckaringa Energy’s exploration licences.

In the event that the joint venture partners decide to proceed with the commercial development of any project, the parties will negotiate and enter into a development agreement for each project, under which CNOOC-NEIA’s interest may increase from 51% to 70%. Both parties will work together to obtain funding for the development of any project. In the event that CNOOC-NEIA wishes to proceed to the development phase of a project prior to the finalisation of the BFS, CNOOC-NEIA will procure the provision of debt funding for both parties to develop the project.

Altona’s contribution to the AUEJV:

Altona’s contribution of the pre-feasibility study program of works includes the substantial engineering and technical studies which took three years to complete. The contribution also includes the geological studies and historical exploration data acquired by Altona when it purchased the exploration tenements in 2005, as well as the tenements themselves. These contributions earned Altona 49% of the AUEJV.

CNOOC NEI’s contribution to the AUEJV

CNOOC-NEI is a subsidiary of the China National Offshore Oil Corporation (CNOOC), founded in 1982. CNOOC is one of the largest state-owned oil companies in China, as well as the largest offshore oil and gas producer. It is authorized to cooperate with foreign partners for oil and gas exploitation in China’s offshore areas. Headquartered in Beijing, it has a total staff of 51,000 with a registered capital of RMB 94.9 billion. CNOOC-NEI was established to evaluate participation in, and development of new energy projects, including projects based on mineral resources and renewable energy in China and offshore.

The BFS will be completed to a standard capable of underpinning the financing of the project. In addition to supplying capital, CNOOC is contributing substantial experience in hydrocarbon production and distribution. The AUEJV will benefit greatly from CNOOC’s experience, in addition to their research and engineering skills that may assist with developing the project. Once the project is completed there may be opportunities for CNOOC’s distribution network to distribute products in China. Whilst this may not be essential to the viability of the project, export sales of a high value product will benefit the South Australian economy and help Australia’s balance of trade.

CNOOC NEIA’s Funding Commitment for the BFS

Arckeringa Energy and CNOOC-NEIA have agreed the budget for the BFS for the Arckaringa Project to the amount of A$40 million, which will be fully funded by CNOOC-NEIA.

The parties have further agreed the budget for Stage 1 and Stage 2 of the BFS in the amount of A$12m and A$28m respectively:

Benefits

Altona has the tenements, the results of the Pre Feasibility Studies and the project definition; CNOOC has the commercial skills, access to technology, access to funding to complete the BFS and the international credibility to make it happen. The AUEJV is a synergistic exercise.

Foreign Investment Issues

Foreign Investment Review Board (FIRB) approval

Altona was able to announce in June 2010 that the Foreign Investment Review Board had notified that there was no objection under Australia’s Foreign Investment Policy for CNOOC-NEIA’s participation in and establishment of the Arckaringa Unincorporated Evaluation Joint Venture. If the Joint Venture partners decide to proceed with a commercial project, the terms of the relevant development agreement (including CNOOC-NEIA’s percentage interest) will be subject to separate review by FIRB.

Management of the AUEJV

The AUEJV will be governed by a management committee (‘Management Committee’) which will be constituted by four representatives of CNOOC-NEIA and three representatives of Altona.

While general business decisions may be determined by a majority of the Management Committee, certain key decisions must be taken unanimously by the Management Committee, including any expenditure or contract in excess of A$5m, and entry into material related party contracts.

An Operating Team, led by CNOOC-NEIA and consisting of senior staff from both CNOOC-NEI and Altona will be in charge of the overall process of the Arckaringa Project, including the BFS and future construction work, production management and product sales. The Operating Team reports to the Management Committee.’

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