Icon Energy sees shares rise after massive China deal

Icon Energy has signed a memorandum of understanding with China’s Sinogas Group worth an estimated US$ 29.7 billion to supply them with LNG. Under the deal, Icon will supply Sinogas with 40 million t of LNG over 20 years, to commence in 2014. A binding deal needs to be arranged by 31 August. The proposed deal saw Icon Energy’s share price rise by 48%.

“This seems to be a win-win situation for Icon and the Chinese company,” said Nick Waraburov, an analyst at Intersuisse Ltd. “The figures quoted seem to be in the right ballpark for 40 million t of LNG over 20 years. I think this memorandum of understanding will give Icon great confidence as it develops its gas reserves.”

China has been buying up massive amounts of reserves overseas to feed growing domestic demand in China and cut carbon emissions. China plans to triple gas use for domestic power generation so that it makes up to 10% of energy consumption by 2020.

“The deal positions Icon Energy as the exclusive supplier of approximately 2.2 trillion ft³ over the 20-year life of the agreement,” the company said, “Icon Energy plans to meet the contractual requirements via its current tenements in South Australia and Queensland, arrangements with existing joint venture partners, new farm-in agreements and the securing of additional tenements.”

A research paper by Intersuisse Ltd. concluded that Icon’s ability to service the contract was wholly dependent on whether or not they could make their tenements commercially viable. Intersuisse said, “Results from recent drilling undertaken by Icon at ATP 626P indicate that the coals are much more complex than previously thought and that much more work will be required to unlock the secret to establishing sustained and economic gas flow from these wells.”

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