Nexus Energy Ltd shares have fallen the most in 20 months in Sydney trading
After Mitsui & Co. scrapped a plan to buy a stake in the venture for $255 million, Nexus Energy Ltd, developer of the proposed $1.2 billion Crux gas liquids project in Australia, fell the most in 20 months in Sydney trading.
Nexus dropped 30% to 76.5 Australian cents on the Australian stock exchange, a two-year low. The slump compared with a 7.1 percent decline in the exchange's benchmark energy index.
The proposed buyer for the 25% stake in the Timor Sea project failed to win board approval for the deal because of “global market conditions”, Nexus said in a statement. The venture, which includes Osaka Gas Co., is due to approve the project for development this quarter and the sale of the stake would have helped Nexus fund its share.
“This is a major disappointment and means the large cash proceeds will not be received in November or December as planned,'' Scott Ashton, an oil and gas analyst at BBY Ltd., said in a note to clients. “Our concern is whether this impacts Nexus's ability to execute the Crux liquids project in time for first production by mid-2011”.
Mitsui, Japan's second-biggest trading house, and Nexus failed to reach a contract for the sale of the stake in Crux, said a company spokesman in Tokyo, under condition of anonymity because of company policy. They had disagreements in negotiations after clinching an initial, non-binding accord, he said.
Changes in the energy business environment because of the global credit crunch were among the reasons Mitsui pulled out, the spokesman said.
Nexus hired Deutsche Bank AG to manage a formal process for the sale of the stake in Crux and said it has had “substantial interest from numerous parties globally” in the asset, located in the AC/P23 permit in the Browse Basin off northwestern Australia.
Nexus would be willing to sell a stake of as much as 50 percent in Crux to ensure the project is well funded and moves forward, Chief Executive Officer Ian Tchacos said in a telephone interview. It may also hand over operator-ship of the venture to the buyer, he said.
“I guess we need to be a little bit less greedy about the equity to ensure the project doesn't stall for any length of time,” Tchacos said.
An accord for a sale may be reached by the end of the year, which could ensure the schedule isn't delayed, he said.
“Strong participation in the sale process is expected given the status of the Crux liquids project as a high-quality development of substantial scale, located in Australia, and in light of the interest in the project received to date,” Nexus said in the statement to the Australian stock exchange.
The field holds about 75 million barrels of condensate, a type of light oil, according to the venture's latest estimate. The Libra-1 exploration well is scheduled to be drilled in the area this quarter, which may add to reserves. The region has potential for liquefied natural gas production, using a floating plant, should enough gas be found, Tchacos said in July.
“Crux is still a valuable asset and Nexus has got quite a bit of leverage there,” BBY's Ashton said. “We still reckon Nexus can push ahead with the final investment decision towards the end of this year”.
The other part of the originally proposed transaction, the sale of a 20 percent stake in the nearby AC/P41 exploration permit for $20 million in cash plus drilling costs, was completed to Mitsui's Australian unit, Nexus said yesterday.