Liquefied Natural Gas Limited: September 2010 Quarterly Report (Australia)

Liquefied Natural Gas Limited today announced activities report for the quarter ended September 30, 2010.

Highlights

• Gladstone “Fisherman’s Landing” LNG Project (Fisherman’s Landing LNG Project) – the Company continues to advance meaningful discussions with potential gas suppliers for its wholly owned Fisherman’s Landing LNG Project. It is pleasing to note that momentum has returned in these discussions following the conclusion of the Federal Government elections, clarification of the taxation position for coal seam gas (CSG) to liquefied natural gas (LNG) projects and recent Federal Government conditional environmental approval for two of the proposed larger Curtis Island LNG projects, in the Port of Gladstone.

• The Company has signed Confidentiality Agreements and is currently in discussions with six potential strategic partners as LNG buyers and project investors, in the Fisherman’s Landing LNG Project. On completion of gas supply and selection of strategic partners, the Fisherman’s Landing LNG Project is positioned to move to final investment decision and construction.

• Metgasco Limited  – the Company has acquired a 5.07% shareholding in MEL and is its largest shareholder. MEL has certified gas reserves and 2C contingent resource of 3,416 petajoules (PJ) and an “internally estimated” overall “P10 unrisked original gas in place (OGIP)” of 15,265 PJ, with 3,600 PJ of gas feedstock required for the Company’s Fisherman’s Landing LNG Project’s currently approved 3 million tonne per annum LNG production capacity. As previously announced, MEL and the Company have entered into a Memorandum of Understanding to undertake a joint feasibility study in relation to gas supply from MEL’s gas permit areas to the Company’s Fisherman’s Landing LNG Project and other potential LNG project locations.

• Oil Basins Limited  – the Company has acquired a 7.26 % shareholding in OBL and is its largest shareholder. OBL has prospective oil and gas permit interests in the offshore Gippsland Basin of south-eastern Australia, the onshore Canning Basin of Western Australia, with the Backreef No 1 well currently being drilled, and the offshore waters of the Carnarvon Basin. As previously announced, OBL and the Company have entered into a Strategic Alliance Agreement to jointly investigate the development of an LNG project in North Western Australia.

• LNG Process Technology (OSMR®) – the Company is now actively marketing its proprietary OSMR® LNG process technology. Two parties have completed preliminary due diligence and are now undertaking more detailed due diligence under Confidentiality Agreements. The Company’s objective is that these parties become strategic partners both in the marketing of the OSMR® technology and in the development of the Company’s Fisherman’s Landing LNG Project.

Gladstone “Fisherman’s Landing” LNG Project

During the quarter, the Company’s continuing primary focus has been on:

• Securing gas supply for the Fisherman’s Landing LNG Project;

• Selecting a strategic partner as the LNG buyer and project investor; and

• Maintaining the ability to recommence construction when gas supply and strategic partners negotiations are concluded.

The Company is very satisfied with the progress on all three of the above objectives and, in particular, is now seeing some increased momentum as a result of:

• Federal Government elections being concluded;

• Clarification of taxation issues for CSG to LNG parties; and

• Federal Government’s conditional environmental approval for two of the proposed larger LNG projects in Gladstone. These approvals incorporate both the upstream (CSG developments and pipelines to connect with Gladstone) and the downstream (LNG plant and Gladstone Port developments). Whilst the Fisherman’s Landing LNG Project has obtained all environmental approvals for its downstream requirements, the gas suppliers with whom discussions are being held, must obtain all their upstream approvals and licenses.

Furthermore, we have seen some practical rationalisation of jointly owned permits in the coal seam gas sector and it is considered highly likely that this will flow into the LNG sector in Queensland. The Company views this rationalisation as beneficial for its Fisherman’s Landing LNG Project, in that it is likely that additional CSG will become available for any LNG expansion capacity.

The Company remains confident in the value and deliverability of its Fisherman’s Landing LNG Project, given the:

• strategic mainland location of the project site and existing access to key infrastructure and services;

• advanced nature of the project including environmental approval, completion of front end engineering and design and detailed costing, based on a firm engineering, procurement and construction proposal;

• low project development cost compared to cost estimates for larger traditional LNG projects (assessed on a cost per annual production tonne basis);

• highly efficient plant, low emissions, and industry low operating cost, based on the use of the Company’s OSMR® technology; and • continually increasing gas reserves in both Queensland and New South Wales which are not committed to one of the proposed large Curtis Island LNG projects, in the Port of Gladstone.

Metgasco Limited

During the September 2010 quarter, the Company acquired a 5.07% shareholding in MEL and is now MEL’s largest single shareholder. In addition, MEL and the Company executed an agreement to jointly study the feasibility of potential gas supply to the Company’s Fisherman’s Landing LNG Project.

The joint study will encompass the viability of gas production, transportation, liquefaction and sale of LNG, based on gas supply from MEL’s 100% owned coal seam reserves and conventional gas resources in the Clarence Moreton Basin, in Northern NSW. Based on its current certified gas reserves and contingent resources, see tables below, MEL has the potential to supply sufficient gas for the currently approved 3 million tonne per annum LNG production capacity of the Company’s Fisherman’s Landing LNG Project.

MEL, in recent presentations has included an “internal estimate” of 14,478 billion cubic feet (15,265 PJ) of “P10 unrisked OGIP”. In conjunction with advancing the joint study with MEL, the Company is in ongoing discussions with other potential gas suppliers for the Fisherman’s Landing LNG Project.

Oil Basins Limited

The Company holds a 7.26% shareholding in OBL and is the largest single shareholder. During the September 2010 quarter, OBL and the Company entered into a Strategic Alliance Agreement to jointly investigate the development of an LNG project in North Western Australia (Kimberley LNG Project).

The Kimberley LNG Project is based on utilising the potential large resources of conventional and unconventional gas contained within the Canning Basin, including gas contained within OBL’s acreage and that of its joint venture partners. The proposed Kimberley LNG Project will benefit from the advanced development work undertaken by the Company for its Fisherman’s Landing LNG Project.

Such development work includes completion of front end engineering and design and provision of a fixed price EPC proposal for the first 1.5 million tonne per annum LNG train. OBL is involved in the exploration for oil and gas in the offshore Gippsland Basin of south-eastern Australia, the onshore Canning Basin of Western Australia and more recently the offshore waters of the Carnarvon Basin.

All areas of interest are situated in proven hydrocarbon regions of Australia and nearby to established infrastructure hubs. OBL’s key assets comprise:

• 12.5% Rights to Vic/P41 situated in the offshore Gippsland Basin;

• 17% Vic/P66 situated in the offshore Gippsland Basin; • 90% interest in the Backreef Area, in the onshore Canning Basin #;

• 50% interest in 5/07-8 EP situated in the onshore Canning Basin; and

• 25% Retention Lease R3 situated in the offshore Carnarvon Basin.

# As at 28 October 2010, the Backreef-1 well had reached a depth in excess of 1,500 metres and therefore OBL had earned its 90% interest. Results from the Backreef-1 well are pending evaluation and announcement by OBL.

Company’ Other LNG Activities

Based on the completion of the Fisherman’s Landing LNG Project FEED and procurement of fixed EPC pricing, the Company is actively evaluating other LNG project opportunities both in Australia and overseas. While the Fisherman’s Landing LNG Project is based on 1.5 million tonne per annum LNG trains, the LNG plant design and technology is flexible and can be scaled (increased or decreased) to meet the specific requirements of each LNG project. Further information on other LNG project opportunities will be provided to shareholders when agreements have been executed.

LNG Technology Pty Ltd

LNG Technology Pty Ltd, owned 100% by the Company, is the LNG technology research and development entity within the group and the owner of the Company’s OSMR® LNG process technology. The OSMR® technology is an enhanced LNG liquefaction process which delivers higher operating efficiency and lower greenhouse gas emissions than traditional LNG processes.

The OSMR® technology has been developed and refined over numerous years and was the foundation of the completed LNG plant front end engineering and design for the Fisherman’s Landing LNG Project. During, and subsequent to, the development process the OSMR® technology has been the subject of numerous satisfactory peer reviews, including endorsement of its cost, reliability and efficiency.

These reviews were required to satisfy the Company as to the validity of the technology and the stated benefits, and prior to the Company commencing an active marketing programme. The Company planned to initiate its marketing campaign at the April 2010 LNG16 Conference and Exhibition in Oran, the second largest city in Algeria.

Unfortunately, the LNG 16 Conference was held just after the eruption of the Eyjafjallajokull volcano in Iceland and, as a consequence, many of the delegates were unable to attend and the conference was reduced to two days. However, the jointly prepared technical paper by the Company’s Technical Director, Paul Bridgwood, together with Don Hill, Vice President – Gas Monetization, CB&I Lummus titled “Simple Low Cost LNG Production” was published in the LNG Industry Spring 2010 Edition and made available for delegates at the conference.

The joint paper has generated interest in the OSMR® technology and the Company is in discussions with several parties, some of whom are undertaking due diligence of the process. An updated version of the paper “Improved LNG Process” is on the Company’s website.

The Company continues to further its international patent applications, which cover two engineering design features (being the basis of the Company’s OSMR® technology), entitled:

• “A Method and System for Production of Liquid Natural Gas”.

• “Boil-Off Gas Treatment Process and System”.

Gas Link Global

Gas Link Global Limited, owned 100% by the Company, has as its primary business activity the identification and selected investment in existing gas discoveries and prospective gas acreage to provide gas feedstock for LNG projects. No major activities were progressed during the September 2010 quarter. However, the Company is assessing a number of strategic investments in gas companies that have the potential to supply gas for future LNG projects.

Corporate

a. Major Corporate Shareholder:

As at 29 October 2010, the Company’s largest corporate shareholder was Dart Energy Ltd, with a 7.5% shareholding. DTE procured the shareholding, on 13 July 2010, when Arrow Energy Limited transferred its total shareholding in the Company (16 million shares) to DTE, following a demerger of Arrow Energy Limited’s international assets and certain Australian assets. DTE’s stated vision is to be the leading global coal bed methane company.

b. Unlisted Options:

As at 30 September 2010 the Company had issued 9,785,000 unlisted options under its Option Plan Rules.

[mappress] Source: Liquefied Natural Gas Limited, October 29, 2010