The Directors of Portland Gas plc, the independent gas storage company provide the following update on the funding of the Portland Project.

The Directors have decided in these very challenging market conditions to suspend the current joint venture funding process as they believe it would not result in acceptable terms being reached for the Company and its shareholders.

A consequence of the suspension of the joint venture funding process is that the target date for first gas has been revised to end Q1 2012 (from Q3/Q4 2011), but achievement of full capacity is still anticipated for the winter of 2015. In order to achieve these target dates the project will require approximately £12million of further funding in Q1 2009 followed by a significant further tranche, or full project funding, by the end of 2009. The Company is continuing discussions with several parties regarding securing the first part of this funding requirement with a strategic partner.

Commenting on the decision, Andrew Hindle, the CEO of Portland Gas, said, “The Directors remain committed to full development of the Portland Project and are committing £2.5million from existing cash reserves to continue with the development work for the project through to the end of Q1 2009. The Portland gas storage facility is recognised as of National importance and could be providing 5% of the UK peak daily gas demand in the latter part of the next decade.

“During the funding process Portland Gas recognised that the prices generally being paid for gas storage assets in the market had declined, and therefore to retain its target of at least a 50% interest in the Portland Project alongside new joint venture partners it would be necessary for it to make a debt and equity contribution to the project. The global “credit crunch” has all but closed off the likelihood of achieving this target for the time being and this factor, combined with cut-backs in longer-term capex spend by industry participants in the sector, has meant that halting the current joint venture funding process is in the best interests of all shareholders.

“We anticipate that market conditions will improve in 2009 and we are continuing discussions with parties who have expressed an interest in investing in the Portland Project. Following a period of significant cost inflation over the past few years in the oil and gas sector, the Company anticipates that the recent reduction in commodity prices will feed through next year into a reduced estimated cost of construction for the Portland Project. However, as the board remains firmly committed to achieving fair long-term value for shareholders, we are prepared to suspend the project in 2009, if necessary, until acceptable terms for further funding are available.”

Tags: Portland Gas plc