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+--- Thread: UPDATE 3-Conoco, Origin expand Australia LNG project despite cost pressures (/showthread.php?tid=1068)
UPDATE 3-Conoco, Origin expand Australia LNG project despite cost pressures - Palm - 07-05-2012
Interesting article that discusses the cost issues with Australian LNG projects. CSG is dry gas, they need to drill "hundreds of thousands" of wells, and they are finding less gas per well than expected. Huge cost advantage to IOC. Advantaged gas of IOC will win out. Origin seems to be better off than other projects that have started, but look at the numbers and % cost increases in these projects:
"PERTH, July 4 (Reuters) - ConocoPhillips and Origin Energy approved on Wednesday a second train at the A$23 billion ($23.6 billion) Australia Pacific LNG project, despite concerns over rising costs and gas shortages in the country's coal seam gas sector.
The approval also paves the way for partner Sinopec to increase its ownership to 25 percent from 15 percent, the companies said.
The venture is one of three coal seam gas to liquefied natural gas projects worth over $50 billion currently underway in Queensland state and the approval of a second train comes as other projects have faced hurdles, including a spike in costs.
Origin Energy said that there had been no significant change in costs estimated for APLNG, although warned it might not continue to be immune from future cost pressures.
"We've got the better part of three years to go and a substantial part amount of the actual expenditure ahead of us and it would be simply wrong to suggest that we can guarantee today that we will not experience our share of those challenges," Origin's managing director Grant King told reporters on a conference call.
Ryan Lance, Conoco's chairman and chief executive, said the second train was the final step in the approval process.
"From this point we are committed to the development and construction of all infrastructure and facilities to ensure the first delivery of LNG in 2015," Lance added in a statement, noting the second train will begin exporting LNG a year later.
An LNG train is a plant that chills gas to liquid form for shipping and APLNG made a final investment decision on the first train last year, delaying a decision on the second train.
Origin said its share of the project costs would be funded by selling off a further 7.5 percent of equity in APLNG. In January, Sinopec paid $1.1 billion to raise its stake by 10 percent.
Origin and ConocoPhillips each hold 37.5 percent equity in APLNG.
COST PRESSURES
Coal seam gas operators are aiming to drill tens of thousands of wells targeting methane held in coal beds, which is then converted to LNG.
But there have been concerns that some projects are struggling to find enough gas that has already been pre-sold to customers, pushing up already rising costs being driven by factors as labour shortages.
Origin Energy said that there had been no significant change in the $20 billion project costs estimated for APLNG in 2011 when the joint venture approved the first train other than changes due to foreign exchange rates.
In December 2011, when the joint venture was budgeting costs for the project, $20 billion converted to A$23 billion based on forward currency contracts, Origin said.
Two other coal seam gas project operators, Santos and BG Group, recently announced cost increases. Santos last week increased its cost estimate for its Gladstone LNG project by 15 percent and BG Group increased the cost estimate for its Queensland Curtis Island project by 36 percent earlier this year.
NO EXPANSION?
According to some analysts, Origin is better positioned than the other two coal seam gas projects underway, with richer gas fields that do not require as much drilling, which will likely keep a tighter lid on costs.
The fact that other coal seam gas operators are searching for gas could provide an alternative outlet for expanding the plant from the 9 million tonne per year production provided by two trains.
"We actually don't need another train to have the capacity to commercialize more resources," Origin's executive director of finance and strategy, Karen Moses, told reporters.
APLNG is currently permitted to have an additional two trains to produce a total of 18 million tonnes per year and Origin has already sold some gas to both BG and Santos.
Most of the plant's production will be sold to Sinopec through a 20-year deal for 7.6 million tonnes per year of LNG purchases, starting in 2016.
The agreement, which Origin said was the largest Australian LNG supply agreement to date, will help supply China's rapidly growing demand for LNG as it switches to cleaner burning fuels.
APLNG also has a supply agreement with Japan's Kansai Electric for 1 million tonnes of LNG per year from 2016.
Origin shares rose 4.5 percent to A$12.88 by early afternoon trading."
http://mobile.reuters.com/article/idUSL3E8I34BU20120704?irpc=43
RE: UPDATE 3-Conoco, Origin expand Australia LNG project despite cost pressures - admin - 07-05-2012
["Origin is better positioned than the other two coal seam gas projects underway, with richer gas fields that do not require as much drilling"]
Huh?! Conoco/Origin is the project that needs the 20,500 wells, I though they were the outlier.. If that is actually better than the competition, wow..
RE: UPDATE 3-Conoco, Origin expand Australia LNG project despite cost pressures - admin - 07-05-2012
Here is another take
FID reached on APLNG second train
Wednesday, 4 July 2012
IT’S finally official – Origin Energy and its joint venture partners have reached final investment decision on a second train at the Australia Pacific LNG project and Sinopec has formally taken a total 25% stake in the project.
Illustration of APLNG project at Laird Point, Curtis Island, courtesy Origin Energy
After months of speculation, partners ConocoPhillips, Origin and Sinopec agreed FID and Sinopec agreed to take another 10% equity interest in the project for $US1.4 billion ($A1.36 billion).
Origin said both it and ConocoPhillips were now looking to further dilute their stake from 37.5%, with Origin telling the media it would seek to retain around a 30% slice of the project.
First LNG from the project is on track for 2015 while first LNG from the second train is expected from 2016.
FID had been expected shortly after Origin signed a 20-year 1 million tonne per annum offtake deal with Kansai Electric late last week.
While Kansai agreed to a 1.1MMtpa offtake deal, Sinopec’s total offtake has now grown to 7.6MMtpa after the second train FID.
The agreement follows on from the signing of a heads of agreement last November and is conditional upon APLNG making a FID on a second train for the project.
APLNG flagged FID by mid-2012 while last week Macquarie Equities said the go-ahead for a second train was imminent, placing a “soft” deadline of June 30.
The APLNG JV has also been busy this year arranging finance for the project, penning an $8.6 billion facility from a syndicate of banks, including the export-import banks of China and the US for the downstream segment of the project.
The facility was subject to the APLNG JV reaching FID on the second train of the project.
Origin played down the prospect of further cost increases at the project which had been plaguing other LNG projects in Australia, telling investors the cost of the project had not changed, aside from foreign exchange movements.
It said project economics were “robust”, with a break-even oil process of $35 per barrel over project life to cover all estimated project costs and an oil price of $50/bbl allowing Origin to recover its weighted average cost of capital on its cash injection into the project.
Origin managing director Grant King hailed the FID as a major milestone for the project and for Origin.
“As one of Australia’s largest LNG export projects, the Australia Pacific LNG project stands to deliver significant value to Origin shareholders and to Australia, as well as jobs for the Australian community," he said.
“The incremental benefit of the second LNG train will strengthen the project’s already robust economics."
RE: UPDATE 3-Conoco, Origin expand Australia LNG project despite cost pressures - Tree - 07-05-2012
Hey, I thought Aussie LNG Projects had crappy economics and they still are extremely profitable!!
This WSJ Blog report has a couple insightful tid-bits on this dealio.
IOC's large construction pre-investment, willing production partners and signed OTakes have raised prices for buying into PRL15. (T-2 success didn't hurt that cause either.)
Gee, any ideas why RDS is hemming and hawing on their Aussie Project??
**********
By Ross Kelly
Price tags for stakes in Australian liquefied natural gas projects are rising fast.
So much so that rough estimates ConocoPhillips and Origin Energy will get around US$1.5 billion combined by selling down another 15% of their Australia Pacific LNG joint venture could be off the mark. And by a long way.
Various brokers on Wednesday referenced $1.5 billion because that’s how much China Petrochemical Corp., or Sinopec, paid for its first 15% stake in Conoco and Origin’s joint venture. This week, Sinopec finalized the purchase of another 10% for $1.4 billion.
[b]Investors, however, need to consider that any newcomer will be buying into a project that’s partly built. APLNG is estimated by its partners to cost around $20 billion, so it stands to reason that newcomers should pay more because there’s less risk and they won’t have to spend as much on construction costs.
[/b]
Kudos then to Adrian Wood, an analyst at Macquarie Group, who’s made a decent fist of crunching the numbers.
Mr. Wood estimates that about $690 million of capital expenditure has already been plowed into the 15% stake that’s up for sale.
He also recognizes that time is money, because a new investor won’t have to wait as long to get revenue from first LNG sales in 2015. This adds another A$254 million.
Mr. Wood therefore reckons that Conoco and Origin could be looking at getting around $2.6 billion for their combined 15% stake, or $1.3 billion each.
Would anyone be prepared to pay this much?
APLNG has already wrapped up marketing for its LNG output under long-term contracts, so a purchase won’t come with an attached LNG offtake deal. Buyers, however, will get access to APLNG’s vast coal seam gas resource, which could feed an expansion of APLNG at a later date, or rival projects.
John Hirjee, an analyst at Deutche Bank, says independent oil companies seeking LNG exposure such as Thailand’s PTT Exploration and Production are the most likely bidders. He also see potential interest from Kansai Electric Power, the Japanese utility that already has a supply deal with APLNG but no equity stake.
But Origin and Conoco face competition for buyers with BG Group, which is also seeking a new investor for its LNG project nearby in Queensland.
A more mouth-watering possibility is Royal Dutch Shell.
The Anglo-Dutch oil major wants to build a rival LNG project with PetroChina, but it’s the only one of four LNG projects in Queensland yet to begin construction.
“Entry into the APLNG project could enable Shell to possibly integrate the project with its existing upstream resource position in Queensland,” Mr. Hirjee says, noting Origin remains open to a tie-up with a competing project.
The flow of mega-deals in Queensland might not be over yet.