ConocoPhillips today announced approval of the final investment decision for the initial train of a two train liquefied natural gas (LNG) 9.0 million tonnes per annum (MTPA) project by Australia Pacific LNG in Queensland, Australia.
Project sanction includes development of the necessary resources from Australia Pacific LNG’s 24 trillion cubic feet of coal seam gas (CSG) resources in the Surat and Bowen Basins to supply the first train requirements, installation of a transmission pipeline from the onshore gas fields to the LNG facility on Curtis Island and infrastructure commitments to support a second train.
LNG exports from the first train are scheduled to start in 2015 under a binding sales agreement for 4.3 MTPA with China Petroleum & Chemical Corporation (Sinopec Corp.).
“This decision marks an important milestone for the Australia Pacific LNG project and ConocoPhillips,” said Jim Mulva, ConocoPhillips Chairman and Chief Executive Officer. “Australia Pacific LNG has one of the largest CSG reserve positions in Australia and with the project sanction ConocoPhillips builds on its position as the world’s largest producer of CSG. The final investment decision reinforces our commitment to deliver safe and reliable energy to the world, and this world-class project is well placed to help meet the growing demand for LNG in Asia.”
“With the strengthening LNG market and Australia Pacific LNG’s superior natural gas resource position, we expect to sanction the second train in time for early 2016 deliveries,” Mulva added.
Sanction of the project also satisfies the final condition precedent for Sinopec’s subscription for a 15% interest in the Australia Pacific LNG joint venture. The subscription agreement is now unconditional, following receipt of approvals by the Australian and Chinese governments. On completion of Sinopec’s subscription, expected in early August, Australia Pacific LNG will become a joint venture among ConocoPhillips (42.5%), Origin Energy (42.5%) and Sinopec (15%).
The estimated gross capital cost of the two train project is US$20 billion and, post start-up of the second train, the project has an anticipated peak production net to ConocoPhillips of 115-120 MBOED. With Australia Pacific LNG’s F&D cost of $13-$14/BOE, excluding acquisition cost, and a project life of at least 30 years, this project provides a source of long-term earnings and cash flow to ConocoPhillips’ portfolio and delivers returns that are competitive with other LNG projects.
This decision follows the preparation of a detailed Environmental Impact Statement, consultation with more than 6,000 stakeholders, including landowners, regional councils and non-government organizations over the past three years, and the receipt of federal and state government approvals.
The decision also provides an immediate trigger for the development and construction of project facilities. The engineering, procurement and construction contracts for the LNG facility have been awarded to Bechtel International, Inc. and Bechtel Australia Proprietary Limited, building on the successful collaboration between ConocoPhillips and Bechtel using ConocoPhillips’ Optimized Cascade® LNG process. Early site works for the project have commenced and long lead items have been ordered to maintain the project schedule. Upstream work has also commenced and is being managed by Origin Energy Limited, leveraging its significant CSG experience in Australia.
Origin Energy and ConocoPhillips previously agreed, subject to certain milestones, that final investment decision payments on the first two trains of the project will be deferred until ConocoPhillips achieves an agreed cash rate of return on its project investment, including acquisition cost. In accordance with that agreement, this project sanction defers ConocoPhillips’ final investment decision payment for the first train of the project.
