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December 2005

Vol. 10, No. 50 Week of December 11, 2005

Petroleum News: Timor-Australia cut deal on Sunrise gas: "Chevron has 50 percent of Gorgon, while Shell and ExxonMobil own a quarter each. Shell has said its share of the production will go to Sempra’s Baja California terminal.": Saturday 10 Dec 2005

Woodside appears to be pushing ahead with new Pluto field instead, until questions about Timor Sea border issues fully resolved

Allen Baker

Petroleum News Contributing Writer

Negotiators for Australia and East Timor apparently have come up with a formula for sharing cash flow from the giant Greater Sunrise gas field that sits in the Timor Sea between the two nations. But Sunrise operator Woodside Petroleum Ltd. appears to be concentrating instead on its 100 percent owned Pluto discovery, which doesn’t carry international boundary complexities or partner issues.

Australian Foreign Minister Alexander Downer told his country’s parliament Dec. 1 that the two governments reached a tentative agreement on splitting the billions of dollars in royalties expected from Sunrise development.

If it goes through as envisioned, East Timor could receive $14 billion over 20 years. The country, with just three quarters of a million residents, was devastated by its long war for independence from Indonesia.

But the development agreement reportedly has some ticklish provisions, and it might well be rejected by East Timor’s legislators. Until the formal signoff by both countries, Australia’s Woodside is unlikely to make any moves at all.

Perth-based Woodside, a third of which is owned by Shell, put Sunrise on hold last year because of the border controversy. Still, Sunrise is a rich deposit, expected to yield something like $40 billion in natural gas and liquids.

Woodside said it welcomed the government announcement but hadn’t yet seen the contents of the agreement between the two countries.

“The future of the Sunrise gas project remains dependent on several factors, including the fiscal regime under which it would operate, the cost and location of any development and the successful marketing of the resource,” the company said.

Pluto LNG agreement

Meanwhile, Woodside said Dec. 1 it has North Asian buyers for 3.5 million to 4 million tonnes of LNG annually from Pluto, which was discovered just last April.

The sales number is more than half of the project’s initial capacity of 5 million to 7 million tonnes. The sales would be worth somewhere around $11 billion over their 15-year terms, and there’s a five-year extension option as well. A million tonnes of liquefied natural gas converts into roughly 48 billion cubic feet of natural gas.

Heads of agreements are due for signature over the next few months and firm purchase agreements by the end of 2006, Woodside said, with a final investment decision in 2007.

In addition to its Asian customers, Woodside says discussions are progressing with potential U.S. customers for additional LNG from Pluto, which sits about 120 miles off Western Australia. China, which backed away from a major commitment for Gorgon LNG, doesn’t appear to be a factor in this deal.

For Woodside, the 100 percent owned Pluto deposit could be a major plum, and the company already has plenty of technical credibility from its successful operation of the one-sixth-owned North West Shelf venture, which is nearby. Pluto shipments would start in 2010 under the company’s current swift timetable.

As for Sunrise, Woodside owns 33.4 percent and will have to share production there with ConocoPhillips (30 percent), Shell (26.6 percent) and Japan’s Osaka Gas Co. (10 percent).

Sunrise is expected to cost about $5 billion to develop, compared with about $4 billion for Pluto.

Another Gorgon sale?

Chevron Corp. was reportedly nearing an agreement with Japan’s Osaka Gas Co, for LNG from the Greater Gorgon project, according to reports from Dow Jones and Reuters.

The deal is said to involve 1 million to 1.5 million tonnes of LNG annually for 20 to 25 years starting in 2010.

That builds on major recent Gorgon sales to two other Japanese utilities, Tokyo Gas Co. and Chubu Electric Power Co. Those sales volumes are 1.2 million and 1.5 million tonnes for 25-year terms. All three Japanese companies are reportedly considering equity stakes in Gorgon.

Earlier plans for China’s CNOOC to take Gorgon LNG appear to be moving off the stage. The Chinese firm backed away from its tentative deal with Chevron over the higher prices that Asian gas is now commanding.

Chevron has 50 percent of Gorgon, while Shell and ExxonMobil own a quarter each. Shell has said its share of the production will go to Sempra’s Baja California terminal. Exxon’s isn’t spoken for.

Still, the lack of contracted supply and the long-term deals for Australian LNG call into question whether China will continue its aggressive plans to build more than a dozen LNG terminals along its coastline and boost its use of the fuel dramatically.

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