Dili holds firm on Sunrise pipe plan

Timor-Leste continued its push to pipe gas from the Greater Sunrise fields to an onshore liquefied natural gas plant near Dili, despite Australia’s Woodside Petroleum’s preference for a floating LNG solution.

Josh Lewis  22 June 2010 07:50 GMT

Timor-Leste said in a statement it intends to present a A$3.8 billion (US$3.3 billion) proposal to the Sunrise partners at a meeting in August. As well as a pipeline from the Greater Sunrise fields to Timor, the plan includes proposals to develop the country's south coast, which Dili said would become an oil and gas hub.

It was not made clear in the statement exactly what development costs the A$3.8 billion would cover, however earlier this month Woodside claimed an onshore LNG plant would cost A$5 billion more than its FLNG solution.

Woodside told Upstream today it will still believed its FLNG solution was the best option to develop Greater Sunrise. The Australian giant intends to push ahead with its original development plan.

Dili has claimed in the past Woodside and its partners are pressing for a floating plant so they can develop new technology. Last month, Prime Minister Xanana Gusmao said Timor-Leste was prepared to block Woodside’s development of the field, adding he realised it could cost his nation billions of dollars in revenue.

The Greater Sunrise joint venture's economic modelling shows Timor-Leste stands to make $13 billion over the life of the project for its 18% share. At the same time, the Australian government stands to earn about $19 billion from its 82% share.

The Greater Sunrise fields lay in jointly-run waters between Timor-Leste and Australia and is believed to hold about 5.13 trillion cubic feet of gas, as well as 300 million barrels of condensate.

Woodside's partners at Sunrise are Shell, ConocoPhillips and Osaka Gas.

Woodside hoping Timor will soften stance

THE Greater Sunrise gas partners -- led by Woodside Petroleum -- are hoping for a softening in rhetoric by East Timor.

IT is expected that the topic of the huge proposed gas project will be raised when East Timor President Jose Ramos Horta fronts the National Press Club in Canberra today.

Since plans to develop the Timor Sea gasfields through a floating LNG plant were announced in April, East Timor Prime Minister Xanana Gusmao has vehemently opposed them, saying he will only accept development through an LNG plant on East Timor.

He has called Woodside a liar trying to steal the fledgling nation's oil and gas. Political experts and commentators have also said East Timor's recent decision to accept training from China's navy on two gunboats was a pointed diplomatic rebuff to Australia that was related to the Woodside stoush.

But Mr Ramos Horta has been more measured than Mr Gusmao.

His more conciliatory tone at meetings with Woodside chief Don Voelte, who will be in Canberra today, and other senior executives has given the partners hope that Mr Gusmao's comments include some political posturing to score points off East Timor's opposition Fretilin Party.

After abandoning studies of an East Timor plant more than a year ago, citing difficulties crossing a 3km-deep ocean trench, Woodside and its partners last month also scrapped the option of developing the fields through a Darwin LNG plant.

Sources from among the Sunrise partners say the decision was partly made because there was no way East Timor would have accepted a Darwin plant.

They also say the strength of Mr Gusmao's subsequent negative response to a floating LNG plant was surprising.

East Timor has shown no signs it is prepared to entertain an $US11 billion ($12.5bn)-plus floating LNG plant.

Instead, it has continued to accuse Woodside and its partners of not fully investigating an East Timor option.

Mr Gusmao said Australia would get a greater share of the benefits of a floating LNG plant, for which Darwin would be a likely service hub.

"Diplomatic tensions remain an ongoing issue for the Sunrise project," Deutsche Bank analyst John Hirjee said.

He said Sunrise had only a 30 per cent chance of going ahead.

The good news for Woodside shareholders was that the market was not even pricing that into Woodside's share price.

No value has been ascribed to Sunrise, according to Deutsche Bank analysis.

Under treaty arrangements between Australia and East Timor, which share gas from the fields 50-50, Sunrise needs to be developed to the best commercial advantage in accordance with best oilfield practice.

On June 3, Mr Voelte said that the East Timor plant option would have had capital costs $US5bn higher than the proposed floating LNG plant, itself estimated to cost more than $US11bn.

He said also that $US13bn of revenue would be delivered to East Timor.

East Timor shot back the next day.

"Voelte omitted the operating costs over the life of the project along with fiscal and taxation regimes which demonstrate Timor LNG offers lower wages, maintenance costs and with a 10 per cent flat applicable tax rate," Secretary of State Agio Pereira said.

"The pipeline to East Timor becomes the most economically attractive option and offers the most commercial rate of return."

Mr Pereira said in an email that piping LNG to East Timor would cost "significantly less" than $US11bn.

"This would be consistent with the fact the field is 150km from the shores of East Timor . . . extensive studies have confirmed a pipeline is a much more economically viable and technically feasible option than floating LNG," he said.

Relations between the partners (including Shell and ConocoPhillips) and East Timor have soured since late April, when Woodside confirmed floating LNG as the preferred option.

East Timor's National Petroleum Authority, which oversees the Joint Petroleum Development Area shared by Australia and East Timor, has not welcomed the proposal.

At the end of a meeting last month with two Woodside executives, said to be have been cordial until East Timorese press arrived, petroleum authority president Gualdino da Silva refused to accept documents on the plan from Woodside.

A guard threw the documents in the back of the Woodside executives' vehicle as they left.

Mr Pereira has said that if Sunrise was not approved by 2013 or LNG production not started by 2017, existing treaties could be cancelled and project developments stalled while new treaties between Australia and East Timor were worked out.

Woodside is hoping Mr Ramos-Horta, a candidate to succeed Kofi Annan as UN secretary-general, will place more emphasis on international treaty obligations, requiring the Sunrise partners to develop the oilfields to best commercial practice.

But if a speech to the Northern Territory Parliament in late 2008 is a guide, Mr Ramos-Horta's rhetoric is not far removed from that of Mr Gusmao. Mr Ramos-Horta, who at the time was prime minister, said the decision on where to develop the field needed to be made on a technical and commercial basis.

But he said it needed to be worked out by an independent study.

"We will not bow to unilateral decisions made by these infamous CEOs who mismanaged world multinationals," Mr Ramos-Horta said in the speech, which was during the depths of the global financial crisis.

"I, for one, prefer to forgo Greater Sunrise than surrender to the dictates of a bunch of oil executive millionaires."

East Timor Proposes $3.8 Billion Gas Hub on its Soil

By James Paton

June 22 (Bloomberg) -- East Timor, opposed to Woodside Petroleum Ltd.’s plan to develop the Sunrise gas project using a floating plant, said it proposes a $3.8 billion oil and gas development hub on its southern coast.

Negotiations with Australia over the venture in the Timor Sea continue, government spokesman Agio Pereira said in an e- mailed statement today. The southeast Asian nation said it expects to put forward its plan later this year.

Australia’s second-largest oil and gas producer and its partners, including Royal Dutch Shell Plc, have opted to rely on floating liquefied natural gas technology for the development, saying that it will deliver the most revenue to both Australia and East Timor. The government of East Timor objects to any plan that doesn’t include a gas processing plant in the country.

Woodside has fulfilled all obligations governing the Sunrise project, the Perth-based producer said earlier this month. The company said it ruled out piping the gas to East Timor because it was more expensive and that floating LNG is the best commercial option for converting the gas to liquid form.

Roger Martin, a spokesman for Woodside, declined to comment.

Woodside dropped 0.4 percent to A$45.49 at 2:35 p.m. in Sydney trading, while the benchmark S&P/ASX 200 Index fell 0.9 percent.

‘Technical Risks’

Piping the gas to East Timor for processing would cost about $5 billion more than the floating LNG option and “presents significant technical risks,” Woodside Chief Executive Officer Don Voelte said earlier this month.

East Timor’s petroleum regulator last month refused to accept Woodside’s plan, insisting on more detailed analysis of alternatives, including building a plant in East Timor.

The Sunrise resources straddle a boundary between Australian waters and an area jointly managed by the two countries. The countries agreed to share royalties.

Woodside and its partners have exclusive rights to develop the fields and sell the gas, the company said. Woodside has a 33 percent stake in Sunrise, while ConocoPhillips has 30 percent and Shell has 27 percent. Osaka Gas Co. owns 10 percent.

--Editors: John Viljoen, Ang Bee Lin.

To contact the reporter on this story: James Paton in Sydney jpaton4@bloomberg.net.

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.

FLEX LNG seismic survey encounters 3Tcf of gas resources

Published Jun 17, 2010

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FLEX LNG says that the Anita and Wombat 2-D seismic surveys offshore Timor-Leste have been successfully completed. Preliminary results support a significant increase in the estimated gas resources of the main Chuditch structure and surrounding structures. Compared to the previous resource estimates the most recent analysis shows a potential increase in the Gas Initially In Place (GIIP) of up to 30-40%. This would bring the estimated GIIP figure for the Chuditch Main, Chuditch West and Wombat structures to a combined total of more than 3 tcf.

Commenting on the survey, Chief Executive Officer of FLEX LNG, Philip Fjeld stated, "We are excited that the 2009 survey confirmed the potential for substantial additional gas resources.

"Recent developments have shown the potential for floating LNG to monetize numerous gas resources in Australia and South-east Asia. We are hopeful that over time a number of these projects will be developed utilizing FLEX LNG Producers."

'Piping gas to Dili will cost $5bn more'

Australia’s Woodside Petroleum said today that the option of piping gas from the Greater Sunrise fields to a liquefied natural gas plant in Timor-Leste would cost $5 billion in capital costs more than its preferred floating LNG solution.

Upstream staff  03 June 2010 04:36 GMT

Woodside chief executive Don Voelte also said the Timor-Leste option presented "significant technical risks".

Voelte said the FLNG concept chosen by the joint venture provided "the best commercial advantage consistent with good oilfield practice".

The Woodside boss said that "contrary to what you may hear in the media about the Sunrise JV 'stealing' the resource from Timor-Leste" the joint venture's economic modelling showed Timor-Leste stands to make $13 billion over the life of the project for its 18% share. At the same time, the Australian government stands to earn about $19 billion from its 82% share.

The FLNG plan would see the project producing from seven subsea wells at field start-up. At full field development, the project will be produce from 26 wells via a distributed subsea gathering system, comprised of a number of main flowline headers.

Voelte said Woodside has submitted its FLNG field development plans to both countries' regulators, and these included feasibility studies on the two other options - Timor LNG and Darwin LNG - "with very clear reasoning behind our decision. Now it is the regulator’s turn to act"

Timor-Leste requires equitable benefits

9:51 June 2, 2010 0 comments

Press Release – Government Of Timor-Leste

The Government of Timor-Leste reaffirms that a pipeline from Greater Sunrise to Timor- Leste is the only way forward in the monetization of its resource. An equitable distribution of benefits between the two countries, Australia and Timor-Leste, and their peoples, …The Secretary of State for the Council of Ministers and

Official Spokesperson for the Government of Timor-Leste

Ágio Pereira

May 31, 2010

Díli, Timor-Leste

Statement by the Secretary of State for the Council of Ministers

Timor-Leste requires equitable benefits through Greater Sunrise

The Government of Timor-Leste reaffirms that a pipeline from Greater Sunrise to Timor- Leste is the only way forward in the monetization of its resource. An equitable distribution of benefits between the two countries, Australia and Timor-Leste, and their peoples, is an irrecusable imperative in this joint development.

Woodside and the joint-venture partners can only join and assist the two countries in implementing a policy for the Timor-Sea when and if they, as operators, fully understand, accept and comply with the overarching principles established by the treaties in force.

Authorized drilling of petroleum in the Timor-Sea offshore, and the integrated processing of it, shall promote long-term investment in the territories and the peoples of Timor-Leste and Australia, and not only Australia. The decision on how the peoples’ resources and seas should be best integrated and developed is a sovereign decision, not a commercial trade.

It is within the incontestable Government’s authority, on behalf the people it represents, to decide what rights should be “granted”, and consistently with them, which developments should proceed.

The Timor-Sea international arrangements did not privatize the common sea and heritage, which means that the Timor Sea is not, and will never be, privately run.

The international community and the Timorese should be made acutely aware of the profound significant economic benefits from on shore resource development; clearly outlined in a 2002 report conducted by the consulting firm ACIL for the Northern Territory Government, titled “Development Options for the Timor Sea Gas:

Implications for Australia”.

In this report two scenarios were presented:

1. Scenario A, pipeline from Bayu-Undan to Darwin and a FLNG for Greater Sunrise;

2. Scenario B, two pipelines to Darwin, respectively, from Bayu-Undan and Greater Sunrise.

A pipeline to Timor-Leste was not included or assessed.

For Scenarios “A” and “B”, the Centre for International Economics (CIE) estimated the economic benefits of both upstream and downstream activities on both the Northern Territory and the Australian economies. The CIE identified (60) sixty sectors of production in each economy, including oil and gas production, methanol production, the aluminum industry, gas pipeline transmission activity, electricity generation and various other industries; also with provision for capital inputs to production of general goods and services.

The macroeconomic model was cited as “conservative” – which is an undeniable truth given the economic benefits Bayu-Undan has already delivered. The report also exempts developments identified past 2012 such as petrochemical and ammonia/urea production.

Helium production, another recent expression of the enabling power of having feed gas onshore, was also excluded.

The economic impact, annually, as estimated in the report is as follows:

Scenario A: Pipeline from Bayu-Undan to Darwin and FLNG for GreaterSunrise (annually)

1. An increase of 35% to (NT) Northern Territories Growth State Product (GSP), for the whole of Australia, a three billion increase in Growth Domestic (National) Product (GDP);

2. An increase in real investment in the NT economy of 48 million;

3. Net overseas export from the NT of over 2,700 million (2.7 billion);

4. A permanent employment boost of 3264 in NT and almost double of that in the whole Australia;

5. An increase in the Commonwealth revenues of over $110 million.

Scenario B: A Pipeline to Darwin from both Bayu-Undan and GreaterSunrise (annually)

1. An increase of 45% to NT “GSP”, for the whole of Australia, a (4) four billion increase in GDP;

2. An increase in real investment in the NT economy of 82 million;

3. Net overseas export from the NT of over 3,300 million (3.3 billion);

4. A permanent employment boost of 5156 in NT and almost double of that in Australia;

5. An increase in Commonwealth revenues of over $210 million.

These numbers do not include any economic benefits to Timor-Leste. The independent studies clearly demonstrate that a pipeline is far more advantageous for the resource owners than an FLNG, and the economic benefits for Timor-Leste available through a pipeline from Greater Sunrise to Timor-Leste could transform the nation.

Furthermore, in [Report 49] “The Timor Sea Treaty”, Joint StandingCommittee on Treaties (Nov 2002) - the following statements are made:

1. [4:15] Woodside estimated Greater Sunrise reserves at 8 Tcf (trillion cubic feet of Gas);

2. [4:11] Shell and Woodside were investing in FLNG technology;

3. [4:31] Timor-Leste could ‘’expect” 100 million per year from the development of Greater Sunrise

(*note – Timor-leste currently intakes 100 million USD “per month”, from theexploitation of Bayu-Undan);

4. [4:25] In the event Sunrise participants brought gas onshore, Peter Brain of the National Institute of Economic and Industry Research estimated the financial benefit to be in the order of $22 billion with employment of a workforce of about 20,000.

In 2010, the operator, Woodside, suddenly, and without explanation, downsized the Greater Sunrise reserves figure, from 8tcf (in 2002) to around 5tcf , making the reserves figure barely compatible with the maximum capacity of a Floating LNG technology.

According to the study, “A breakthrough for Floating LNG?,”(Poten partners, NYC and UK) FLNG is a new development option used for either remote fields or to avoid long distance pipelines , “stranded gas reserves deemed too remote, too small, or otherwise too difficult for conventional land based LNG development”; all challenges which would justify additional costs and risks in development; but Greater Sunrise, a world-class field cannot be classified under the conditions which would constitute the need for a FLNG; a mere 150km off the coast of Timor-Leste, onshore development is much more prudent, risk adverse, commercially viable and economically transparent.

Experts also warn the FLNG is the most-complex offshore production operation ever attempted; with absolute unknowns; the technology is described as ‘economically mired with uncertainty,’ hardly the “cheapest” option Woodside is flouting given the uncertainty, long term maritime risks and the significant technical challenges, many of which have yet to be identified.

While the report also outlines the ‘significant’ commercial, legal and regulatory risks associated with this option; the marine location brings into play a broader range of rules and regulations, including national legislation, flag state regulations, class rules and international conventions; all considerations before a FLNG could ever be considered a viable concept.

Early estimations show the “capital cost” of a floating LNG, still considered “opaque”, will require a minimum 14% return to cover the perceived risks, the technology of a conventional pipeline is only 10.5%. Given the technology is so new, significant additional investment from the revenues of Greater Sunrise would be needed for these processes to reach “stable” status. Costs incurred during both the development and operational phases of an FLNG, like with any new technology, could skyrocket and significantly undercut revenues to Timor-Leste; delivering no downstream benefits or industries crucial to national development.

Regardless of the above considerations, the FLNG option has been a priority for Woodside and their joint-venture partners since before 2002: using the Greater Sunrise reservoirs, one of the fields in the world that could fund a project of this magnitude, as an inception ground for their extremely risky, but “portable”, new floating technology which can be reused after the field is depleted; bringing more economic benefits to the operators; none to the resource owners despite paying for the costly asset.

A simple truth: Woodside has chosen the best commercial advantage for Woodside and the JV Partners. Timor-Leste, a poor country highly dependent on petroleum revenue, more than any other country, cannot and will not responsibly accept such high level of uncertainty and risk.

Timor-Leste has stated clearly that it will not fund the new technology to benefit the future of corporate giants or contribute to their commercial advantage while disadvantaging the interests of the resource-owners. Nor will Timor-Leste refund new technology costs that deliver none of the “benefits in the downstream” that Timor-Leste, legitimately, this time requires.

Secretary of State Agio Pereira describes the “sell in” of the concept through the media as preposterous. “It is ludicrous to attempt to sell the FLNG proposal as being the best commercial advantage for Timor-Leste; in line with ‘best oil field practice’, when the practice does not even exist.”

Pereira confirmed Timor-Leste was happy to wait until which time the operators fully understood their responsibilities under the terms of the treaties and closed by saying “The lack of professionalism, transparency and attempts to misguide the process will not be accepted by our Government and our people. We, as a nation, are united with a clear vision which is translated into a national development strategy to guarantee sustainable and competitive development for the benefit of our country and future generations.”

Woodside Petroleum Ltd (ASX:WPL) defends decision not to develop LNG plant in East Timor

June 01, 2010 08:20 AM

Oil and gas company Woodside Petroleum Ltd (ASX:WPL) has reportedly defended its exit of the Greater Sunrise gas fields development in East Timor after claims it did not provide good enough justification to the nation.
A report in The Australian says East Timor is angry at the company’s decision not to go ahead with the development of the fields, saying it did not give clear enough justification as to its opposition to the concept of an East Timor LNG plant.
Woodside also decided not to go ahead with a proposed LNG plant in Darwin and instead moved to develop a floating LNG plant.
According to The Australian’s report, the oil and gas producer has tried to provide East Timor’s Petroleum Authority with evidence showing that a floating LNG plant is a cheaper option and an LNG plant in East Timor too expensive.
The paper says Woodside has told East Timor that the project will deliver US$13 billion of revenue to the country over the life of the project.
Woodside Petroleum earned $1.8 billion in 2009

Woodside Petroleum rejects East Timor claims

WOODSIDE Petroleum has rejected claims that it failed to provide East Timor with justification for its decision not to develop the Greater Sunrise gas fields in the Timor Sea through a liquefied natural gas plant in the fledgling nation.

East Timor has reacted angrily to the decision, declaring the Perth Oil and Gas Company had not done enough work to justify jettisoning the concept of an East Timor LNG plant.

Last month, Woodside confirmed it had also rejected a Darwin LNG plant, in favour of a floating LNG plant.

It is understood Woodside has tried to deliver documents to East Timor's National Petroleum Authority with analysis showing floating LNG was the cheapest option and an East Timor plant the most expensive.

According to the documents' cover letter, dated May 18, the presentation contained "A comprehensive analysis of the economic outcomes for each of the downstream development options and the establishment of an integrated development schedule indicating first gas in 2017".

Whether the East Timor government has seen the report is another matter.

After meeting Woodside executives Jon Ozturgut and Brendan Augustin, Petroleum authority president Gualdino da Silva refused to accept the documents, throwing them into the Woodside pair's car as they left.

Mr da Silva has reportedly said the two executives left the meeting without shaking hands or saying goodbye after he had told them he could not accept the documents.

But a Woodside spokesman said the meeting was cordial and denied the pair had walked out.

It is understood email versions of the documents could have made their way to East Timorese officials.

Deutsche Bank analyst John Hirjee estimates Woodside and its partners, Shell and ConocoPhillips, will need $US11 billion ($12.9bn) to develop the fields through a floating LNG plant.

He puts the chance of the project going ahead at 30 per cent.

Woodside has told East Timor the project would deliver $US13bn of revenue to the country over the project's life.

A Woodside spokesman said yesterday that international treaties between Australia and East Timor, which each own half the project's gas resources, meant the fields needed to be developed to the best commercial advantage, and that a plan to do so had been submitted to regulators in both nations.