Analysis: Voelte Bullish on Pluto LNG Despite Delay

Rigzone Staff

Woodside Energy has delayed its final investment decision (FID) on the Pluto liquefied natural gas (LNG) project until next year, Woodside CEO Don Voelte reported during the company's half-year 2010 results last week. However, Voelte confirmed that its Pluto project can accommodate five LNG train footprints, up from the three trains in the scope of the project's original FID, and that discussions with third-party suppliers to underpin the Pluto project continue. The project's existing infrastructure also has excess capacity, which can be sold to third parties or reserved for potential equity gas. Woodside's CEO also said he is "extremely comfortable" with Woodside's performance in the "challenging but manageable" environment. Thanks to stronger commodity prices, Woodside recorded net profit after tax of A$901 million (US$794.8 million), up 40 percent compared to the same period last year, and revenue of A$2.1 billion (US$1.8 billion), up 45 percent from the same period a year ago. However, some analysts have been critical of Woodside's mixed exploratory drilling results compared to Chevron Corp., the other major player in Western Australia's LNG market, which has enjoyed recent drilling success. Some media reports also have questioned whether Woodside would have enough supply through discoveries or third-party gas agreements to support the Pluto expansion. Still, Woodside has plenty of options to spend cash on new field developments, said commodities analyst Peter Strachan, who believes additional gas will be found to support additional trains at Pluto. "However, it may take an additional 12 to 18 months to bed it down." Pluto was only ever a one-train project, with options for trains two and three subject to gas availability. "In the meantime, WPL [Woodside] will be able to fill its balance sheet up with a bit of cash from Pluto's operating cash flow, while it continues to spend money on Browse LNG, exploration and other projects." The idea of rolling on to the second and third phase of the project was seen as optimal, so as to keep the team together from Pluto I. "But if that cannot be achieved, it's no big deal," said Strachan, adding it was better to demobilize the team and start again in 12 or 18 months than jump ahead of themselves. Voelte said that the Pluto LNG foundation project is 92 percent complete, and that its recently announced Larsen Deep and Alaric discoveries have opened up a new deeper play and new hydrocarbon province that can underpin Pluto. Pluto remains on track for start-up at the end of February 2011 and first LNG by the end of March 2011, contingent on weather and favorable industrial relations environment. All modules onshore are in place and heavy lifts have been completed, with hook-up and commissioning operations left. "So now, critical path delays are thought of in days or weeks. Even if we do experience disruptions we are not expecting significant schedule slippage now that a number of key critical milestones have been reached," Voelte said. Woodside has greatly reduced the downside risk of the project due to the increase in the P90 reserve base over 25 percent. By the time Pluto is in plateau production, it will contribute around 40 percent of Woodside's total equity production, an estimated 40 percent of revenue and approximately 50 percent of operating cash flow, Voelte said. Reasons for Delay Woodside had set a target to make an FID decision in December for Pluto Train 2, anticipating the construction schedule for Chevron's Gorgon LNG project and setting the schedule to avoid going head to head on construction skills and resources. Woodside also anticipated its exploration drilling would have progressed to a point where we would have definition of resource gas for a go/no FID decision, Voelte said. However, the head to head resource battle with Gorgon has not turned out as forecast. Progress at Gorgon has not developed as Woodside anticipated and Woodside no has a longer period of time to take an FID decision. Woodside's exploration campaign also has not progressed as rapidly as planned, which has contributed to the delay in the Pluto FID decision. One of two deepwater drilling rigs contracted to Woodside was a year late coming from the shipyard and two wells ran into mechanical difficulties, resulting in only 10 of the 20 original prospects being tested. Voelte said the investment community "is now seeing how difficult the environment is for building a solid, long-term, economically robust E&P business, and in particular LNG projects with strong reserves." "In fact, I believe too much media emphasis is put on the public fanfare of new project announcements, versus the importance of strong economic returns from a company's base business and the ability to execute the construction of new projects on time and cost," said Voelte, noting that, despite all the fanfare for 100 million tonnes/annum of new LNG projects, only two projects, Pluto and Gorgon, have had FIDs made on them. Woodside's exploration program for its Pluto expansion has resulted in six discoveries from the first 10 prospects, with six more wells scheduled for drilling this year and at least six in 2011. Woodside is utilizing semisubmersibles Maersk Discoverer and Ocean America for this drilling program.

AWE Seals Deal for Sale of Perth Basin Gas

AWE Ltd.

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Wednesday, August 18, 2010

Perth Basin Location Map AWE announced that it had signed a new gas contract for the sale of Perth Basin gas to the Western Australian energy retailer Synergy. This contract execution has been made possible by recent significant gas discoveries in the Perth Basin, and includes all of AWE's currently uncontracted gas in its existing gas fields and also includes the recent developments at Corybas-1 (AWE 50.0%), Redback South-1 and Redback-2 (AWE 33.0%) wells. The gas sales will start immediately and will be for a period in excess of 5 years. Under the agreement with Synergy, AWE will sell up to 38 Petajoules of gas, and under a separate arrangement with Origin Energy, AWE will source up to 25 PJ of this gas from Origin's Perth Basin interests including Redback, Redback South and Corybas 1. The contract is subject to confirmation of reserves by the end of 2010 and WA Ministerial approvals.

$2.4b Bill for Oil Spill Nowhere Near Enough, Activists Claim

Eras Poke | August 27, 2010
Kupang. Indonesia’s official compensation claim of Rp 22 trillion ($2.44 billion) for last year’s oil spill in the Timor Sea is grossly inadequate, activists say. 
“We strongly reject the amount because it is not based on scientific research,” said Ferdy Tanoni, head of the West Timor Care Foundation, which has been lobbying on behalf of fishermen affected by the spill. 
“If the environmental damage turns out to be more than Rp 22 trillion, who’s going pay the deficit? The local government does not have the money to cover it.” 
Indonesia’s negotiating team on Wednesday presented the claim to Thailand’s state-controlled PTT Exploration and Production. Its subsidiary, PTTEP Australasia, was operating the Montara oil rig when it caught fire off Australia’s northern coast in August last year and leaked about 400 barrels of oil a day for 74 days. 
Indonesia claims the spill has affected large areas off East Nusa Tenggara, with fishermen reporting significantly lower catches. However, PTTEP chief executive Anon Sirisaengtaksin said the energy firm and the Indonesian government had major differences over what the economic impact would be for fisheries and coastal communities. The company has said “no verifiable evidence has yet to be presented to support any claim.” 


Transport Minister Freddy Numberi, who is also head of the team handling the oil spill, said compensation was now being negotiated. “The important thing is that we have already made our claims and there will now be other meetings which I hope will not last a long time,” he said. 
But Ferdy said the government should have taken longer to determine how much compensation it was going to claim because about 1.5 million people in East Nusa Tenggara were depending on it. 
“To clean up a 3,400-square-kilometer area of the ocean in Alaska contaminated by the Exxon Valdes tanker explosion in 1989 they spent $3.6 billion,” he said. “But for Timor sea incident, which spread across 78,000 square kilometers, the figure is only Rp 22 trillion? 
“The Alaska incident happened 21 years ago but the impact is still being felt.” 


Ferdy said that if in five years it was found that the 1.5 million people in the province were still eating contaminated fish, the government would not be able to press for more money. “We have formed the Timor Sea pollution monitoring agency which will deliver its own claims,” he said. 
“This agency consists of ocean experts from universities in the province, Australia and France. We will be sending the claim to them on September 10.” 
But the deputy governor of East Nusa Tenggara, Esthon Foenay, said the local government has already given the province’s official compensation claim to Jakarta. “The ones doing all the negotiating are the advocacy team,” Esthon said. “We only prepared evidence about the contamination in Kupang district, Kupang city, Rote Ndao, Sabu, Belu, Sumba, East Timor, and Lembata districts.” 


Alex Oematan, the head of the East Nusa Tenggara Environmental Agency, said the compensation the province received would be distributed to affected fishermen and sea weeds farmers and spent on cleaning the water. 
“It will also go to recovery of coral reefs, which could cost Rp 3.5 million to Rp 4 million per square meter of coral reef.” 

Aussie Miner to Trial Underground Coal Gasification

by Asia Pulse Pte Ltd

July 26, 2010

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A West Australian mining company is planning to trial underground coal gasification (UCG) in the same southern Queensland town where another UCG project was forced to shut down because of a water contamination scare.

Cougar Energy's (ASX:CXY) UCG pilot plant at Kingaroy, northwest of Brisbane, was closed down last week after traces of the cancer-causing chemicals benzene and toluene were found in bores near the plant.

The Kingaroy community is now horrified to learn another mining company plans to trial UCG, the burning of coal underground to create a gas that is piped to the surface, within kilometers of the town.

Red River Resources managing director and geologist John Karajas told AAP the company wants to set up a pilot plant about three to five kilometres south of the Kingaroy township.

Mr Karajas said this was subject to shareholder approval and the lifting of the Queensland government's moratorium on new UCG projects since the water contamination scare.

He said he believed the technology was safe and won't affect ground water.

"Any waters produced during the underground coal gasification process would be limited around the coal seams and there wouldn't be much communication with other ground water in the area," Mr Karajas said.

"It's my sincere belief that UCG is a better way for power generation than digging up coal and burning it.

"It probably has less of a carcinogenic effect than burning coal at power stations."

A spokesman for Natural Resources Minister Stephen Robertson said no other UCG trials were being considered until the industry was proven to be viable.

Red River Resources' website says the Kingaroy area was unlikely to be declared "off-limits" for further UCG trials beyond 2012-13.

There are a total of three pilot plants, including Cougar Energy's plant. Linc Energy (ASX:LNC) and Carbon Energy run two other UCG projects near Chinchilla.

The Kingaroy Concerned Citizens Group spokesman John Dalton said the technology was filthy and should be banned.

"After only a few tonnes of coal were burnt at the Cougar plant levels of benzene reached the maximum allowable levels for drinking water," Mr Dalton said.

"Imagine the impact if the plant burnt the 20,000 tonnes of coal allowed in its permit."

The town is holding a community meeting about the latest development on Tuesday. 

Gas Discoveries Support Australia LNG Expansion

by Ross Kelly   Dow Jones Newswires

August 17, 2010

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SYDNEY (Dow Jones)Three significant deep water gas discoveries off the west coast of Australia announced this week by Chevron Corp. (CVX) and Woodside Petroleum Ltd. (WPL.AU) could support the expansion of two giant liquefied natural gas projects, adding momentum to the nation's emergence as a top natural gas exporter.
Chevron on Monday said its Acme well about 150 kilometers off the coast of Western Australia state encountered a net gas pay of 896 feet, making it "one of our most significant natural-gas discoveries in Australia". It was one of nine discoveries by Chevron in the area since August 2009 and twice the size of its next biggest discovery there.
It came as Perth-based Woodside said the Larsen Deep-1 and Alaris-1 wells struck material amounts of gas. Larsen Deep-1 is owned in a joint venture with Hess Corp. (HES).
A projected surge in demand for cleaner-burning fuels from developing Asian economies is prompting energy companies to invest billions of dollars on exploration campaigns and large-scale gas export projects.
Chevron, America's second biggest oil company, is building two LNG projects in Western Australia state: Gorgon and Wheatstone.
Australia's stable political environment, substantial gas reserves and proximity to Asia make it an attractive place to invest, particularly with U.S. gas prices kept low by ballooning domestic supplies.
Gas found offshore Western Australia would be piped to onshore LNG processing facilities, compressed into liquid, then loaded onto tankers for export.
Chevron is investing so heavily in Australia that it could be as big a profit-driver for the company as its U.S. operations are now by 2020, former Chairman and Chief Executive David O'Reilly predicted in October.
Vice Chairman George Kirkland told Chevron's most recent quarterly earnings briefing that the company already has enough gas to support four LNG production units, also known as trains, at Gorgon, located on an island nature reserve capable of accommodating five trains.
The Wheatstone site, at the town of Onslow on the Australian mainland, is big enough to accommodate six trains and Chevron said Monday that it expects the Acme discovery to help underpin a potential expansion of Wheatstone from a current two-train development.
Initially, Chevron and its Gorgon joint venture partners, Royal Dutch Shell Plc (RDSB.LN) and Exxon Mobil Corp. (XOM), want to build three trains at Gorgon capable of producing 15 million metric tons of LNG a year for an estimated cost of A$43 billion. Chevron also wants to build two trains at Wheatstone by 2016 and expects to sanction that development in the second half of 2011.
It announced last month that Wheatstone will have a maximum annual production capacity of 25 million tons.
To support Wheatstone's foundation development, it has already agreed to buy third-party gas from Apache Corp. (APA) and Kuwait Foreign Petroleum Exploration Co. to combine with its own discoveries. "We see Wheatstone as a hub," Kirkland said last month. "It's a hub to bring in our gas and other industry gas."
Its plans for Wheatstone are attracting the attention of others, including BHP Billiton Plc (BBL), which have undeveloped discoveries in the same area and are looking for cost-effective ways to bring their gas to market.
Chevron is competing for gas supplies with Woodside, which has big LNG ambitions of its own.
Woodside operates Australia's biggest operational LNG terminal, the North West Shelf, and wants to build another three LNG terminals: Pluto, Browse and Sunrise.
On Tuesday it said Larsen Deep-1 encountered 50 meters of gas, equivalent to 162 feet, over several intervals, its second gas discovery off the coast of Western Australia in as many days.
The discovery is a lot smaller than a 185 meter continuous gas column Woodside encountered at the Alaris-1 well, reported Monday, but is much closer to the coast and within 9 kilometers of the previous Martell and Noblige discoveries.
Both discoveries firm up Woodside's chances of sanctioning an expansion of its Pluto LNG project to two trains by the end of 2010. If it develops the larger Alaris discovery, however, Woodside will have to build a 400 kilometer pipeline to an existing platform in the Pluto field.
Woodside wants to sanction a third train at Pluto by the end of 2011 and said its onshore site, near the North West Shelf terminal at Karratha, could accommodate five trains.
The 2010 final investment decision target for train two was notably absent from Woodside's second quarter production report last month, following a few disappointing exploration results.
The company is expected to provide an update on the expansion when it releases its first half profit results Wednesday.
E.L. & C. Baillieu director Ivor Ries said an initial analysis indicates the Noblige-Martell-Larsen structure has the potential to contain between 5.4 trillion and 6.8 trillion cubic feet of gas, more than enough to support a second LNG train at Pluto.

Holloman to Continue Exploration at Cooper Basin Despite Flooding

Holloman Energy Corp.

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Thursday, August 12, 2010

Cooper Basin Holloman updated on the continued progress of its Cooper Basin exploration efforts. Despite the negative impact of a rare 100 year flood event, Holloman's Cooper Basin neighbors have announced aggressive drilling plans. During June and July 2010, Victoria Petroleum N.L. and Drillsearch Energy Ltd. announced their intention to drill up to 15 new wells on the Cooper Basin's western margin oil permits. Holloman also continues to make significant progress in its Cooper Basin exploration, including the pursuit of possible opportunistic acquisitions in the area. Heavy rains beginning in February 2010 created wide scale flooding in the Cooper Basin. The inaccessibility of roads and facilities has resulted in a partial curtailment of Cooper Basin oil production and a general contraction of exploration activities. Flood waters have begun to recede, but exploration within substantial areas of the basin remains temporarily impractical. Holloman believes the results and timing of its current joint venture negotiations have been affected by the magnitude of the flooding. Consistent with its 2010 exploration plan, Holloman has completed processing more than 666 km (414 miles) of 2D seismic data. This data covers a significant portion of Holloman's PEL 112 and PEL 444 licenses. The Company understands that the receding of the flood waters will likely result in access to PEL112 occurring before access to PEL 444. Holloman continues the necessary steps to obtain "Work Area Clearances" and acquire additional targeted 3D and 2D seismic data on these concessions. "Our positive assessment of the Cooper Basin remains unchanged," stated Mark Stevenson, CEO of Holloman Energy. "While flood delays have temporarily dampened potential joint venture enthusiasm, the underlying asset value of our 1.125 million acres remains high. We are seeking the right partner under the right terms. In fact, under the current circumstances, we are motivated to pursue the acquisition of additional Cooper Basin acreage."

Analysis: Shale Gas to Help Meet Chinese Future Energy Demand

Tuesday, August 03, 2010

Wood Mackenzie reported that unconventional gas, particularly shale, will increase significantly to help meet China's strong gas demand growth. In its recent study, Race for Supply – the Future of China's Gas Market, domestic unconventional production will account for over a quarter of total gas supply by 2030. However, unconventional gas resources will take a significant time to develop and therefore meeting its gas demand will require China to import significant additional volumes of liquefied natural gas and piped gas, particularly up to 2020. "Development of indigenous unconventional gas is currently slow but we forecast significant volumes of coal bed methane, coal-based synthetic gas and shale gas to enter the market, reaching over 11 billion cubic feet per day (Bcfd) by 2030," said Gavin Thompson, China Gas Study Director for Wood Mackenzie. "This will meet much of China 's incremental demand by this time. In total, unconventionals will account for over a quarter of total gas supply." Wood Mackenzie reports that shale gas is the major growth story in China gas. "As China's national oil companies increase their unconventional gas activity, they will look for partnership and technology in the initial phase of development, creating a window of opportunity for qualified foreign players. This is a near-term window of opportunity for international oil companies to gain access to China's onshore acreage and to leverage skills honed in North America." As part of its efforts to develop shale gas resources at home, China and the U.S. formed in November 2009 a shale gas initiative to help reduce greenhouse gas emissions, promote energy security and promote environmentally sustainable development of shale gas resources. Through the initiative, the two countries will conduct joint technical studies to support accelerated development of shale gas resources in China. The initiative also will promote shale gas investment in China through the U.S.-China Oil and Gas Industry Forum, study tours and workshops focused on shale gas development. The potential for gas production in the U.S. from hydrocarbon-rich shale formations, known as "shale gas" has grown dramatically in recent years due to technological advances. The development of shale gas is expected to significantly increase U.S. energy security and help reduce greenhouse gas pollution. "The United States is not alone in having significant shale gas resources. China also has sizable shale gas potential but, like in many countries, this potential is not yet well understood." In its International Energy Outlook, the U.S. Energy Information Administration said the Chinese government's efforts to increase natural gas usage mean that development of tight gas, shale gas, and coalbed methane resources has increased in recent years. However, coal will still play a significant role in meeting China's energy needs, with the usage of coal. Thompson of Wood Mackenzie said China's demand for LNG is driving Pacific LNG market growth. "We now forecast China LNG demand in 2020 to be 46 million tons per annum (mmtpa), up from our previous forecast of 31 mmtpa. This will expand the opportunity for LNG suppliers seeking to secure markets, particularly those in Australasia. "However, China's LNG import growth will be mitigated by the emergence of indigenous unconventional gas. Consequently there will be a limited opportunity for some LNG suppliers to secure long term supply or risk seeing China disappear as a potential foundation buyer for their projects." China's gas demand is forecast to rise from 9 Bcfd (93 billion cubic meters) in 2009 to 43 Bcfd (444 billion cubic meters) in 2030, a compound annual growth rate of 7.5 percent, with strongest growth pre 2020. This strong demand growth, said Wood Mackenzie, will not purely be driven by gross domestic product. Gas demand is being driven by a number of factors, including policies to reduce the country's growing reliance oil imports. "This is important as the gas demand story is about displacing oil products, not coal, in the industrial and residential sectors. Coal continues to dominate in power, although gas will increase its market share in wealthier coastal provinces as local government supports a cleaner fuel mix. As such, we think that industry will remain the largest gas consumer in China through to 2030." U.S. China Shale Initiative The Chinese government is encouraging the use of more natural gas to meet its burgeoning domestic energy needs while reducing its level of greenhouse gas emissions through cleaner-burning gas and renewable energy resources. The country and its exploration and production companies are reaching out to foreign companies experienced in shale gas drilling to learn how to explore for and develop China's untapped shale gas resources. ExxonMobil last week was reportedly in talks with PetroChina to explore for and develop an unconventional gas block in northern China. Other Chinese companies have been partnering with foreign companies to develop shale gas. In March, Shell and PetroChina's parent company China National Petroleum Corp. (CNPC) signed an agreement to develop tight gas reserves in Sichuan province in central China. Under the 30-year contract, Shell and CNPC would appraise and poetntially develop tight gas in a 4,000 square kilometer area in the Jingiu block. In June, CNPC signed an agreement with EnCana to develop shale gas reserves at Horn River, Greater Sierra, and Cutbank Ridge in northeast British Columbia. EnCana would be operator of all developments, with CNPC investing capital to earn an interest in the assets and gain an advanced understanding of unconventional gas development through an ongoing sharing of technical knowledge. Last November, the U.S. and Chinese governments unveiled the U.S.-China Shale Gas Resource Initiative to help reduce greenhouse gas emissions, promote energy security and create commercial opportunities for U.S. companies. Through the initiative, the experienced gained by U.S. companies in shale gas drilling will be used to assess China's shale gas potential and promote environmentally sustainable development of shale gas resources. China and the U.S. will conduct joint technical studies to support accelerated development of shale gas resources in China. The initiative also will promote shale gas investment in China through the U.S. China Oil and Gas Industry Forum, study tours and workshops focused on shale gas development. "The United States is not alone in having significant shale gas resources. China also has sizable shale gas potential but, like in many countries, this potential is not yet well understood," said President Barack Obama and Chinese President Hu Jintao at the unveiling of the initiative. The United States is a leader in shale gas technology and developing shale gas resources in a way that mitigates environmental risks. Bringing this expertise to China will provide economic opportunities for both the U.S. and China, while improving energy security for both countries and combating climate change."