Woodside Petroleum remains confident of pushing ahead with its fast-tracked expansion of its Pluto liquefied natural gas project, despite missing out on third party gas supply agreements to rival LNG developer Chevron.
Woodside Petroleum remains confident of pushing ahead with its fast-tracked expansion of its Pluto liquefied natural gas project, despite missing out on third party gas supply agreements to rival LNG developer Chevron.
Chevron overnight signed the first third party gas supply deals needed to underpin its planned $25 billion Wheatstone LNG project off Onslow, with Apache Corporation and Kuwait's Kufpec Petroleum to supply gas from their Julimar and Brunello gasfields.
Apache and Kufpec will emerge with a net 25 per cent interest in the foundation Wheatstone project, due to be commissioned in 2016. Apache's share in the project will be 16.25 per cent, and said its share of development costs would be $US2.9 billion. It will separately spend $US1.2 billion on offshore development of Julimar and Brunello.
Investors viewed the deal as a major blow for Woodside, which had been in formal discussions with both companies as potential gas suppliers to the expanded Pluto LNG development.
While Woodside's Pluto and Xena fields hold about 5 trillion cubic feet of gas - enough to fill Pluto's initial production train due to come onstream next year - it does not yet have reserves to support a second and third train planned to come onstream in 2013 and 2014 respectively.
Having already commenced costly front end engineering and design work on the $20 billion Pluto expansion, Woodside shares dropped more than 1.7 per cent to $51.80 in afternoon trade.
However, the company denied the Wheatstone deal was a setback and said it had no impact on its plans for the Pluto expansion.
"Woodside remains in discussions with several third party gas owners in the Carnarvon basin over the potential processing of their gas through Pluto," the company said.
"Those discussions will continue to be based on delivering acceptable value to all parties."
Woodside declined to comment specifically about Wheatstone agreement, but it is believed to be surprised at the generosity of Chevron's offer, particularly its preparedness to hand over 25 per cent of its foundation development to Apache and Kufpec.
Woodside has ruled out offering any additional equity in its initial Pluto development to outside parties above the 10 per cent already sold to founding Japanese LNG customers. Instead, it has indicated between 10 and 35 per cent of the second and third LNG trains could be offered to outside parties if terms acceptable to Woodside could be reached.
In August, Woodside chief Don Voelte said third party gas would have to meet strict economic criteria if it were to displace any Woodside-owned gas in the production schedule, especially given its confidence in finding more gas in its own permits.
Woodside this month began one of its biggest ever domestic exploration programs aimed at securing more gas for the Pluto development.
The program currently comprises 21 wells targeting five "hubs" in the so-called Greater Pluto area over the next 18 months, which together contain 39 prospects and over 35 leads.
In terms of gas potential, the prospects range in size between 500 billion cubic feet and 10 trillion cubic feet.
Woodside has estimated it would need to find only 3.8 trillion cubic feet of gas to keep a second Pluto train full for 15 years, and 7.6tcf to also support a third train. A discovery of 15tcf or more would be enough to keep five LNG trains fully supplied for 15 years.
Importantly, success rates in the Carnarvon basin have significantly increased in recent years, and are significantly better than the 10 per cent average historically attributed to offshore exploration.
As an indicator, Woodside has estimated the probability of success for its proposed wells in the immediate Pluto area to be between 15 per cent and 52 per cent.
In the more distant Cazadores hub, immediately north of ExxonMobil's 10tcf Scarborough gas field 280km north-west of Exmouth, Woodside estimates its probability of success at 15-20 per cent.
Largely unexplored due to their distance from shore and deeper water, the waters around Scarborough also host the biggest target structures.
Hence, Woodside last month secured a further permit due west of Scarborough by committing to spend at $120 million on exploration within the permit over the next three years.
A discovery in the Cazedores/Scarborough area potentially opens the door for a deal with ExxonMobil or its Scarborough partner BHP Billiton, which are currently evaluating a potential stand-alone LNG plant at Onslow.
Intriguingly, Woodside in August confirmed it was in discussion with at least three other companies other than Apache and Kufpec with regard to its Pluto expansion.
US explorer Hess is understood to head that list, having already made at least three discoveries in a nearby permit in which it is undertaking a $500 million exploration program. The permit is estimated to have the potential to host up to 15 tcf of gas.
With regard to the other two companies, Woodside has said only a "commercial proposal' was being considered with one, while a joint study was being considered with the other.
While BHP is working with ExxonMobil on the Scarborough study, it is currently evaluating options for its wholly-owned Thebe and Jupiter fields, which are believed to contain around 3tcf and lie immediately south of Woodside's Cazedore permits.
