Australia Pacific LNG takes FID on first phase of two train project

abarrelfullabarrelfull wrote on 28 Jul 2011 05:24
Tags: australia conoco lng origin sinopec


Origin Energy Limited ("Origin") today announced that the Board of Australia Pacific LNG has approved a Final Investment Decision ("FID") on the first phase of a two train CSG to LNG project in Queensland.
  • FID taken on the Australia Pacific LNG project initiating development of the first LNG train and infrastructure to support a second train
  • US$14 billion for the first phase, US$20 billion capital cost for a full two-train development
  • Sinopec equity subscription unconditional
  • Australia's largest single LNG contract to commence shipments in 2015
  • Contingent FID payment for Train 1 deferred

Origin Energy Managing Director, Mr Grant King said, "Today's announcement initiating the Australia Pacific LNG project's first phase is a transformational event in Origin's history and marks the commencement of one of the country's largest LNG export projects.

"The FID for this first phase provides an economically attractive project and allows all the synergies of a two train project to be captured once further off-take agreements are finalised," said Mr King.

Australia Pacific LNG is well positioned to progress to a full two-train project. The full two-train LNG development will have a capacity of 9 million tonnes per annum at a capital cost of US$20 billion.

The approval will result in investment in the first phase of the project of US$14 billion to service the sale and purchase agreement executed with China Petroleum & Chemical Corporation (Sinopec Corp.), for 4.3 million tonnes per annum – the largest single LNG sales agreement by annual volume ever signed for delivery from Australia.

The agreement for Sinopec to subscribe for a 15% equity interest in the Australia Pacific LNG joint venture is now unconditional with completion due to occur shortly.

Mr King said, "We welcome Sinopec into the Australia Pacific LNG joint venture. Sinopec's strong position in the Chinese market complements the proven CSG development capabilities of Origin and ConocoPhillips together with ConocoPhillips' expertise in the licensing and use of Optimised Cascade® LNG technology.

"Based on Australia's largest 2P CSG reserves, the Australia Pacific LNG project will become a supplier of low emissions fuel to growing international energy markets as well as continuing to contribute cleaner energy through its domestic production, equivalent to more than 40 per cent of Queensland's current gas requirements.

"FID on the project will deliver significant value to Origin shareholders. The project is underpinned by robust economics, while Origin's strong balance sheet provides the financial flexibility to fund Australia Pacific LNG and the company's ongoing business," Mr King said.

Project Details

  • Description: CSG to LNG project based on Australia's largest 2P CSG reserves base
  • Size: Two trains, each with a nominal production capacity of 4.5 mtpa
  • Initial commitment to one train and infrastructure to support a second train
  • JV Interests: Sinopec subscription agreement now unconditional; interests post completion to be:
  • Origin Energy 42.5%
  • ConocoPhillips 42.5%
  • Sinopec 15.0%
  • Cost: US$20 billion for two trains, from FID until start-up of Train 2
  • Initial commitment to US$14 billion for one train and infrastructure to support a second train
  • Reserves:
  • (at 30 June 2011): 2P: 11,775 PJ 3P: 14,742 PJ
  • Additional 10,050 PJ of contingent resources
  • Off-take Agreement: 4.3 mtpa LNG supply for 20 years to JV partner, Sinopec
  • Off-take discussions for Train 2 well advanced
  • Estimated 2-train revenue of around US$7 billion per annum
  • Timing First gas: Train 1 expected mid-2015, Train 2 expected early-2016

FID triggers further development and production of Australia Pacific LNG's CSG fields in regional Queensland, the construction of a gas transmission pipeline, and the construction of LNG facilities and associated port infrastructure around Gladstone to export LNG to international markets.

Total capital expenditure for a two-train project is estimated to be US$20 billion, including approximately US$2.5 billion contingency, and covers the period from FID until the commencement of gas deliveries from Train 2 expected in early 2016. The Board of Australia Pacific LNG today announced investment of US$14 billion of total capital costs for the first train plus infrastructure commitments to support a second train, which includes approximately US$1.7 billion contingency.

First LNG exports are planned to commence in 2015, underpinned by an agreement with Sinopec for the purchase of 4.3 million tonnes per annum of LNG for 20 years. Australia Pacific LNG is in advanced discussions with potential customers regarding further off-take arrangements for the second LNG train.

Mr King said, "Agreements have been reached with major contractors and a number of project works have already commenced.

"Fixed price EPC contracts for the LNG facility have been awarded to Bechtel, building on the successful collaboration between ConocoPhillips and Bechtel using ConocoPhillips' Optimized Cascade® LNG Process.

"The contract with Bechtel for the construction of the LNG facility on Curtis Island draws on a history of more than 40 years between Bechtel and ConocoPhillips during which time nine LNG trains have been completed across the world. Their combined track record of delivery is outstanding," Mr King said.

A joint venture between McConnell Dowell Constructors and Consolidated Contractors Australia Joint Venture (MCJV) will enter a fixed price pipeline construction contract. MCJV is an Australian-based international contractor experienced in delivering large pipeline projects. In addition, Nippon Steel via Metal One Corporation will supply steel pipe to the project.

Origin will manage the overall upstream project. The upstream drilling program and its associated contracts leverage Origin’s 14 years of production experience in the CSG sector in Australia.

Multiple specialised contractors will design associated facilities, including a control network to manage gas production and a power distribution system that incorporates underground power to selected wellhead pumps. Upstream contracts have been awarded for the supply and operation of drilling rigs, and for the supply of compressor trains for the upstream gas gathering facilities.

Reserves

Australia Pacific LNG also announced today an increase in its 2P reserves from 11,262 PJ at 31 December 2010 to 11,775 PJ at 30 June 2011, with 3P reserves increasing from 14,602 PJ to 14,742 PJ3. This represents Australia's largest CSG 2P reserves base. It includes extensive acreage within the premier production fairways providing high quality gas resources with high deliverability. Australia Pacific LNG's resource base also includes an additional 10,050 PJ of 3C contingent resource.

Deferral of Contingent FID Payment

FID for the first LNG train has triggered deferral of the first contingent FID payment by ConocoPhillips to Australia Pacific LNG. This payment was due to Australia Pacific LNG at the time a FID for the first LNG train was approved and would have seen Origin's funding for Australia Pacific LNG reduced by US$500 million. The payment will now be made when the project pays out an agreed economic return on the total investment to ConocoPhillips in Australia Pacific LNG.

Funding

Origin will contribute to its 42.5% share of project costs using a range of existing and new funding facilities.

The initial funding requirement will be reduced by Sinopec injecting US$1.5 billion into Australia Pacific LNG for its 15% interest in the joint venture, grossed up to US$1.8 billion. These funds will be used to meet expenditure within the project from FID before any additional funding is required from Origin, ConocoPhillips or Sinopec.

Origin's funding for its contributions to the first phase of the project will be covered by a range of sources including:

existing committed undrawn debt facilities and cash totalling around $3.6 billion at 30 June 2011;
cash flows from Origin's underlying business;
new debt facilities, which may include consideration of project financing at the APLNG level; and
up to $1 billion from an underwritten dividend reinvestment plan (DRP) covering the next four dividend payments.
The underwritten DRP will commence with the final dividend for the financial year ending 30 June 2011 and will apply a 2.5% discount.

Origin will actively manage its existing debt facilities and, as required from time to time, will add further debt facilities to ensure sufficient liquidity exists to cover its expected forward contributions to Australia Pacific LNG and other capital expenditure required for the balance of Origin's business.

Upon commitment of the second train, the project will be further funded through a number of options. These may include the issuance of shares in Australia Pacific LNG associated with LNG off-take arrangements for the second train and additional funding by Australia Pacific LNG shareholders if required.

Project benefits

The Australia Pacific LNG project will generate significant benefits at regional, state and national levels. The project currently employs 1,600 people both directly and indirectly and will create 6,000 construction jobs and 1,000 jobs during the ongoing operation of the project.

With significant employment needs, Australia Pacific LNG will be working to increase local skills capacity via apprenticeships, scholarships and vocational training. The project also expects to make a considerable contribution to regional economies and will contribute significant annual royalties to the State of Queensland.

"Development of the Australia Pacific LNG project will bring many benefits to regional communities, Queensland and Australia through the creation of direct and indirect jobs, and investment in local goods and services," Mr King said.

"A significant proportion of the capital expenditure will be denominated in Australian dollars, the majority of which is expected to be spent in Australia.

"Developing natural gas for domestic use and export has environmental benefits. Domestically, we are seeing an increase in the use of gas for power generation where it has around half the carbon emissions of coal. Internationally, our gas will be used in place of more carbon intensive fuels in households, businesses and electricity generation.

"Australia Pacific LNG will continue to pursue high environmental, community consultation and regional development standards not only during the construction period but also throughout the ongoing operational life of this project," Mr King said.


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