Australia Pacific LNG takes FID on second train of two train project

abarrelfullabarrelfull wrote on 04 Jul 2012 10:42
Tags: australia conoco lng origin top


Origin Energy Limited (Origin) today announced that the Board of Australia Pacific LNG Pty Ltd (Australia Pacific LNG) has approved a Final Investment Decision (FID) on the second train of its two-train CSG to LNG project in Queensland.
  • FID taken on the second train of the Australia Pacific LNG project (FID2)
  • Marketing complete for Australia Pacific LNG's two-train project with binding agreements in place with Sinopec and Kansai
  • Shareholdings following completion of Sinopec's additional equity subscription: Origin (37.5%); ConocoPhillips (37.5%); Sinopec (25%)
  • Since announcing FID1 in July 2011, there has been no significant change in the US$20 billion cost of the Australia Pacific LNG project other than as a result of movements in foreign exchange rates, which at the time converted to A$23 billion
  • The project is estimated to cost A$23 billion from FID1 to first LNG from the second train
  • A US$35 per barrel break-even oil price over the project life1 would cover all estimated project costs and project finance debt service obligations. US$50 per barrel over the project life1 would allow Origin to recover its weighted average cost of capital on its estimated cash injection into Australia Pacific LNG
  • The project is on schedule and budget to deliver first LNG in mid-2015
  • Origin and ConocoPhillips are commencing a joint process to further dilute their interests in Australia Pacific LNG

Origin Energy Managing Director, Mr Grant King said, "The final investment decision for the Australia Pacific LNG project's second train marks a major milestone for the project, and in the growth of Origin.

"As one of Australia's largest LNG export projects, the Australia Pacific LNG project stands to deliver significant value to Origin shareholders and to Australia, as well as jobs for the Australian community," Mr King said.

"The incremental benefit of the second LNG train will strengthen the project's already robust economics," Mr King said.

The two train project is on track to deliver LNG from its first train in mid-2015. First LNG from the second train is expected in early 2016.

Australia Pacific LNG shareholding dilution
With the taking of FID2, the subscription agreement for Sinopec to increase its shareholding in Australia Pacific LNG from 15 to 25 per cent2 is now unconditional with completion due to occur shortly. At that completion, Origin's shareholding in Australia Pacific LNG will be diluted from 42.5 to 37.5 per cent.

Sinopec's additional equity subscription provides Australia Pacific LNG with a net payment of US$1.4 billion for value determined as at 1 January 2011. That amount is then adjusted for Sinopec's share of capital expended since that date, resulting in Sinopec injecting an estimated US$2.1 billion into Australia Pacific LNG. These funds will be used to meet project expenditure before any additional funding is required from Origin, ConocoPhillips or Sinopec.

Origin and ConocoPhillips have agreed to commence a joint process to further dilute their interests below 37.5 per cent. Origin is looking to retain around a 30 per cent stake in Australia Pacific LNG over the longer term.

LNG sales agreements
In January 2012, Australia Pacific LNG and Sinopec signed binding agreements for the supply of an additional 3.3 million tonnes per annum (mtpa) of LNG bringing the total sales to Sinopec to 7.6 mtpa3. Australia Pacific LNG has also signed a binding agreement to supply The Kansai Electric Company with approximately 1 mtpa of LNG. The signing of these LNG off-take agreements concluded the marketing for both LNG trains. The agreement with The Kansai Electric Company is now unconditional. The agreement to supply Sinopec the additional 3.3 mtpa will become unconditional upon completion of the Sinopec subscription.

Project update

  • Project description:
    • CSG-to-LNG export project -two LNG trains approved, each with a 4.5 mtpanameplate capacity
  • Shareholdings(1):
    • Origin Energy 37.5% ConocoPhillips 37.5% Sinopec 25.0%
  • Off-take Agreements:
    • 7.6 mtpaLNG supply for 20 years to Sinopec(2)
    • 1.0 mtpaLNG supply for 20 years to The Kansai Electric Company
  • Project cost:
    • A$23 billion from July 2011 until start-up of Train 2 in early 2016, in line with the US dollar cost estimates announced at FID1
  • APLNG economics:
  • US$35/bbl breakeven oil price(3) to cover estimated project costs and project finance debt service obligations
    • US$50/bbl breakeven oil price(3) for Origin to recover its weighted average cost of capital on its estimated cash injection into Australia Pacific LNG
  • APLNG reserves(4) (at 31 December 2011):
    • 2P: 12,810 PJ 3P: 16,022 PJ
    • Additional 4,240 PJ (2C) or 10,614 PJ (3C) of contingent resources
  • Timing:
    • First LNG: Train 1 expected mid-2015, Train 2 expected early-2016

(a) Percentages shown assume completion of Sinopec's 25 per cent subscription.
(b) In calendar year 2015, it is expected cargoes will be delivered at a pro rata rate of 2.5 mtpa. The additional 3.3 mtpa offtake agreement extends from early 2016 to 2035. In calendar year 2016, it is expected cargoes will be delivered at a pro rata rate of 4.3 mtpa prior to the start of the second LNG train, following which the rate will increase by a pro rata rate of 3.3 mtpa.
(c) Real oil price; from FID1 (July 2011) over the estimated life of the project.
(d) Refer to Important Notices on Reserves in presentation released today. Australia Pacific LNG reserves are calculated on a forward view of commodity prices. Some of Australia Pacific LNG's CSG reserves and resources are subject to reversionary rights.

Australia Pacific LNG capital expenditure
The cost of a two-train project is estimated to be A$23 billion4. There has been no significant change in the cost of the Australia Pacific LNG project from that announced in July 2011 (US$20 billion5, which included a US$2.5 billion contingency), other than as a result of movements in foreign exchange rates, which at the time converted to A$23 billion5.

There have been cost increases announced by third party LNG projects in which Australia Pacific LNG is a non-operating joint venture participant in specific upstream gas fields. Australia Pacific LNG's cost estimates announced in July 2011 already allowed headroom for cost increases of this type in the period to first LNG. As a result, the other projects' cost increases are not expected to materially impact Australia Pacific LNG’s existing cost estimates for its two-train project assessed against information currently available from these projects.

In addition to project costs, Australia Pacific LNG has non-project costs which include costs associated with its domestic operations, pre-LNG operating and maintenance costs and costs associated with the supply of gas to third party LNG projects. These non-project costs are expected to be substantially offset by revenues from future early gas sales by Australia Pacific LNG including sales to other LNG projects.

Origin's investment contribution to Australia Pacific LNG will be reported in Australian dollars going forward. Origin will report project and non-project costs in aggregate each half year.

The two-train project economics are robust with a break-even oil price6 of US$35 per barrel over the project life to cover all estimated project costs and project finance debt service obligations. An oil price6 of US$50 per barrel from July 2011 extending over the project life will allow Origin to recover its weighted average cost of capital on its estimated cash injection into Australia Pacific LNG.

Deferral of contingent FID payment
FID for the second LNG train has triggered the deferral of the second contingent FID payment by ConocoPhillips to Australia Pacific LNG. This payment was previously due to Australia Pacific LNG at the time a FID for the second LNG train was approved and would have seen Origin's funding for Australia Pacific LNG reduced by US$500 million. Similar to the treatment of the first contingent FID payment, the payment will now be made when ConocoPhillips achieves an agreed economic return on its investment in Australia Pacific LNG, including its acquisition cost.

Origin's funding of Australia Pacific LNG
On 24 May 2012, Australia Pacific LNG confirmed a US$8.5 billion project finance facility. After taking into account the project finance facility and the payment of Sinopec’s additional equity subscription monies to Australia Pacific LNG, Origin's remaining funding requirement for its 37.5 per cent share of Australia Pacific LNG7 for the period from 1 July 2012 to first production from both LNG trains is approximately A$3.6 billion8.

This funding requirement is expected to be met from Origin's existing undrawn debt facilities and cash resources which currently total around A$4.6 billion9 and which is more than sufficient to fund Origin’s commitments to Australia Pacific LNG, meet short-term maturing debt obligations and maintain a prudent liquidity buffer. Some of Origin's debt facilities mature within the period to first LNG from the second train and will be replaced as required. Any dilution of Origin's interest in Australia Pacific LNG below 37.5 per cent will improve this funding position.


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