UPDATED: APLNG off the blocks

CONOCOPHILLIPS and partner Origin Energy have made a final investment decision on the first phase of the two train Australia Pacific liquefied natural gas project, the third coal seam gas to LNG project to be approved in Queensland.
UPDATED: APLNG off the blocks UPDATED: APLNG off the blocks UPDATED: APLNG off the blocks UPDATED: APLNG off the blocks UPDATED: APLNG off the blocks

The $US14 billion first phase of the project initiates the development of the first 4.5 million tonne per annum LNG train with infrastructure to support a second train.

The full two train project will have a capacity of 9MMtpa and cost $US20 billion including $2.5 billion for contingencies ($1.7 billion for the first train).

In a second quarter investor briefing last night, Conoco financial officer Jeffrey Sheets flagged that if FID was made on one train, it would include building infrastructure for the second train.

Origin Energy managing director Grant King said FID for the first phase provided an economically attractive project and allowed all the synergies of a two train project to be captured once further offtake agreements were finalised.

The project will take gas from several fields in the Surat and Bowen basins to Curtis Island for export.

Proved and Probable (2P) reserves for the project have increased 4.5% from 11,262 petajoules at December 31, 2011, to 11,775PJ at June 30, while proved, probable and possible (3P) reserves rose from 14,602PJ to 14,742PJ.

"Based on Australia's largest 2P reserves, the APLNG project will become a supplier of low emission 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," he said.

The first train of the project is underpinned with a binding 4.3 million tonne per annum offtake deal with Sinopec.

As part of the agreement, Sinopec will become a 15% equity owner in the project, reducing Conoco and Origin's stakes to 42.5% each, for a $1.5 billion consideration.

The agreement for Sinopec to acquire a 15% interest is unconditional and is expected to be completed soon.

Origin said the JV was in advanced discussions with potential customers regarding further offtake agreements for the second LNG train.

Sheets revealed last night that the JV did not expect to sell the same level of equity it sold to Sinopec as part of marketing for the first train.

First production from train one is expected to start in 2015 while train two is expected to be online in early 2016.

King said agreements had been reached with major contractors and a number of project works had already begun.

Fixed price engineering, procurement and construction contracts for the LNG facility have been awarded to Betchel while a joint venture between McConnell Dowell Constructors and Consolidated Contractors Australia will enter a fixed price pipeline construction contract.

Nippon Steel via Metal One Corporation will supply steel pipe to the project.

The project currently employs 1600 people directly and indirectly and will create 6000 construction jobs and 1000 jobs during the ongoing operation of the project.


FID on the first train has also triggered the deferral of the first contingent FID payment by Conoco to APLNG.

The payment would have seen Origin's funding for APLNG reduced by $500 million and will now be made when the project pays out an agreed economic return on the total investment to Conoco in the project.

Origin said it would contribute 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 $1.5 billion for its 15% interest. Origin said these funds would be used to meet expenditure within the project from FID before any additional funding was required.

The company also says it plans to draw up to $1 billion from an underwritten dividend reinvestment plan, starting with the final dividend for the financial year ending June 30, 2011, and covering the next four dividend payments.

"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."

Once the commitment to the second train has been made, Origin said the project would be funded through a number of options including the issue of shares in APLNG associated with LNG offtake agreements and additional funding by APLNG shareholders if required.

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