Subject: Conoco Plans US$6-10b Timor Sea Expansion

- The Australian: Conoco plans $US6-10 billion expansion in Timor Sea

- ConocoPhillips Looks To Sunrise For LNG Growth

- Global Insight: ConocoPhillips Suggests Timor Sea Operational Expansion;

- Natural Gas Intelligence: BP: Anxiety about Supply Drives Prices Up

The Australian Tuesday, June 20, 2006

Conoco Plans US$6-10 Billion Expansion in Timor Sea

Nigel Wilson, Energy writer

WORLD energy giant ConocoPhillips is considering a $US6-10 billion (A$8-13.5 billion) expansion of its newly completed Wickham Point LNG plant in Darwin, which would more than double its capacity as early as 2012.

Laura Sugg, president of ConocoPhillips in Australasia, told the South East Asia Offshore Oil Conference in Darwin the expansion could be in the range of 5-7 million tonnes a year with gas supplies coming from Greater Sunrise or the new Caldita discovery, both in the Timor Sea.

ConocoPhillips accepted delivery of the Wickham Point plant, Australia's second LNG export facility after the North West Shelf, from construction contractors Bechtel earlier this month, and is ramping up production to a target level of 3.3 million tonnes a year to satisfy 17-year supply contracts with Tokyo Electric and Tokyo Gas.

Ms Sugg said this translated into one LNG cargo a week. She noted that the Wickham Point plant site had approval for annual production of 10 million tonnes of LNG, which suggested expansion plans could either be covered by cloning the existing plant -- which has a nominal capacity of 3.7 million tonnes a year -- or by looking to ConocoPhillips' international experience to develop an uprated production train of 5-7 million tonnes a year capacity.

Wickham Point takes its gas from the small Bayu Undan field in which Santos is the only Australian participant, with 10.6 per cent.

Ms Sugg flagged that gas supply for expansion could come from the Greater Sunrise reservoirs, which are estimated to contain about 7 trillion cubic feet of gas, or the new Caldita discovery, for which reserves have yet to be released.

ConocoPhillips is a 30 per cent partner in Greater Sunrise and a 60 per cent stakeholder in Caldita, where the Australian interest is held by Santos with 40 per cent. Ms Sugg said she remained confident the Treaty on Certain Maritime Arrangements signed in January would be ratified shortly, while conceding recent unrest in East Timor meant ratification could be delayed until after elections in East Timor scheduled for April next year.

"We remain hopeful and confident this project will come forward expeditiously," she said.

Ms Sugg declined to give details of the Caldita discovery or its gas composition, saying only that Wickham Point expansion would need at least 3-4 trillion cubic feet of gas reserves to justify investment in expansion.

There are two gas supply expansion options: Greater Sunrise, which has well established reserves but labours under a political and diplomatic cloud; and Caldita, where commercial reserves have yet to be established.

Ms Sugg said an appraisal well would be drilled at Caldita, beginning next month, which is several months ahead of previously announced schedules.


ConocoPhillips Looks To Sunrise For LNG Growth


DARWIN, June 19 (Dow Jones)--Upbeat about prospects for the US$5 billion Greater Sunrise gas project in the Timor Sea, U.S. oil giant ConocoPhillips (COP) said Monday it is looking at spending up to US$10 billion to nearly treble the capacity at its Darwin liquefied natural gas plant.

The recently-finished Wickham Point plant in Darwin, which gets gas from the Bayu-Undan field in the Timor Sea, can produce 3.5 million tons of LNG a year but has environmental approval to increase that to 10 million tons if it can find the gas.

ConocoPhillips is looking to either the Greater Sunrise fields, which it owns 30% of, or the newly-discovered Caldita field, near Bayu-Undan, Laura Sugg, president of the company's Australian unit, said Monday.

"The earliest prospect could be Sunrise," which has already been shown to be an economically viable project, Sugg told reporters at the annual South East Asia Australia offshore conference in Darwin. Caldita, is still in the appraisal stage.

Sugg was the second speaker at the conference to speak optimistically of the Sunrise project, which still needs to have a profit-sharing agreement ratified by the Australian and East Timorese governments.

She said ConocoPhillips hopes to have a second processing unit, or train, producing between 5 million and 6.5 million tons a year of LNG by 2012 or 2013.

Northern Territory Chief Minister Clare Martin earlier said in a presentation to the conference that she is "optimistic progress can be made in the coming year" on Sunrise.

Operator Woodside Petroleum Ltd. (WPL.AU) has said it won't approve Sunrise until the agreement between Australia and East Timor is ratified and a fiscal stability agreement with East Timor is signed by the partners.

Another possible sticking point will be the location of a liquefied natural gas facility.

Woodside has said it prefers Darwin to East Timor, which says it will do all it can to have a local plant.

Greater Sunrise includes the Sunrise and Troubadour fields, which hold about eight trillion cubic feet of gas and about 300 million barrels of oil, which may be worth up to US$40 billion. The partners have already spent A$250 million on studies to develop the project. ConocoPhillips' Sugg wouldn't give any indication of how testing at Caldita has gone or the quality of the gas, but said it is still a possible source to fuel an expansion of the Darwin plant.

"We would need somewhere north of 3 trillion cubic feet or 4 trillion cubic feet of gas" reserves to launch the project, she said.

In September, minority partner Santos said initial tests at the Caldita field gave an "encouraging result" but was hesitant to talk up expansion of the LNG operation.

While not giving away much on what has been found at the field, which is 265 kilometers northwest of Darwin, Santos earlier this year said it is keen to expand the LNG plant using Caldita gas, if an appraisal well could sure up reserves.

Sugg said ConocoPhillips has ambitions to expand the plant further than the allowed 10 million tons a year if approvals can be gained and gas found to process.

"We may add a third train," possibly more, she said.

Woodside operates and owns 33.4% of Sunrise, which is 150 kilometers south of East Timor. Its partners are ConocoPhillips with 30%, Royal Dutch Shell PLC (RDSA) with 26.6% and Japan's Osaka Gas Co. (9532.TO) with 10%.

Santos owns 40% of Caldita and 10.6% of the Darwin LNG plant.


Global Insight Daily Analysis June 19, 2006

ConocoPhillips Suggests Timor Sea Operational Expansion

Steven Knell

With LNG deliveries based on the gas reserves of the Bayu-Undan fields steady at one cargo per week, ConocoPhillips wants to push the commercialisation of the Sunrise and Caldita gas fields by expanding the capacity of the Darwin LNG plant by 2013.

A second LNG processing train, capable of producing 5 to 6.5 million tonnes of LNG per annum could warrant as much as US$10-bil.-worth of investment. It would take Darwin LNG capacity to over 10 million tonnes per annum and would improve prospective LNG export market capture through economies of scale.

ConocoPhillips will need to line up long-term supply deals to support its bullish commercial strategy. Its LNG will be competitive on the basis of existing infrastructure but the development of Greater Sunrise in particular will require a favourable resolution of East Timorese entitlements.

Looking Up

ConocoPhillips has wasted no time in setting out an aggressive plan for the further commercial development of the untapped gas potential of the Timor Sea. Dow Jones, Platts and Reuters report comment made by the president of the U.S. company's Australian subsidiary, Laura Sugg, which suggest it plans to build upon the strong foundation it has laid in the near future.

Sugg is quoted as saying that the company is considering adding a second LNG processing train to its existing operations at the Darwin LNG plant it operates. The additional capacity sought would be in the area of 5 to 6.5 million tonnes per annum initially, with the suggestion of scope for further trains in the future. It is a bold move at a time when other LNG developments, notably the commercialisation of the Greater Gorgon gas fields led by ExxonMobil, have stumbled over worsening cost assessments (see Australia: 8 May 2006:). The investment required would be in the area of US$6-10 billion and at least three to four trillion cubic feet of gas reserves would be necessary to support the prospective expansion. The most likely sources were said to be the Timor Sea's Sunrise or Caldita fields, in which ConocoPhillips holds a stake alongside operator Woodside and fellow IOC Shell.

Stable Foundation

The offshore basins of the Timor Sea have proven a reliable and commercially viable source of gas supply for ConocoPhillips in the recent past. Indeed, the increasingly strong performance of the company's existing LNG operations at the Darwin LNG plant is among the factors leading to the expansion suggested. On the basis of the gas reserves held in the Bayu-Undan field in the Timor Sea, ConocoPhillips brought the 3.7 million tonnes of annual LNG production capacity onstream earlier this year. Feeding into the long-term (17-year) supply contracts it holds with Japanese utilities, Tokyo Electric Power (TEPCO) and Tokyo Gas, the Darwin LNG facility is now loading one cargo roughly every seven days.

Darwin LNG loading capacity could reach as much as 10 million tonnes per annum if ConocoPhillips goes ahead with installing another train. This would be much larger than the existing facility and reflects the movement towards economies of scale in LNG production. Larger trains suggest lower unit costs, a factor that is augmented when one considers that many components that raise the price of greenfield developments are already accounted for. Seen alongside the market for the proven seven trillion cubic feet of gas held in the Sunrise field and prevailing price levels alone, the commerciality of an increase in operations is convincing.

Outlook and Implications

Although the market forecasts for LNG demand are bullish, with opportunities for new producers like ConocoPhillips to secure emerging and established markets alike, the company will have to line up some long-term supply deals to provide the requisite backstops for the investment called for. Its track record will give offtakers confidence, as will the potential for equity stakes of the manner that furthered the development of the Darwin LNG commercialisation of Bayu-Undan gas reserves in the first instance. Tying in leading customers like TEPCO and Tokyo Gas worked well the first time around and can be replicated, especially with Indonesia's market share shrinking in the key Japanese utility market. The hesitancy over the future of the Greater Gorgon development also plays into the hand of an expanded Darwin LNG facility. Should the developers decide against that project as currently conceived, the commerciality of not only a second but also a third Darwin processing train would be buoyed still further.

Gas from Sunrise and Caldita could be commercialised by 2012 or 2013 according to Sugg, but the developmental programme will require a positive resolution to outstanding matters involving East Timorese authorities. The necessary treaties covering the revenues generated by the Sunrise field have been drafted. They are awaiting what could be a lengthy ratification process at the hands of authorities in East Timor and Australia. Nevertheless, the positive reserves estimates to date make the development of these stranded gas reserves a question of when and not if. It is likely that a Darwin LNG expansion is foremost amongst the routes to market they will follow.


Natural Gas Intelligence June 19, 2006

BP: Anxiety about Supply Drives Prices Up

World Gas Production Rose 2.5% in '05

World energy prices are high not because of a physical supply shortage, but because of "anxiety about the reliability of supply," said BP CEO John Browne last Wednesday in announcing the release of BP's Statistical Review of World Energy 2006.

"Supply availability has continued, but at the cost of high prices," said BP chief economist Peter Davies. "Market adjustments are beginning and will continue. There has been a price effect already with coal and [natural] gas prices falling and oil consumption growth slowing sharply and inventories rising."

Browne said despite the conflict in the Middle East and the impact of hurricanes in the Gulf of Mexico, there has been no physical oil shortage. Spare world production capacity, however, is low.

"Prices are high, because spare capacity is low, and because too many of the key suppliers seem at risk," said Browne. "The estimated amount of spare [oil production] capacity in the market is around 1.8 million barrels a day, which is not only lower than normal, but also less than the production from Iran, Iraq, Venezuela, and of course Nigeria which has been the main source of the market uncertainty over the last six months, because violence has reduced supply by some 500,000 barrels a day.

"That is why the world crude price and petrol prices at the pump are so high," he said. "As well as prices, there are longer term concerns about climate change and energy security which are feeding anxiety here in the UK and elsewhere. I don't believe that major companies can stand aside from those issues."

BP's Statistical Review found that world energy consumption growth slowed in 2005 with an increase of 2.7%, down from the 4.4% increase in 2004 which was the largest rise for 20 years.

Total energy consumption in the United States fell by 0.1% last year, the first time since 1985 that the U.S. experienced a combination of higher than normal economic growth and a decline in energy consumption, according to BP. This was largely due to the effect of both high prices and relative energy prices in competitive markets as well as the impact of hurricanes in the Gulf of Mexico -- the decline in U.S. oil consumption was concentrated in the last four months of the year, after the hurricanes, the company said.

Natural gas both in North American and worldwide is in a similar predicament to world oil. World natural gas consumption rose 2.3% last year to 97,060.8 Bcf, while world natural gas production rose 2.5% to 97,533.9 Bcf, according to BP.

BP said North American gas consumption totaled 27,339.8 Bcf (74.9 Bcf/d) a 1.2% decline from levels in 2004. U.S. consumption was 22,362.5 Bcf (61.27 Bcf/d), a 1.5% drop. But U.S. gas production fell 2.3% to 50.84 Bcf/d.

Total North American gas production declined about 1% to 26,496.1 Bcf, mainly because of the damage to Gulf of Mexico infrastructure due to the hurricanes.

BP said worldwide natural gas reserves rose about 0.4% last year to 6,348.1 Tcf In North America, gas reserves were flat at 263.3 Tcf.

Browne said over the next five years BP expects to invest "over US$50 billion worldwide in exploration and production. That investment will bring on stream gas from Alaska, Indonesia, Egypt, the Caspian and, we hope, from East Siberia. It will develop oil from Angola, Russia and the Gulf of Mexico.

"In addition to those international activities, we will also be investing in the North Sea, and the infrastructure necessary to secure supplies for the UK as well. Over the next five years we plan to invest around US$6 billion in developing the remaining resource base in the North Sea to ensure that we recover the maximum amount of both oil and gas. North Sea production has passed its peak, but...there is around 6 billion barrels of oil, and 29 Tcf of natural gas still be to be produced.

"Of course, the growth in demand means that the UK is no longer self-sufficient in natural gas. Imports are now required," Browne said. "But we are a trading nation and companies like BP exist to ensure that the trading system works. And it is working. Despite a cold winter there was no shortage. International supplies are available and the capacity necessary to handle the imports of liquefied natural gas is being put in place with new terminals at both the Isle of Grain and Milford Haven." BP has a 50% stake in the Isle of Grain LNG terminal, which will provide up to 10% of the UK's average daily gas demand and will compete closely with the U.S. for LNG supply in the Atlantic Basin.

"So, as gas demand grows, imports will rise but there is no practical reason why there should be any shortage for UK consumers," Browne said.

He also said that while BP is investing in oil and gas, it is focusing on alternative fuels that can reduce imports and emissions. According to BP, the concentration of carbon dioxide in the world atmosphere currently is around 380 parts per million. "Last year carbon emissions increased by 2.9%, and the level of emissions worldwide is now about 20% higher than it was when the Kyoto protocol was signed in 1997," Browne said.

"Of course, the detailed science of climate change continues to evolve. There are many things we don't yet know. But we in BP don't believe that we can ignore the mounting evidence, the weight of scientific opinion and the risks of a fundamental shift in the earth's climate."

He said while governments must set the rules and framework to curb emissions, companies also have a "crucial role to play. The role of business is not to engage in politics or propaganda. Equally the role is not to deny reality. The role of business is to offer solutions.

"That is what BP is trying to do -- by investing in alternative sources of energy including wind, photovoltaics for solar and the new technology of carbon capture and storage. We will invest at least $8 billion in this new business over the next 10 years." Browne also said BP would invest $500 million to create a new biosciences energy research laboratory attached to a university.

"This will be the first facility of its kind in the world," said Browne. "We have already started discussions with several leading universities here and in the U.S. to identify which could host the BP Energy Biosciences Institute (EBI), with the aim of launching the first research programs by the end of 2007."

"Energy security and climate change are serious issues, but they are not insoluble problems. If you have the will and the means, the issues can be tackled. And that is what we are determined to do."

-------------------- Joyo Indonesia News Service

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