China CNOOC winner in LNG deals to Australia, RI

China CNOOC winner in LNG deals to Australia, RI

Owen Brown, Dow Jones, Beijing

China's third major oil company, CNOOC Ltd appears to be the
biggest winner in a hotly contested US$20 billion liquified
natural gas supply deal which taps both Australia's North West
Shelf project and Indonesia's Tangguh gas field.

While the Australian winners were jubilant Thursday, state-run
CNOOC appears to have not only secured a cheap supply of LNG but
also a long-desired equity stake in an offshore gas reserve for
its listed unit.

Struggling to chose between two cutthroat supply bids for its
first-ever LNG receival terminal, China awarded the $10 billion
Guangdong contract to Australia and a second $10 billion supply
contract for a yet-to-be built terminal in neighboring Fujian
province to Indonesia.

Australian LNG, the marketing arm of the North West Shelf
Project, wins a 25-year contract to supply 3 million metric tons
a gas a year, increasing to 5 million tons in 2008 to the
Guangdong terminal.

But the Tangguh project headed by BP Plc. (BP) and the
Indonesian state-owned oil company Pertamina wins a consolation
prize with a contract to supply 2.5 million tons a year of LNG to
CNOOC's Fujian terminal.

In a three-horse race, Exxon Mobil Corp.'s bid based on the
Ras Laffan Liquified Natural Gas Co. in Qatar appears to have
been the only loser.

"I think it's the perfect solution that makes everyone happy
except Exxon Mobil," HSBC Securities oil and gas analyst Gordon
Kwan told Dow Jones Newswires.

Kwan said settling the Fujian supply contract at the same time
as announcing the Guangdong deal also avoids accusations that BP
is being punished for its decision to pull out of China's West-
East gas pipeline project.

That $8.5 billion transnational pipeline linking the Tarim gas
field in far northwestern Xinjiang province with Shanghai on
China's east coast is a centerpiece project of the government's
current five-year plan.

The later construction schedule for the Fujian terminal also
provides BP's Tangguh project with more breathing space to find
other buyers to justify the expense of going ahead with the
development of the greenfield site off the coast of West Papua.

Deciding the winner of the Fujian contract also avoids the
need to repeat the long, drawn-out bidding process which
accompanied the Guangdong project, Kwan said. BP will probably
begin negotiating with buyers in Japan, Korea and Taiwan for
similar supply contracts for the Tangguh field.

State-run China National Offshore Oil Co., which lists part of
it assets as CNOOC Ltd., is leading the consortium to build the
Guangdong terminal. Its partners include BP PLC, Hong Kong
Electric Holding Ltd., and Hong Kong & China Gas Co.

In Fujian, China National Offshore Oil is also a 60 percent
equity holder with the remaining stake held by Fujian Investment
& Development Co., in the joint venture to construct the terminal
in Meizhou Gulf off the southeast coast of China.

Construction is slated to begin in 2004 with plans for the
operations to get underway in 2006 with an initial handling
capacity of 2.5 million tons a year.

Kwan estimates the Guangdong and Fujian contracts are roughly
worth about $10.8 billion each. Financial details of the contract
weren't revealed in the announcement of the winning bidders.

However, it was confirmed that the Australia North West Shelf
consortium has agreed to set up a joint venture with Hong Kong
and New York listed CNOOC to develop gas projects off the
Australian coast.

Also under the deal, the North West Shelf and China shipping
companies Cosco Shipping Co. and China Merchants, will establish
a joint venture to support the transportation of LNG to
Guangdong.

Merrill Lynch oil and gas analyst Mario Traviati is wary that
the news that Australia has secured the contract will later be
tempered by the discounts offered to China to close the deal.

"CNOOC and the Chinese have held all the cards and it's been a
stacked game because they are the only game in town," Traviati
said. "I suspect that the Chinese have strung this out to get a
price that is so low that they (Australian LNG) won't want it
announced."

BNP Paribas Peregrine oil and gas analyst Eva Chu said there
is nothing in the supply contracts for listed CNOOC as the
terminal deals only involve the parent company.

However, Chu said there is potential positive news from the
announcement that the listed unit will be given an equity stake
in an upstream gas reserve. "But we still don't have enough
detail," Chu said.

"It could be really positive but it depends on the price of
the acquisition and the value of its reserves. There's still a
lot of uncertainty."