CNOOC to provide up to $300 million for Tangguh

CNOOC to provide up to $300 million for Tangguh

Dow Jones, Hong Kong

CNOOC Ltd. (CEO) Chief Financial Officer Mark Qiu said Monday the mainland oil producer expects capital expenditure of between US$200 million and $300 million for Indonesia's Tangguh liquefied natural gas project.

On Friday, CNOOC said it would pay $275 million for a 12.5 percent stake in the project from BP PLC. The project is set to begin production in early 2007.

CNOOC Ltd.'s mainland parent, China National Offshore Oil Corp. or CNOOC, signed a $8.5 billion agreement Thursday with a consortium comprising BP and Indonesia's state-owned oil and gas company Pertamina, to buy natural gas over 25 years from BP's planned facility in Papua province.

Partners of the Tangguh joint venture have signed a 25-year LNG supply contract to provide up to 2.6 million metric tons of LNG a year to China's Fujian LNG terminal project.

Qiu's capital expenditure estimate came in a conference call with analysts.

Qiu later said the company plans to fund the capital expenditure with its cash on hand and cash generated from its operations.

Under the proposed ownership structure of the Tangguh LNG project, BP has a 37.2 percent stake. Japan's Mitsubishi Corp. has 16.3 percent, CNOOC Ltd. holds 12.5 percent, Nippon Oil Corp owns 12.2 percent, British Gas takes 10.7 percent, Kanematsu Corp. has 10 percent and Nissho Iwai owns 1.1 percent, CNOOC said in its presentation material.

Meanwhile, Qiu said the Tangguh project is a "very compelling acquisition."

According to the terms of the offer, CNOOC's acquisition price for the Tangguh project is around $0.89 per barrel of oil equivalent, which is lower than CNOOC's average historical funding-and-development costs of around $4/BOE, Qiu added.

Commenting on criticisms that the low acquisition cost reflects political instability in Indonesia, Qiu said Indonesia is the world's largest gas seller and many international oil companies have investments there.

Meanwhile, the Tangguh acquisition price is also lower than its earlier acquisition of a 5 percent stake in Australia's North West Shelf Gas Project reserves, which cost CNOOC $320 million and translates to about $1.52 per BOE.

The Australian deal also includes 25 percent of liquefied natural gas supplier China LNG Joint Venture, which would be established to supply gas from the NWS Gas Project to southern China's Guangdong LNG terminal.

CNOOC has been actively acquiring overseas assets this year and in January announced plans to buy the Indonesian assets of Spanish oil company Repsol-YPF SA for $585 million.