Gorgon accord may help find buyers

Gorgon accord may help find buyers

Bloomberg, Sydney

ChevronTexaco Corp., the second- biggest U.S. oil company, said the A$11 billion (US$8.4 billion) Gorgon LNG venture should find customers more easily after an agreement to include two Exxon Mobil Corp. fields in the project.

The agreement, announced yesterday, doubles the amount of gas included in the Australian project, improves its returns and its competitiveness, Peter Coghlan, a Gorgon spokesman, said on Wednesday. It also raises Exxon Mobil's stake to 25 percent, while reducing ChevronTexaco's and Royal Dutch/Shell Group's shares.

The delayed Gorgon venture, which now includes a quarter of Australia's gas reserves, is competing with BP Plc's Tangguh project in Indonesia, Shell's Sakhalin LNG venture in Russia and others for customers in Asia and North America.

It has initial accords to sell liquefied natural gas to North America and China.

The agreement "can do nothing other than enhance the project's commercial position and put them in a stronger position in the LNG market," said John Boardman, executive director of Perth- based Resource Investment Strategy Consultants, an oil and gas advisory firm.

"It will add economies of scale."

The reorganized Gorgon venture brings the Exxon Mobil- operated Jansz and Io fields off northwestern Australia into the Gorgon project, increasing the amount of gas included to more than 40 trillion cubic feet.

A stake to be acquired by China National Offshore Oil Corp., which has an initial agreement to buy LNG from Gorgon, will now be less than the originally agreed 12.5 percent, Coghlan said. CNOOC will buy all its stake from ChevronTexaco.

Discussions between the partners on their shares in the venture had been delaying talks with the Chinese buyer, CNOOC Ltd. Chairman Fu Chengyu said last week.

Under the restructuring, ChevronTexaco's share of the expanded Gorgon project is 50 percent, down from about 57 percent in the original project.

The stake held by Shell, which didn't have a shareholding in the biggest Jansz and Io license area, drops to 25 percent from 28.6 percent, while Exxon Mobil, which owned half of the Jansz/Io field, increases its stake to 25 percent from 14.3 percent.

The new ownership structure "increases Shell's access to potential gas accumulations in the Greater Gorgon area," Dominique Gardy, executive vice president exploration and production Asia-Pacific, said in an e-mailed statement.

Gorgon may be Australia's third LNG venture. The Woodside Petroleum Ltd.-operated North West Shelf venture is scheduled to approve a fifth production line this half, while ConocoPhillips is building an LNG plant near Darwin to process gas from the Bayu- Undan field in the Timor Sea.

BHP Billiton is also studying an LNG project using gas from the Scarborough field, while Woodside also wants to develop the Browse fields for LNG production, after stopping work on the Sunrise project.

"Asia-Pacific LNG competition is quite intense, with a number of existing projects with excess capacity, brown-fields expansions and green-fields start-ups actively seeking contracts in South Korea, Japan and China," Credit Suisse First Boston said in a March 24 report.

ChevronTexaco in January awarded an initial, four-month design contract for Gorgon to a venture led by Halliburton Co.'s KBR unit.

The first phase of the project involves a proposed 10 million metric tons a year LNG plant, including two production lines, on Barrow Island, off Western Australia.