Shell makes audacious pitch to develop Timor gas

Shell makes audacious pitch to develop Timor gas

CANBERRA (Dow Jones): Royal Dutch/Shell Group Friday announced detailed plans to recast billions of dollars of natural gas developments in the Timor Sea, potentially putting itself at odds with key partners.

Shell's proposal to use a floating facility to process liquefied natural gas at the Greater Sunrise field off the northern coast of Australia is aimed at cutting estimated development costs of US$4.9 billion by 40 percent.

If accepted, it will sidestep plans to pipe the gas to the city of Darwin for processing and could throw into further doubt development plans for other fields in the region.

Shell admits the technology is unproven but still wants partners Woodside Petroleum Ltd. and Phillips Petroleum Co. Ltd. to make a quick ruling on its proposal.

"We are prepared to put our name behind it, to put our financial resources behind this to give undertakings it will work and will deliver LNG," said Shell Development (Australia) chief executive Alan Parsley.

Woodside and Phillips, which has a bigger stake in the neighboring but smaller Bayu-Undan field, so far have limited information about the plan to use the world's first floating liquefied natural gas, or FLNG, technology.

A spokesman for Woodside said the company will support any alternative development proposal provided it works. At the moment, the plan is to have Greater Sunrise gas processed in Darwin, joining a pipeline from Bayu-Undan which will start production sooner.

Woodside said the proposal must be acceptable to all stakeholders, including joint venture partners, customers and governments.

Jim Godlove, Phillips' Darwin area manager, said Shell hasn't provided any details of its proposal to the U.S. company.

Woodside is the operator and 33.4 percent stakeholder in Greater Sunrise and was a supporter of the recent pipeline deal with the Bayu-Undan consortium. Phillips has 30 percent in Greater Sunrise, Shell 26.6 percent and Japan's Osaka Gas Ltd. 10 percent.

Woodside and Shell have had a rocky relationship in the past 12 months, with Shell making two unsuccessful takeover bids.

The most recent bid, which valued Woodside at about A$10 billion, was rejected by the Australian government in April on national interest grounds as Woodside is the operator of the giant North West Shelf gas project.

Shell's Parsley said a third bid isn't likely, with a focus instead on improving their working relationship.

Greater Sunrise has resources of 9.2 trillion cubic feet of gas and is located in deep water about 500 kilometers northwest of Darwin.

Shell's announcement comes barely a week after Phillips and its partners in the Bayu-Undan project, southwest of Greater Sunrise, put plans to build a US$500 million undersea natural gas pipeline to Darwin on indefinite hold because of tax issues.

Phillips is 50.3 percent stakeholder and operator of Bayu- Undan. Other participants are Australia's Santos Ltd.with 11.8 percent, Petroz NL with 8.3 percent, Japan's Inpex Sahul Ltd. with 11.7 percent, Kerr-McGee Corp. with 11.2 percent, and Italy's ENI SpA with 6.7 percent.

Stage 2 of Bayu-Undan was to involve a cooperative development with Greater Sunrise to jointly run an undersea gas pipe to Darwin, for offtake by a range of gas processors, including a land-based LNG plant and pipeliners for hauling gas to eastern and southeastern Australian markets. Bayu-Undan planned to land gas in Darwin in 2004.

Based on Shell's FLNG proposal, the Greater Sunrise partners will be prepared to run their own gas pipeline to Darwin to supply gas to that area, said Parsley.