Thursday, October 4, 2018

Timor-Leste stikes a US$350 million deal to buy ConocoPhillips’ 30% stake in the Greater Sunrise gas resource in the Timor Sea

Timor-Leste stikes a US$350 million deal to buy ConocoPhillips’ 30% stake in the Greater Sunrise gas resource in the Timor Sea

The deal, which is expected to close in the first quarter of 2019, covers production sharing contracts 03-19 and 03-20 and retention leases NT/RL2 and NT/RL4.

The licences contain the Sunrise and Troubadour gas and condensate fields, collectively known as the Greater Sunrise fields, which have remained undeveloped since being discovered in 1974 and which are estimated to hold 5.1 trillion cubic feet of gas and 225.9 million barrels of condensate.

The Timor-Leste government has long advocated for the gas to be piped about 150 kilometres to an onshore liquefaction plant on the country’s south coast, a concept the current joint venture partners have resisted.

“ConocoPhillips and the other joint venture partners have always known Timor-Leste’s preference for the development of Greater Sunrise through a pipeline to Beaco on the south coast of Timor-Leste,” Timor-Leste special representative and former president Xanana Gusmao said this week.

“Timor-Leste looks forward to working with the other joint venture members to successfully develop the project.”

In a joint statement, ConocoPhillips Australia-West president Chris Wilson revealed that the company came to the decision to sell its stake in the Greater Sunrise resource after it was approached by the Timor-Leste government.

“We respect the Timor-Leste government’s preference to develop the Sunrise fields through a new greenfield, Timor-Leste based liquefied natural gas facility,” he said.

“While we differ on the proposed economic development option, we recognise the importance of Sunrise to the nation of Timor-Leste and hope the sale of our interest to the government allows them to progress their vision for the development of Sunrise.”

Greater Sunrise had been a lead candidate for backfill for the ConocoPhillips operated Darwin LNG facility. However, the project had stalled amid differences of opinion over the development concept, as well as a maritime boundary dispute between Australia and Timor-Leste that was resolved earlier this year.

Meanwhile, ConocoPhillips’ Barossa project has jumped to the front of the queue as a backfill candidate for Darwin LNG, with a final investment decision currently being targeted for the end of 2019.

This would place it well ahead of Sunrise, with operator Woodside Petroleum not anticipating a decision on the development until the third horizon of its current growth period, which starts in 2027.

ConocoPhillips executive vice president production, drilling and projects, Al Hirshberg, said earlier this year he believed it would be difficult for Greater Sunrise to move into development “in the near future”, while labelling the government's plan as "uneconomic".

Woodside chief executive Peter Coleman has also previously stated it was unlikely his company would be involved in a development that sees the gas piped back to Timor-Leste, claiming the returns on such a development would not meet the company’s “economic hurdles”.

However, he also refused to rule out the option completely, adding certain arrangements could be put in place to allow the company to participate.

Wood Mackenzie analyst David Low backed the joint venture’s assessment over the economics of an onshore Timor-Leste development, while adding that concerns over building the pipeline across the seismically active Java trench, while more expensive than a typical subsea pipeline, was not a key driver of increased development costs.

“The economics of an onshore Timor-Leste LNG project is less competitive when compared to utilising existing infrastructure,” he told Upstream.

“We believe the key risk is the construction of a greenfield LNG project in a country that has historically lacked large-scale infrastructure project experience. For the project to screen we believe that the Timor-Leste government will need to provide considerable support via either adjusted contract terms or direct project investment.”

The agreement between the government and ConocoPhillips is still subject to certain conditions, including funding approval from the government of Timor-Leste, regulatory approvals and partner pre-emption rights.

Following the announcement of the deal, Woodside appeared to leave its options open as to whether it would look to increase its interest in Greater Sunrise.

“The joint venture participants hold certain rights that may or may not be exercised in such circumstances,” a Woodside spokesperson told Upstream.

“Woodside and the Sunrise joint venture remain committed to the development of Greater Sunrise and we look forward to working with Timor-Leste to deliver value to both the people of Timor-Leste and the shareholders of the joint venture participants.”

Woodside holds a 33.4% stake in Greater Sunrise, ConocoPhillips holds 30%, Shell has 26.6% and Osaka Gas holds 10%

Josh Lewis, Perth

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