UPDATE: Origin, Santos Assure Market LNG Plants Are On Budget
04 May 2012 - 4:16PM
Dow Jones News
Origin Energy Ltd. (ORG.AU) and Santos Ltd. (STO.AU) moved to
reassure investors Friday that their multibillion dollar Australian
gas-export joint ventures remain on schedule and within budget
after BG Group PLC (BG.LN) announced a massive cost blowout at a
nearby development.
Santos shares slipped 3.4% and Origin stock declined 2% after
ondon-listed BG, building a rival liquefied natural gas project at
the port of Gladstone in Queensland state, Thursday announced a
budget overrun of US$5.4 billion to US$20.4 billion.
With over US$200 billion worth of LNG projects planned,
developers face a shortage of skilled labor in Australia that could
push up costs. Four of the projects aim to liquefy Queensland's
vast onshore coal seam gas reserves for export.
Each project faces its own unique challenges, though, including
technical difficulties associated with developing coal seam gas
from hundreds of wells under strict environmental conditions.
The cost hike at BG's project, known as QCLNG, has clear
read-through implications for rivals, said John Hirjee, an energy
analyst at Deutsche Bank. But he notes that unlike BG, Santos and
Origin don't have the same currency risks and have signed more
fixed-price contracts with third parties.
"Following our Queensland site visit, it is clear to us that
QCLNG's upstream acreage is in more sensitive areas, making
compliance a greater burden. In addition, we continue to hear well
productivity and the pipeline route have added further project
specific costs to QCLNG."
BG blamed "local market effects, increased costs of compliance
with regulatory processes and some scope changes" in addition to
the high Australian dollar for the 36% cost overrun.
Deutsche Bank is assuming capital expenditure at Origin and
Santos's projects 15% higher than current company guidance.
Origin said its US$14 billion LNG venture with ConocoPhillips
(COP) and China Petrochemical Corp., or Sinopec, remains on track
for completion in 2015.
"There has been no change in the cost of the underlying
activities for the project, based on currency splits at the time of
(the final investment decision)," a spokeswoman said.
A Santos spokesman said its venture with Total SA (TOT), Korea
Gas Corp. (036460.SE) and Petroliam Nasional Bhd, or Petronas,
remains on schedule for completion in 2015 within its US$16 billion
budget.
BG is more exposed to the strong Australian dollar because it's
a U.K. company that has to buy Australian dollars to meet local
costs, including paying its Australian workforce. Local companies
such as Origin and Santos, however, report in Australian dollars
and can use the strong currency to buy offshore materials.
Some projects have more reserves on land occupied by cattle
farmers while others' are predominantly on crop land, potentially
altering community resistance levels. Some reserves also have a
higher salt content, pushing up water treatment costs.
Queensland has experienced heavy rain since the projects got
underway, and BG delayed construction of the major pipeline
connecting its LNG plant to its gas fields after land clearing
occurred before environmental checks were completed.
-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692;
Ross.Kelly@dowjones.com
TotalEnergies (EU:TTE)
Historical Stock Chart
From Apr 2024 to May 2024
TotalEnergies (EU:TTE)
Historical Stock Chart
From May 2023 to May 2024