Contracts transform PNG pipeline dreams to reality. Pipeline gets the go-ahead
Sydney Morning Herald, July 28 and The Age, July 28
By KATE ASKEW, Resources Writer
The extension of the pipeline to Brisbane is a fait accompli. PNG gas will flow
into Brisbane. The $US2.5 billion ($3.88 billion) Papua New Guinea-to-
Queensland gas pipeline project, Australia's largest resources development
behind North-West Shelf gas, received the unofficial nod yesterday after
the pipeline sponsors signed binding gas sales contracts.
Queensland Government-owned Allgas, a subsidiary of Energex, has
contracted to buy up to 130 petajoules of gas over 20 years, underpinning the
development of the gas pipeline.
"This pipeline is a reality now," Brisbane-based Wilson HTM oil and gas
analyst Mr Andrew Williams said. "They still have a year now until financial
close, but they can move ahead with front-end engineering studies."
The pipeline project is expected to get the official go-ahead once the various
boards of the partners in the project sign off on the official documentation over
the coming week.
Shares in Oil Search, a pipeline sponsor, rose as much as 13c, or 6 per cent,
to $2.38 while Orogen shares gained as much as 11c to $1.90 following the
announcement by the Queensland Government yesterday.
Of the 130 petajoules, 20 will be allocated to supply Comalco's proposed $1
billion Gladstone alumina refinery.
Comalco, after saying on Monday it would pursue two separate final feasibility
studies on both the Gladstone and Malaysia development options, was seen to
be back-pedalling after it put out a second official release yesterday saying it
was pushing ahead with final feasibility for Gladstone. It made no mention of
Malaysia.
"This is a very welcome and positive move for Queensland and Papua New
Guinea and I congratulate those involved," Comalco chief executive Mr Terry
Palmer said in a statement. "It enables Comalco to commence work
immediately on final feasibility for the Gladstone site option for our proposed
new alumina refinery."
Comalco has already received a $100 million infrastructure assistance package
from the Queensland and Federal governments.
Stockbroking analysts, following briefings with Comalco after its financial
results on Monday, are tipping Comalco will proceed with the Gladstone
refinery as part of the company's efforts to combat its shortage of alumina.
Yesterday's gas sales to Allgas are expected to be quickly followed up by a
similar agreement between the pipeline gas owners and the Queensland
Government utility Ergon for between 30 and 50 petajoules of gas.
While at this stage it is planned that the pipeline be constructed to Gladstone, it
is now expected to continue to Brisbane, opening up the gas market of the
eastern States.
"It's a huge project, the extension of the pipeline to Brisbane is also a fait
accompli," Mr Williams said. "PNG gas will flow into Brisbane."
The pipeline, which had been seen as an impossible dream of both the PNG
Government and the owners of PNG's vast gas reserves, has become a reality
in just over three years.
The present sponsors, or gas owners, in the PNG gas project are Chevron, Oil
Search, Orogen, Merlin Petroleum and Petroleum Resources. AGL and
Petromas have the contract to build, own and operate the gas pipeline.
smh.com.au and
theage.com.au
___________________________________________
Long road ahead in gas marathon
Sydney Morning Herald, July 28
ABACUS by ELIZABETH KNIGHT
When the applause dies down and the back-slapping abates, all those involved
in the practical challenges of building and operating the $3.7 billion gas pipeline
between PNG and Queensland will have some serious issues to address. A lot
of water will need to pass under the bridge between this bout of champagne
popping and the gas moving down the pipeline to these eager new customers.
The big news announced yesterday was that the Queensland
Government-owned Energex, which represents a group of south-east
Queensland customers, had committed to a 20-year project for the supply of
130 petajoules of gas per year.
Clearly the primary corporate recipients of upside in this development, Oil
Search and Orogen Minerals, were both strong in sharemarket terms, up 12c
to $2.38 and 9c to $1.90 respectively.
Energex's customers include Tarong Energy, Comalco, Sithe Energies and CS
Energy; their commitment makes the enormous project of sending gas between
the upstream source in PNG to Queensland commercially viable. The next cab
off the rank is another group of potential customers that will be represented by
another government utility, Ergon. And now the first customers are in the bag,
there is a heightened expectation that more will follow.
Thus obstacle one has been cleared. But there are two major elements left to
embrace.
The first is the development of the PNG infrastructure. At this stage all the
infrastructure on this side of the border will be developed and owned by a joint
venture between AGL and Malaysia's Petronas.
But the building and ownership of the infrastructure in PNG is not as clear: at
present, the owners of the upstream assets are looking at setting up a separate
vehicle to own and operate this infrastructure.
Ultimately, this is the sort of vehicle that could go public in much the same way
as any other utility. This is fertile ground for an infrastructure trust-type of
vehicle as well.
The vehicle will certainly want to take advantage of concessional financing to
the PNG Government.
It could be that the upstream participants who fund the infrastructure will also
retain some equity ownership, but some of the more pure upstream operators
may not. The major upstream operators in the three fields are Oil Search,
Orogen (51 per owned by the PNG Government), Chevron, Mobil/Exxon and
Santos.
The extent to which the partners can rely on international finance depends in
part on the stability of the PNG political system. While recent events have put
the PNG Government in the basket-case category in terms of stability and
reliability, there is certainly hope, if not expectation, that the latest regime will
be an improvement.
The next big issue is to get all the various upstream players which include not
only those mentioned above but also a bunch of smaller equity owners to work
on an integrated development plan. This will involve the unitisation of the three
fields Kutubu, Gobe and Hides. There will be plenty of argy-bargy ahead for
the participants in this process, but the prize at the end of it all will undoubtedly
sustain the negotiators.
The real questions is how investors can get a slice of this project, which is
being heralded as the largest project in Australia after the North-West Shelf.
Clearly there are avenues for major financiers to take positions in those
vehicles ultimately used to fund the infrastructure development. At the retail
level the only exposure is through those listed companies with a meaningful
stake either upstream or downstream.
According to HSBC analyst Anne Diamant, Oil Search has by far the biggest
leverage.
The PNG Pipeline project is a major component of HSBC's Oil Search
valuation. It forecasts that in 2003 earnings from the project should add $60
million net to Oil Search.
Orogen is the other major corporate play in this pipeline development. Its
earnings from the pipeline should add $40 million to 2003 profit.
In a relative sense, AGL will not get the same boost from this project because
of the company's size. The 39c per share valuation increment from HSBC is a
positive but not wildly meaningful.
However, the AGL share price picked up 20c yesterday to close at $9.80.
Santos is the only upstream owner in the midst of all yesterday's euphoria that
has something to lose. This is because it is already a supplier to parts of
Queensland and the competition will put downward pressure on prices when
the contracts come up for renegotiation.
Santos is able to limit its downside by hedging its position via ownership of
positions in some PNG upstream fields.
However, its share price reacted accordingly to the announcement by
Queensland Premier Beattie yesterday, slipping 9c to $5.20.
For those wanting some leverage to this large new project, there will probably
be plenty of buying opportunities between now and when the gas starts to flow.
The players have only just left the starting blocks in what will be a marathon of
capital projects.
smh.com.au |
