Monday, December 05, 2005
SLUGCATCHER’S Quiz Time.
You’ve got $10 billion to spare, three liquefied natural gas projects on the drawing boards, and each one will cost about $5 billion.
Do you:
(a) develop the one located 450km off the coast, in waters ranging from 90m to 550m deep, and in which you have a 33.44% interest or,
(b) develop the one 400km off the coast, in waters ranging from 400m to 800m deep, and in which you have a 50% interest or,
(c) develop the one 190km off the coast, in waters ranging from 80m to 175m deep, and in which you have a 100% interest.
The rules of the quiz are that you can only pick two, and those two must generate the maximum return to the shareholders.
For slow readers, and those lacking any business acumen, the answer is obvious; (b) and (c) are better investment options, and they are infinitely better when you consider another question: would you prefer your $10 billion to be sunk into the waters of a politically stable country with a strong rule of law.
By now, astute readers will have recognised that The Slug is not really running a quiz. This is a real life, real time, situation that involves Australia, East Timor and Woodside Petroleum, and it’s one that burst back into life last week.
On Friday, the governments of the two countries announced that they had initialled a deal to divide the spoils from offshore oil and gas production, theoretically bringing to an end several years of tortuous talks over plans to develop the Sunrise LNG project in the Timor Sea.
The government chappies, apparently oblivious to events in the field, declared it a time for rejoicing. Australia’s Foreign Minister, Alexander Downer, even forecast that the deal could mean a windfall to East Timor of $14.5 billion over the next 20 years.
Sorry, Alexander, but that’s just a little ambitious. For starters, there is no way any money is flowing to East Timor from Sunrise in the “next” few years. It’s possible some time in the future that money will flow, but it will be an awful long time into the future.
The problem, which seems to have eluded politicians and civil servants on both sides of the Timor Trench, is that it is not in Woodside’s best interest to rush the development of Sunrise.
While December 2 may be seen as a day to celebrate the reaching of an agreement on the Timor Sea oil and gasfields, a much more important day was March 29 – the day Woodside announced the discovery of the Pluto gasfield off the Western Australian coast.
It was on that day that Woodside said it had hit a 209m column of gas at Pluto, an event which changed everything in the life of East Timor, simply because Pluto is in relatively shallow water, it is relatively close to the coast, it is 100% in Australian waters, and it is 100% owned by Woodside.
For Woodside executives this is a no-brainer. Pluto is first cab off the LNG rank, followed by Browse, which is also in Australian waters, and is 50% owned by Woodside.
Sunrise, with a fiscal regime that is still not certain, partially in waters of a small and difficult country, has slipped way down the development schedule. It might even stay close to the bottom of the schedule because Woodside is still busily exploring its Australian acreage (and might find more gas), and East Timor continues to rabbit on about locating the proposed LNG plant on its shores.
For some strange reason, the chaps in Dili still seem to think that you can run a gas pipeline across a 3000m deep seabed trench.
The Slug puts this kind of thinking in the loopy category – and adds it to the pile of reasons as to why Woodside will not do much about Sunrise this year, or next, or the year after that.
In fact, nothing will happen until fiscal certainty is achieved (we’re not there yet), silly talk about an LNG plant in East Timor disappears, and Woodside management has free time after developing Pluto and Browse – say, in about 10 to 15 years time.