ConocoPhillips mulling Australia Pacific LNG exit

The Australia Pacific LNG facility on Curtis Island.

American multinational energy company ConocoPhillips is believed to be crunching the numbers on its investment in Australia Pacific LNG in Queensland to determine whether to stage an exit from the $US20bn ($29.4bn) project.

ConocoPhillips owns 37.5 per cent of the Queensland operation, Origin Energy owns 37.5 per cent and Sinopec, to which the gas for the project is contracted, holds the remaining interest.

Some believe ConocoPhillips could be working with investment bank JPMorgan, although the US bank declined to comment on whether it had any involvement.

ConocoPhillips also declined to comment on its plans.

APLNG is Australia’s largest producer of coal-seam gas, supplying the Queensland domestic gas market, as well as processing CSG from southwest Queensland’s Bowen and Surat Basins into liquefied natural gas to meet growing export demand.

The gas is transported via a 530km main export pipeline to the LNG facility, located on Curtis Island near Gladstone.

Some believe that the buyer of the interest could be an infrastructure-style investor that has a lower cost of capital than the US group and could generate stronger returns from the project.

However, an operator would also be involved.

ConocoPhillips initially purchased a 50 per cent stake in APLNG more than 10 years ago for about $US5bn.

Sinopec later bought an interest, increasing its equity stake in the project in 2011 from 15 per cent to 25 per cent.

However, some say that the investment has been a disappointment for ConocoPhillips, which is understood to have written off some of the value and better investment opportunities in the US and Canada with shale gas and other oil opportunities.

Recently, ConocoPhillips sold its stake in its Darwin LNG plant and northern gas fields in October to Santos and a sale of APLNG would see it almost completely exit Australia.

The gas on the product has been contracted over the long term to China’s Sinopec, so the offer would be an earnings stream, and it is not thought to have any growth prospects.

Should the asset come up for offer, a concern for Origin Energy would be what party becomes the operator, given that ConocoPhillips is currently the downstream operator.

One possibility could be a demerger by both Origin and ConocoPhillips of APLNG, although this is thought to be less likely, or upstream operations could be split from downstream operations.

It is understood that ConocoPhillips has recently commissioned some initial scoping work for the gas assets related to LNG futures, based on the US versus Australia long term and spot contracts.

The asset is currently involved in legal action with Tri-Star Petroleum.