Woodside floats an idea of setting sail with Sunrise gas project

The Age

November 14, 2008 Friday

Barry FitzGerald, Resources Editor

WOODSIDE chief executive Don Voelte has raised the prospect of
Woodside sidestepping the Federal Government’s planned carbon
emissions trading scheme by “floating” its planned Sunrise liquefied
natural gas project out of Australian waters into waters administered
by East Timor.

The potential for the Sunrise project to proceed as the world’s first
floating LNG (FLNG) operation means Woodside would have the option of
moving the floating production and offload facility about 15
kilometres to the north-west, taking it into East Timorese waters.

“I wonder if the ETS (emissions trading scheme) is applicable to a
vessel sitting in Timor Leste waters,” Mr Voelte mused at an investor
briefing in Sydney.

At it is, a decision on just how Sunrise is developed is not due
until the first half of 2009.

The FLNG option is up against a conventional offshore development,
also in Australian waters, with the processing plant in Darwin. There
is also a rearguard action by East Timor to have the project’s
processing plant built there.

Mr Voelte has been a strong critic of the ETS proposal since the
Federal Government’s green paper released earlier in the year
envisaged that LNG (export) projects would not qualify for the same
protection as coal through the issue of free carbon pollution permits.

He told investors that Sunrise might well be the first project that
Australia loses as a result of the introduction of an ETS. He
qualified that statement by saying it was a comment, not a threat.

The Government is due to issue its white paper on the proposed ETS
early next month, with another Woodside executive, Rob Cole, saying
the company had had a good hearing on its concerns in Canberra. “We
believe our case is well understood,” Mr Cole said.

Mr Voelte said Woodside had not had formal discussions with the
Australian or East Timorese government about the potential location
of the FLNG plant.

But the potential to shift the plant into East Timorese waters to
avoid the Australian ETS had been mentioned to Australian officials.

Mr Voelte said the response was one of “surprise and kind of rolling the eyes”.

“I thought they took it very seriously,” he said.

His comments came as Woodside was being hit hard on the sharemarket
because of the slump in oil prices. The stock closed $3.09 lower at $36.90.

Part of the fall reflected disappointment that the North-West Shelf
project was suffering teething problems at its new $2.6 billion fifth
LNG processing “train”. A problem with its heat exchanger means it
will run at 80-90% capacity until it is fixed in a planned
maintenance shutdown in September 2009.

The project will lose about one cargo a month of LNG. Customers have
been notified and shipping schedules reshuffled. The good news was
that the design fault that caused the problem has been remedied in
the building of Woodside’s $12 billion Pluto LNG project, now
one-third complete.

Mr Voelte said Woodside would emerge stronger as a result of the
current turmoil in global financial and equity markets, with the
group’s balance sheet strength allowing it to take up new
opportunities. “Strong companies in recessions and downturns get
stronger. Bad companies go away,” he said.

“But bad companies sometimes have some very good assets that they
weren’t just lucky enough to bring on.”

The company has stuck to its earlier forecast that production of
between 81 million and 84million barrels of oil equivalent (boe)
would be achieved in (calendar) 2008. The forecast for 2009 was 81
million to 86 million boe, slightly lower than most in the market
have been forecasting.

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