Australia: Origin Raises APLNG Cost Estimate

Origin Energy announced the results of Australia Pacific LNG’s comprehensive schedule and cost review for its CSG to LNG project.

The review reaffirmed the strength and quality of the Australia Pacific LNG project, which is based on Australia’s premier 2P CSG reserves base.

The review concluded that to date, Train 1 is on track to be completed on or ahead of schedule, with the first LNG cargo expected in mid 2015. Train 2 is expected to be completed at least three months earlier than the FID schedule, and start up is now expected in the fourth quarter of calendar 2015. As a result of the improved schedule, revenues from this Train are expected to be generated earlier than previously anticipated.

The estimated cost of the project at the FID2 announcement in July 2012 was $23 billion. The current estimate is now $24.7 billion, a 7 per cent increase on the previously announced estimate.

Origin Managing Director Mr Grant King said, “The increase in cost reflects increased certainty around well and gathering locations for gas for Train 2, enabling more accurate cost estimates, changes to CSG water management scope to align with revised government policy, cost increases for third party LNG projects in which Australia Pacific LNG has an interest, and an increased allowance for project contingency.”

Gathering estimates have increased given approximately 90 per cent of Phase 1 operated wells and gathering line routes have now been scouted. This increase also reflects more extensive consultation with landholders to ensure the optimal location of wells, while minimising any impacts on farming operations.

In parallel with recent changes to government CSG water policy, the project has updated its plans to manage associated water to improve alignment with stakeholder expectations. Australia Pacific LNG’s approach will increase water distribution to landholders for irrigation of commercial crops, increase the amount of water that will be reinjected, and maintain the flexibility to release treated water into watercourses where necessary.

Additional allowances have also been made for project contingency.

“It is important to note that project contingency now exceeds 10 per cent of the forecast cost to complete,” Mr King said.

“It has always been the plan for Australia Pacific LNG to undertake a thorough review of the project when 20-30 per cent complete. All major contracts are awarded, civil works on Curtis Island are essentially complete, the majority of wells are located and planned, and a substantial amount of work has been undertaken on both the Upstream and Downstream components of the project.

“For the above reasons we believe that our revised project estimate is an appropriate guide for the completed project’s schedule and cost,” Mr King said.

Origin’s funding of Australia Pacific LNG

Based on project costs of $24.7 billion and other forecast expenditures and revenues for Australia Pacific LNG, Origin expects its funding requirement for Australia Pacific LNG to peak at $4.4 billion¹.

The peak in funding occurs when cash flow begins from the start of production from the first train in 2015, as Australia Pacific LNG becomes self-funding from that time.

This increase from $3.6 billion which was previously advised in July 2012, reflects Origin’s share of increased project costs, which are also partially accelerated into the peak funding period due to earlier than scheduled completion of Train 2.

Mr King said, “Origin’s current committed undrawn facilities, together with operating cash flow, provide sufficient liquidity to cover its Australia Pacific LNG funding commitment and the requirements of Origin’s existing businesses, without the need for refinancing until the 2015 financial year.”

Project update

Australia Pacific LNG continues to make significant progress on the development of its CSG to LNG project. At the end of December 2012, the Upstream component of the project was 29 per cent complete and the Downstream component was 31 per cent complete.

In the Upstream project, 209 operated phase 1 wells have been drilled to 31 December 2012. The time within which a well is drilled continues to reduce due to improved drilling performance and favourable weather conditions. Land access agreements for drilling and gathering activities have also been finalised for 467 Phase 1 well locations.

Gathering locations for more than 960 wells – approximately 90 per cent of wells required – have been scouted, providing a high level of certainty around this activity. Installation of gathering flow lines and electrical and fibre optic cables commenced in the second quarter of the 2013 financial year.

Construction of the first gas processing plant at Condabri Central Gas Plant was 60 per cent complete by the end of December 2012 and remains on track to be mechanically complete in mid 2013. Construction of the Condabri South and North gas processing facilities are also progressing to plan.

The main pipeline is on track to be complete in early 2014. The Narrows Crossing, which is being executed by QCLNG, is progressing largely in accordance with its revised plan.

Downstream activity on Curtis Island continues to progress well, with the Material Offloading Facility (MOF) completed and regulatory approvals received for operation in December 2012, on schedule. The first compressor shipment is expected in the third quarter of financial year 2013, following a successful string test of the methane compressor in December 2012.

Erection and welding works continued on both LNG tanks, which are progressing ahead of plan. The accommodation village continues to expand with approximately 1,000 rooms now in use.

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LNG World News Staff, February 21, 2013; Image: APLNG