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Conoco Expands Australian Drilling

* By Zacks Equity Research
* On Tuesday September 15, 2009, 10:21 am EDT

ConocoPhillips (NYSE: COP - News) is buoyant with the discovery in the Browse basin, offshore Western Australia. The recent gas discovery from Poseidon-1 well in this basin has the potential to significantly move forward natural gas production volumes of the company.

Conoco’s Australian partner, Karoon Gas, said that Poseidon, in Block WA-315-P, has a significant contingent resource of between 3 and 15 trillion cubic feet (Tcf). The company is currently drilling a second well, Kontiki-1, to the north of Poseidon, in Block WA-314-P.

The company is exercising an option to drill two further wells in the Browse basin. This takes the joint venture’s current drilling program in this basin to four wells.

ConocoPhillips is the operator of the Browse basin drilling program, which covers permits WA-314-P, WA-315-P and WA-398-P. The company holds a 51% interest in WA-314-P and WA-315-P and a 60% interest in WA-398-P. Karoon holds the remaining stakes in the three permits.

ConocoPhillips is becoming increasingly excited about this basin as it seeks new reserves to feed its Darwin liquefied natural gas (LNG) plant. In the recent past, the company’s creation of an Australasian natural gas business focused on coalbed methane production and LNG processing with Origin Energy (a leading Australian integrated energy company) is expected to cement the company’s competitive position in the rapidly growing LNG market.

Besides Australia, ConocoPhillips has added a number of high impact projects in the LNG area and achieved exploration successes in offshore China, Vietnam, and Gulf of Mexico regions.

However, the company’s heavy exposure to the relatively tentative outlook for U.S. natural gas (about one-third of total volumes) and refining markets remain our concern. We recommend a Neutral rating for ConocoPhillips.

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