Oil Search moves on pipedream By James Chessel February 28, 2004
The jury is out on Oil Search boss Peter Botten's unconventional decision to "draw a line in the sand" over the stalled Papua New Guinea to Queensland gas pipeline.
Under Botten's proposal, announced after Oil Search reported record earnings of $US85.7 million ($111 million) for 2003 earlier this week, the Sydney-based group has decided the venture should now advance to the $US70 million front-end engineering and design (FEED) stage of what is now called the Highlands Gas Project.
This without the explicit support of Highlands' operator, ExxonMobil, which said it was surprised by the Oil Search initiative and had made "no recommendation" on moving to FEED, but would try to "understand" the announcement.
Oil Search argues that with a higher level of project certainty, more customers will contract to buy gas, enabling the group to achieve the required 150 petajoules it requires in sales agreements.
But as UBS notes, a "build it and they will come" approach requires the joint venture to take on a higher degree of pro-ject risk than it has been prepared to do in the past.
Timing also appears to be a concern. Credit Suisse First Boston says: "If the Highlands Gas Project is to deliver gas into a late-2007 to 2008 window, full FEED commitments must be made within the next month or so - otherwise the opportunity pushes out to 2012."
Macquarie is similarly wary. "Given the inroads made by Coal Seam Gas into the Queensland market, [we] view the successful development of [Highlands] as increasingly unlikely this decade."
Should discussions with ExxonMobil break down, Botten does have fallback options, including looking for new partners and employing a hybrid liquid stripping option.
OSH Price at posting:
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