Australia Julimar Gas Proj Could Cost $2B

Apr.06, 2008 in Market Outlook

INTERVIEW: Apache: Australia Julimar Gas Proj Could Cost $2B

Last Update: 4/6/2008 12:19:00 PM

By Matt Chambers

Of DOW JONES NEWSWIRES

PERTH (Dow Jones)–U.S. oil and gas producer Apache Corp.’s (APA.AU) Julimar
natural gas discovery offshore Western Australia state is expected to cost about
$2 billion, and output could be converted to liquefied natural gas, or LNG, if it
will get a better return than selling into the surging domestic market, Apache’s
Australian unit’s managing director, Tim Wall, said.

Recent drilling has shown Julimar, which is part-owned by Australia’s Santos Ltd.
(STO.AU), could hold between two million and four million cubic feet of gas, Wall
told Dow Jones Newswires Sunday in an interview. The gas field will be appraised
further before it is approved by Apache and Santos boards, but Apache executives
are confident it will get the nod.

“We have two wells to go and plan to sanction the project in the third or fourth
quarter” of 2008, Wall said, speaking before the annual Australian Petroleum
Production Association conference in Perth.

Apache expects to overtake Perth-based Woodside Petroleum Ltd. (WPL.AU) as the
resource-rich state’s biggest supplier of natural gas by 2010 as it brings more
projects on line.

A resources boom and the power required to bring on new mining projects has
lifted Western Australian gas prices more than three-fold in the past year to $7
per million British thermal unit, Apache says, but growing LNG production in the
area, and surging demand, has led the company to explore whether selling to
nearby LNG producers in the state’s northwest will fetch better prices.

“We have a pretty high level of confidence it will be sold to the domestic
market,” but the company is also looking at LNG, Wall said. He said the field
doesn’t hold enough gas to justify a standalone LNG development and talks are
underway with local producers. Apache also plans to test the domestic market for
Julimar, which is expected to start producing in 2011, by tendering supply in the
second half of 2008.

The most likely buyer of the gas for LNG is Woodside, which is developing the
A$12 billion ($11 billion) Pluto LNG project with capacity to expand to take
third-party gas. By comparison to Julimar, the Pluto and Xena fields, which will
supply the plant, are expected to contain 5 trillion cubic feet of reserves.

If the Julimar gas heads to the domestic market, which Apache forecasts will have
a supply deficit at that time, it will be processed through the onshore Devil
Creek development, which is expected to start supplying gas piped from the
offshore Reindeer field in 2010.

Apache is also planning to release drill results for a new, smaller discovery
this week, Wall said. The Halyard field, also offshore Western Australia, and
also part-owned by Santos, is expected to contain about 100 billion cubic feet of
gas, he said.

Apache currently produces the equivalent of about 46,000 barrels a day of oil in
Australia, but is hoping to more than double this, to as much as 100,000 barrels
a day, through already approved projects, including Devil Creek, the Van Gogh
development, which is operated by Apache and part owned by Japan’s Inpex Holdings
Inc. (1605.TO) and the Pyrenees development, which is operated by BHP Billiton
(BHP). The new projects will add the equivalent of about 70,000 barrels a day of
production, but declines in existing fields will cut into the growth.

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