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Woodside, Shell to have option to pre-empt Conoco's Sunrise sale

Angela Macdonald-Smith
Angela Macdonald-SmithSenior resources writer
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Woodside Petroleum has reaffirmed its commitment to the Sunrise gas project in the Timor Sea and has not ruled out pre-empting ConocoPhillips' $US350 million ($483 million) deal to sell its 30 per cent stake to the Timor-Leste government despite a continuing deadlock over the best way to develop the field.

Both Woodside and the other two Sunrise partners, Shell and Japan's Osaka Gas, have the right to pre-empt Conoco's sale to the Timor-Leste government, which was first reported in The Australian Financial Review on Monday

The government's move represents a dramatic step-up in its push to have Sunrise gas developed through a new onshore LNG plant that would be built on its southern coast, an option that has always been opposed by the venture parties as too risky and uneconomic.

The Sunrise gas project in the Timor Sea has been stalled for years. Rob Homer

Woodside chief executive Peter Coleman in July called for a fresh start on deliberations around Sunrise but signalled that an onshore Timor-Leste plant wouldn't meet investment hurdle rates. The venture most recently pushed for the gas to be developed through Conoco's existing Darwin LNG plant.

Still, despite the stalemate, both Woodside and Shell said on Tuesday they would continue to press forward on Sunrise, which holds gas and condensate resources worth about $US65 billion at current commodity prices.

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"Woodside and the Sunrise Joint Venture remain committed to the development of Greater Sunrise and we look forward to working with Timor-Leste to deliver value to both the people of Timor-Leste and the shareholders of the joint venture participants," said a spokeswoman for Woodside, the venture operator and 33.4 per cent partner.

"The joint venture participants hold certain rights that may or may not be exercised in such circumstances."

Shell, which owns 26.6 per cent, said it "will continue to work with our Sunrise joint venture partners and the governments of Timor-Leste and Australia to progress development of the Sunrise project".

Conoco's head of Australia-West Chris Wilson said the decision to exit followed an approach from the government. He said Conoco's view on how Sunrise gas should be developed differed from the government's.

"It comes down to the economics of the project," Conoco's head of external relations in Australia, Kayleen Ewin, said in an interview.

"We do differ in what we believe is an economic development option that would meet our criteria, but we recognise the importance of Sunrise to Timor and therefore we have agreed this sale in the hope it will allow them to realise their vision."

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Timor-Leste's current revenue stream, from Conoco's ageing Bayu-Undan gas field, runs dry early next decade as production ends, giving added urgency to Sunrise.

The nation's special representative, Xanana Gusmao, said that Conoco and the other Sunrise joint venture partners "have always known Timor-Leste's preference for the development of Greater Sunrise to be through a pipeline to Beaco on the south coast of Timor-Leste".

"Timor-Leste looks forward to working with the other joint venture members to successfully develop the project," he added.

Still, analysts pointed to significant hurdles ahead for the project, which would also require a floating production ship to treat condensates and a new pipeline across the Timor Trench.

"We believe the key onshore project risk is the construction of a greenfield LNG project in a country that has historically lacked large-scale infrastructure projects," Wood Mackenzie analyst David Low said.

"The next step is for the project to put forward a viable development plan that all the project participants would be willing and happy to commit to."

The signing of a new treaty between the Australian and Timor-Leste governments in March opened the door for movement on the long-stalled Sunrise project.

But Credit Suisse said that with fiscal terms, equity stakes, gas tolling arrangements and many other factors still to be sorted, an onshore project in Timor-Leste was "still an off-chance that is years away, with a post 2030 start-up even under an optimistic case scenario".

Angela Macdonald-Smith writes on the resources industry with a focus on energy, including gas, oil, electricity and renewables. Connect with Angela on Twitter. Email Angela at amacdonald-smith@afr.com

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