Barry FitzGerald – Woodside Petroleum yesterday turned on United States oil and gas giant Phillips Petroleum, accusing it of delaying a $5 billion development of the Sunrise gas fields in the Timor Sea so it could protect its gas position in the Californian market.
The attack by Woodside follows the turmoil created on Monday when Phillips rejected a radical Woodside-supported plan by Royal Dutch/Shell to develop Sunrise using the world's first floating liquefied natural gas (FLNG) plant.
Phillips, a 30 per cent partner in the Sunrise gas resource, stunned the other partners when it said its preference was to pipe the gas to Darwin for sale to the domestic market, claiming it had greater benefits and less risk.
An angry Woodside, 34 per cent owned by Shell, yesterday dismissed the Phillips claims, saying that Shell's FLNG concept would cost $2 billion less than the onshore option and would create an all-up project value of about $30 billion.
Speaking after the Woodside annual meeting in Melbourne yesterday, the group's managing director, John Akehurst, said the economics were compelling for the FLNG proposal.
"On the basis of a straightforward comparison between an onshore facility for Sunrise and an offshore facility for Sunrise, that leads to a $2 billion capital saving in providing the same LNG production for export," he said.
Mr Akehurst said the reluctance of Phillips to throw its lot in with the FLNG proposal had much to do with its battle with Shell in the US.
"There is a competitive battle going on in the West Coast of the US to supply California with gas."
Mr Akehurst said Phillips and Shell were each proposing to grab a share of the growth in the market by building LNG receiving terminals.
"One can see that the competition between those two companies to deliver gas into that area is a crucial factor in how we go forward with Sunrise."
He said he hoped that Phillips would recognise what was a substantial revenue-creating opportunity. "It would allow us to diversify our customer base into the United States and secure very lucrative long-term contracts."
The project timetable for Sunrise calls for a final investment decision towards the end of next year and the start of LNG production before the end of 2007.
Mr Akehurst said the design and front-end engineering could be started without the support of Phillips, but it was not the preferred option.
Under the Sunrise joint venture between Shell (26.56 per cent), Woodside (33.44 per cent), Phillips (30 per cent) and Osaka Gas (10 per cent), all partners must support big development decisions.
Originally it was planned that although gas would be supplied to the FLNG plant on the same equity basis, Shell would wholly own the plant and the gas marketing rights.
However, Woodside revealed yesterday that Shell was now offering the partners a combined 49 per cent share in the facility (Woodside's direct interest would be 22.3 per cent).
Whether that sweetener will help to win over Phillips remains to be seen.
Industry observers suspect that Phillips will continue to tighten the screws on Shell. They believe Phillips will end up supporting FLNG, but not before Shell offers additional sweeteners.
At yesterday's Woodside meeting, shareholders were told the group's tender for a supply contract of three million tonnes a year of LNG to China was in its final stages. Success in the tender would underwrite another expansion of the $15 billion North-West Shelf gas project.
Woodside chairman Charles Goode said group profit in 2002 would be influenced by secondary tax payments on oil production from the Laminaria and Corallina oil fields. Much would depend on oil prices and exchange rates