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Gorgon Gas Project

Gorgon Gas Project Slideshow

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Summary presentation about the goron gas project in Western Australia

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Gorgon Gas Project

Contents

Overview Developments, Future developments Stakeholders, Agreements, Grants Finance Government Acts, Policies, Attitudes CO2 Injection Technology Environment, Health & Safety

Gorgon Gas ProjectIt is one of the world's largest natural gas projects and the largest single resource project in Australia's history.

Includes the construction of a 15 million tonne per annum LNG plant on Barrow Island. LNG tanks transport to international markets while domestic gas piped to WA mainlandApproval in 2007, expected to start up in 2014.

1973West Tryal Rocks field discovered

1976Spar field discovered

1984Gorgon field discovered

1994Chrysaor field discovered 1996Dionysus field discovered

1998Reserves certified and gorgon JVPs start front end engineering and design (FEED) work

Asian economic crisis delays project

1999Io, Jansz, and Geryon fields discovered

2001Chevron promotes Barrow island plant location

2003Environmental, Social & Economic assessment completed

Approved 300 hectares (1.3% of islands uncleared land) for development (barrow island act 2003)

2005Front End Engineering and Design (FEED) commences for 2x5mt/a LNG trains with supply from gorgon, Io & Jansz

Framework agreed & Signed

2006Chandon & Clio fields discovered

2007Environmental approvals for 2x5mt/a trains approved, 3x5mt/a trains scheme approved by JVPs

2008Environmental review starts on revised expanded scope

2009Revised & expanded scope approved for 3x5mt/a trains

Gorgon downstream FEED completed

Arrival of ENSC7500

Interest for domestic gas

State & federal government environmental approvals completed

Production licenses offered

Gorgon Project final investment decision by JVPs

Future Developments

Gorgon• 8 Subsea Wells• 3 Manifolds• 3 PTS• 84km Pipelines and

Umbilical

Jansz• 10 Subsea Wells• 2 Manifold/PTS Structure• 135km of Pipelines and

Umbilical

• Gorgon: Drilling using the Atwood Osprey• Jansz: Drilling using the Deepwater Frontier

• Trees being assembled in Aberdeen

• Module estimated at 74 ton

• 20 trees being manufactured to support the project

• On schedule for first gas in 2014

• Fabrication of PAUs/PARs and modules underway (ahead of schedule)

• Dredging and Horizontal Directional Drilling programs making significant progress

• Barrow Island and near shore workforce now in excess of 1,400

• Native Title Agreements for domestic gas pipeline signed

Current Standing

Chevron Australia (47.33% ) Project Operator Shell Development Australia (25%) Mobil Australia Resources (25%) Osaka Gas (1.25%) Tokyo Gas (1%) Chubu Electric Power (0.417%)

Stakeholders

Chevron47%

Shell25%

Mobil25%

Osaka1%

Tokyo1%

Chubu0%

Japan is the worlds largest importer of LNG. The Japanese based stakeholders also created Sales and Purchase Agreements with Chevron to secure delivery of LNG to Japan.

Sales and Purchase Agreements for LNG

15 Mtpa of LNG predicted for the Gorgon Project- 7.05 Mtpa to Chevron.

Osaka Gas1.375Mtpa for 25 years

Toyko Gas1.1Mtpa for 25 years

Chubu Electric1.44Mtpa for 25 years

Caltex, South Korea 0.25Mtpa for 20 years

Nippon Oil, Japan 0.3 Mtpa for 15 years

Kyushu Electric, Japan 0.3 Mtpa for 20 years

osaka gas20%

toyko gas16%

chubu20%

caltex4%

kyushu4%

nippon4%

remaining32%

Sales and Purchase Agreements for LNG

Petronet India 1.5 Mtpa over 20 years

PetroChina2.25 Mtpa over 20 years

15 Mtpa of LNG predicted for the Gorgon Project- 3.75 Mtpa to Mobil

petrochina60%

petronet india40%

Shell- portfolio selling

Verve and Synergy have both entered into contracts for a combined 125 terajoules per day for 20 years term starting in 2015.

This is equivalent to 0.8 Mtpa of LNG

Domestic Gas Agreements

Government Grants

The Carbon Dioxide Injection Project (discussed later) is an $850 million project aimed at minimising greenhouse gases.The government has contributed $60 million towards the project.

Suggested reasons to contribute:• The government will make

$40 billion off the lifetime of the project

• Looks good to support environmental causes in the public eye

Overall Gorgon Risk

The Gorgon project had to evaluate upstream risks in LNG production, midstream risks in shipping, and downstream risks in LNG off-take agreements

Overall Gorgon Benefits

The Gorgon fields are jointly developed by Australian subsidiaries of three international energy companies – Chevron, Royal Dutch Shell and Exxon Mobil. Each sponsor has a strong credit rating and is responsible for financing its share of the project costs. This combination of strong credits adds a strong layer of comfort to the syndicate of lenders.

Upstream Risks and Benefits

• Plant Construction Risk• Each participant is responsible for

financing its respective equity share of project costs.

• Cost overrun risk mitigated by Operator having substantial stake in project

• Strong experience of Engineering, Procurement, Construction contractors (JGC, KBR, Clough & Hatch)

• Plant Operational Risk• Excellent track record from Chevron

• Gas Reserves Risk• Greater Gorgon Fields have reserves

of 40 tcf (trillion cubic feet)

Upstream Cont.

• Political and Environmental Risk

• Stable fiscal, legal and political environment in Australia

• Strategic importance to monetize Western Australia’s gas resources

Midstream Risk

• Vessel Construction Risk

• Vessel Operational Risk

• Charterer Risk• Sponsor Risk• Vessel Debt-Related

Risk

Midstream Benefits

- Strong track record in LNG shipbuilding for Hudong. - Vessel supervision to be carried out by both Mitsui OSK Lines and

ExxonMobil - Project Development Agreement to enhance shipbuilding process

and vessel quality. - Liquidated damages in case of construction delays, cost overruns

to be covered by the sponsors. - Mitsui OSK Lines and China Shipping Development are large

reputable and financially solid ship owners. - CEXIM (Export Import Bank of China) provided long term fixed

rate loan to help mitigate interest rate risk.

DownStream

Risks:

Off-take Risk: which is an agreement between a producer of a resource and a buyer of a resource to purchase/sell portions of the producer's future production.

Benefits:

Strong, robust off-taker (PetroChina & Petronet India)

Global increase in demand for LNG.

Investment Analysis

The budget for the total Gorgon project is USD $37 billion.

A massive USD $869 million debt was raised to help finance the cost of 4 massive LNG tanker ships constructed by Hudong-Zhonghua Shipbuilding.

The project is expected to spend about $20 billion on goods and services alone during the construction period.

Budget Increase for Gorgon

•Chevron has admitted that the $37 billion dollar budget will increase.

• -Increasing labour cost

• Productivity issues

• The high Australian dollar

-Half of Gorgon’s cost are in Australian dollars.

•Chevron is currently performing an assessment that will help them understand the movements in cost.

•Oil prices are 60% higher than at the time of the projects sanction.

•Chevron is still very confident that production will still be commencing around the stated schedule in late 2014.

GDP Increase Gorgon will increase

Australia’s GDP by $63 billion dollars.

Australia’s gas export are predicted to quadruple over the next decade

About $33 billion will be spent on local goods and services.

Will create about 10000 direct and indirect jobs at peak construction.

Government Attitudes• An integral role in making the project viable.• A partner, directly and indirectly

11/04/2023

Government Policies

Under current arrangements, the commonwealth will receive all royalties from the batch of looming petroleum projects in WA because the gas sits in federal waters, even though the processing facilities will be on state land.

‘it was only fair that WA should receive a share of oil and gas royalties’ -- Norman Moore

Tax Issues• PRRT (used to exclude the North West Shelf and East Timor) • The new tax - Minerals Resource Rent Tax• The expanded PRRT (Petroleum Resource Rent Tax)• Increased taxation based on their profits (super-profits tax),

not on the quantity of resource extracted• The power of government to introduce new taxes is

essentially limited to what people are prepared to pay.

CO2 Injection• Gorgon field contains about

14-16% CO2 which is removed during gas processing operations and is usually emitted via atmospheric venting

• The joint venture has invested about $2billion in the design and construction of the worlds biggest commercial CO2 injection facility and should reduce the projects emissions by 40% (3.6million tonnes/y)

• Approximately 120 million tonnes of CO2 will be safely injected underground during the life of the Gorgon Project (6x more than any project in the world), positioning Australia as a world-leader in CO2 injection technology.

• The CO2 extracted from the reservoirs will be extracted as per normal gas processing, and then compressed and injected into the Dupuy formation underneath Barrow Island

• Once injected, the CO2 will dissolve into the sandstone and become permanently stored in the underground reservoir Dupuy

• Once injection has started, a reservoir surveillance program will monitor movement of the injected CO2 and observe the effects on the reservoir.

• The movement of the injected CO2 will be monitored using time-lapse seismic data and surveillance wells to detect the arrival time and the volume of CO2 at the well

The Environment

Barrow Island was set aside as a nature reserve in 1910 in recognition of its outstanding flora and fauna values

It is currently reserved as a Class ‘A’ Nature Reserve for the purpose of ‘Conservation of Flora and Fauna’, which represents the highest level of protection afforded under State legislation

Subsea gathering systems and subsea pipelines will be installed to deliver feed gas from the Gorgon gas fields to the west coast of Barrow Island

The feed gas pipeline system will be buried as it traverses from the west coast to the east coast of the Island where the system will tie in to the Gas Treatment Plant located at Town Point

How to protect Barrow Island and surrounding waters during production and operation?

1) Devise a plan

2) Seek Approval

3) Adhere to the plan

“This Plan has been prepared to ensure that the installation and pre-commissioning of the DomGas pipeline as described in Section 3.0 is conducted in a manner that protects environmental values and reduces impacts to the environment as far as practicable”

Environmental OutcomesRisk is evaluated and defined on a scale from 1-10

(7,8,9,10) deemed acceptable

Implementation

The Inherent Risk is assessed and then management and mitigation measures are taken to reduce the risk to acceptable levels (Residual Risk)

Health & Safety

“For us, it's not about statistics – it's about keeping people safe”

Chevron – as the operator of Gorgon – is committed to making sure Health, Environment and Safety is at the forefront of all development plans

The company provides an all encompassing medical service for injury treatment and management, injury prevention programs, drug and alcohol testing and health education

Investing in the Health of the Gorgon Workforce The health of Chevron's construction and operational workforce is looked after by Medibank Health Solutions as part of a $20 million five-year contract to deliver medical personnel and services on Barrow and Thevenard islands

‘Health & Safety’ is also covered in the risk management plan

http://www.chevronaustralia.com/media/speeches.aspx?NewsItem=10b48dbf-dabe-4da5-8c6f-d13e51efc775

http://www.theaustralian.com.au/business/wa-push-to-keep-gas-and-oil-royalties/story-e6frg8zx-1225836721690

http://theconversation.edu.au/the-resources-tax-back-to-the-future-281 http://

www.theaustralian.com.au/national-affairs/new-tax-wont-hit-us-say-gas-and-oil-giants/story-fn59niix-1226457776822

“Gorgon Gas Development and Jansz Feed Gas Pipeline”, 2012 http://www.chevronaustralia.com/ourbusinesses/gorgon/healthandsafety.aspx http://www.chevronaustralia.com/ourbusinesses/gorgon.aspx http://www.dsd.wa.gov.au/7599.aspx#7610 www.chevronaustralia.com/ourbusinesses/gorgon/environmentalresponsibility/c

arbondioxideinjection.aspx http://www.chevronaustralia.com/ourbusinesses/gorgon/healthandsafety.aspx

References

http://www.chevronaustralia.com/media/speeches.aspx?NewsItem=10b48dbf-dabe-4da5-8c6f-d13e51efc775

http://www.theaustralian.com.au/business/wa-push-to-keep-gas-and-oil-royalties/story-e6frg8zx-1225836721690

http://theconversation.edu.au/the-resources-tax-back-to-the-future-281 http://

www.theaustralian.com.au/national-affairs/new-tax-wont-hit-us-say-gas-and-oil-giants/story-fn59niix-1226457776822

“Gorgon Gas Development and Jansz Feed Gas Pipeline”, 2012 http://www.chevronaustralia.com/ourbusinesses/gorgon/healthandsafety.aspx http://www.chevronaustralia.com/ourbusinesses/gorgon.aspx http://www.dsd.wa.gov.au/7599.aspx#7610 www.chevronaustralia.com/ourbusinesses/gorgon/environmentalresponsibility/c

arbondioxideinjection.aspx http://www.chevronaustralia.com/ourbusinesses/gorgon/healthandsafety.aspx Chevron Articles: subsea operations overview, expansion project, carbon

dioxide seismic baseline survey

References

Questions?