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November 2006

Vol. 11, No. 47 Week of November 19, 2006

Chevron scores Australian wildcat

Second major deepwater discovery off Western Australia puts company in excellent shape — if Gorgon facility surmounts obstacles

Allen Baker

For Petroleum News

Chevron Corp. has added another tantalizing deepwater discovery to its inventory off Australia. The company announced Nov. 9 that the Clio-1 exploration well found an impressive 623 feet of net gas pay in the Mungaroo Formation. The well went to a total vertical drilling depth of 15,500 feet.

It’s the second successful offshore wildcat by Chevron in the area in the last six months, and it ties in well with the Chevron-led Gorgon project, assuming that the mammoth undertaking can get past environmental and financial hurdles.

Popular neighborhood

Clio-1 was drilled in 3,000 feet of water about 90 miles off the coast of Western Australia. It’s in a popular neighborhood, not far from the North West Shelf Venture, as well as Gorgon and the Pluto field that Woodside Petroleum hopes to exploit.

The Clio success follows on another Chevron discovery, the Chandon-1 well, which sits on the other side of ExxonMobil’s giant Jansz field, said to hold around 20 trillion cubic feet of gas and a big part of the Gorgon project.

Both Clio-1 and Chandon-1 were completed using Transocean’s semi-submersible Jack Bates rig.

Chandon-1 was spud on June 21 and its success was announced July 12. The well was drilled about 160 miles off Australia in 3,900 feet of water, with a total drilling depth of 10,200 feet. The company didn’t provide further details on that well.

Chevron holds a 100 percent interest in Chandon and a 67 percent piece of Clio, with Shell holding the rest.

“Our two significant gas discoveries in Chandon and Clio this year demonstrate the benefits of Chevron focusing our exploration program in key basins such as northwestern Australia,” noted John Watson, president of Chevron International Exploration and Production, in announcing the Clio discovery.

Quick Follow-Up

“Chevron will be undertaking further work, including a 3D seismic survey program starting in mid-December, to better determine the potential of the gas find and subsequent development options” at Clio, said Jay Johnson, managing director of Chevron Australia.

“The Clio discovery highlights the quality of our exploration capability in the region and the significance of northwestern Australia to Chevron’s energy portfolio.” Chevron put a healthy $192 million into its exploration kitty for Australia this year.

The Clio gas is said to be low in carbon dioxide, which could make it attractive for early development. Much of Gorgon’s 40 trillion cubic feet of gas comes with high levels of associated carbon dioxide, which would be injected back into the ground under Barrow Island, where the Gorgon gas processing and liquefaction units would be installed.

Gorgon stalled

But the Gorgon project has met with delays due to environmental issues as well as the soaring costs associated with big LNG developments around the world.

Australian environmental officials are still reviewing the proposal for Barrow Island facilities after an adverse ruling last summer that said the project could threaten the survival of an endangered flat-backed turtle.

Chevron filed an appeal, and a report on the issue was finished in early November and handed to Western Australia Environment Minister Mark McGowan, who has final authority on the proposal. He’s not expected to rule until early next year. So the project remains on hold.

Meanwhile, Chevron and its partners are looking at rising costs for Gorgon as huge projects around the world compete for specialty steel and other materials.

Gorgon was originally expected to cost around $8.5 billion and produce 10 million tonnes of LNG each year from half a trillion cubic feet of natural gas. But there are rumblings that costs may have risen by 50 percent or more.

The same thing happened to Shell’s Sakhalin 2 project in Russia, where the cost estimate nearly doubled to $20 billion, triggering major political as well as economic waves. Closer to home in Australia, Woodside is expected to revise sharply upward its $5 billion development estimate for Pluto, which is said to hold 4.1 tcf. LNG from Pluto has been sold to two big Japanese utilities, though Woodside also wants to send some LNG to an offshore terminal to serve California.

Slipping schedule

LNG shipments from Gorgon were originally scheduled to begin in late 2010, but that has slipped officially to 2011 and shipments now aren’t likely until 2012.

Chevron has sold essentially all of its 50 percent share of the LNG from Gorgon to Asian utilities in long-term contracts. Partner Shell is tentatively planning to ship much of its 25 percent share to Sempra’s Mexican port in Baja California, while ExxonMobil has not made any announcements about where its 25 percent might end up. India is said to be interested.

Clio and Chandon could add significant production to keep the huge Gorgon LNG plant in operation. There has been speculation that the two new discoveries could add 10 tcf to the 40 trillion cubic feet already counted at Gorgon. Chevron said the 623 feet of net pay make Clio one of the top Australian wells by that measurement, though that’s only about half of the stupendous gas column at nearby Jansz.






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