Equus delayed but not dead

Bruce Nichols

February 10, 2014

US explorer Hess remains 'confident' that its billion dollar Australian gas project will proceed.

The Equus project, Hess Corp.’s planned contribution to Australia’s push for world leadership in liquefied natural gas (LNG) exports, has been delayed pending a third-party contract to process its production, but Hess expects a deal soon, giving new life to the US$6 billion project off northwest Australia.

The final investment decision (FID) had been expected by mid-2013, after Hess rejected building its own liquefaction plant in favor of finding a partner, but it has taken longer than planned to close a processing deal. Still, Hess recently reiterated its desire to move forward with Equus and expects an export deal early this year.

“Hess is committed to maximizing the value of the natural gas discoveries that we have made offshore Western Australia. We are presently in commercial discussions with counterparties and are confident these discussions will result in the processing of Equus gas in third-party owned LNG facilities,” a spokesman reconfirmed to OE by email in late December.

Development plans filed with Australian regulators in February 2012 called for first production in 2018 to a Hessoperated floating production system (FPS). From there, gas would flow via subsea tie-back to third-party offshore facilities. The receiving facility would then relay the gas ashore for conversion to LNG for overseas shipment or for domestic Australian use.

Equus is located in permit area WA-390-P about 145km north of Northwest Cape. Nearby cities include Exmouth, about 112 miles (180km) to the south, and Karratha, about 186 miles (300km) to the east. Located between Chevron’s giant Gorgon project and Exxon Mobil’s Scarborough field, Equus deepestwater projects.

Three candidate receiving facilities for Equus’ gas were listed in Hess’ government filings: Chevron-operated Wheatstone; Woodside’s Pluto, or Woodside-operated North Rankin, which is part of the Northwest Shelf Venture, Australia’s oldest LNG export project (startup in 1989).

Wheatstone (under construction with startup targeted for 2016-2017) is approximately 60 miles (100km) to the east of Equus; Pluto (in operations since April 2012) is about 90 miles (150km) northeast and North Rankin is about 150 miles (250km) northeast.

Chevron has had nothing to say publicly about any talks with Hess.

But Woodside managing director Peter Coleman in a December investor teleconference confirmed his company has had discussions with third-party producers about shipping their gas to Northwest Shelf and to Pluto (which started operation in April 2012). He offered no specifics on a possible link-up with Hess but said there are a growing number of options for gas producers.

“The good news is there’s extra competition in the marketplace now with respect to getting their resources processed,” Coleman said. Equus, indeed, is part of a much bigger picture. Australia-wide, from the far east to the far west, seven new LNG projects are underway, according to the October 2013 gas market report from the Australia Bureau of Resources and Energy Economics (BREE). With three projects already operating (Northwest Shelf, Darwin and Pluto), the new projects will boost Australian export capacity to 80 million tonnes by 2018 from 24.3 million tonnes in 2013. When the new plants are completed and operating at capacity, Australia should approach world leader Qatar’s level of exports, providing around 20% of global LNG supplies, according to BREE’s report.

“Beyond these projects, there are a number of other LNG projects at the feasibility and proposal stages, which if brought into operation would increase Australia’s LNG capacity to more than 100 million tonnes a year and make Australia one of the world’s largest LNG exporters by the end of the decade,” the report predicts. Among those pending projects is Equus.

But there are reasons for caution in forecasting, the report says, and these factors which may have contributed to delaying the Equus FID.

Among the factors are rising development costs, the shale gas revolution and growing competition from US, Canadian and other international LNG exports.

New floating LNG operations (Shell’s Prelude is scheduled for startup in 2017) have “the potential to be transformative and unlock previously uneconomic remote offshore gas resources,” BREE’s report says.

The Carnarvon Basin around WP-390-P is a hotbed of gas-production activity, with numerous facilities besides Wheatstone, North Rankin and Pluto in development or on the drawing board, all within pipelining distance from Equus.

Hess listed several other nearby facilities in its government filings, including Chevron’s huge Gorgon development (under construction with startup planned for 2015-16) 46 miles (75km) southeast of Equus. Also listed was Reindeer about 140 miles (220km) to the east and Angel 137 miles (220km) to the northeast. In addition, Hess’ papers on file mentioned three planned or existing major pipelines, Jansz 30 miles (50km) to the east, Echo Yodel 160km to the east and Cossack Wannaea 125 miles (200km) northeast.

The nearest production facility to Equus at the time of the February 2012 filing was the John Brookes unmanned platform, about 60 miles (100km) to the east. John Brookes’ gas is sent to a Varanus Island processing facility via a 35 mile (55km) pipeline. Varanus Island, about 100 miles (155km) southeast of Equus, is site of a number of other production facilities.

Land-based facilities on Barrow Island are 85 miles (135km) to the southeast, Hess’ filings says.

In any case, Hess, 100% owner of Equus, is unlikely to suspend or drop the project given that in 2007 it committed to spend $500 million on exploration and development in order to win the rights to WA-390-P. The commitment was a record for Australian permit lease auctions. A 22-well exploration and appraisal operation from 2008 through 2011 used the Transocean semisubmersible rig Jack Bates and confirmed discovery of eight commercially viable fields. Reserve estimates run from 1-3Tcf of gas, and Equus is expected to have an operational life of 25 years.

The eight fields comprising Equus have been dubbed Mentorc, Bravo and Nimblefoot in Cretaceous strata; Chester and Rimfire in the Cretaceous/Triassic; Glenloth and Briseais in Triassic and Glencoe in the Jurassic. Reserve pressures range from 860psi in Nimblefoot to 1,288 in Mentorc.

The fields are 5200ft (1.6km) to 13,000ft (4km) beneath the seabed in 3200ft (1000m) to 4000ft (1200m) of water.

The three Cretaceous fields have the highest condensate to gas ratio, 40bbls per million standard cubic feet of gas, which could add value.

Hess began planning in 2011 and work is is well advanced. FEED work on the subsea layout of umbilicals, flowlines, tie-ins and export pipelines has been done by Wood Group Kenny. Worley Parsons’ INTECSEA unit did FEED work on the topsides, semisubmersible hull, moorings and risers.

Hess’ development plan calls for a three-phase, 17-well drilling campaign, with six producing wells to be drilled by 2017, five more by 2026 and six more by 2030. Also listed in the filing are three 12-inch flowlines totaling 27 miles (43.5km) in length, with branches linking producing wells.

A profile of the project on Project Connect, an affiliate of the Chamber of Commerce and Industry of Western Australia which lists jobs available to contractors, calls for the semisubmersible FPS to be permanently moored in 3475ft (1060m) of water. The facility would be 345ft (105m) long and 195ft (60m) wide. The hull would weigh about 25,000 tonnes and the topsides 15,000 tonnes.

Partial processing would be done on the platform – separation, gas dehydration and compression and Mono Ethylene Glycol (MEG) regeneration.

The export pipeline from Equus to third-party facilities would be a 20in. diameter line ranging from 75 miles (120km) to 180 miles (285km) in length, depending on which third party agrees to receive gas from the Hess project.

Depending on the tie-in location, the export pipeline could present challenges of its own, running through waters as deep as 4600ft (1400m) and climbing the continental shelf escarpment off northwest Australia at a 40-degree grade. At the escarpment, water depth goes from 3450ft (1050m) to 820 feet (250m) within 5 miles (8km), the Project Connect listing says.

Hess already has sought expressions of interest in several work packages on Western Australia’s Industry Capability Network. Among the packages: engineering, procurement and construction of the hull and mooring; EPC of the topsides; FPS transportation to site and installation; and topsides installation.

In its filing with Australian regulators, Hess has explained its reasoning for not building its own independent LNG processing facility.

“By tying into existing offshore infrastructure supplying an existing onshore LNG facility, the project will avoid the requirement for any onshore or near shore components,” the company filing says.

“Hess considers this concept optimizes the economic and environmental outcomes for Australia in efficiently developing the natural gas discoveries in the Equus fields."