By Angela Macdonald-Smith
Jan. 7 (Bloomberg) -- Apache Corp. and Santos Ltd. are seeking to revive a A$900 million ($651 million) natural gas project in Australia after signing an accord to sell the fuel to an iron ore venture proposed by Citic Pacific Ltd.
The restart of work to develop the Reindeer project depends on signing construction contracts by mid-March, Houston-based Apache said in a statement. Contracts worth A$390 million with Clough Ltd., an engineering company, were scrapped last month after the project was halted because of a failure to complete the agreement with Citic Pacific.
Gas from Reindeer will be used to power the A$5.2 billion Sino Iron project in Western Australia, where prices of the fuel have jumped on a lack of new supply and a shortage since a June blast at an offshore Apache plant. The possible revival of the plan comes after the government's commodities forecaster said the value of Australian mining and energy projects fell 4 percent in November from April as the economic outlook worsened.
``It's an encouraging development at a time when lots of projects are being scrapped or deferred,'' said Graeme Bethune, chief executive officer of EnergyQuest, an Adelaide-based consultant. ``Reindeer and Devil Creek will form a third production hub for Western Australian gas, so that diversifies the state's gas supplies.''
The seven-year contract to buy gas from the project, comprising the offshore Reindeer field and Devil Creek onshore processing plant, which will start in the second half of 2011, is worth about $1.3 billion at $50-a-barrel crude-oil prices, Citic Pacific said yesterday in a statement. The fuel will feed a power station at the mine site at Cape Preston, it said.
Doubling Gas Prices
The new start-up date for Reindeer is about a year later than the original plan. The project includes the construction of the Devil Creek gas processing plant southwest of Dampier and a 105-kilometer (65-mile) offshore pipeline.
Adelaide-based Santos, which owns 45 percent of Reindeer, said its share of revenue from the contract will be about $585 million for the supply of 75 petajoules (71 billion cubic feet) of gas. That's equivalent to an average of $7.80 a gigajoule, or double the average A$4.90 ($3.53) a gigajoule that Santos got for its gas in the three months ended Sept. 30.
``There's been a lot of volatility and uncertainty in the markets and now we're glad that we have a buyer who's ready to go forward with a major project,'' Bill Mintz, a spokesman for Apache, said in an interview from Houston.
Shares Rise
Santos gained as much as 35 cents, or 2.3 percent, to A$15.49 in Sydney trading and was at A$15.39 at 1:25 p.m. local time. Clough, which said in a statement it's ``ideally placed'' to resume work on the Reindeer project, surged as much as 60 percent to 40 cents, while Citic Pacific climbed 8.5 percent to HK$11.80 in Hong Kong.
The gas contract price is fixed for the first three years, with adjustments for the inflation rate, then indexed to international oil prices starting in the fourth year, Santos, Australia's third-biggest oil and gas producer, said today in a separate statement to the Australian stock exchange.
The Reindeer project will have the capacity to produce 215 terajoules a day of gas and will be a third source of supply for Western Australia after the North West Shelf venture's Karratha plant and Apache's Varanus Island facility. It would supply the equivalent of a fifth of the state's existing gas market.
``The Reindeer field and Devil Creek facility represent important steps in bringing a significant new source of gas supply into the rapidly growing Western Australian market,'' David Knox, chief executive officer of Santos, said in the statement.
Alcoa Inc., the largest U.S. aluminum producer, suspended a proposed expansion of the Wagerup refinery in Western Australia as the global credit crisis curbs demand. Minara Resources Ltd., the Australian nickel producer controlled by Glencore International AG, in August deferred a A$300 million expansion.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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