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Interview

Chris Wilson – President, ConocoPhillips Australia West

The recently appointed president of ConocoPhillips Australia West, Chris Wilson highlights several milestones that the company’s core asset – Darwin LNG – has recently achieved and describes how the plant has positively impacted all stakeholders involved. He also elaborates on the company’s plans to identify and develop backfill opportunities to continually feed Darwin’s production lifespan, while also sharing a few strategic insights the company has developed as a longstanding LNG operator.

Having only taken over the helm in June 2015, how would you reflect on your time so far as the President of Australia West?

It’s been an interesting time to arrive in Australia. There’s been a huge amount of investment across the sector, which will lead to Australia’s pre-eminent position as the leading producer of LNG. The high levels of activity have driven up cost levels and, coupled with diminishing commodity prices, created a relatively challenging operating environment.

That being said, however, I inherited a very well run operation. ConocoPhillips has been producing since 2004 in the Bayu-Undan field, shortly after which, the Darwin LNG plant came online. My primary mandate has been to keep the facilities running with the same level of efficiency and uptime.

The second mandate involves backfill for the Darwin LNG plant. The Bayu-Undan field offshore won’t produce forever. Around the beginning of the next decade, we see production coming to the end.  So, my objective revolves around identifying and developing new opportunities to feed Darwin’s production lifespan, which has several decades to go.

With the USD 1.4 billion that ConocoPhillips has spent on exploration and appraisal activities in recent years, we now have two competing opportunities that fit the bill, in addition to other third party opportunities.  My job is to progress and turn them into the next LNG project.  This will be challenging because of the low prices we are currently experiencing and the relatively high cost base in Australia.

With an almost two decade-long history in the country now, what would you say is the strategic importance of Australia as an investment destination for ConocoPhillips?

Australia has been a stable place to invest, which is one of the things we always look at. The government is very industry friendly. And of course, it’s got the resources to fuel LNG development – specifically assets with long-term production potential. Over the years we’ve developed a world-class Australian workforce that can compete with any other one of ConocoPhillips’s operations in the world. That’s a key asset that we’re really proud of and allows us to operate safely with high uptime.

Speaking about the company’s legacy assets, Conoco has served a pivotal role in accelerating Australia’s LNG boom – having become the 2nd operator of an LNG production facility in 2006. Within the subsidiary’s current portfolio of assets, what strategic value does Darwin LNG bring?

In December 2015, we actually shipped our 500th cargo of LNG and the plant will be hitting its 10th anniversary of operation this week. It’s been a very successful investment for those involved. It was developed in a time of depressed prices, allowing the project to benefit from market deflation at the time.

Due to the price increase in the subsequent years following 2006, Darwin LNG has been able to deliver USD 20 billion in tax revenue for Australia and Timor-Leste. Although it’s maturing, we still have a way to go and with backfill, we hope to keep it producing for many more decades.

Furthermore, through Darwin, we’ve supplied LNG to key Asian consumers – particularly in Japan. Companies such as Tokyo Electric and Tokyo Gas have taken an upstream interest and partnered with us. So, Darwin presented a great opportunity to maintain that relationship and further supply their nation with gas. It’s really been a core asset for us. All of our stakeholders including government, clients, and partners have been pleased with the return on investment regarding Darwin LNG.

Has that same level of operational success extended to Bayu-Undan?

Yes. Bayu-Undan is a gas-condensate field located in the Timor Sea within the Joint Petroleum Development Area (JPDA) and displays rather unusual characteristics on several levels. It had a high amount of liquids and a relatively unusual development process where we initially cycled gas to remove the liquids first before turning it into an LNG project.  This has enabled us to maximize field recovery.

As with any giant mega project, there’s always a challenge to deliver the project on schedule within budget – which we did.   Bayu-Undan is a complex operation but has been operated safely by a dedicated team and has delivered slightly above our original expectations.

From your perspective, what are the implications for LNG producers as the industry shifts from a seller’s market to a buyer’s market?

Prices will be key. The high pricing environment allowed many of these LNG projects to receive FID in the first place. We appear to be entering a period of lower and more volatile pricing for what might be an extended period, so everyone has to reduce costs. In Australia, the cost base, partly because of the construction boom, has been relatively high. So, that will be a key consideration for producers.

We are in a unique position compared to other operators in the industry. While most are just beginning to bring an LNG plant online, ConocoPhillips in the West has been running an existing facility for the last 10 years. The current high level of industry investment will be winding down in the next few years and we hope our backfill activity can provide some investment in the sector during this period.

The backfill of Darwin will be a multi-billion dollar investment – probably only one of a few. Our liquefaction plant can operate for many additional decades and the economics of maintaining utilization rates are much more attractive than greenfield activity. So, we have a good shot at being successful with backfill. The overall investment level in Australia will inevitably decline substantially, but we believe ConocoPhillips will likely be the exception.

Leveraging the company’s now decade-long experience of operating this plant, what would you consider the most critical success factors for operators?

Most of the parties involved in the LNG projects have been active in similar type projects elsewhere in the world. So, there aren’t many first-time operators per se. Certainly, our experience has been very positive in terms of the quality of the workforce we’ve generated and performance we’re achieving. We believe the Darwin facility is amongst the best in the world in terms of efficiency and uptime. And we initially sourced expertise from our global network to drive this performance, so I’m sure others will do the same.

Has the evolution in LNG technology helped improve commercial scale?
For us, we’ve been able to improve throughput at the Darwin LNG plant over the years, having substantially increased the capacity from the initial 3.7 mtpa. In Australia there are different LNG technologies. We’ve employed what’s called the ConocoPhillips Optimized Cascade® process, which has been used in all of the LNG projects on the East Coast, in addition to several on the West. Our technology will certainly keep advancing and I’m sure the industry will follow suit. We’re operating in a very high-tech sector and we continue to push the boundaries of what is and is not possible.

In a period where even “ultramajors” like Shell and Exxon are buckling down, Ryan Lance has prioritized lower-cost production and short-cycle projects as keys to weathering the storm. To what degree, if at all, has this mindset shaped the direction of ConocoPhillips’ exploration activities in Australia?

Globally our strategic focus is on shorter cycle projects to manage through a period of more volatile pricing.  We also have historically invested in some longer cycle assets and our Australian operations fit into this category.  Our strategy in Australia West has been consistent for a long time. We’ve been orientating our exploration activities around backfilling Darwin LNG and that remains our priority. So, nothing has changed with regards to Australia West, but there have definitely been strategic shifts elsewhere in the company in terms of direction.

But, obviously to invest here in Australia, we need to complete globally with shale. Our main focus with regards to exploration revolves around the Barossa and Poseidon fields located off the northern coasts from Darwin and Broome respectively. Those are our two primary options. We’re working hard at reducing the sub-surface uncertainties and to drive cost down to a point where we can compete for capital globally and are ready to initiate the next phase of development. While shale may have changed the landscape dramatically, we still see upside potential in advancing our plays.

Where do these two plays currently sit in terms of development timeline?

Both are in the late appraisal phase, where we’re obtaining a better understanding of the size and characteristics of the resource base we’re dealing with. We’re planning on drilling one to two more appraisal wells in Barossa in early 2017. In conjunction, we’ve already initiated some engineering activity, which will increase as we move beyond exploration.  Poseidon may also need some further appraisal and we’re currently conducting technical studies to determine path forward and align with co-venture partners.

It’s good timing for this type of work because we see a lot of deflation in the market at the moment, and we hope to gain from that by pushing capital costs down.  It’s great that our exploration program has been successful to give us two real prospective developments – placing us in a fantastic position. We also continue to talk with other asset owners in the area to see if they have opportunities that could compete with Barossa and Poseidon to backfill Darwin.

Barossa and Poseidon both have advantages and disadvantages, so we don’t have a clear frontrunner.  Barossa is a little closer and shallower, while Poseidon is larger but more complex. We’re trying to run them both in parallel to give us more options.

To what extent will the downturn in commodity prices threaten the company’s ability to commercialize its assets?

The decline effectively changes the paradigm surrounding long-terms and will definitely have an impact. But, we’re also seeing deflation across the board. The Bayu-Undan field was such a great success because it was developed in an operating environment resembling the current climate. So, we have a potential opportunity to initiate a less capital-intensive project that can perhaps benefit substantially from higher prices in the future.

Especially considering the results of COP21 and the global push towards low-carbon economies, what initiatives has ConocoPhillips undertaken to truly demonstrate its commitment to sustainable development?

One of the initiatives that we’re very proud to be engaged in is the West Arnhem Land Fire Abatement (WALFA), a carbon offset program in the Northern Territory. In 2006, ConocoPhillips partnered with five aboriginal ranger groups,  Charles Darwin University, the Northern Land Council and the Territory Government to manage fire abatement.

Traditionally, aboriginal communities managed their landscape by conducting early dry-season burns to prevent much larger uncontrolled bushfires later on in the season. This technique had fallen out of practice over years, so Charles Darwin University worked with five indigenous ranger groups to set up a scheme that we helped fund in hopes of reinvigorating this practice.

WALFA introduces an innovative mix of customary indigenous fire management techniques and contemporary technology to manage uncontrolled fires in the area. The science behind it has become proven, and the UN has even recognized it as a world-class carbon offset program. Through WALFA, indigenous rangers have offset more than one million tons of CO2 thus far, while also creating over 200 jobs per year for the aboriginal community.

In terms of land management, it also helps preserve biodiversity, rock art, rainforest vegetation and local wildlife. Aside from our funding, the project has also generated a sustainable source of income for the community under Australia’s Emissions Reduction Fund (ERF). So it’s been an enormous success – not only helping us manage carbon, but also benefitting the overall welfare of the indigenous population.

We talk a lot about sustainable development in the company, but this is the best example I’ve come across.

As president of Australia West, where would you like to have taken the affiliate in the next three to five years?

By then, we’re looking to have a sanctioned and executed project that we can move forward with to ultimately create a clearer line of sight for backfill into Darwin LNG. We will continue to focus on extending our period of safe operation and reliability with respect to delivering LNG to our buyers.

We’re also working with Timor-Leste and Australia to sanction one more phase of drilling at Bayu-Undan where we will spend approximately USD 1 billion and extend the life of the field by a few years. Abandonment and decommissioning of Bayu-Undan is also on the horizon, but that is further down the line.

Overall, it’s a challenging climate for everyone.  Costs are relatively high and the economic outlook is mixed.  Resources are obviously still here and the workforce has consequently exploded from the influx of investments in recent years. I believe ConocoPhillips is a very stable, expert group that’s well positioned to help develop Australia’s energy future.

You’ve been with the ConocoPhillips for roughly 25 years now. What factors have ultimately motivated you to maintain such a longstanding tenure with the company?

The company’s core SPIRIT (safety, people, integrity, responsibility, innovation and teamwork) values have really aligned with my own. Especially given its ethics standards, ConocoPhillips has been a company that I’ve been truly proud to work for. The organization has also always taken the development of its employees very seriously – creating multiple opportunities for growth. I’ve been very fortunate in working with ConocoPhillips over the years – having held numerous positions all over the world, while facing no shortage of challenges that have allowed me to develop as a professional and individual.

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