Global integrated oil giant ConocoPhillips (COP), along with Origin Energy Ltd. entered into a long-term deal with China Petrochemical Corporation (SNP), or Sinopec, for the sale of a 15% stake in an Australian gas project. The financial terms of the deal were not disclosed by the companies.

Under the non-binding key commercial terms of the Heads of Agreement, ConocoPhillips-Origin will also deliver liquefied natural gas (LNG) of about 4.3 million tons per annum (MTPA) for two decades to Sinopec.

The stake sale will cut ConocoPhillips and Origin’s holdings in the Queensland-based Australia Pacific LNG venture to 42.5% each. Following the alliance with the Chinese oil major––Sinopec––the project is expected to take off in mid-2011 and supply its first cargo in 2015.

The entry of Sinopec into the project will not only lower ConocoPhillips’ investment burden, but will also fulfill the growing requirement of customers in China.

The $35.4 billion worth Australia Pacific LNG project is targeted at developing the vast coal-seam gas resources in the Surat and Bowen basins of Australia over the next 30 years. This endeavor also involves the setting up of a 450 km transmission pipeline and a multi-train LNG facility on Curtis Island, near Gladstone.  

ConocoPhillips and Origin intend to tap the high demand for natural gas in the Asian belt through this venture. Both companies are focused on building a large-scale new export industry in Queensland. In our opinion, Queensland represents acreage of opportunities for oil and gas companies with bountiful deposits.

To capitalize on the region’s potential, PetroChina Company Limited (PTR) and Royal Dutch Shell (RDS.A) jointly acquired Arrow Energy Limited and its Queensland coal-seam gas properties, last year.

We are maintaining our long-term Neutral recommendation on ConocoPhillips. The company currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

 
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