ConocoPhillips (COP) announced the first shipment of liquefied natural gas (LNG) from the Qatargas 3 (QG3) joint venture. The cargo departed from Ras Laffan Industrial City, Qatar, bound for the Canaport LNG Terminal in Saint John, New Brunswick, Canada.
This is an important development for Conoco as it was actively involved in the QG3 joint venture. Formed in 2005, the joint venture is jointly owned by ConocoPhillips (30%), Qatar Petroleum (68.5%), and Mitsui (1.5%).
The scope of the venture includes a fully integrated LNG project, inclusive of reservoir development, offshore wellhead production platforms and pipelines, an onshore liquefaction plant with associated common storage and loading facilities, as well as chartering of LNG ships to support approximately 7.8 million tonnes of annual LNG deliveries.
Qatargas also entered into an agreement with Spain’s largest oil integrated Repsol YPF, S.A. (REP). Under this agreement, Qatargas will supply LNG for several years to Canaport, which is operated by Repsol.
Commencement of shipment will increase Conoco’s global LNG output. While management is concerned about the company’s production growth in next few years, new production from major projects in offshore Southeast Asiaand increasing LNG volumes may help ConocoPhillips.
Notably, LNG is gaining bigger space in the company’s production profile. Recently, Conoco and its partner Origin Energy Ltd. received approval from Australia’s Queenslandstate for their proposed $35 billion Australia-Pacific liquefied natural gas joint venture.
Additionally, the company expects its capital expenditures for 2011 will be greater than the anticipated 2010 level with more emphasis on LNG investment. We expect the company to improve both its returns and longer-term growth profile through a more disciplined future investment program. While these remain to be seen in the long term, we prefer to stay on the sidelines at this moment.
Conoco currently holds a Zacks #4 Rank (short-term Sell rating). However, our long-term Neutral recommendation remains unchanged at this stage.
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