Karoon Gas CEO Still Upbeat on Poseidon Prospects

SYDNEY (Dow Jones), Feb. 4, 2010

SYDNEY (Dow Jones)--Karoon Gas Australia Ltd. Executive Chairman Robert Hosking said Thursday that he still has confidence in resource estimates that suggest the company's joint venture with ConocoPhillips (COP) is sitting on a gas resource big enough to underpin the construction of a standalone liquefied natural gas terminal.

Karoon shares were sold off Thursday after Karoon late on Wednesday said it achieved weak flow rates from the third gas well in the JV's Browse Basin drilling campaign offshore Western Australia state.

Karoon said that the weak flow-test results are unlikely to materially alter an initial contingent resource estimate for the Poseidon field of 7 trillion cubic feet of gas.

"The reserve estimates have hardly been affected in a negative fashion at all," Hosking told Dow Jones Newswires in an interview.

"The company is still very confident about its resource estimates," he said.

At least 4 tcf of gas is traditionally considered necessary to support construction of an onshore LNG plant, although Hosking said that floating LNG technology is being considered by nearby resource owners like Royal Dutch Shell PLC. for smaller-sized gas deposits.

Hosking reiterated that the third well in the drilling campaign, Poseidon-2, was a higher-risk well because it was spudded six kilometers down-dip from the Poseidon-1 well.

"The prime purpose was not to get a flow rate on the boundary. It was, first of all, to assess the extent of the boundary," Hosking said. "So a lot of it's market ignorance and perception."

The next preferred well in the JV's campaign will be Kronos-1, Hosking said.

He said Kronos-1, which is 20 kilometers away from Poseidon-1, will commence as soon as Poseidon-2 is plugged and abandoned in about five or six days.

"But it's on top of the structure -- it's 400 meters up-dip -- so this is an area where you'd look at putting production holes," Hosking said.

"So, yes, we would call it a low-risk well, although that's not to say that there's no risk at all."

"But in comparison to getting flow rates 400 meters down-dip, we feel a lot more confident."

Copyright (c) 2010 Dow Jones & Company, Inc.