Apache, KUFPEC Sign Wheatstone LNG Purchase Agreement

Subsidiaries of Apache Corporation and Kuwait Foreign Petroleum Exploration (KUFPEC) have signed a Heads of Agreement (HoA) with the Korea Gas Corporation (KOGAS) for the delivery of liquefied natural gas (LNG) from the Chevron-operated Wheatstone LNG project in Australia.

KOGAS expects to purchase 1.5 million tons per annum (mtpa) of LNG from Apache, KUFPEC and two Chevron subsidiaries for up to 20 years. Approximately 75 percent of the 1.5 mpta will be purchased from Chevron, with the remaining percentage of LNG will be purchased from Apache and KUFPEC.

KOGAS also intends to acquire a 5-percent interest in the entire Wheatstone Project under an equity HoA in a related transaction with Chevron, comprising 5-percent interests in: Apache's and KUFPEC's offshore license WA-356-P, which contains the Julimar and Brunello fields; Chevron's Wheatstone field licenses; and the Wheatstone project facilities.

Including its equity participation and purchases from Apache, KUFPEC and Chevron, KOGAS expects to take delivery of a total of 1.95 mtpa of LNG from the Wheatstone project. Apache's share of the sales agreement with KOGAS is expected to be approximately 240,000 tons of LNG per year or 32 million cubic feet (MMcf) of natural gas per day.

Financial terms of the LNG sales and equity HoAs were not disclosed.

G. Steven Farris, Apache's chairman and chief executive officer, stated, "These Heads of Agreement represent milestones in monetizing the Julimar and Brunello discoveries at prices linked to world oil prices and for Apache's participation as a foundation partner at Wheatstone; they also strengthen our role as a reliable future supplier of LNG."

Chevron Australia managing director, Roy Krzywosinski, said the agreement demonstrated successful coordinated LNG marketing for the Wheatstone foundation project. "The Wheatstone hub at Ashburton North has been established to process our significant equity gas as well as third-party natural gas resources located in the Western Carnarvon Basin," Krzywosinski said.

Pending completion of final agreements with KOGAS, Apache owns a 65-percent interest in Julimar and Brunello, two of the company's largest discoveries; KUFPEC owns the remaining share.

Before the expected sell-down to KOGAS, Apache projected net sales at Wheatstone of approximately 190 MMcf of gas and 5,100 barrels of condensate per day with a 15-year production plateau.

In October 2009, Chevron announced it had signed a binding agreement with Apache Julimar Pty Ltd., an Apache subsidiary, which will assume a 16.25 percent equity interest in the Wheatstone project, and with KUFPEC subsidiary KUFPEC Australia (Julimar) Pty Ltd, which will assume an 8.75 percent interest in the project. Chevron is responsible for the marketing of LNG from the Wheatstone project.
The LNG facility's first phase will consist of two processing trains with a combined capacity of approximately 8.6 mtpa. It will be located at Ashburton North on the mainland of Western Australia. A final investment decision on the first phase of the project is slated for 2011, after front-end engineering and design is completed.

Apache and KUFPEC will develop facilities to supply gas from their Julimar and Brunello discoveries to Wheatstone. Apache will operate the design and construction phases of this part of the project.

In September 2009, KOGAS and Chevron also agreed to an HoA for the delivery of 1.5 MTPA of LNG from the Gorgon project in Australia for 15 years, with an option to extend the agreement for an additional five years.