The joint venture between ConocoPhillips (COP) and Karoon Gas Australia Ltd. (KAR) got the government approval to initiate a drilling operation in three blocks of the Browse Basin, about 350 kilometers off the northwest coast in Australia. The drilling campaign was postponed due to increased environmental scrutiny.
With the approval, the joint venture has entered its second phase of drilling in an area about 4 miles east of Seringapatam Reef. The program includes drilling of at least four wells in WA-315-P and WA-398-P permits and another one in WA-314-P. A range of exploration targets have been recognized by the venture partners near the greater Poseidon/Kronos structure.
The drilling is scheduled to begin in the fourth quarter and continue for eighteen months to two years. The results of the drilling program will help in evaluating the nature and quantity of oil and gas in the permits. This will also help in deciding future developmental plans for the Basin.
Production testing is estimated to cost $20 million, in addition to well cost of about $80 million. Any change in the drilling program will raise well expenses by 3–4%.
In the WA-315-P and WA-398-P permits, ConocoPhillips is the operator with a 60% interest while Karoon Gas holds the remaining 40%. In WA-314-P, ConocoPhillips remains the operator with a 10% interest and Karoon Gas has a 90% stake (Karoon’s additional 50% interest in WA-314-P is subject to regulatory approval).
Conoco currently has a Zacks# 3 Rank, which is equivalent to a Hold rating for a period of one to three months. We maintain a Neutral rating on the stock for the long term. BP Plc (BP) and Exxon Mobil Corporation (XOM) are major competitors of ConocoPhillips.
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