BP Gets Tangguh Expansion Approval

British oil and gas giant BP plc’s (BP - Analyst Report) Plan for Further Development (POFD) has received approval in principle from the Ministry of Energy and Mineral Resources of Indonesia as well as the country’s upstream regulator - BPMIGAS.

The plan aims at expanding the BP-operated Tangguh liquefied natural gas (LNG) project in Teluk Bintuni Regency, Papua Barat province in eastern Indonesia. The project is estimated to cost around $12 billion (£7.5 billion) and involves the development of a third LNG liquefaction train for Tangguh.

The approval for this plan is likely to facilitate the process for the final investment decision for this expansion anticipated to commence by 2014. This will also allow the new train to start operations by the end of 2018.

The new expansion will deploy two operational liquefaction trains at the Tangguh LNG site. The addition of the third train will take the total liquefaction capacity at Tangguh to 11.4 million tons per annum (mtpa), an increase of 3.8 mtpa.

Per the expansion plans, around 15 million standard cubic feet per day of piped gas, generated from the Tangguh fields and capable of supplying about 50 megawatt of local power, would be apportioned for sale from the date of the start of Train 3. The allocated gas would assist - with special emphasis on the North Shore villages of Teluk Bintuni Regency and beyond - domestic infrastructure, commercial business as well as encourage light industrial development.

Tangguh forms a vital asset in BP’s portfolio of Indonesian operations. The expansion plans will likely help the company in realizing the full potential of this important strategic asset. It also goes to show BP’s commitment toward Indonesia and the government support there.

BP has a 37.16% stake in the project. Other partners of the BP operated Tangguh project are - MI Berau B.V., CNOOC Ltd. (CEO - Analyst Report), Nippon Oil Exploration (Berau), Ltd., KG Berau/KG Wiriagar, LNG Japan Corporation, and Talisman Energy Inc. (TLM - Analyst Report) holding 16.30%, 13.9%, 12.23%, 10%, 7.35% and 3.06% stakes, respectively.

BP has a Zacks #3 Rank (short-term Hold rating). Longer term, we maintain our Neutral recommendation.