ConocoPhillips (NYSE:COP) may see costs from its multi-billion dollar Australian LNG project escalate in the future as players compete for materials to complete $180 billion worth of projects by 2017.  A report from Standard and Poors warned that the credit quality of Australian LNG projects could be negatively impacted by project delays and cost overruns.  The scale of the projects in the pipeline could also expose them to execution risks that can hamper plans. ConocoPhillips has a 42.5% stake in the $20 billion Australia Pacific LNG project. Competitor Chevron (NYSE:CVX) is also going ahead with its $37 billion Gorgon and $29 billion Wheatstone projects.
We have an $80 price estimate for ConocoPhillips which is 20% ahead of its current market price.
The scale of the projects in Australia could drive up project costs due to a shortage of materials and equipment. According to Jefferies, the projects at Curtis Island in Queensland could see costs shoot up by 15%.  The analysts also estimated that Chevron’s Gorgon project could end up costing $40 billion by the time the project is finished because of delays resulting from cyclones last year, although the company maintains that the project costs are not expected to escalate.  ConocoPhillips may also see costs from its project in the region shoot up as well. (See: Slice of missing MF Global customer cash may be in Britain)Notes: