While integrated oil and gas projects in Australia represent one of the largest growth areas in ConocoPhillips’ (NYSE: COP) vast global portfolio, rising cost structures have made investment in future projects more challenging, said Joe Marushack , ConocoPhillips president of Asia-Pacific and Middle East, speaking at the recent Australian American Chamber of Commerce Energy Conference in Houston.

“There is a lot of opportunity to grow in Australia,” he said, primarily around liquefied natural gas (LNG) projects. “But I can tell you the Australia projects are very expensive, and they are challenged,” Marushack said.

ConocoPhillips is currently developing three major projects on the continent: conventional offshore exploration in the Timor Sea; unconventional onshore exploration in Western Australia’s Canning Basin; and coalseam-gas-to-LNG at Curtis Island. Actual costs for these projects are coming in higher than the original final investment decision’s (FID) estimated costs, he said.

“That’s for all the big projects out there,” in addition to Conoco’s, he said. “It’s not so much the percentages, which are small, but these are capital-intensive projects, and an overrun of 10% might be $2 to $3 billion. That's a lot of money.”

“We’ve got to do a better job of working through these issues in the future.”

Landed costs for Australian LNG projects fall at about $12 per thousand cubic feet equivalent (Mcfe) of gas, he noted, some 20% to 30% higher than in other countries. Citing the IMD World Competitiveness Center, he illustrated that Australia is ranked 16th on global competitiveness, which measures competition for labor, regulation and project capital intensity, among other things. The country has fallen from fourth in 2004.

Alluding to recent taxation and regulatory changes, Marushack said, “We’ve got to do a better job of working with governments so they understand what are the risks, and that they can understand what regulations need to be so we can minimize the costs and chance for these overruns.”

Just because a country has reserves doesn’t mean that equals development, he said. “You’ve got to have a stable fiscal and regulatory regime to attract investment, and we’ve got to improve on some aspects of that in Australia. We have to have laws that promote investment.”

Efficiencies could also be better, and he emphasized the importance of oil and gas companies working in tandem. As an example of wasted capital dollars, he pointed to three separate LNG export facilities being built simultaneously