Australia: Woodside confirms $1 billion Browse LNG sale

Woodside Petroleum has confirmed a report in The Australian that it has begun an auction to sell part of its stake in the $40 billion Browse liquefied natural gas project in Western Australia.

The Perth company told the Australian Securities Exchange today that it was conducting a 'limited process' to assess the potential sale of a minority part of its 50 per cent equity stake in the Browse joint venture. It said it was doing this in response to significant interest from a number of parties. 'This process provides an opportunity to assess possible early value realisation,' Woodside said, adding that it would retain the operatorship of Browse.

The Australian understands that Woodside has sounded out the possibility of cutting its 50 per cent stake in Browse to as little as 16.67 per cent. Such a stake would likely sell for more than $1bn, according to sources familiar with the sale process.

Indicative bids for the Browse stake are being lodged but any sale could take several months to finalise, especially in light of Woodside's announcement last month that it would be unable to proceed with the $40bn project for at least another year.

The potential sale comes amid industry speculation that Browse's 14.3 trillion cubic feet of reserves will soon be increased through the inclusion of additional sources under Scott Reef, an environmentally sensitive part of the Browse Basin, that were previously thought to be inaccessible.

The rest of the Browse venture is held by BHP (8.33 per cent), Shell (8.33 per cent), BP (16.67 per cent) and Chevron (16.67 per cent).

A potential complication to Woodside as it tries to dilute its stake is that its Browse partners have pre-emptive rights over any sale. BHP, Chevron and Shell would be unlikely to buy additional equity given their existing commitments in the sector. However, BP is known to be looking for additional investments in Australia and may want to boost its stake in Browse.

Any selldown would reduce Woodside's exposure to the Browse venture and free up capital for its spending commitments on other projects, including a planned $10bn expansion of the Pluto LNG plant near Karratha. But it would also reduce Woodside's voting rights within the Browse joint venture and could end the Perth company's plan to process the Browse gas at a greenfields site at James Price Point, north of Broome.

Most of Woodside's Browse partners favour piping the gas to the North West Shelf in the Pilbara when reserves at that project start to run low later this decade, thereby extending the life of the investment.

Significantly, a dilution of Woodside's equity interest in Browse would reduce its commercial incentive to process the gas as quickly as possible. It would also lessen Woodside's exposure to rising project costs and fears of falling prices sparked by a possible global LNG glut. Some analysts believe the rapid development of the US shale gas industry will lead to LNG exports from North America within a decade.

Woodside chief executive Peter Coleman is believed to be far less enthusiastic about using James Price Point than his predecessor Don Voelte, due to the higher costs of a greenfields plant. James Price Point is being vigorously opposed by environmentalists and some Kimberley indigenous people. But it is backed by the West Australian and federal governments as well as local indigenous groups who stand to benefit from a compensation package for use of the land.

Woodside would need to convince the governments that James Price Point was not economic if it wanted to pipe the gas to the Pilbara.

Mr Coleman said last year that Woodside could sell down its stake in Browse, along with the Pluto 2 and Sunrise developments, to reduce $35bn in funding obligations for the projects when they proceed. Merrill Lynch said in a report in September last year that Woodside's stake in Browse would be worth between $US2.2bn ($2.1bn) and $US4.3bn, based on recent gas pricing benchmarks. This would value the equity being sold by Woodside at between $US1.4bn and $US2.7bn.

Browse LNG Development

Browse is a world-scale development which forms part of Woodside’s LNG strategy. The Browse gas fields include the Torosa, Brecknock, and Calliance discoveries which are located 425 km north-west of Broome, Western Australia. The fields contain a combined contingent resource of about 14 trillion cubic feet of dry gas and 370 million barrels of condensate (as at 31 December 2008).

Since 2002, Woodside, as Operator, and its Browse joint venturers have evaluated several options for the location of the development’s LNG processing facilities. This evaluation has involved environment, social, technical and economic studies and consultation with Traditional Owners, conservation groups, business and industry organisations, community groups and all tiers of government.

See Woodside's Press Release re sale speculation.

Original article link

Source: The Australian / energy-pedia