A key element of Australia’s LNG ambitions is up for grabs

By James Thornhill on 6/23/2020

SYDNEY (Bloomberg) --After more than three decades, the project that kick-started Australia’s push to become a liquefied natural gas powerhouse faces a shakeup.

Woodside Petroleum Ltd. on Tuesday reiterated that it would consider buying Chevron Corp.’s stake in North West Shelf and indicated that other joint venture partners could be looking to exit. That may mark the end of a delicate balance at Australia’s biggest LNG project, where six international partners have equal stakes, as the plant needs to find new gas supplies to keep on humming.

As operator, Woodside is viewed by many in the industry as the logical buyer for Chevron’s stake. The U.S. oil major announced last week it would start a formal marketing process after receiving unsolicited approaches from potential buyers, though the other five stakeholders have pre-emptive rights.

“This has been the jewel in Woodside’s crown for a long period of time, so you don’t want your neighbors to put up the ‘For Sale’ sign and then get the wrong people move in next door,” Chief Executive Officer Peter Coleman, said at a Credit Suisse Group AG energy conference Tuesday. “We have a right, we’ll look at it. Whether we participate or not is really going to depend on price.”

The stake could be worth as much as $3.7 billion, according to Saul Kavonic, a resources analyst at Credit Suisse. Chevron said that the time was right to consider a sale as NWS moves to becoming a third-party tolling facility.

That transition means the asset is more likely to appeal to infrastructure investors rather than oil and gas industry players, Coleman said. Plenty of “tire-kickers” were likely to show interest, but he expected Chevron to be selective in who it invites into the data room.

First In Queue

“Maybe Chevron formed the view that there were other joint venturers that were starting to position themselves to sell assets globally, of which North West Shelf may have been one of those,” Coleman said when asked about the U.S. company’s motivation. “Maybe they formed the view that they would rather be the first in the queue, rather than follow someone else.”

A Chevron spokesman declined to comment on Coleman’s statement. The other participants in NWS are BP Plc, Royal Dutch Shell Plc, BHP Group and Japan Australia LNG.

“It increasingly appears Woodside may double down on its existing footprint alongside new partners, and take advantage of majors’ exits to become the ‘basin master’ in the region,” Kavonic said in an email.

North West Shelf, which has loaded more than 5,000 LNG cargoes since 1989, has been considering options to sustain output as its foundational gas fields begin to run dry. Woodside wants gas from its Browse project to feed into NWS, but has struggled to get the partners to align on that strategy.

Chevron has been seen as an obstacle to Woodside’s plans because, unlike most of the other NWS partners, it has no stake in Browse and has competing gas resources in the region that could also use the infrastructure.

Senegal Delays

Separately, Coleman played down a report that Senegal had been forced to delay its first oil and gas projects by as much as two years due to coronavirus. The timetable for the Woodside-operated Sangomar development was only likely to be pushed back by a few months, he said. The company approved the first phase in January and is targeting first oil in early 2023.

Still, delays to the group’s major projects meant Woodside’s long-term production growth target of more than 6% was likely now unachievable, RBC Capital Markets analyst Gordon Ramsay said in a note.

“We see Woodside’s medium- to long-term growth outlook as challenged, considering an outlook of project delays, a relatively weak LNG, oil and broader market environment and ever-decreasing oil-indexed LNG contractual slopes,” Ramsay said.

Woodside shares were down 0.5% at A$21.97 at 2:38 p.m. Sydney time. They have fallen about 36% this year amid a broad decline in oil and gas prices.

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