Woodside in $527m LNG deal

Woodside Petroleum has struck a low-cost entry deal into the remote Scarborough gasfield off Western Australia.

Woodside chief executive Peter Coleman.

Woodside Petroleum has struck a low-cost entry deal into the remote Scarborough gasfield off Western Australia, buying half of BHP Billiton’s stake for up to $US400 million ($527m) and adding weight to the potential for the gas to be sent to the North West Shelf LNG project — something Scarborough operator ExxonMobil is not keen on.

The move, under which Woodside will take a 25 per cent stake in Scarborough and a 50 per cent stake in nearby fields, will provide impetus to a BHP push to investigate using Scarborough gas for the 30-year-old, part BHP and Woodside-owned North West Shelf LNG plant when reserves there run low near the end of the decade.

Exxon, which owns 50 per cent of the field, is pushing for a floating LNG development — the preferred option under a five-year retention lease signed in ­November.

The cheap price that Woodside has bought in at, which equates to US15c per million cubic feet, is about one-fifth the price BHP sold its Browse stake for in 2012 and is reflective of both the current global oversupply of LNG and the fact that the 37-year-old discovery in deep water, 300km offshore, is seen as difficult to develop under any circumstances.

Woodside will pay $US250m for a 25 per cent interest in the WA-1-R lease area and a 50 per cent interest in WA-62-R, which are the two permits that contain Scarborough. It will also get a 50 per cent interest in WA-61-R and WA-63-R, which contain the Jupiter and Thebe fields. If a development decision is made, Woodside will pay BHP another $US150m.

The combined fields are estimated to contain 8.7 trillion cubic feet of contingent (2C) gas resources, with Woodside taking 2.6 tcf of that under the current deal.

Yesterday, chief executive Peter Coleman said Woodside would work with the Scarborough joint venture to ensure the asset is commercialised and the retention lease obligations — to spend $250m on studies of a floating LNG project over the next five years — are satisfied.

“The JV is currently working FLNG as its preferred development option and Woodside supports this work,” Mr Coleman said. “If the Scarborough JV elects to look at other development options, including an onshore tieback via Woodside-operated infrastructure, then Woodside would offer its support in understanding these opportunities.”

Exxon is continuing to push ahead with its floating LNG studies. An Exxon spokesman yes­terday said development of Scarborough would be challenging because of depth, resource characteristics (the gas is “dry” so does not contain value-enhancing liquids), “execution complexities” and the current LNG market.

“Floating LNG is considered the lead development option based on a balance of economic, environmental and social considerations,” he said. As per the terms of the retention lease, the Exxon spokesman said if a front-end engineering and design decision was made in the next two to three years, a final investment decision on a floating LNG project was anticipated before 2020.

BHP has said little of late on Scarborough, which is well down its oil-focused (rather than gas-focused) list of petroleum priorities. A year-and-a-half ago, then BHP petroleum president Tim Cutt said BHP was supportive of FLNG at Scarborough but open to the idea the gas could go to the North West Shelf, which is 400km away.

WoodMackenzie analyst Saul Kavonic said the deal looked like a good one. ”These fields are among our leading candidates for NWS backfill and the last remaining large viable discoveries in the Carnarvon basin (outside greater Gorgon fields),” he said.