Woodside to ‘flex its power’ on sale of Chevron North West Shelf LNG stake
The Perth-based producer holds rights to match a deal from any external buyer.
Woodside Petroleum will consider thwarting any third party looking to buy Chevron’s $5.8bn stake in North West Shelf by flexing its own pre-emptive powers as it weighs whether to double its share of Australia’s largest LNG plant.
The Perth-based producer, which operates the NW Shelf with a 16.7 per cent stake, confirmed it holds rights to match a deal from any external buyer pursuing Chevron’s one-sixth share of the plant.
“The North West Shelf joint venture agreement has pre-emption provisions relating to divestment of an interest in the North West Shelf,” a Woodside spokeswoman said. “If a North West Shelf venturer was to propose a transaction coming within the pre-emption provisions, Woodside would consider the transaction in the normal course.”
Woodside was already likely to be one of the bidders, Macquarie said, after Chevron indicated it had been approached by credible suitors.
"All partners have pre-emptive rights, allowing Woodside (and potentially its JV partners as well) to match an outsider’s bid in proportionate share," Macquarie said. "Woodside's target gearing range is 15-35 per cent, and while currently below range, we expect it would raise equity for an acquisition of this size, given development capex that lies ahead (and the importance of dividend)."
PetroChina, which owns a stake in the Browse gas project, could emerge as a frontrunner with China’s CNOOC also a lead contender, Credit Suisse said.
With four NW Shelf partners also owners in the Browse project, Chevron's move could pave the way for the long-delayed Browse development to get off the ground after it was deferred earlier this year due to the oil crash, Goldman Sachs said.
Browse gas was in line to be processed through NW Shelf, with the plant facing the depletion of its gas reserves in the next few years, forcing the facility to move to a new tolling model where it will process gas from third parties for the first time.
Chevron and BHP were named last year by Woodside chief executive Peter Coleman as the two NW Shelf companies not aligned with the plan to pipe Browse gas to the plant, meaning Chevron’s exit might smooth a path for Browse.
Woodside, BP, Shell and Japan Australia LNG all hold stakes in both NW Shelf and Browse, while Chevron and BHP only have ownership in the NW Shelf.
"The sale of Chevron’s stake may provide a pathway toward alignment on the Browse development. If Woodside or Shell were to increase their NWS share, this could represent the first step of unitisation between upstream and downstream," Goldman Sachs said.
Adding to the equation, Woodside and BHP are also partners in the remote Scarborough project, which is in line to supply a planned expansion of Woodside’s Pluto LNG plant.
Woodside may be forced to tap shareholders for equity if it decides to buy Chevron's stake in the North West Shelf LNG venture, raising the question of whether it should still proceed with a $US1.5bn expansion of its neighbouring Pluto plant, Citi said.
Chevron has put its 16.7 per cent stake in NW Shelf on the market following interest from buyers and analysts are running the numbers on Woodside making a play given it controls the Scarborough and Browse gas projects which could both use the plant to process their supplies.
Woodside has $US5.3bn in balance sheet headroom prior to any expansion at WA's Burrup gas hub.
If it bought the Chevron stake and also proceeded with the $US2.35bn of net costs for Scarborough and $US1.53bn for expansion Pluto, it may require a capital raising, Citi reckons.
Regardless of whether it buys the Chevron stake, Woodside should look to process Scarborough through NW Shelf rather than expanding Pluto. That move would ease balance sheet pressure, boost Scarborough's breakeven LNG price given lower NWS tolls and improve returns for BHP, its Scarborough partner.
"With Woodside trading below our base business valuation of $24.64 a share, we think a pivot in strategy to this more credible and higher returning concept would be a very positive outcome for shareholders," Citi analyst James Byrne said.
Woodside shares were trading higher on Friday, last up 0.5 per cent to $21.86.
More Coverage
