Chevron’s exit from $34b NW Shelf opens door for Woodside

Chevron will seek to sell out of Australia’s largest and longest running liquefied natural gas venture, heralding the biggest overhaul in the Western Australian petroleum industry for decades and removing a significant obstacle in the way of Woodside Petroleum’s gas growth ambitions.

The US major said it would market its one-sixth share of the Woodside-managed North West Shelf venture “following a number of unsolicited approaches from a range of credible buyers”.

Analysts estimate the 16.7 per cent stake may be worth between $US3 billion ($4.4 billion) and $US4 billion.

The decision comes as the complex venture, which Woodside says has seen investment of $34 billion over the past three decades, shifts from processing its own natural gas offshore in Western Australia to a tolling model, where it would process gas owned by other companies.

The transition has caused plenty of friction between the six partners on terms for processing third-party gas, in particular between Woodside and Chevron, and at times between Woodside and BHP. The lack of agreement on processing Browse gas at the North West Shelf means that delayed deal has still not been done, but the $US20.5 billion Browse project was in any case put on hold after the oil price slump in March.

“The NWS project is shifting its focus towards becoming a globally competitive third-party tolling facility, and this is an appropriate time for Chevron to consider fair value proposals from potential buyers for its interest,” a spokeswoman at the US firm’s Perth office said.

Woodside chief executive Peter Coleman has previously signalled a likely overhaul in the ownership of the venture as it moved to a business model that was more suited to infrastructure-type investors looking for steady returns rather than petroleum players. He told investors last June that Woodside would itself consider longer term whether to remain an owner in the infrastructure or whether it should free up capital to invest elsewhere.

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In the shorter term however, Woodside, which has plenty of financial firepower after delaying its LNG growth projects, is expected to be keen to take Chevron’s stake, doubling its interest and facilitating deals on gas processing. PetroChina, which has a stake in the Browse field, is also seen as a likely suitor to give it also an interest in the infrastructure that would process it.

Infrastructure investors such as Macquarie are also expected to take a look, but would want certainty over long-term gas processing deals to keep the LNG production plant as full and give predictability on revenues.

Meanwhile, the appetite of at least two other partners in the North West Shelf venture – notably Shell and BHP – to remain long-term investors has also come into question in recent months. BP and a joint venture between Mitsubishi and Mitsui also hold one-sixth stakes in the venture, which is also the biggest gas supplier into the WA market and a significant oil producer. All the partners are thought to hold the right to pre-empt an external buyer taking Chevron’s interest.

Wood Mackenzie names Woodside as the most likely of the existing joint venture partners to buy Chevron’s stake, with analyst David Low describing it as “well-positioned financially and … ready and looking for M&A opportunities in Australia”.

Mr Low said he saw the move by Chevron to “high-grade” its portfolio by exiting the North West Shelf as making “a lot of sense”, noting the venture’s increasing reliance on gas tolling.

Woodside on Thursday noted Chevron’s announcement but would not comment on its intentions.

“As one of its six founding partners, Chevron has been a part of building the North West Shelf Project into what it is today – one of Australia’s most important infrastructure assets,” a Woodside spokeswoman said.

“The North West Shelf Project is a significant supplier of gas to the Western Australian and international markets and we look forward to unlocking its future value alongside our joint venture partners,” she said.

The Chevron spokeswoman said Australia remained a focus for the US company, pointing to its $US54 billion Gorgon LNG venture and the smaller Wheatstone LNG project, both in WA. Chevron has also recently re-entered fuels retailing in Australia, through its $425 million deal in December to buy Puma’s service station network.

“With Gorgon and Wheatstone safely operating, Chevron will continue to be a leading operator and supplier of reliable, affordable and ever-cleaner energy to WA customers and the growing Asian market,” she said.

The WA shake-up comes as the east coast gas industry faces a big rejig should fellow US energy giant ExxonMobil succeed with its push to sell its 50 per cent stake in the Bass Strait oil and gas venture with BHP. The two are among a number of international petroleum companies looking to streamline their oil and gas interests in Australia, among them ConocoPhillips and Italy’s ENI.

Like Exxon with the Bass Strait venture, Chevron is expected to hold on to its stake unless it gets what it considers fair value for the asset. It would not say when there would be a decision on any sale.

 

Extracted from AFR

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