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Bloomberg: Woodside Considers Processing Browse Gas on Burrup (Update1)

By Angela Macdonald-Smith

June 27 (Bloomberg) — Woodside Petroleum Ltd., Australia’s second-largest oil and gas producer, may process gas from fields in the Browse Basin off the northwestern coast in plants about 600 miles away to cut costs and minimize environmental effects.

Piping gas from the Browse fields to either the proposed Pluto liquefied natural gas project or the existing North West Shelf plant, both on the Burrup Peninsula, is one of at least four development options being considered for the project, Perth- based Woodside said today in a presentation. Sending the gas to Darwin is another of the four, said Roger Martin, a spokesman.

Woodside’s Browse project and Inpex Holdings Inc.’s Ichthys LNG project, in the same area, face opposition from environmental and tourism groups concerned about the effects on Australia’s undeveloped Kimberley region. A proposal aired by Woodside in April to build the Browse plant on Scott Reef was criticized by WWF-Australia, an environmental group.

“This project is highly material for Woodside, but is large, complex, remote, and has significant environmental hurdles,” said Mark Greenwood, an oil and gas analyst at JPMorgan Chase & Co. in Sydney. “Today’s presentation shows there are still numerous options for Browse. A final investment decision is not likely until 2010 at the earliest.”

Australia’s northwest, which includes the Kimberley and Pilbara regions covering about 1 million square kilometers (386,000 square miles), is “one of the world’s last true wilderness areas,” Tourism Australia says on its Web site.

LNG Park

“Woodside is considering at least four development concepts for Browse,” the company said in the presentation, made by Chief Executive Officer Don Voelte at a UBS AG conference today in Sydney. “One of them involves working with the other owners in the Pluto area to look at taking their gas through the Burrup LNG Park and/or the North West Shelf LNG plant.”

Woodside’s Burrup LNG Park plan involves building a wholly owned LNG plant on the Burrup Peninsula to process gas from the Pluto field off the Western Australian coast and gas from third parties. The company’s board is due to consider the project, which may cost as much as A$10 billion ($8.4 billion), at a meeting on Aug. 20-21.

Darwin Option

The other three options for Browse LNG are: building a plant on Scott Reef, building a plant on the Kimberley mainland coast, or piping the gas to Darwin to either a possible second production unit at the ConocoPhillips-operated Darwin LNG project or a new plant, Martin said. Darwin is still further away from the Browse fields than the Burrup Peninsula, at a distance of about 984 kilometers, he said.

The Australian company is also operator of the North West Shelf venture, which is adding a fifth production unit on the Burrup Peninsula. It also owns about 50 percent of the Browse LNG project, where its partners are BHP Billiton Ltd., BP Plc, Chevron Corp. and Royal Dutch Shell Plc, which owns 34 percent of Woodside.

The Browse project to tap the Torosa, Brecknock and Calliance fields may cost A$21.7 billion to develop, including costs to extract and bury carbon dioxide from the gas, JPMorgan said in an April 19 report. Deliveries may start in 2014, it said.

“Browse is the most material of Woodside’s LNG options, but the most technically challenging and environmentally sensitive project,” analysts led by Greenwood said in the report. The project would add about A$9.74 a share to Woodside’s discounted cash flow valuation and provides an estimated rate of return of 18.4 percent, they said.

Shares in Woodside today fell A$1.29, or 2.8 percent, to A$44.40 on the exchange after crude-oil prices fell in New York. A copy of Woodside’s presentation was lodged with the exchange.

Train 5 Costs

Woodside also said in the presentation that the cost of building a fifth LNG processing unit at the North West Shelf venture has further increased, yet will be within “contingency” of the A$2.425 billion budget. That estimate for the so-called T5 project was already last year revised up from the original A$2 billion estimate.
Woodside won’t say what the contingency range is, Martin said.

“While T5 costs have risen, this is still a great performance given industry wide cost escalation,” the company said in the presentation.

BP, BHP Billiton, Chevron, Shell and a venture between Mitsui & Co. and Mitsubishi Corp. own stakes in the North West Shelf venture.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at [email protected] .
Last Updated: June 27, 2007 03:00 EDT

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