Woodside Buys Hess Permit Stake for Pluto Expansion

SYDNEY (Dow Jones Newswires), Oct. 29, 2010

Woodside said Friday that it will buy out Hess' share of a key exploration permit offshore Western Australia state to support a potential expansion of its Pluto liquefied natural gas project.

Woodside and Hess currently hold half each of the permit, which contains the Martell, Noblige, Larsen and Larsen Deep discoveries. Australia's second biggest oil and gas company wants to sign off on the Pluto expansion some time in 2011.

First LNG from the A$13 billion foundation stage of Pluto is scheduled to be shipped in March.

Hess was always considered by analysts as a potential third party gas supplier to Woodside, which needs to either find or buy more gas before it can sign off on the expansion.

A deal between the two, however, was never certain and hinged on how hard a bargain Hess would drive and how quickly it wants to monetize its resource. Options could have involved selling gas to Woodside, or taking an equity stake in the project and processing gas there in its own right.

Instead, Hess has decided to sell out of the permit altogether. Transaction costs are confidential and involve production milestone payments, Woodside said.

Last year the company terminated third party gas supply talks with Apache and Kuwait's Kufpec, which ended up agreeing to supply gas to Chevron's rival Wheatstone LNG project. Apache and Kufpec didn't offer attractive terms, according to Woodside Chief Executive Don Voelte, who described Chevron's deal as "stupid".

Deutsche Bank analyst John Hirjee said last month that existing discoveries at the jointly owned Woodside and Hess permit and a nearby permit owned 100%-owned by Woodside could give Woodside about four trillion cubic feet of gas to play with.

With more exploration wells planned, the broker said the two permits should contain enough to support two LNG processing trains at Pluto.

More third party gas would be required for third and fourth trains, Hirjee said, with BHP Billiton and Exxon Mobil's Scarborough field the only resource big enough to support both.

BHP has said it's talked to Woodside about running gas from Scarborough through Pluto, but it's also held talks with Chevron for Wheatstone.

The pair could decide to build their own LNG plant--an option that may annoy the Western Australia state government, which is concerned that too many LNG plants are being built in the state at once.

"We do not want to see over-investment, and that is why, for example, I am keen for the Exxon Mobil Scarborough project to end up somehow integrating with Pluto or the North West Shelf," Premier Colin Barnett told parliament on Oct. 14.

Close to a dozen LNG projects are slated for start-up in Australia to tap rising Asian demand for fuel that burns cleaner than coal. Others in Western Australia include the Chevron-operated Gorgon project and the Woodside-operated Browse project.

Australia's central bank has warned that the country's continuing resources boom could squeeze labor markets and cause the economy to overheat.

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