Woodside Approves Pluto LNG Project

The Board of Woodside Petroleum Ltd. has approved development of the Pluto Liquefied Natural Gas (LNG) Project, subject to receipt of final environmental and other regulatory approvals.

The project is based on Woodside's Pluto and Xena gas fields located about 190km northwest of Karratha in permit WA-350-P.

The initial phase will include a single liquefied natural gas production train with forecast production of 4.3 million tonnes per annum (4.8 mtpa at 100% capacity) connected by a 180km, 36-inch offshore pipeline to a platform in 85 meters of water. The platform will be connected to five subsea big bore wells on the Pluto field, with first gas to be produced in late 2010.

To date approximately A$796 million has been spent on all phases of the Pluto field and LNG Project. The Board approved additional funding of up to A$11.2 billion for project on a 100% basis. Later works, requiring additional funding approval, will include compression and the tie-in of the Xena field.

Reservoir studies have concluded that the combined dry gas volume estimate for the Pluto and Xena fields has increased from 4.5 trillion cubic feet to 5.0 trillion cubic feet.

The project will be underpinned by an integrated package of LNG Sale and Purchase Agreements, project equity and shipping arrangements with Tokyo Gas and Kansai Electric of Japan. The agreements are expected to be signed by all parties within the next month. The package of agreements will provide commercial certainty, ensuring a competitive rate of return for the foundation project without any regard to future expansions.

Woodside has committed about A$300 million in additional infrastructure to facilitate future expansion for other Woodside or third party gas, allowing the onshore plant to operate as an open-access facility with additional LNG trains. Woodside has interests in a number of offshore permits in the area and is maintaining an active exploration program.

The Board also gave approval to begin studies on an expansion of LNG capacity – by the addition of a second and third train – and a domestic gas facility to supply the Western Australian market. The size of subsequent LNG trains, and the technology used, will be evaluated during the study.

The Pluto LNG Project was sanctioned subject to environmental and other regulatory approvals being obtained with acceptable conditions. Environmental approvals from the State and Commonwealth governments are expected soon. These approvals will need to be obtained by September 2007 to enable the agreed schedule with customers to be satisfied. Heritage approvals have already been received.

Woodside Chief Executive Don Voelte said the decision to proceed with the Pluto project represented the most significant step in Western Australia's gas industry since the initial development of the North West Shelf Venture in the 1980s. Woodside operates, and is a one sixth owner of, the North West Shelf Venture.

"The Pluto LNG Project will join the North West Shelf Venture in underpinning Woodside for decades into the future, and showcases the unique position Woodside enjoys among its oil and gas peers," Mr. Voelte said.

Mr. Voelte said the approval would allow the project to meet the timetable envisioned when Woodside announced its plans for the Pluto development in 2005.

"We are delivering on our promise that we would sanction this project two years after we discovered the Pluto gas field, and we similarly expect to deliver on our forecast of first gas by the end of 2010," Mr. Voelte said.

Mr. Voelte said the Pluto project would provide an important new supply of LNG to the Asia-Pacific region, where demand is expected to outstrip supply well into the next decade.

"Pluto will play a critical role in meeting Asia-Pacific demand and will make a substantial contribution to Australia's export income," he said.

The project is underpinned by 15-year sales agreements with Tokyo Gas and Kansai Electric totaling up to 3.75 mtpa, which will provide competitively-priced LNG to the foundation customers during a period of limited market supply. Woodside expects to sell the remaining output through additional term contracts or spot sales.

Tokyo Gas and Kansai Electric will each construct and operate an LNG ship to transport a combined 2.6 mtpa (loaded) to Japan. An additional ship will be constructed at Samsung Heavy Industries in Korea by successful tenderers AP Moller Maersk and leased to Woodside on a long term basis to transport LNG to Japan. Further shipping requirements are under evaluation.

Woodside's Board has approved the formation of a joint venture with Tokyo Gas and Kansai Electric, which will enable them to each take 5% equity in the Pluto permit (WA-350-P) and the Pluto Train 1 infrastructure, reducing Woodside's ownership to 90%. In addition, Tokyo Gas and Kansai Electric have options to participate in two additional Pluto trains and three Woodside exploration permits (WA-347-P, WA-348-P and WA-353-P), at 5% of Woodside's interest.

The project will be funded using Woodside's free cash flow from its Australian operations, a fully underwritten dividend reinvestment plan and the issuance of corporate debt.

Preliminary site works for the onshore facilities began in January 2007. In addition to the LNG production train, the onshore facilities will include storage tanks and a loading terminal.

The project is expected to create up to 3000 direct jobs during construction and 300 jobs during operations. More than half of the expenditure on the project is expected to be spent in Australia.