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Woodside Talking With Companies in Canada on Gas Partnership

Woodside Petroleum Ltd. (WPL), Australia’s second-biggest oil producer, said it’s in talks with companies for a potential partnership to enter Canada’s natural gas industry to tap rising Asian demand.

“It’s natural in an area that has the sort of hydrocarbon resource that Canada does that Woodside is in there talking to people,” Chief Executive Officer Peter Coleman said today in an interview in Sydney, declining to name any companies.

Woodside, expanding overseas as Australia’s liquefied natural gas industry struggles with rising costs, is looking at possible deals in North America, Coleman said. Chevron Corp. (CVX), Royal Dutch Shell Plc (RDSA) and Petroliam Nasional Bhd. are pursuing gas exports from western Canada to Asian markets, where the commodity sells at a premium to North American prices.

“There is potential to add value in Canada,” Mark Wiseman, a Sydney-based analyst at Goldman Sachs Australia Pty said today in an e-mail response to questions. “Those projects will likely be toward the upper end of the LNG cost curve. They won’t be cheap, and may face delays. But with strong demand growth in the Asian market, several Canadian projects should find a home.”

Woodside fell 2.9 percent to A$37.95 at the close in Sydney, while the benchmark S&P/ASX 200 Index declined 2.3 percent. The stock has gained 5.4 percent in the past six months.

‘Substantial Partners’

“We’re trying to understand what is the business model that would make sense for Woodside in Canada, recognizing that we’re starting a couple of years behind some competitors,” said Coleman, who joined Woodside in 2011 after 27 years with Exxon Mobil Corp. “Any entry into North America would require some very knowledgeable and substantial partners.”

Perth-based Woodside, operator of the A$15 billion ($15.4 billion) Pluto LNG development and North West Shelf venture in Western Australia, agreed in December to pay as much as $2.3 billion for a stake in Israel’s largest natural gas field, Leviathan. The oil and gas producer also reached two exploration agreements last year off the Myanmar coast.

British Columbia expects as many as seven LNG export projects in the province, with the first built as soon as 2015, Rich Coleman, provincial Minister of Energy, Mines and Natural Gas, said in September. British Columbia holds an estimated 200 trillion cubic feet of gas in shale formations.

“British Columbia really doesn’t have material hydrocarbon production, so you are in a situation where you have a province that is still learning,” Coleman said. If Woodside opts to expand in North America, “you would hope that it would be to leverage our LNG expertise,” he added.

Export Terminal

Enbridge Inc. (ENB) is seeking a partnership with Woodside to develop a natural gas export terminal in Canada, the Globe & Mail reported in December, citing unnamed sources. Coleman declined to say whether Woodside is talking with Enbridge.

Surging production from shale fields has reduced the cost of U.S. gas to about 20 percent of Asian prices. Japan paid the equivalent of $15.79 per million British thermal units for LNG in December, according to data from the country’s Ministry of Finance. U.S. gas futures traded in New York reached a 10-year low in April of less than $2 per million Btu. They traded at $3.255 per million Btu at 2:52 p.m. Tokyo time.

More M&A

More international acquisitions are likely for Woodside, James Bullen, a Sydney-based analyst at Bank of America Corp., said yesterday in a note after Woodside reported its annual profit almost doubled to a record $2.98 billion. Coleman “wants Woodside to remain a growth company” and to broaden its business outside Australia, Bullen said.

Pluto has boosted Woodside’s sales and output since starting in April. The company had operating cash flow of $3.48 billion last year, a gain of 55 percent from 2011.

While Woodside was informed last week it was unsuccessful in a bid for gas exploration rights off Cyprus, the company will look at entering that market later, Coleman said.

“Are we disappointed we missed out?” Coleman said. “Yes we are. But Cyprus is not off the radar screen.”

Energy companies from Chevron to ConocoPhillips (COP) are building seven LNG projects in Australia at a cost of about A$190 billion to meet Asian demand. While the projects have put Australia on course to surpass Qatar as the world’s biggest exporter of LNG by 2020, developers face increasing construction costs and global supply competition.

Browse, Sunrise

Woodside expects to decide by mid-year whether to go ahead with the Browse LNG project in Western Australia, estimated by Deutsche Bank AG to cost A$44 billion, and plans to develop the Sunrise floating LNG venture in the Timor Sea. Woodside last year put a proposed Pluto expansion on hold after saying that its drilling campaign failed to find enough gas.

Woodside has been talking with the government of East Timor to resolve a dispute stalling Sunrise. East Timor has sought to pipe the gas to a processing plant in the country, while Woodside has proposed developing a floating LNG plant.

“If we’ve not made progress within the next 12 months, and significant progress, I’m not sure where Sunrise is going to be,” Coleman said today. “Deals have their window, and it doesn’t stay open forever.”

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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