Mitsui, Mitsubishi Buy $2 Billion Stake in Woodside Venture

Woodside Petroleum Ltd. CEO Coleman
Peter Coleman, chief executive officer of Woodside Petroleum Ltd. Photographer: Brendon Thorne/Bloomberg

Mitsubishi Corp., Japan’s biggest trading company, and Mitsui & Co. agreed to buy a 14.7 percent stake in Woodside Petroleum Ltd.’s proposed Browse liquefied natural gas project in Australia for $2 billion.

The Mitsui and Mitsubishi venture, Japan Australia LNG Pty, also agreed to acquire about 1.5 million metric tons of LNG annually from Browse, Perth-based Woodside, Australia’s second-biggest oil producer, said today in a statement. The shares rose the most in almost seven months in Sydney.

Chief Executive Officer Peter Coleman said in August that Woodside may sell stakes in the Browse and Pluto LNG ventures to help fund more than $70 billion of planned projects to meet rising Asian demand. The company was expected to get about $1.5 billion for a 15 percent stake in Browse, Bell Potter Securities Ltd. estimated before the announcement today.

“It’s a confidence boost for the project,” Johan Hedstrom, a Bell Potter analyst in Sydney, said today by phone. “The chances of it going ahead now are much higher. That’s a serious amount of money. You wouldn’t pay that sort of money if you thought there was a genuine risk of it not going ahead.”

Woodside rose 3.7 percent to A$36.20 in Sydney, the most since Oct. 6. It has gained 18 percent this year.

Fukushima Boost

Japan, already the world’s biggest buyer of LNG, is increasing imports after the Fukushima nuclear disaster forced the shutdown of atomic power plants.

“It’s not just a short-term measure after the country’s nuclear capacity was significantly reduced,” Hedstrom said. “It’s a long-term strategy for Japanese companies. They don’t have a lot of choice.”

Mitsubishi and Mitsui have scrambled to boost their LNG portfolio as the public in Japan has turned against nuclear energy. In addition to partnering on the Shell and OAO Gazprom-operated Sakhalin-2 project in Russia’s Far East, Mitsui and Mitsubishi signed an accord with Sempra Energy to develop a $6 billion gas export facility in Louisiana. Mitsubishi has committed the same amount for Encana Corp.’s Cutbank Ridge gas development on Canada’s west coast.

Browse, in Western Australia, may cost about $36 billion to build, compared with an earlier estimate of $30 billion, Credit Suisse Group AG said in November. The terms of the LNG supply accord with the companies weren’t disclosed, though Woodside said they are in line with traditional Asian pricing.

‘Good Value’

“$2 billion for the stake is a very good value” for Woodside, said Philipp Kin, an energy analyst at the Royal Bank of Scotland Plc. “My question would be what is the price for the LNG contract, what are the potential trade-offs, if any.”

Woodside’s interest in Browse would drop to 31.3 percent from 46 percent, the company said. Woodside’s partners, BHP Billiton Ltd., BP Plc, Chevron Corp. and Royal Dutch Shell Plc, have the right to preempt the sale.

Mitsui and Mitsubishi also signed an initial agreement to consider potential partnership on other opportunities globally, Woodside said. The venture has also offered help in obtaining financing for the Browse development, “with Japanese banks indicating their support,” the Australian oil and gas producer said. The Japanese companies are already partners in the Woodside-led North West Shelf LNG project in Australia.

Development Alternative

An alternative to building a new Browse plant at the James Price Point site in Australia’s Kimberley region is to send the gas about 1,000 kilometers (622 miles) south to the existing North West Shelf plant complex, RBC Capital Markets said today.

The Australian government in April allowed Woodside to delay an investment decision on Browse until the first half of 2013, providing more time for engineering work.

The Mitsui and Mitsubishi deal “would more closely align the Browse partners to that of North West Shelf, suggesting, we think, that the James Price Point development is less likely than North West Shelf processing,” Andrew Williams, an RBC analyst based in Melbourne, said in a research note.

Woodside earlier this week began producing LNG at its A$14.9 billion Pluto project. Australia has seven more LNG ventures under development. Australian Energy Minister Martin Ferguson said in March he doesn’t expect any new LNG projects to be approved in Australia in the next 12 months to 18 months.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE