BHP Lowers Priority of Australian LNG Project With Exxon

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General Images of BHP Billiton Headquarters

The BHP Billiton logo and name are mounted on a wall in the lobby of BHP's head office in Melbourne, Australia on Friday, Jul. 15, 2011.

Photographer: Carla Gottgens

BHP Billiton Ltd. is lowering the priority of its Scarborough liquefied natural gas project with Exxon Mobil Corp. in Australia amid a fall in prices and increasing competition from the U.S.

“LNG prices are down quite a bit from last year,” Tim Cutt, BHP’s petroleum president, told reporters Monday in Melbourne. The project “falls a bit lower” on the list of opportunities, he said.

A plunge in oil has forced companies from Royal Dutch Shell Plc to Chevron Corp. to cut or delay spending on projects that supply super-cooled gas linked to the price of crude.

In September, Cutt said that he backed plans to develop what could become the world’s largest floating LNG project and that BHP was aligned with partner Exxon. Exxon said at the time that while significant progress had been made, it needs to find ways to make the proposed venture more profitable and overcome challenges including the location and water depths.

Scarborough “fits into the quite challenging category” because of ocean conditions, Angus Rodger, an Asia-Pacific analyst at energy consulting firm Wood Mackenzie Ltd., said in an interview from Melbourne. The offshore technology was originally intended for shallower water, he said.

“We’re probably not moving quite as quickly as we were last year, but it’s still a very important asset” that will be developed at the right time, Cutt said.

Crude oil prices could “firm fairly quickly” if countries including Brazil “wobble in any significant way,” he said.

While the company looks at about 200 merger and acquisition opportunities a year, right now M&A isn’t a main focus, Cutt said. BHP doesn’t want to “put a big premium on the table” to buy another company, he said.

The oil downturn is allowing BHP, the biggest overseas investor in U.S. shale, to pick up more acreage, he said. Any acquisitions are more likely to be assets, including offshore fields where BHP can drill faster and cheaper than competitors, Cutt said.

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