Woodside approves a A$1.1-billion gas project

Diversifying from its core North West Shelf operations, Woodside Petroleum has approved the A$1.1-billion Otway gas development off the southeastern Australian state of Victoria.

Diversifying from its core North West Shelf operations, Woodside Petroleum has approved the A$1.1-billion Otway gas development off the southeastern Australian state of Victoria.

Mike Shearman, manager of the Woodside-operated venture, said that the project partners would initially outlay A$810 million to bring onstream the offshore Thylacine field by mid-2006.

It will mark the start of a potential new gas hub for Australia's heavily populated southeastern region, Shearman said.

"As operator, this is our first gas producing venture outside of the North West Shelf in Western Australia," Shearman said.

"So the project is strategically very important to Woodside," he said, adding that Otway will provide gas customers with an alternative to the Santos Ltd.-operated Moomba venture and Exxon Mobil's Longford facility, which supplies Melbourne.

Woodside's share of the Thylacine development amounts to A$417 million. The company will meet its commitment out of existing facilities, Shearman said.

Owned 34% by Royal Dutch/Shell Group (RD), Woodside operates the North West Shelf venture, which exports liquefied natural gas to Japan and other parts of Southeast Asia. The venture plans to begin LNG exports to China in 2006.

But Woodside may approve up to six new projects this year as part of a A$4 billion push to grow beyond the Shelf.

Otway is the company's second major project go-ahead this year after the A$1.48 billion Enfield oil development, offshore Western Australia. A third approval for the US$400 million-plus Chinguetti oil project in Mauritania is due next month.

The development spurt comes as Woodside's new chief executive Don Voelte looks to build offshore production in regions such as North Africa and the Gulf of Mexico.

Otway is a "significant cash flow project", said Simon Oaten, an analyst at Patersons Securities. He forecasts that Woodside's annual share of revenue from the project will be around A$89 million.

"But the investment returns on the project have come down slightly because (total) capital costs are around 5% higher than my estimates," he said.

The nearby Geographe field, which will be connected to the main offshore pipeline in two, will follow the initial Thylacine development or three years time at a cost of A$250 million, Woodside said.

A A$50 million third-phase will involve modifications to compressor facilities, a Woodside spokeswoman said.

Woodside holds a 51.55% interest in Otway. Origin Energy Resources Ltd. (ORG.AU) holds 29.75%, while Benaris International NV owns the remainder, with 12.7% stake and CalEnergy Gas (Australia) Ltd. with 6.0%.

The project will initially produce around 60 petajoules of sales gas per year, equivalent to roughly 10% of southeast Australia's current annual gas demand, Woodside said.

Woodside has a 10-year sales agreement with TXU Electricity Ltd. for its 30 million PJ/year share of production.

The project will also produce relatively small amounts of condensate, a form of light crude oil that will be sold to an Australian refinery.

Another byproduct, liquefied petroleum gas, will be sold to Victorian distributors.

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05-20-04

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