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Last updated: December 12, 2012 9:01 am
State-owned oil producer PetroChina has agreed to pay $1.6bn for a 10 per cent stake in a major offshore Australian natural gas project, underscoring the growing appetite that is fuelling China’s investment in gas developments around the world.
Anglo-Australian miner BHP Billiton on Wednesday said it would sell its holdings in the Browse liquid natural gas project in Western Australia to Hong Kong-listed PetroChina, one of the world’s biggest oil and gas producers.
BHP’s decision to sell its 8 per cent stake in the East Browse project and its 20 per cent share of the smaller West Browse site – equivalent to a tenth of the overall Browse development – comes a week after Chevron announced a $15bn cost over-run at its Gorgon gas facility. The Australian LNG industry has been dogged by high labour costs, the strong Australia dollar and infrastructure bottlenecks.
BHP, which is in the midst of a cost-cutting drive, said the decision to exit Browse was in line with its strategy of investing only in top-tier projects that it either controls or has a significant shareholding in. It has disposed of several non-core assets over the past six months, including the Ekati Diamond Mine in Canada.
However, there has been persistent speculation BHP was not happy with the proposed location for the Browse project’s gas processing plant, which has drawn strong opposition from environmental campaigners.
“Browse LNG is the largest stranded gas project remaining in Australia and has been two decades in the waiting since discovery,” said Bernstein Research in a note. With the involvement of PetroChina together with investment from a Japanese consortium, “we see development as now likely”.
Although the Browse project is still at least five years from production, PetroChina’s participation highlights the reshaping of global gas markets by strong demand from Asia, particularly China and Japan.
Earlier this year, Woodside Petroleum, the Australian energy company that is the operator of and the biggest shareholder in the Browse project, sold a 15 per cent stake in Browse to a Japanese consortium including Mitsui and Mitsubishi for $2bn. The Japanese consortium also signed a long-term agreement to buy LNG from Browse once the field starts producing.
Demand for gas in Japan has soared as the country has backed away from nuclear power in the wake of the Fukushima disaster last year. Gas demand in China, the world’s biggest energy consumer, is growing at an average annual rate of 20 per cent as policy makers promote cleaner alternatives to coal.
Analysts at Nomura said BHP had secured a full price for its holding based on Woodside’s deal with the Japanese consortium, putting the implied valuation at about a 20 per cent premium to that transaction.
Shares in Woodside rose 1.6 per cent in Sydney on Wednesday while BHP gained 1 per cent. PetroChina rose 1.1 per cent in Hong Kong.
The other joint venture partners in Browse, which in addition to Woodside and the Japanese consortium include Royal Dutch Shell and BP, have right of first refusal for the Browse stake and a “customary” period in which to make a matching offer, said BHP.
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