It's Project Economics, Stupid

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  Woodside chases growth in $4bn deal

  
  

  
   

  
  10 HOURS AGO DECEMBER 16, 2014 4:26PM

WOODSIDE Petroleum insists its $4 billion gas and oil deal to drive future growth has come at a fair price.

THE energy giant is buying a suite of oil and liquefied natural gas projects in Australia and Canada from US company Apache Corporation in one of its largest ever deals.

Chief executive Peter Coleman said Woodside had timed the deal well, predicting a fall in operating costs after a 45 per cent slide in oil prices to current five-year lows of about $US61 a barrel.

However the price dive has prompted it to delay an investment decision on the proposed Browse floating LNG project off Western Australia's northern coast.

"We are now in a position to take advantage of challenging market conditions and use cash reserves and existing debt facilities to acquire very high quality assets," he said on Tuesday.

"I don't get too worried, I am really pleased not to be halfway through a project having committed at a $US100 oil to a cost structure and ending up with a $US70 world.

"It doesn't matter whether it is $US100 or $US20 ... what we need to do is develop a cost base that is commensurate with the price we expect to get to maintain the margin we need for the returns."

Woodside, Australia's largest pure play oil and gas producer, has long been criticised for its lack of a growth strategy to replace its existing North West Shelf and Pluto producing assets.

It will spend $US2.75 billion ($A2.98 billion) on the Apache assets, which will increase its oil and gas reserves by 20 per cent.

However Apache said it would net $US3.7 billion ($A4 billion) including reimbursement for capital expenditure from this year.

Woodside is buying Apache's 13 per cent stake in the Australian Wheatstone LNG project.

It will also acquire stakes in gas and producing oil fields in the same area offshore of northern Western Australia, immediately adding to profits and operating cash flow.

The deal includes Apache's 50 per cent stake in the Kitimat LNG project in western Canada, which will use onshore shale gas.

The decision on the Browse floating LNG project - which was originally to be processed onshore at a higher cost - was due in mid 2015 but has been postponed to mid 2016.

Mr Coleman said Woodside would seek to use the slide in oil prices to lower the long-term cost of the project.

"We are using lessons learned from other projects and other cost changes seen in our own business," he said.

Woodside shares fell 93 cents, or 2.6 per cent, to $34.46, in line with falls in energy stocks.