Chevron plans to sell stake in Woodside-operated Australian NWS LNG project

Sydney — Chevron said it plans to sell its 16.67% stake in the Woodside-operated Australian North West Shelf project, in line with its previously announced plan to sell natural gas assets around the world to cut costs and recalibrate its long-term energy investments.

For the Asia Pacific region, the divestment underscores how international oil companies are reshuffling their portfolios by getting rid of non-core assets and how billions of dollars worth of upstream and downstream assets are on the chopping block.

"Chevron Australia has made the decision to market its non-operated one-sixth interest in the North West Shelf Project following a number of unsolicited approaches from a range of credible buyers," a spokesman for the oil major said via email on June 18.

Along with Chevron and Woodside, miner BHP, BP's local unit BP Developments Australia, Japan-Australia LNG (a joint venture between Mitsubishi and Mitsui) and Shell all have equal one-sixth interest in the project each.

Chevron's decision comes at a time when the NWS joint venture is transitioning the project into an open-access tolling facility, which would allow it to monetize the remaining reserves in offshore Western Australia.

"Chevron continuing to high-grade its portfolio and putting its 16.7% stake in the NWS up for sale makes a lot of sense. We see the NWS facility coming off full production this year, and going forward it will need third-party gas to keep the plant full," said Wood Mackenzie senior analyst David Low.

He said for the NWS JV partners, this means an increasing proportion of tolling revenue will be generated, unless each party can monetize its own gas molecules through the facility.

"Chevron unsuccessfully tried to monetize the Clio/Acme asset via the NWS last year, and is unlikely to be able to monetize any of its gas through the facility in the near-term. We see this as part of the reason why its stake in the NWS is up for sale," Low said.

NWS has a nameplate capacity to ship 16.9 million mt/year of LNG. In the January-March quarter, NWS ran at an annualized rate of 16.21 million mt, which was up 6% year on year and 2% higher than October-December period, according to Woodside.

Woodside plans to connect the NWS facility to its nearby Pluto LNG operation to create the Burrup Hub. An interconnector between Pluto LNG and the NWS project's Karratha Gas Plant is expected to be built by 2022 to take advantage of future excess capacity at Karratha.

Woodside is the operator of Pluto LNG with a 90% stake. Japan's Kansai and Electric and Toyo Gas each hold 5%. Chevron said it plans to continue to operate its big ticket Gorgon and Wheatstone LNG facilities, which are also based in Western Australia.

"In terms of buyers, there are a few likely suitors, but of the existing participants we see Woodside as the most likely buyer. It is well-positioned financially and has announced it is ready and looking for M&A opportunities in Australia," Low said.

Woodside comments were not available immediately.

He said Australia remains strategically important for Chevron and is one of its most important countries with remaining upstream value.

In January, Chevron was considering the divestment of its stake in the Indonesian Deepwater Development gas project, a high-potential development caught up in Indonesia's resource nationalization policies.

Oil majors have made progress rationalizing their upstream portfolios but there's much more to be done and high-cost, low-margin assets need to be divested, Wood Mackenzie said June 13 in a report on upstream portfolio resilience amid low oil prices.

"Chevron's Australian LNG projects show how serendipity plays a part in resilience. Gorgon and Wheatstone suffered big development cost overruns, which have depressed returns – our base-case internal rates of return are 5% – but have led to robust cash margins," it said.

It said both deepwater and LNG projects are highly capital-intensive up front but can deliver stable, high-margin cash flow for decades; and that the likes of Chevron and Shell had the most resilient upstream portfolios at $30/b and offered the highest cash margins at $70/b.