Voelte takes on partners over Browse LNG project

THE AUSTRALIAN

Matthew Stevens

August 20, 2009

YOU gotta love Don Voelte. Unless, of course, you’re one of Woodside Petroleum’s junior partners in the increasingly contentious Browse liquid natural gas project.

Voelte wants to launch pronto into another $50 billion or so LNG project to develop the Browse gas. And to do that he needs to build a whole new set of fiercely expensive gas freezers on a rather scrappy piece of the Kimberley coastline called James Price Point. The problem for Voelte is that his partners don’t think too much of the idea.

Not only is the environmental risk of building anything in the pristine Kimberley viewed as too great, but Voelte’s partners would seem to have other ideas for the Browse gas — namely that it be piped down to the North West Shelf project at Karatha to be used in a decade or so when the gas-flow from the legendary Rankin fields falls into fitful decline.

This difference of view has resulted in what Voelte described yesterday, with rare understatement, as some “argy-bargy” between Woodside and the other owners of the Browse gas discoveries — Chevron, BP, Shell and BHP Billiton. Now as anyone who knows the Other Don can tell you, Voelte is not easily intimidated.

Indeed, if the commentary delivered during discussion of yesterday’s quietly disappointing profit announcement is anything to go by, he seems to be taking considerable delight in pushing back publicly against this manifest of the wealthiest and most powerful companies in the world.

“Woodside, as the operator, has an intimate and intense day-to-day management interest in Browse,” Voelte stated. “And we believe we have arrived at the right solutions probably a little ahead of our joint-venture partners.”

Voelte said the idea of piping the gas 900km south to a new set of Burrup-based processing facilities was simply not economically viable. And while the back-filling option was viable, it represented a massive opportunity lost for Woodside and an unacceptable delay in value-extraction for the ultimate owners of the gas, the Australian people.

Voelte argues that the NWS project would not need any Browse gas for another 10 to 15 years.

“For Woodside, the economics are compelling. The time value of a 50 per cent interest in 14tcf (trillion cubic feet) of gas is meaningful to Woodside. The governments are telling us the time for Browse is now. The governments will ensure there is a timely development.”

Now them’s fighting words, and very public ones at that. Voelte is suggesting to anyone who wants to listen that neither state nor federal governments will let his partners sit on this gas until they want to draw it down for the Burrup feed.

Premier Colin Barnett and Prime Minister Kevin Rudd want investment, jobs and government income, and they want them ASAP.

The really fascinating aspect of Voelte’s unusually public push for Browse is that he and his team at Woodside really seem to believe there is demand and capital enough to support what would be a fourth foundation LNG project along WA’s northwest coastline.

Woodside is, of course, the operator and one-sixth owner of the daddy of them all, the 16.3 million tonnes a year, $27bn North West Shelf project.

Woodside is also the operator and 90 per cent owner of the next cab off Australia’s LNG rank, the $12bn Pluto project, which will enter production from one train in 2011.

At the same time, Chevron is within a signature of moving ahead with Gorgon, which is a 15mtpa project, while Voelte believes there is enough demand to translate the 14tcf Browse resource into a foundation project.

Voelte’s grand scheming and the Gorgon partners’ recent success in locking up a further $83bn worth of contracts has been enough to have Barnett proclaiming yesterday that his state is being transformed into the “Saudi Arabia of natural gas”.

Now putting aside the fact that Saudi Arabia remains the Saudi Arabia of gas (with the world’s fourth-biggest reserves and production), Barnett’s hyperbole is not totally ill-founded.

On either side of the northern reaches of the continent, plans are progressing apace to install Australia as Asia’s preferred energy supplier.

Woodside owns 90 per cent of Pluto, with its Japanese customers owning the balance. And Voelte has some grand ideas for Pluto, confirming yesterday appraisal work was under way on the addition of two further trains, with hopes of a final investment decision for train two by the end of 2010 and train three by the end of 2011.

Which means Voelte is aiming to have installed capacity of 12.9mtpa by the end of 2014, which is about when Chevron (one of the owners of Browse) plans to start ramping up production from its $50bn 15mtpa Gorgon project.

What’s more, Voelte has started talking up the idea that Pluto could certainly support a fourth train and maybe one more after that, which would make it the biggest single LNG project in Australia, with implied output of 21.5mtpa.

To help you put some numbers around that, it’s worth reflecting on the idea that the 2.25mtpa, 20-year contract one of the Gorgon partners signed with PetroChina on Tuesday has been promoted as a $50bn deal.

There is one big difference between Gorgon and Pluto though, and that is that Chevron and its partners have the gas reserves to feed its monster for 40 years and maybe more. Woodside, on the other hand, is still trying to find enough gas to fill its needs.

To feed just a second train at its new project, Woodside needs to locate another 3.8-5.1tcf of quality gas somewhere within a 250km radius of the Pluto platform.

As things stand, Voelte reckons he can scratch together half that from accelerating the Pluto-Zena project, from introducing resources owned by other nearby operators, and from his own discoveries already made. But he still needs another 1.4-2.7tcf to get things going.

And that, he hopes, will be generated by a 20-well Carnarvon Basin exploration program which begins later this calendar year.

The option that Pluto could become a highly paid toll processor for others who own gas in the Carnarvon Basin is intriguing. Voelte says he is talking with five companies with an interest in delivering to Pluto, with two in advanced negotiation and due diligence, one in due diligence and negotiation, and the other still considering the options.

It is said that Apache and Hess Corporation have entered discussions with Woodside over toll feeding and taking equity in the second and third trains.

A more meaningful option, though, might be the Scarborough gas resource which is jointly owned by Exxon Mobil and BHP Billiton.

CSL chief staying put

WHEN you digest the underlying strength of CSL’s first $1bn annual profit, it’s pretty easy to see why the company’s chief executive of 15years, Brian McNamee, has no obvious plans to abdicate.

Once again, McNamee and his longtime CFO, Tony Cipa, have proved they run one of the neatest and most profitable ships in town, producing a constant currency 16 per cent increase in revenue that in turn generated underlying earnings of $1.02bn, a gain of 45 per cent.

Meanwhile, Cipa’s finance team translated that into operating cashflow of $1.03bn, which meant CSL could deliver shareholders with a 52per cent increase in its unfranked final dividend.

With $2.5bn in the bank, CSL is about 25 per cent of the way through a buyback of about 9 per cent of its own capital.

And McNamee indicated that the only reason he wasn’t buying more CSL stock was the rule preventing anything more than a 10 per cent buyback in any one year.

Which would seem to suggest CSL might be thinking of soaking up more stock next year.

Buybacks might be a mundane way to EPS accretion, but at least they cannot be interrupted by the likes of the US Federal Trade Commission, which forced CSL to abandon its $US3.1bn tilt at earnings step-change through the acquisition of competitor Talecris.

In the end, from the look of this year’s numbers and the strong outlook provided by McNamee yesterday (another year of 20 per cent growth in income), it would seem the only serious issue facing CSL at the moment is succession.

Mind you, that will not be an issue until McNamee decides to make it one. And he seems more than content to continue his remarkable journey with CSL.

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