UPDATE 2-Woodside may delay decision on Australia's Browse LNG

Mon Dec 19, 2011 1:17am EST

* Browse partners plan to seek lease extension

* Partners need time to evaluate contract tenders, design

* Government not ruling out lease extension

* Woodside committed to James Point as location for Browse

* Shares down more than 3 pct

By Rebekah Kebede

PERTH, Dec 19 (Reuters) - Woodside Petroleum warned on Monday it may need to delay a final investment decision on Australia's huge Browse LNG project by nearly a year to the first half of 2013, sending shares in the energy firm down over 3 percent.

A delay had been predicted by analysts and Woodside said the Browse Basin partners planned to seek an extension to lease terms, which currently require them to make a final investment decision by mid-2012.

Woodside said the extra time would allow the company "time to better evaluate the outcomes of front-end engineering and design work and the results of the tender processes for the development's major contracts".

"We believe, and so do some of our joint venture partners, that we need just a bit more time to go through that process given the magnitude of the work that needs to be done and where we find ourselves in the process today," Woodside Chief Executive Peter Coleman told reporters.

Woodside has not released a project cost estimate, but media reports put the cost of the 12 million tonnes-a-year liquefied natural gas export project at around A$30 billion ($30 billion).

Woodside owns 50 percent of Browse, which is estimated to hold about 13.3 trillion cubic feet (Tcf) of gas. Its partners are BP, Chevron, BHP Billiton and Royal Dutch Shell.

The decision to push back the project timeline had long been expected by those in the industry.

Australian resources minister Martin Ferguson indicated last week he would be willing to consider an extension to the retention lease, while adding that he was sure the project was commercially feasible.

"Even when that retention lease was awarded, our take at that stage was that it's highly unlikely that they would be able to make that mid-2012 deadline with the strongest will in the world," said Craig McMahon, an analyst with Wood Mackenzie in Perth.

"It's a huge project for anyone, let alone a company of Woodside's modest size, they do need the proper time to actually evaluate those tenders before taking final investment decision."

Slower-than-expected results from tender invitations on the Browse project or higher-than-expected costs from the tenders may have surprised the joint venture, Mark Wiseman, an analyst with Goldman Sachs in Sydney said in a note on Monday.

MIXED VIEWS ON LOCATION

Woodside's announcement sparked some further speculation among some analysts that Woodside may revisit its plan to develop the project at James Price Point, on the coast of northwest Australia.

But Chief Executive Peter Coleman told a conference call Woodside was still committed to the location. "James Price Point is clearly the main game for us ... we always keep a weather eye out for any changes in the conditions at James Price Point or other changes in the market," he said.

Woodside has faced local opposition to building a plant at James Price Point, while its partners have suggested another location, such as the existing North West Shelf plant further south, may be more suitable.

The Australian government is eager to see Browse developed as soon as possible and the conditions of the lease restrict the project's location to James Price Point.

But some analysts hold that the location may ultimately be too challenging and that Woodside may need to explore other options concurrently.

"The greater question is not when a Browse LNG project will happen, but where," Stuart Baker, an analyst with Morgan Stanley in Melbourne said.

The cost of building a greenfield project and continuing issues around it would be significant challenges.

"It is increasingly possible that other development options are re-considered, including the use of floating LNG."

Sending the gas to the existing plant would mean Woodside and its partners would have to wait for some years until the North West Shelf depletes its gas reserves and can process the Browse gas for export.

But other analysts said the decision was a minor delay and would not affect the location of the project.

Woodside's decision to delay the final investment decision target does not make it more likely that the joint venture will direct the gas to the North West Shelf instead of James Price Point, according to Gordon Ramsay, an analyst with UBS in Melbourne.

Woodside shares fell 3.3 percent to A$30.27 in afternoon trade. The broader market was 2.3 percent lower.