UPDATE 4-PetroChina on prowl offshore, buys into Australia LNG project

Wed Dec 12, 2012 4:36am EST

* PetroChina buys into Australia's Browse LNG project

* To pay BHP $1.63 bln for minority stake

* Deal comes as China seeks more foreign energy sources

* Deal hinges on other partners choosing not to match sale price

By James Regan

SYDNEY, Dec 12 (Reuters) - China's PetroChina Co Ltd has agreed to pay $1.63 billion for a minority stake in a controversial Australian liquefied natural gas (LNG) project, as it steps up efforts to source more of its energy in foreign countries.

Mining and energy giant BHP Billiton said it would sell PetroChina its share of the Browse LNG project, estimated to cost $30 billion to build, after deeming it a "non-strategic" asset.

China's state-owned energy giants have been bidding aggressively for foreign oil and gas fields as Beijing looks to secure energy supplies to meet rising demand. China also aims to double the share of gas in its overall energy mix to more than 8 percent by 2015, while coal will be cut to just over 60 percent.

The Browse stake marks Petrochina's first major acquisition this year after it set aside $16 billion for overseas investment as part of a plan to have half its production outside of China within eight years.

"PetroChina is under pressure to grow its overseas output," a source familiar with the company's strategy said.

In an emailed statement, PetroChina said the deal would be "subject to regulatory approval and other ordinary conditions", but is expected to be completed in the first half of 2013.

The Browse project has been plagued by controversy over its proposed location at James Price Point on the northwestern coast of Australia, which has been opposed by some project partners, environmentalists and Aboriginal landowners.

The investment also comes against a backdrop of soaring costs for some $170 billion worth of LNG export projects under construction in Australia, owing to labour shortages, construction challenges and the strength of the Australian dollar. Chevron Corp last week revised up the cost of its Gorgon LNG export complex by $15 billion to $52 billion.

"For (PetroChina), obviously that particular country probably is not just worrying about the next couple of years. They've got a long-term requirement for energy," said David Lennox, a mining resources analyst for Fat Prophets in Sydney.

"You'll find a lot of Chinese companies are stepping into the operational phases of projects like this to learn the trade," he added. "Possibly they can take those skills back to what they are doing in their own offshore region."

The sale hinges on the remaining joint venture partners -- Woodside Petroleum, Royal Dutch Shell Plc, BP , Japan's Mitsui & Co and Mitsubishi Corp -- choosing not to exercise rights to match the offer from PetroChina.

CHANGING GAS SUPPLY

The Browse deal follows Canada's approval last week of China's biggest overseas energy acquisition, a $15.1 billion takeover by state-owned CNOOC of Canadian oil and gas producer Nexen.

BHP said it expects the deal to close in the first half of next year, pending regulatory approvals.

"We believe the sale is a positive given it was a minority stake in a non core asset," Citi resources analyst Clarke Wilkins said in a note. "BHP prefers to have operating stakes in its operations."

BHP's exit coincides with a major shift in the gas sector, with a dramatic rise in U.S. production due to the development of shale deposits causing a global rethink on how markets will be served in coming years.

With excess gas at home, and prices far below global levels, companies are scrambling to export U.S. gas to high-paying markets in Europe and Asia. Fifteen projects are in the early stages of approval to export, according to government records.

Still, U.S. President Barack Obama may be reluctant to endorse exports, as it could push up prices for domestic users.

Only one project, Cheniere Energy's Sabine Pass plant in Louisiana state, has the full regulatory go-ahead and has signed deals to supply companies in India, Great Britain and South Korea.

The Browse deal will require approval from Australia's Foreign Investment Review Board, as PetroChina is state-owned, but is not expected to run into problems given the firm is taking a non-controlling stake, said Andrew Lumsden, partner in corporate advisory at law firm Corrs, Chambers Westgarth.

A KPMG report in August found Chinese firms invested $45.1 billion into Australia in 116 deals between September 2006 and June this year. Ninety-two of those deals were made by 45 Chinese state-owned enterprises.

Australia has set a course of overtaking Qatar as the world's top exporter of LNG later this decade, but cost overruns are threatening the viability of that aim.

BHP's decision to sell out of the Browse project, follows Chevron's exit in August when it sold its interest to Shell.

The Australian Conservation Foundation is battling construction of a plant to process gas from the project along coastline in the Kimberly district, a remote and environmentally sensitive region in far northwestern Australia.

Environmentalists and landowner groups want the gas piped to other locations, which they say could include areas around the existing North West Shelf gas hub further south.

Operator Woodside is scheduled to make a decision on whether to go forward with the James Price Point location by mid-2013.

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