BHP Billiton Limited (NYSE:BHP) (NYSE:BBL)(ASX:BHP) plans to sell its stake in the Browse liquefied natural gas (LNG) project to PetroChina Company Limited (NYSE:PTR) (HKG:0857), a Chinese oil and gas producer, for $1.63 billion. BHP will be the second partner company to leave the project in the past few months.
The Browse project, valued at $30 billion, is inflicted by controversy over its planned location at James Price Point on the northwestern coast of Australia, which has been opposed by some project partners, environmentalists, and Aboriginal landowners. On the other hand, Chinese firms are showing increasing interest in acquiring oil and gas assets to fulfill the growing energy demands in China, backed by its economic growth.
"The main driver of these acquisitions is to source oil and gas for the Chinese market," Tony Regan of consultancy firm Tri-Zen told the BBC. "Though the domestic production in China is growing, it is never going to be able to keep pace with the growth in demand," he added.
The exit of BHP from the partnership comes at a time of the rising cost for the $170 billion worth of LNG export project under construction in Australia, due to labor shortages, logistical challenges, and the strength of Australian dollar
"This is an excellent opportunity for both companies," BHP's petroleum division chief, Michael Yeager, said in a statement. "PetroChina Company Limited (NYSE:PTR) (HKG:0857) has acquired an interest in a world class gas resource and BHP Billiton has exited a non-strategic asset”.
BHP Billiton Limited (NYSE:BHP) (NYSE:BBL)(ASX:BHP) said that the remaining joint venture partners in the Browse project - operator Woodside Petroleum Limited (ASX:WPL) (PINK:WOPEY), Royal Dutch Shell plc (NYSE:RDS.A) (NYSE:RDS.B), BP plc (NYSE:BP) (LON:BP), Japan's Mitsui & Co Ltd (PINK:MITSY), and Mitsubishi Corporation (PINK:MSBHY)- have the right to match the offer from PetroChina.
PetroChina Company Limited (NYSE:PTR) (HKG:0857) is seeking to buy BHP Billiton Limited (NYSE:BHP) (NYSE:BBL)(ASX:BHP)’s 8.3 percent stakes in the East Browse and 20 percent holding in the West Browse joint venture. The deal is subject to regulatory approval and if approved, will be the most recent in the series of investment by the Chinese oil and gas firm this year.
The biggest buy from the Chinese oil and gas segment has come from CNOOC Limited (NYSE:CEO) (HKG:0883)’s takeover of Canada’s Nexen Inc. (NYSE:NXY) for $15.1 billion, which gave rise to the concerns in Canada that the takeover might give China too much hold on Canada’s oil and gas industry. In November, Sinopec acquired a 20 percent stake of French oil firm Total in a Nigerian offshore oilfield for $2.5 billion
"They could buy oil and gas from international markets, but I think they are looking for a bit more security by becoming equity partners at the producers of these assets," said Mr. Regan of Tri-Zen.
Analysts at BAML opine that the transaction is a good outcome for BHP in timing and price; however, they acknowledge a premium to the WPL-MIMI deal should have been expected, given it provided increased development certainty to the project due to the inclusion of offtake terms.
There are still substantial hurdles for the Browse JV to overcome, and BAML believes that BHP’s attentions are better served in petroleum operations over which it has greater control, namely within the on and offshore US business units.