Australia M&A - Woodside and Chevron agree asset swap for NWS LNG and Wheatstone LNG

Earlier today, Woodside and Chevron announced that they have agreed an asset swap that will see Woodside take Chevron’s interest in the NWS Project, the NWS Oil Project and the Angel CCS Project, with Chevron getting Woodsides stake in Wheatstone LNG and Julimar-Brunello. In addition, Chevron will make a cash payment to Woodside of up to $400 million. The effective date for the transaction is 1st January 2024 and is expected to close in 2026. The completion will be longer that typical as it is subject to the completion of Julimar Phase 3 Project execution and handover which is expected in 2026 and the completion of certain ongoing abandonment activities, in addition to the normal approvals.

Assets moving from Chevron to Woodside

There are three assets that will see stakes move from Chevron to Woodside as a part of this deal, all of which are related to the North West Shelf (NWS) project.

NWS project

The North West Shelf (NWS) project has a long history, with gas first produced in 1984, and LNG first exported in 1989. The project consists of a number of gas fields (including North Rankin, Perseus, Goodwyn, Echo/Yodel, and Angel) that are located offshore the Western Australia. The gas and condensate production from the fields is brought to shore from the North Rankin Complex to the Karatha gas plant (KGP). The KGP consists of the NWS LNG plant that has an export capacity of 16.9 Mtpa of LNG through five LNG processing trains, as well as two domestic gas trains.

There are some complexities to the ownership structure of the NWS project, with a number of JVs in place that cover limited elements of the project. The largest of these holds the offshore infrastructure and the LNG plant, with the changes to this shown below.

The current challenge facing the project is the declining production and disagreements over the best backfill option. Woodside have been pushing for Browse to provide backfill to NWS LNG but have run into JV issues when it comes to the required commercial agreements.

NWS Oil project / Cossack-Wanaea-Lambert-Hermes (CWLH)

The NWS Oil project, more commonly now called the Cossack-Wanaea-Lambert-Hermes (CWLH) project is based on four oil-weighted fields that used to sit within the NWS JV. The first of the fields came onstream in 1995, with all four fields onstream in 1999. The fields are still in production through subsea wells and a leased FPSO.

The original NWS Oil JV was aligned with the gas JV but has diverged over time. The changes from this deal are shown below:

This is not a significant asset in this deal but will have been included for completeness. Woodside will continue to operate the asset but I would imagine they would be very happy to divest their stake to Jadestone, if their financial situation allows.

Angel CCS project

The Angel CCS project is a proposed CCS project that would take CO2 from various sources for injection into the Angel gas field. It is still very much in the feasibility stage, with the JV consisting of the five partners involved in the NWS LNG project:

Again, this will not have been a significant part of the deal or a motivating factor for either side.

Assets moving from Woodside to Chevron

There are two assets that will see stakes move from Chevron to Woodside as a part of this deal, both related to the Wheatstone LNG project.

Wheatstone LNG project

The Wheatstone LNG project has been onstream since 2017 and is based on the development of gas fields offshore Western Australia and an onshore LNG plant. There are two separate offshore developments that provide the gas: Wheatstone/Iago and Julimar/Brunello, each handled by separate operators and partners. The onshore LNG liquefaction plant has two LNG liquefaction trains, each with a capacity to produce 4.45 mtpa of LNG. The liquefaction plant is handled by a separate JV that consists of the partners of the two offshore developments.

This transaction sees changes to both the Julimar Brunello asset and the Wheatstone LNG JV. For the Julimar Brunello asset (WA-49-L), the changes see Chevron take over operatorship from Woodside, as shown below:

And for the Wheatstone LNG JV:

Where PE Wheatstone consists of a consortium of Japanese companies including Mitsubishi, JOGMEC, JERA, Chubu Electric and TEPCO.

There are no changes to the other upstream project (Wheatstone/Iago), where Woodside do not have a stake. This remains: Chevron (80.17% + operator), PE Wheatstone (10%), KUFPEC (8%) and Kyushu Electric (1.83%).

Impact on NWS LNG backfill options

The partners in the NWS JV have been pulling in different directions for a while, with issues including potential backfill options, particularly Browse, high up the list. A summary of some of the announced backfill agreements is below:

• In August 2020, it was announced that the key principles for allowing the processing of gas from phase 2 of the Waitsia development through NWS LNG had been agreed. Further announcements revealed that the deal would cover about 1.5 mtpa of LNG production for a five-year period. FID for the project was taken in December 2020, with first gas expected in late-2023. However, there have been a number of delays and first gas is now only expected in early-2025.
• Also in August 2020, it was announced that key principles had also been agreed for allowing the processing of gas from Pluto through NWS LNG. This would require the construction of a 3.2km, 30-inch pipeline between Pluto LNG and NWS LNG. FID was taken on the “Pluto-KGP Interconnector” in November 2019 and it came onstream in March 2022.
• In December 2022, Western Gas announced that they had signed (non-binding) agreements to process gas from their potential Equus project through both NWS LNG and Pluto T1. This has gone very quiet and would now seem unlikely.

I put the chart below together a couple of years ago based on these announcements, but it still holds true:

As can be seen, Browse is by far the largest potential backfill option for NWS LNG and Woodside taking a greater stake in NWS LNG should help the tolling negotiations. However, it will not all be smooth sailing as there are other partners to consider and lets not forget the regulatory issues, particularly given the high CO2 content of Browse gas.

As a reminder, the Browse JV partners are Woodside (30.60% and operator), BP (44.33%), Japan Australia LNG (MIMI Browse) (14.4%) and PetroChina (10.67%), making Shell the outlier on the NWS LNG JV side.

Impact on Chevron / Wheatstone LNG

Chevron have wanted out of the NWS LNG JV for a while and put their stake in the project up for sale back in 2020, with the process cancelled in 2022 after failing to find a buyer. This gives them the desired exit and, in return, they get control over supply to their operated Wheatstone project. Whilst new backfill developments aren't on the horizon for Wheatstone, the deal gives Chevron control over the next developments and will allow them to prioritise their fields, such as Clio-Acme, or some of the fields earmarked for Gorgon backfill.

Final comments

The deal looks like a win-win, in that it simplifies the complexity of the JVs that sit across these two gas-to-LNG projects and should allow both parties to focus on bringing their molecules to their LNG plants, particularly when it comes to backfill considerations.