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Australian Oil Project Approved Woodside and Mitsui to Invest $720 Million in Offshore Field BUSINESS ASIA By Bloomberg

Posted on: Tuesday, 28 March 2006, 12:00 CST

By Angela Macdonald-Smith and Megumi Yamanaka

Woodside Petroleum and Mitsui & Co. said Monday that they have approved a $720 million investment to develop the first phase of the Vincent oil project, their second oil venture off Western Australia.

The project, which is scheduled to start up in 2008, may produce about 100,000 barrels a day of oil, Woodside said. Mitsui, which owns 40 percent of the project, estimated its investment share at $290 million, according to a separate statement.

Woodside and Mitsui, one of Japan's biggest trading houses, are also partners in the Enfield oil project, which is valued at 1.48 billion Australian dollars, or $1 billion. The Enfield project, off Australia's northwestern coast, is scheduled to start in the third quarter. The 73-million-barrel Vincent field is located in deep water.

"The project looks reasonable, especially for 100,000 barrels of oil a day and $720 million in capital expenditure, obviously 60 percent of that net to Woodside," said Andrew Blakely, an oil and gas analyst at Macquarie Equities in Sydney.

Shares in Woodside rose 55 cents, or 1.3 percent, to close at 43.85 dollars on the Australian Stock Exchange. Shares in Mitsui fell 4, or 0.25 percent, to close at 1,586 in Tokyo. Mitsui paid $464.5 million in 2004 to buy a 40 percent stake in two offshore license areas, including the Enfield, Vincent and Laverda fields, from Woodside. There are no plans yet to develop Laverda, said Tony Johnson, a Woodside spokesman.

Oil from Vincent will be sold to Asian countries including Japan, said Kazuo Kotani, general manager of Mitsui's exploration and production unit. The oil has a low sulfur content and a high yield of light products, Mitsui said.

The partners plan to drill eight production wells at the field starting at the end of the year, said Hiroyuki Tsurugi, deputy general manager of Mitsui's exploration and production unit.

Woodside has put in place hedging arrangements "to lock in a prudent return during the first phase of development for Vincent," Woodside said in its statement Monday. The hedging covers 13.5 million barrels of Woodside's share of oil production over the first three years of production, it said.

The hedging will reduce Woodside's risk from lower returns as the oil in Vincent is viscous, or heavy, so it will be sold at a cheaper price than West Texas Intermediate, the U.S. benchmark variety, Blakely said.

"The basic principle for doing the hedging is that it's fairly heavy oil and they want to basically have early production hedged," Blakely said. "They seem to have done quite reasonably."

Source: International Herald Tribune

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