Woodside, Apache in Pluto LNG deal

Woodside Petroleum has entered a deal with Apache Corporation for the supply of gas from two Western Australian fields for a second processing train at its Pluto liquefied natural gas (LNG) facility.

In a brief statement, Woodside today confirmed that it had entered into a non-binding agreement with Apache after the latter outed the deal at a UBS oil and gas conference in Texas.

Woodside has previously said it will need to secure further gas supplies before it can expand its Pluto LNG facility, with the company's own Pluto gas fields only enough to support phase one or the first train of the operation.

Woodside today said the deal with Apache Northwest and Kufpec Australia sets out the key terms to "facilitate talks on a non-exclusive basis of definitive agreements for the sale of gas from the Apache-operated Julimar and Brunello fields".

Hartleys oil and gas analyst Dave Wall said in a research note on Thursday the Apache agreement was "consistent with our view that the Martell gas discovery made with Hess in February this year would facilitate negotiations for third party gas".

The Martell-1 well, a 50:50 joint venture between Woodside and US-based Hess Exploration, is about 100km northwest of Woodside's Pluto field.

"Hess made three additional gas discoveries in the Carnarvon Basin in 2008 and is a potential partner for third party gas into Pluto Train 2, giving Woodside increased negotiating leverage," Mr Wall said.

Mr Wall said speculators wondered whether an equity issue would be required to fund Pluto Train 2, but "only an additional $A1.5 billion in funding may be required over and above cashflow".

"We believe that this could be filled using debt, asset sale(s) and/or further spending reductions.

"We do think an equity issue is unlikely as the board ... would explore all avenues available before issuing equity unnecessarily."

Woodside has raised $US1.9 billion ($A2.45 billion) in bank debt and issued a $US1 billion ($A1.28 billion) bond in recent months to help fund the $12 billion cost of Pluto train 1, currently under construction.

Shares in Woodside were down 41 cents at $44.40.

The announcement is below:

Recent reports from the UBS global oil & gas conference in Texas, have quoted Apache Corporation as stating that it "now expects to sell gas from its Julimar prospect exclusively to Woodside's Pluto Phase II LNG facility".

Woodside advises that it has signed a non-binding letter with Apache Northwest Pty Ltd and Kufpec Australia Pty Ltd setting out key principles to facilitate negotiation on a non-exclusive basis of definitive agreements for the sale of gas from the Apache-operated Julimar and Brunello fields (in permit WA-356-P) through a Woodside-operated Pluto LNG Train 2 at Karratha.

As previously advised, Woodside continues to discuss Pluto Train 2 options with a number of parties in the Carnarvon Basin area.