BHP sells Browse stake to China for $1.6 billion

The Big Australian sells its interests in huge WA LNG project

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published December 12, 2012 1:01 pm AEDT

BHP Billiton (ASX: BHP) has announced that it has sold its stake in the Browse LNG project for US$1.63 billion to PetroChina International Investment.

BHP had an 8.33% interest in East Browse, and a 20% interest in West Browse joint ventures, but said they were no longer strategic assets for the company. The sale is still subject to regulatory approval, but should be completed early next year.

Related: BHP versus WA government

Given the rising costs of developing LNG projects in Australia, and the controversy over Browse, it's no wonder BHP has decided to exit. With Browse yet to get the go-ahead, and controversy over the siting of the LNG plant, as well as environmental opposition to the planned James Price Point plant location, the project faces rising costs as well as other hurdles.

WA premier Colin Barnett wants the LNG plant built at James Price Point, but the partners, including operator, Woodside Petroleum (ASX: WPL), are understood to be keen on building a floating LNG plant to cut costs by up to $15 billion.

We've already seen costs on other LNG projects blow out, including Chevron's US$43 billion Gorgon project, now expected to cost $52 billion, $9 billion more than originally anticipated. Increasing labour costs, falling productivity and the strong Australian dollar are all being blamed for the cost rise. Santos Limited's (ASX: STO) Gladstone LNG and the PNG LNG project, involving Oil Search (ASX: OSH) and Santos have also experienced cost blow-outs in recent months.

Woodside chief Peter Coleman has warned that further cost blowouts could jeopardise future long-term investment. Investors could look elsewhere if operators failed to maintain revised cost estimates and schedules. With several large LNG projects planned or already under development in Australia, some could be postponed or scaled back, which may scare investors away, Mr Coleman said.

Foolish takeaway

BHP's decision to exit Browse now certainly looks like the right decision for the company. BHP can now concentrate on its US shale oil and gas plays and existing petroleum projects, whilst avoiding the risks of being involved in a costly, controversial LNG project.

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Motley Fool writer/analyst Mike King owns shares in BHP and Woodside. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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