By David Winning

SYDNEY--Woodside Petroleum Ltd. said its Scarborough natural-gas project will cost US$12 billion to develop, representing an around 5% increase on an earlier estimate nearly two years ago.

Woodside had previously said costs were under review and that it would detail the outcome ahead of a final investment decision, which is targeted before the end of this year. It broke down the new cost estimate as US$5.7 billion for offshore work and US$6.3 billion of expenditure onshore.

The estimate is below what some analysts had been expecting. Jarden last month said costs could be as high as US$14 billion, citing a 20% expansion of the scope of the Scarborough project, a more than doubling in steel costs, and labor shortages in Western Australia.

Perth-based Woodside recently launched a formal selldown process for up to 49% of its equity in the second processing unit planned at its Pluto LNG facility, which will handle gas from the offshore Scarborough field. It's also testing the market for a possible sale of part of its stake in Scarborough. Successful asset sales could reduce Woodside's capex commitments.

On Wednesday, Woodside said the integrated Scarborough and Pluto Train 2 development has an estimated internal rate of return of more than 12%. "It has a globally competitive cost of supply of approximately US$6.8/MMBtu to north Asia and is targeted to deliver the first cargo in 2026 into a market with anticipated robust demand for liquefied natural gas," the company said.

Write to David Winning at david.winning@wsj.com

(END) Dow Jones Newswires

08-03-21 2005ET