In a move to prevent delays to a proposed $35 billion natural gas project, the Australian partner of ConocoPhillips (COP) said it will allow the U.S. oil company to defer a major milestone payment tied to the venture in Queensland state.

Origin Energy Ltd. (ORG.AU) said Thursday that Conoco may not need to make a $1 billion payment later this year when they expect to approve construction of the project, which aims to deliver its first liquefied natural gas to customers in 2015.

The move comes as Conoco continues to overhaul its global oil and natural-gas assets to pay down debt and improve shareholder returns after a series of major acquisitions prior to the financial crisis left it short of cash. Over the past year, it has raised billions of dollars selling stakes in Russian oil producer Lukoil Holdings (LKOH.RS) and the Syncrude oil sands project in Canada.

Conoco agreed to invest up to $8 billion in the Australia-Pacific LNG project as part of a deal struck with Origin in 2008, when oil and gas prices where near record highs. In addition to a $5 billion upfront payment to Origin, Conoco agreed to carry its partner's share of costs leading up to the project's final approval plus milestone payments worth up to $2 billion.

APLNG is one of four big projects planned by international oil companies at the port of Gladstone to capitalize on rapidly growing Asian demand for clean-burning fuels. Each venture aims to convert coal seam gas to LNG, despite the technology remaining untried on such a large scale.

APLNG has a designed capacity of 18 million metric tons of LNG, with construction due to take place in at least two stages. The first phase will involve processing capacity of 9 million tons, or two trains.

In a statement, Origin said allowing Conoco to defer the milestone payment for the project's first phase was necessary to "help progress a final investment decision in the near term", even though it could leave an immediate $1 billion hole in its balance sheet.

Origin said this payment from Conoco could instead be made when the project pays out an agreed economic return, without elaborating.

When asked about the payment deferral, a Conoco spokesman said the company "notes the project is progressing and expects to provide more details in the next week or so."

The concession by Origin may reflect changes to the project's economics, given that oil prices are around 50% below where they stood when Conoco and Origin struck their original agreement.

Recently, Australia's Santos Ltd. (STO.AU) agreed to forego a $500 million milestone payment from a partner in its proposed LNG terminal at Gladstone. Santos allowed Petroliam National Bhd., or Petronas, to skip the payment in exchange for the Malaysian state company agreeing to buy more LNG from the project when it becomes operational.

Of the four Gladstone LNG developments, Conoco and Origin's joint venture is the only one yet to secure an LNG buyer. This has led some analysts to warn of delays to construction, as it will be harder to convince banks to lend to a project that doesn't have committed customers.

In a move to ease those doubts, Origin Chief Executive Grant King said Thursday the venture is "well advanced in discussions with a number of foundation customers." Binding offtake agreements would enable the venture to start construction.

King made the comments as Origin reported a first-half loss and downgraded its annual earnings guidance as it prepares to issue new shares to partly cover a $3.25 billion acquisition of Australian power assets.

Sydney-based Origin reported a A$136 million net loss for the six months to Dec. 31, compared to a A$371 million profit a year earlier, after incurring oneoff costs associated with the acquisition of power assets in New South Wales state and an impairment on a geothermal energy joint venture.

Underlying profit fell to A$304 million from A$355 million and Origin said it expects full-year underlying profit growth of 10%-15%, down from previous guidance of 15% growth.

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