Sources say the formal auction process began after Woodside was approached by scores of companies over the past 12 months over a potential selldown.
Indicative bids for the Browse stake are being lodged but any sale could take several months to finalise, especially in light of Woodside's announcement last month that it would be unable to proceed with the $40bn project for at least another year.
The potential sale comes amid industry speculation that Browse's 14.3 trillion cubic feet of reserves will soon be increased through the inclusion of additional sources under Scott Reef, an environmentally sensitive part of the Browse Basin, that were previously thought to be inaccessible.
The Australian understands that Woodside may reduce its 50 per cent stake in Browse to 16.67 per cent as part of a plan to align the ownership of the Browse joint venture more closely with the North West Shelf liquefied natural gas project.
"They would go from owning half of Browse to owning about one-sixth -- that would give some symmetry around what the North West Shelf looks like," said one source familiar with the process.
The shake-up may involve Woodside selling stakes in Browse to Japanese trading houses Mitsubishi and Mitsui, which are also partners in the North West Shelf and have previously expressed an interest in Browse.
But other companies, including European groups Total, ENI and GDF Suez, are also believed to be keen to snap up equity in Browse as they seek to increase their involvement in Australia's booming LNG sector.
It is understood any equity sale would not be linked to a gas supply contract from Browse, which is due to produce 12 million tonnes of LNG a year and become one of Australia's biggest resources projects.
The North West Shelf is owned by six companies, each of which has a 16.67 per cent stake -- Woodside, BHP Billiton, Royal Dutch Shell, BP, Chevron and an alliance of Mitsubishi and Mitsui.
But Woodside owns 50 per cent of Browse, with the rest of the venture held by BHP (8.33 per cent), Shell (8.33 per cent), BP (16.67 per cent) and Chevron (16.67 per cent).
A potential complication to Woodside as it tries to dilute its stake is that its Browse partners have pre-emptive rights over any sale.
BHP, Chevron and Shell would be unlikely to buy additional equity given their existing commitments in the sector.
However, BP is known to be looking for additional investments in Australia and may want to boost its stake in Browse.
Any selldown would reduce Woodside's exposure to the Browse venture and free up capital for its spending commitments on other projects, including a planned $10bn expansion of the Pluto LNG plant near Karratha.
But it would also reduce Woodside's voting rights within the Browse joint venture and could end the Perth company's plan to process the Browse gas at a greenfields site at James Price Point, north of Broome.
Most of Woodside's Browse partners favour piping the gas to the North West Shelf in the Pilbara when reserves at that project start to run low later this decade, thereby extending the life of the investment.
Significantly, a dilution of Woodside's equity interest in Browse would reduce its commercial incentive to process the gas as quickly as possible.
It would also lessen Woodside's exposure to rising project costs and fears of falling prices sparked by a possible global LNG glut. Some analysts believe the rapid development of the US shale gas industry will lead to LNG exports from North America within a decade.
Woodside chief executive Peter Coleman is believed to be far less enthusiastic about using James Price Point than his predecessor Don Voelte, due to the higher costs of a greenfields plant.
James Price Point is being vigorously opposed by environmentalists and some Kimberley indigenous people.
But it is backed by the West Australian and federal governments as well as local indigenous groups who stand to benefit from a compensation package for use of the land.
Woodside would need to convince the governments that James Price Point was not economic if it wanted to pipe the gas to the Pilbara.
Mr Coleman said last year that Woodside could sell down its stake in Browse, along with the Pluto 2 and Sunrise developments, to reduce $35bn in funding obligations for the projects when they proceed.
Merrill Lynch said in a report in September last year that Woodside's stake in Browse would be worth between $US2.2bn ($2.1bn) and $US4.3bn, based on recent gas pricing benchmarks.
This would value the equity being sold by Woodside at between $US1.4bn and $US2.7bn.
Sources familiar with the auction said the stake being pitched to potential buyers would fetch more than $1bn.
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