By Curtis Williams

PORT OF SPAIN, Feb 11 (Reuters) - The government of Trinidad and Tobago and Woodside Energy WDS.AX have reached an initial agreement on the commercial terms for developing the company's Calypso deepwater gas discoveries, moving the project one step closer to a final investment decision, according to a Woodside executive and three people with knowledge of the talks.

The Caribbean country, Latin America's largest exporter of liquefied natural gas $(LNG)$, is pushing producers, especially those offshore, to accelerate natural gas output in order to resume full use of its gas processing capacity. LNG output and exports have been curtailed in recent years by lack of gas.

Under the agreement, which was completed and signed in recent weeks, the two neighboring deepwater blocks where Woodside has confirmed 3.5 trillion cubic feet (tcf) of natural gas reserves will be combined, or unitized, only preserving the acreage where the discoveries were made, cutting Woodside costs.

The arrangement is set to reduce the company's tax liability as Woodside would pay taxes and many upfront payments, including bonuses, on one and not two blocks, the sources said.

Kellyanne Lochan, Woodside's Trinidad country manager, confirmed the initial agreement, including the unitization, saying that combining the blocks is intended to improve efficiency.

"We are focused on working with the government and our JV (joint venture) partner to move the project forward," Lochan told Reuters on the sidelines of Trinidad's Energy Conference in Port of Spain, without offering further details.

Woodside's Calypso discovery is in the pre-engineering and design phase. It must complete engineering and design, and also submit a development plan before it moves to the final investment decision, said Lochan.

Woodside operates the block, with BP BP.L holding a 30% interest. If produced, the gas will go mainly to the country's flagship Atlantic LNG project to be turned into the superchilled gas for export.

(Reporting by Curtis Williams in Houston; writing by Marianna Parraga; editing by Peter Henderson and Franklin Paul)

((Curtis.Williams@thomsonreuters.com; +1 346 324 7560;))