ESSO will replace a 187 kilometre pipeline to transport crude oil and condensate between its Longford and Long Island Point facilities.
An Esso spokesperson said the pipeline would allow the continued safe delivery of crude oil and condensate and ensure that natural gas from Gippsland's offshore operations continued to flow.
The pipeline replacement has received full project funding from Esso Australia Resources and Gippsland Basin Joint Venture partner BHP Billiton.
Each has a 50 per cent interest in the project, with Esso Australia Resources acting as the operator.
Pending regulatory approval, the construction of the replacement pipeline is expected to begin late this year.
Chairman of parent company ExxonMobil Australia, Richard Owen, said the $400 million project represented another significant investment in the continuation of its Gippsland operations, which have provided crude oil, condensate, LPG and natural gas to the Australia market since 1969.
Mr Owen anticipated the project, at its peak, would generate about 500 jobs, as well as deliver additional indirect employment opportunities.
"Development of Gippsland's oil and gas has historically brought the region significant long-term benefits, boosting economic growth and creating new jobs," he said.
"Our commitment to the continued safe, reliable supply of cost-effective energy is demonstrated through this key infrastructure investment and our continuous pursuit of opportunities to reduce cost and improve productivity."