Woodside’s Sangomar project suffers cost blow outs and delays

The first oil from Woodside’s project in Senegal is now not expected until mid-2024, and the development will cost up to 13 per cent more after repairs were found to be needed.

Woodside’s oil development in Senegal will cost up to 13 per cent more, and first production will be six months later than scheduled.

Woodside, which owns 82 per cent of the oil and gas field being developed off the West African country, said on Tuesday that the development will now cost between $US4.9bn ($7.2bn) and $US5.2bn.

While announcing higher costs, Woodside said the project will also be completed later than initially anticipated after repairs were required on the project’s floating production storage and offloading facility.

An FPSO is a floating vessel used by the offshore oil and gas companies for the production and processing of hydrocarbons, and for the storage of oil.

Woodside chief executive Meg O’Neil said the repairs were unexpected, but the company had to prioritise safety.

“We have taken the prudent decision to have the remedial work conducted while the FPSO remains at the shipyard in Singapore,” she said.

“This minimises the impact to the project schedule as it is safer, more efficient and more cost-effective than undertaking the work offshore Senegal. This approach ensures we can achieve production start-up in line with the adjusted schedule and ramp up operations as planned.”

Woodside Energy boss Meg O'Neill. Picture: Nikki Short/NCA NewsWire

The required repairs had not been expected, and work on the project had been progressing well. Woodside said the overall project was 88 per cent complete as of June 30.

Woodside said the delays in first production would not impact the company’s output guidance for 2023, and shares in the oil and gas giant were little changed as a result.

Citigroup said Woodside has briefed the market that it is uncertain about the severity of the repairs needed, but it had given itself enough wriggle room to ensure no further delays.

“Woodside remains uncertain on the extent of remediation work required or the time taken to conduct repairs,” Citigroup wrote in a note to clients.

“However, the company believes that the top end of the capex guidance range and the broad “mid’ 2024 guidance cover the downside case for remediation; as such, we think this is likely the one and only downgrade from a project execution perspective.”

Sangomar is one of Woodside’s growth projects as it looks to grow its oil and gas production in emerging markets and Western Australia while also stepping up efforts to start producing hydrogen.

In June, Woodside said it had decided to proceed with the $US7.2bn deep water oil project in the Gulf of Mexico, which it expects to begin production in 2028. Woodside said the final investment decision on Trion, of which it said its share would cost $US4.8bn, made financial sense because it has such large oil reserves, delivering lucrative returns for shareholders. Woodside said the project will deliver a rate of return of more than 16 per cent and the payback period will be less than four years.

Woodside has been looking to sell down its stake in July 2021. Senegal’s national oil company Petrosen holds 18 per cent, and Woodside said interest in acquiring a stake in the oil project had increased since Russia’s invasion of Ukraine.

Sangomar will produce sour crude similar to Russia’s Urals crude, which European refiners use.

Woodside has drawn the ire of environmentalists, however, for its commitment to expanding fossil fuel production. Woodside has said gas will be a critical enabler for the energy transitioning, buying the word sufficient time to develop enough renewables to replace traditional generation types.

Originally published as Woodside’s Sangomar project suffers cost blow outs and delays