Woodside gas yields bolstered

Woodside Petroleum has significantly boosted gas resources at its Scarborough field off Western Australia.

An LNG tanker is loaded at Woodside’s Pluto onshore gas plant in Western Australia.

Woodside Petroleum has significantly boosted gas resources at its Scarborough field off Western Australia, strengthening both the investment case for its $16bn Pluto LNG expansion and the hunt for an equity partner to join the project.

The Perth-based producer lifted resource volumes by 52 per cent to 11.1 trillion cubic feet of gas after reprocessing existing seismic surveys, underlining the economics of transporting gas from the remote field via a 430km pipeline to a second Pluto LNG train.

The extra gas could also be used to top up the nearby North West Shelf plant which will need extra supplies and is operated by Woodside.

“The materially larger Scarborough resource may also bring into consideration NW Shelf as a venue for some Scarborough resource,” RBC analyst Ben Wilson said on Friday.

The timing of the upgrade will help to ease some investor unease over Woodside’s ability to pull off its ambitious Burrup hub concept.

Investment decisions are due over the next 18 months on Scarborough and the linked Pluto 2 plant and its long-delayed Browse development as it looks to help fill a global LNG supply gap seen emerging by 2024 or 2025.

A call on sanctioning Scarborough is due in the first half of 2020 with Browse to follow in the first six months of 2021. Woodside has previously warned Browse may be leapfrogged by rival suppliers to meet a forecast LNG demand “window” from about 2024 should a deal not be sealed soon.

Woodside plans to divest a third of its 75 per cent stake in Scarborough and up to half of its Pluto train 2 project where it currently controls the entire 100 per cent equity component.

Saudi Aramco along with Kogas, Osaka Gas and Chinese buyers may be looking at the Scarborough stake, according to Credit Suisse, while existing joint-venture owner BHP will also make a decision on its holding before year-end with the option to boost its stake to 35 per cent from 25 per cent. BHP signalled its support for the project following Woodside’s announcement.

“BHP is committed to Scarborough and welcomes Woodside’s announcement on the revised resource certification. We are working through the new data and anticipate completion of our analysis in the first quarter of 2020. We continue to work closely with Woodside to advance the project,” a BHP spokesperson said.

Woodside will likely sanction the Scarborough development although may still have to make some concessions, RBC told clients. “We expect progression to a Scarborough final investment decision in 2020 through Woodside accepting a lower level of contract cover of around 50 per cent versus its preferred 80 per cent,” Mr Wilson said. “We estimate an internal rate of return on Scarborough in the low double digits based on a 12 per cent slope.”

Woodside described Scarborough as a world-class project.

“By unlocking the huge potential of the Scarborough gas resource we’ve strengthened the case for development and extended the expected cashflow from Scarborough for years,” Woodside’s Peter Coleman said. “This resource upgrade further improves Scarborough’s existing value proposition as we target the delivery of a new, globally competitive LNG project from 2024.”

Woodside rose 2 per cent to $33.63.