Shell takes giant $US1.3bn pre-tax writedown on Prelude floating LNG plant
Massive pre-tax writedown on troubled $US12bn Prelude floating LNG plant raises concern over the long-term prospects.
Energy powerhouse Shell has taken a giant $US1.3bn ($1.88bn) pre-tax writedown in the third quarter on its troubled $US12bn Prelude floating LNG plant offshore northern Australia, raising concern over the long-term prospects for the plant.
The energy major — one of Australia’s biggest gas producers and foreign investors — made the impairment call after its decision to postpone bringing Prelude back to full production until 2021 as it battles to fix technical problems that have kept it offline since February.
A move by Shell and Kerry Stokes’ Seven Group to delay sanctioning the jointly owned Crux field this year, which had been lined up to supply gas to Prelude, also contributed amid a torrid year for producers reeling from volatile oil markets due to COVID-19.
“This does cast a shadow over floating LNG. While it’s not unexpected, it is a disappointment,” said Graeme Bethune, chief executive of consultancy EnergyQuest. “There were very high hopes held for floating LNG with Shell planning to roll out a number of these from ship-yards in South Korea.”
Prelude was touted by Shell as the first of a revolutionary line of projects to unlock stranded gas resources previously considered too remote to support development of conventional land-based LNG plants.
The floating LNG vessel started delivering supplies from the Prelude gas field, 475km north-northeast of Broome, in June 2019.
However, the plant had yet to get anywhere near its full 3.6m tonne a year capacity when a number of safety incidents unfolded in December and January, which were probed by the National Offshore Petroleum Safety and Environmental Management Authority.
Just two cargoes were shipped in January before operations were suspended due to the failure of back-up diesel power generation, EnergyQuest said.
“This impairment reflects third-quarter updates to the production plan, including a revised outlook on near to medium-term availability as well as an updated view on backfill opportunities,” Shell said in a statement on Thursday. The Prelude impairment was $US1.327bn on a pre-tax basis or $US929m post-tax.
Shell had already taken a $US8.2bn writedown for its integrated gas unit, with the Prelude impairment taking total impairments for the division to $US9.13bn for the first nine months of the financial year.
“It indicated some disappointment with the Prelude field as well,” Mr Bethune said. “There have always been questions about whether the Prelude field was big enough and would it need to be backfilled.”
Japan’s Inpex, which owns a 17.5 per cent stake in Prelude, took a $1.7bn writedown on Prelude in August as concerns mounted the development may not restart production again this year due to ongoing technical problems plaguing the facility.
Australian oil and gas producers have already embarked on billions of dollars of cost cutting this year in response to the oil rout, with $60bn of LNG growth projects deferred and more than 2000 jobs lost.
Australia’s LNG sector has blown up more than $20bn in writedowns after French energy giant Total took a $US800m hit, sparking concern high construction costs and a lower oil price outlook may derail spending needed for a next wave of investment.
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