Energy projects put on ice as oil slump hits hard
Woodside has frozen investment decisions on $53bn of LNG growth projects in WA while Oil Search cut jobs.
Woodside Petroleum has frozen investment decisions on $53bn of LNG growth projects in Western Australia while Oil Search cut jobs and slashed executive pay as the oil price crash roiled the nation’s top energy producers.
The Perth-based producer will delay sanctioning the $US11.4bn offshore Scarborough field and a planned expansion of its Pluto gas plant along with its $US20.5bn Browse development.
The deferral of the two giant projects means Australia may lose its tag as the world’s biggest LNG producer, with Middle East rival Qatar now likely to win back the crown as it expands its own gas export plants.
Job cuts across the industry are starting to mount. After Woodside slashed more than 500 jobs from its WA operations, Oil Search laid off 100 staff in Sydney and its Alaskan operations. Santos and Chevron are also expected to shed positions as they review costs. An expected hiring spree by contractors to build Scarborough, Pluto and Browse is also now effectively on ice.
“These are extraordinary and challenging times for us and a few months ago no one could have really foreseen these circumstances,” Woodside chief executive Peter Coleman told investors.
The 60 per cent plunge in crude prices this year is also being felt among gas producers on the nation’s east coast.
Explosives maker Incitec Pivot and junior Central Petroleum paused a coal-seam gas project in Queensland’s Surat Basin on Friday, citing the COVID-19 pandemic and disruptions to global oil and gas markets, while Origin Energy delayed its giant Beetaloo Basin gas project. Beach Energy cut its earnings guidance by 8 per cent for 2020 and will slash nearly a third of its spending next year.
For Woodside, a final investment decision on Scarborough and Pluto train 2 is now set for 2021, from a June target, while no timeline has been set for sanctioning Browse.
Spending in 2020 will be cut by 50 per cent to $US2.4bn, with a 60 per cent reduction in investment to $US1.7bn-$US1.9bn and operating expenditure trimmed by $US100m.
“This is a larger cut than other Australian peers (circa 40 per cent) and is greater than our expectations,” Bernstein analysts said. “Woodside will survive this downturn and has upside to a long-term recovery in commodity prices.” Woodside said it had “ample headroom” on its debt covenants, which are now at risk under current market conditions, with cash on hand of $US4.9bn, liquidity of $US7.9bn and gearing of 13.8 per cent.
LNG prices typically take up to three months to reflect changes in crude pricing, meaning producers like Woodside will likely see a hit in the second quarter of 2020.
Woodside shares fell 6.44 per cent to $16.84 on Friday and have shed 51 per cent of their value this year.
Adding to the gloomy picture for the sector, Oil Search cut 100 jobs, with its board and top executives taking a 20 per cent pay cut as the number of redundancies grew across Australia’s energy industry due to the oil price crash.
Jobs will be shed at its head office in Sydney and Anchorage operations in Alaska due to a reduction in work programs and the uncertain oil price outlook.
“This has been a very difficult decision to make, particularly given current global circumstances. We have treated our team members with respect and will continue to offer them support through the hard times ahead,” Oil Search managing director Keiran Wulff said.
The company is reviewing further measures to lower corporate and operating costs in a bid to lower its break-even price.
Oil Search slashed its spending last week by 40 per cent in a bid to conserve cash after warning of “unprecedented times” in markets.
The Sydney producer, reeling from a 70 per cent plunge in its share price since January, suspended a sale of its Alaskan oil project and will dramatically cut costs amid investor concern over its ability to handle a hefty debt burden.
Oil Search shares dropped 3.3 per cent to $2.35 on Friday, Santos dived 10 per cent to $3.41 while Beach fell 5 per cent to $1.04.