Woodside delays Scarborough, Browse LNG projects in $50bn move
Two of the biggest LNG projects in the country, worth a combined $53bn, are set to be delayed, potentially costing Australia its global LNG crown.
Woodside Petroleum will delay its major LNG projects Scarborough and Browse worth a combined $US32bn ($53bn) and slash its 2020 spending in half to protect the company against a savage fall in oil prices and fallout from the coronavirus pandemic.
The Perth-based producer said investment decisions would be deferred on its $US11.4bn offshore Scarborough field and a planned expansion of its Pluto gas plant along with its $US20.5bn Browse development.
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.
The aannouncement came as rival energy group Beach announced plans to slash nearly a third of its spending next year.
All of Australia’s biggest energy producers including Woodside, Oil Search and Santos have now cut spending and deferred projects after crude plunged by more than half this year.
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 likely to win back the crown as it expands its own gas export plants.
Woodside’s spending in 2020 will be cut by 50 per cent to $US2.4bn with a 60 per cent reduction in investment to $US1.7bn to $US1.9bn and operating expenditure trimmed by $US100m.
“The unprecedented circumstances that have unfolded globally over recent weeks are impacting our people, our business and our industry,” Woodside chief executive Peter Coleman said.
“We are also responding to the lower, more volatile oil price environment by taking difficult but prudent decisions to reduce our expenditure for this year and to delay targeted final investment decisions on our growth projects at Scarborough, Pluto Train 2 and Browse.
“These are extraordinary times, that no one could have foreseen, but Woodside enters this period of significant uncertainty with one of the stronger balance sheets in our industry and world-class, low-cost producing assets, which are resilient to commodity price fluctuations.”
Woodside’s $US4.3bn Senegal oil venture will also be reviewed to cut costs and near term spend.
Oil prices have plunged by more than half to just $US27 a barrel as global demand plummets from the coronavirus lockdown and a fresh supply spat between Opec and Russia which has inflated supply.
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.
Still, to protect against oil volatility Woodside said it had hedged 11.85m barrels of oil between April and December at an average price of $US33.47 a barrel. It’s also fixed 2.4m barrels of oil equivalent of LNG production over the same period to provide revenue certainty.
Its production remains unchanged at 97 to 103m boe.
Beach slashes guidance
Meanwhile Woodside rival Beach Energy has cut its earnings guidance by 8 per cent for 2020 and will slash nearly a third of its spending next year.
Underlying earnings for the 2020 financial year are expected to fall 8 per cent to $1.175bn to $1.25bn from the midpoint of a prior range of $1.275bn to $1.35bn due to lower oil prices.
The new guidance range is based on a Brent oil price of $US30 a barrel from March until June and an Australian dollar at US60c and a realised oil price of $100 a barrel in January and February.
“To ensure we are in the best possible position, we are taking steps to defer or minimise some near-term discretionary capital expenditure,” Beach chief executive Matt Kay said. “This is consistent with our mantra of conservatism and maintaining financial strength, as evidenced by our $151m net cash position at the end of February.”
Beach, controlled by billionaire Kerry Stokes, said growth investment for 2021 will be slashed by 30 per cent from earlier estimates by deferring drilling and development activity or where it sees risks due to coronavirus travel restrictions.
The company has $151m of net cash at the end of February with access to $600m in liquidity via a $450m revolving credit facility.
Some 97 per cent of its east coast gas sales in the 2020 and 2021 financial years is expected to be sold under long-term deals with less than a quarter of volumes linked to oil prices.
Beach is also reviewing its five-year outlook following the oil price plunge with details to be issued after its annual results in August.
Beach has held up better than some of its peers although its shares have still sunk 56 per cent this year.
More Coverage
