Woodside downgrades Pluto gas reserves estimates
Woodside has cut its proven and probable reserves at Pluto, just weeks after surprising the market with a downgrade at Wheatstone.
Woodside Petroleum cut its oil and gas reserves for its Greater Pluto fields offshore Western Australia just weeks after surprising the market with a major downgrade of its minority reserves at the Wheatstone project.
The Perth-based producer, negotiating a $40bn merger with BHP Petroleum, said proven and probable or 2P reserves had dropped 10 per cent to 394m barrels of oil equivalent from its 2020 reserves statement following a seismic survey. Taking into account year to date production of 38m boe, Woodside’s equity share of the fields equates to 356m boe available.
Woodside’s downgrade could cut up to 80c a share from the company’s valuation and had shaved a year off the Pluto fields’ life, Credit Suisse said. The company surprised the market at its quarterly on October 21 after disclosing its share of 2P reserves - which provide 20 per cent of gas to the Chevron-owned Wheatstone LNG - had plunged 27 per cent to 168m boe.
“Pluto reserves life is now eight years from today based on 2021 production vs prior nine years, although its life extends to 11 years after factoring Scarborough blend to Train 1,” Credit Suisse analyst Saul Kavonic said, referring to plans for gas from the yet to be sanctioned Scarborough project to feed Pluto Train 1.
“We see further risk in the 2030s regarding the source of LPG’s to run Pluto Train 1 once Pluto resource ends (Scarborough gas not having sufficient liquids to run the T1 technology).”
Still, the downgrade is not expected to change Woodside’s 52 per cent ratio for the BHP Petroleum merger.
“We expect BHP would have done their own work during due diligence and understood this risk, so don‘t expect any impetus for a change to merger ratio, although we note the implication that BHP Petroleum may be lower value than originally thought too,” Mr Kavonic said.
Citi agreed a change in the merger terms with BHP were unlikely.
“Compared to their 2P reserves position at the end of CY20, the downgrades represents a combined ~9 per cent of Woodside’s total 2P reserves position,” Citi analyst Daniel Levy said. “Despite the 9 per cent downgrade to reserves, we see it as unlikely that a facility for reviewing the merger ratio was included in the upcoming merger/transaction, which we expect remains unchanged.”
Equity markets focus on the 2P reserves estimate, with 2P referring to a 50 per cent possibility of oil and gas being commercially recoverable.
Woodside also lifted reserves in the proven or 1P category – those with a 90 per cent chance of being recovered – by 10 per cent to 317m boe.
Chief executive Meg O‘Neill said Pluto remained a significant resource.
“We are continually reviewing and optimising the efficient development of this long-life asset based on improved reservoir data.”
The company is poised to make further job cuts as part of an ongoing restructure and will broaden a cost savings target across the merged business should its mega deal with BHP proceed.
A share sale agreement and integration contract for the tie-up is expected in November ahead of targeted completion in the second quarter of 2022.
The merger terms suggest the pair will make a final investment decision on the $16bn Scarborough gas project by December 15, with the two agreeing BHP will sell its interest in the gas field to Woodside if a tie-up does not go ahead.
Woodside has also agreed to form a consortium to progress feasibility studies for a large-scale carbon capture and storage project near Karratha in WA with BP, Mitsubishi and Mitsui.
Woodside fell 1.8 per cent to $22.58 while BHP rose 0.2 per cent to $36.09.