Woodside facing tax risk on Browse and Scarborough LNG, says Macquarie
Tax changes could cloud the profitability of Woodside’s WA gas projects and spook its partners, Macquarie says.
More potential changes to the petroleum resource rent tax could further erode the economics of Woodside Petroleum’s Scarborough and Browse LNG developments.
The recent change in the tax treatment of exploration deductions, coupled with an ongoing review of the gas prices companies use in their LNG projects, could increase the taxes paid by the sector, Macquarie analyst Hayden Bairstow wrote in a note to clients on Friday.
The government’s review stated that “current legislation likely undervalues gas that is used in vertically integrated LNG”, Mr Bairstow said in the note.
“The review could have material negative earnings and valuation impact,” he wrote.
Woodside is nearing investment decisions on the multi-billion dollar Scarborough and Browse projects, but has faced persistent questions over whether they are strong enough to secure support from its joint venture partners.
Any negative tax changes would hurt the forecast profitability of those developments and would make it even harder to win approval from those partners.
The “concentration of offshore Australia assets in its portfolio, in addition to the Scarborough and Browse projects currently being pre-FEED, exposes Woodside to a potentially higher tax regime post the gas transfer pricing review,” Mr Bairstow wrote.
He also noted that changes to the treatment of gas transfer prices could hurt the value of Woodside’s stakes in the existing Wheatstone and Pluto LNG projects.
The potential changes come at a time when spot LNG prices are already under pressure.
“Near-term earnings risks remain given weak energy prices, with a spot price scenario generating around 10 per cent downside risk to our base case estimates,” Mr Bairstow said.