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Woodside hit by giant $6.3bn loss amid oil crash

Woodside has booked giant writedowns on its projects after a crash in oil and gas prices.

Woodside Petroleum - LNG Container ship with helicopter hovering over landing area onboard.
Woodside Petroleum - LNG Container ship with helicopter hovering over landing area onboard.

Woodside Petroleum has been stung by a $US4.37bn ($6.3bn) post tax loss after a crash in oil and gas prices sparked it into a giant writedown along with a sizeable hit from an unfavourable US LNG offtake deal.

The Perth-based producer said the non-cash impairment of $US3.92bn was split between a $US2.76bn charge for oil and gas projects with the $US1.16bn balance due to exploration and evaluation assets.

An extra $US447m charge will be recorded in its half-year results for the Corpus Christi LNG sale and purchase agreement signed in 2015 with a subsidiary of US LNG export player Cheniere Energy.

Some 80 per cent of the oil and gas project losses was due to “the significant and immediate reduction in oil and natural gas prices assumed up to 2025, impacting Woodside’s products in the prevailing economic climate,” Woodside said in a statement to the ASX after market close on Tuesday.

“Additional contributors are increased longer term demand uncertainty impacted by the COVID-19 pandemic and macroeconomic dynamics, and increased risk of higher carbon pricing.”

The writedown follows rival Oil Search which on Monday divulged an expected impairment of up to $575m on its Papua New Guinea assets amid expectations that other Australian energy producers will also be forced into a hit following the steep fall in crude prices.

Auditors may struggle to justify signing off company accounts on June 30 which continue to project prices well over double current levels, according to industry sources, which could spell major impairments either for the industry at interim or year-end reporting dates.

Woodside now expects Brent oil to average $US35 a barrel in the second half of 2020, $US44 in 2021 and $US55 in 2022. It then forecasts prices of $US58 in 2023, $US62 in 2024 and $US65 in 2025.

Still, Woodside said it would look at growth opportunities with the WA producer seen in pole position to acquire Chevron’s 16.6 per cent stake in Australia’s biggest LNG plant, the North West Shelf.

“The unique confluence of events that has unfolded through 2020 will challenge all participants in the global energy sector and we expect to see adjustment of capital allocation priorities by other asset owners as the cycle plays out,” Woodside chief executive Peter Coleman said.

“Woodside’s disciplined approach to financial management gives us options to pursue inorganic growth opportunities as and when they emerge, at the same time supporting our strategy to develop the Scarborough and Browse gas resources located offshore Western Australia through our proposed Burrup Hub when the time is right.”

Woodside has brought forward its second quarter production report by 24 hours to Wednesday and will hold an investor call on Wednesday morning to discuss the charges.

Australian oil and gas producers have for months been tipped to follow global majors in suffering writedowns due to lower oil and gas prices, Macquarie warned on June 30.

The nation‘s top producers have typically used $US70-75 a barrel for impairment testing purposes compared with Brent crude which is trading at $US42 currently, following several months in sub-$US30 territory earlier this year.

LNG, which typically take three months to reflect any movement in crude prices, have also been trading at record lows in Asia amid a supply glut and uncertain demand from the COVID-19 pandemic.

BP took a writedown of as much as $US17.5bn in June after cutting its oil price assumptions by 30 per cent out to 2050 while in Australia Shell and PetroChina‘s Arrow Energy took a $520m impairment on their gas business. Shell on June 30 said several of its high profile Australian gas projects were to blame for a massive $US8bn to $US9bn writedown triggered by lower prices amid a COVID-19 demand shock.

The energy major — one of Australia’s biggest gas producers and foreign investors — will take an impairment of up to $US22bn on its global assets.

Futures markets now indicate a long-run price of under $US50 a barrel out until 2023 compared with Woodside Petroleum’s $US68 a barrel forecast in 2022 and Santos $US72 a barrel price.

Capitalised oil and gas assets total $52bn among the Big Australian producers Woodside, Santos, Oil Search and Beach Energy, industry analysis shows, while exploration and evaluation assets total more than $12bn for the same four companies.

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.

Macquarie lowered its 2020 oil price forecast to $US43.75 and its 2021 estimate to $US49.50 with a long-term Brent price unchanged at $US56 a barrel.

Read related topics:Energy
Perry Williams
Perry WilliamsBusiness Editor

Perry Williams is The Australian’s Business Editor. He was previously a senior reporter covering energy and has also worked at Bloomberg and the Australian Financial Review as resources editor and deputy companies editor.

Original URL: https://www.theaustralian.com.au/business/mining-energy/woodside-hit-by-giant-63bn-loss-amid-oil-crash/news-story/e0885689d010e4faa44b628e1eee474c