Woodside may boost size of Scarborough gas project
Woodside looks to lift capacity at its Scarborough project as it plots the next leg of LNG growth amid a tough market.
Woodside Petroleum may boost the size of its Scarborough gas project in Western Australia as it looks to deliver the next leg of LNG growth in a tough energy market.
The Perth producer, which saw its revenues plunge in the third quarter due to lower oil and gas prices, said it had progressed studies to increase capacity at Scarborough by 20 per cent to 8 million tonnes of LNG from 6.5 million tonnes originally. Some 5 million tonnes will underpin the second train of Pluto LNG, with up to 1.5 million tonnes potentially supplying the North West Shelf project and the balance filling the existing Pluto Train 1 plant.
A final investment decision on the deferred Scarborough is targeted for the second half of 2021.
Woodside in March delayed its major LNG projects Scarborough and Browse, worth a combined $US32bn ($44bn), and halved its 2020 spending to protect the company against a savage fall in oil prices and fallout from the coronavirus pandemic.
“This has been a silver lining in a very challenging year in giving us time to go back and really look to further optimise the development contracts,” Woodside chief financial officer Sherry Duhe said in reference to Scarborough.
Woodside had planned to process gas from its remote Scarborough field to prop up an expansion of its Pluto LNG project with gas from the long-delayed Browse field to fill the NW Shelf plant.
However, this year’s oil price crash has forced Woodside to delay both Scarborough and Browse, with some investors now making the case for Scarborough gas to help fill NW Shelf given the looming available capacity.
Still, Woodside has noted longstanding issues among NW Shelf partners to get a separate gas processing deal for Browse and does not see the same solution for Scarborough as an easy fix.
Third-quarter sales revenue dropped 42 per cent in the September quarter to $US699m, falling short of a $US776m forecast from RBC. Income fell 9 per cent compared to the June quarter. Production rose 2 per cent to 25.3 million barrels of oil equivalent, beating a 24.5 million forecast from RBC.
Rival Santos also reported on Thursday with record production in its fiscal third quarter while cutting its full-year cost guidance.
Santos produced 25.1 million boe in the three months through September, up 22 per cent on the second quarter. Sales revenue rose to $US797m from $US785m in the prior quarter while it trimmed FY20 guidance for upstream unit costs to $US8.25-$US8.75 per barrel of oil equivalent. It previously anticipated a $US8.50-$US8.90 range.
LNG prices typically have a three-month lag before reflecting changes to crude oil in contracts, meaning record low prices earlier this year will be felt during producers’ third quarter results, RBC noted.
“Woodside had significantly weaker LNG pricing in 2Q 2020 compared to peers due to its elevated spot LNG price exposure at about 50 per cent,” RBC analyst Gordon Ramsay said.
“While this spot exposure has unwound over 3Q to represent 26 per cent of the LNG produced sold as spot, the JCC (lagged three months) oil benchmark used for pricing contractual sales collapsed in 3Q to $US31/bbl (2Q: $US68/bbl). This quarter is viewed as the low point in LNG pricing, with a recovery expected to flow through in 4Q and 1Q21.”
Woodside noted the LNG market had since rebounded after forecasters predicted a harsh winter ahead for Asia.
The WA company cut 300 jobs or 8 per cent of its workforce earlier in October.
The LNG giant also stood down 500 contractors from its North West Shelf and Pluto LNG plants in WA in March.