Implications for Woodside Scarborough project thanks to court’s ruling against Santos
Woodside Energy’s $16.5bn Scarborough gas development off Western Australia faces delays thanks to the implications of an Indigenous man’s court win against Santos in the NT.
Woodside Energy has conceded its $16.5bn Scarborough gas development off the West Australian coast faces delays as the fallout from a court ruling against Santos in the Northern Territory ripples across the industry.
Tiwi Island traditional owner Dennis Tipakalippa won a Federal Court case in September that found Santos failed to consult traditional owners for its Barossa project in the NT.
He had sued the national environmental watchdog over its approval of the offshore drilling plans.
That decision has effectively meant the offshore regulator has stopped approving environmental plans – a move which has now raised concern over slower progress at Scarborough, according to Woodside, with delays in receiving environmental plan sign-off.
“It is worrying. We are concerned about the uncertainty that the court case has created,” Woodside chief executive Meg O’Neill told media after its annual investor day on Thursday.
“That said, we are working very closely with the regulator, and the government to understand what exactly do we need to do to meet their expectations.
“So we’re at a point in time now where approvals are not a critical path. We intend to keep it that way.”
A decision on Santos’ appeal in the case is expected to be handed down by the Federal Court on Friday. If the ruling is upheld, it is expected all environmental plans would need to go through a much tougher consultation process, hitting both Australia’s offshore oil and gas players and the nation’s nascent offshore wind industry.
The National Offshore Petroleum Safety and Environmental Management Authority told a Senate hearing in November that it was now required to apply a far broader definition of “relevant persons” since the Barossa decision.
A NOPSEMA spokesman said the Santos court ruling currently represents the law for consultation with relevant persons under environmental regulations.
“Titleholders have been advised that Justice Bromberg’s decision applies to all environmental plans under assessment at the time of the judgement was made, irrespective of when the EPs were submitted,” the spokesman said.
It revealed it had issued 43 decision notices since the court judgment on environment plans under assessment, requiring companies to consult in line with the court decision.
“That’s obviously a very large amount of consultation, and that’s what we’ve been applying since the decision,” the authority told the Senate.
Santos has suspended drilling activities at the site, 140km north of the Tiwi Islands, pending a favourable appeal or the approval of a fresh environmental plan.
Credit Suisse says if Santos loses an appeal, then a fresh environment plan could take between five and 18 months, as the authority would review the plan afresh across the entire project.
“This appears the purpose of the litigation by environmental activists: to set precedents that delay projects on technical grounds and make the investment climate increasingly hostile to develop gas projects,” Credit Suisse analyst Saul Kavonic said on Thursday.
“These litigation tactics are a frustration for the gas industry and its stakeholders and workers, but on other hand are lauded by many environmentalists who would prefer no new gas projects are developed.”
Woodside set a 4 per cent annual growth rate target from 2023 to 2027 and forecast the fastest investment payback from its mainstay oil and gas business while expecting ongoing volatility from high energy prices.
The producer disappointed the market this week with a lower-than-expected production guidance for 2023 but said on Thursday production growth through to 2027 would be driven by its Sangomar oil project in Senegal and Scarborough development.
Oil will deliver an internal rate of return at 15 per cent and payback within five years, gas at 12 per cent with a return at seven years while the emerging new energy unit – which includes hydrogen and ammonia – is further back with a 10 per cent return over a decade-long payback.
Ms O’Neill said volatility in the market was likely to remain for some time.
“The global energy transition can take many different pathways, including those that require strong demand for natural gas, particularly as the world phases down coal. But what the last two years have demonstrated is that the energy transition is unlikely to be a smooth, linear progression,” she said.
Woodside said a selldown process for its Scarborough project is ongoing while a final investment decision on its $US5bn ($7.4bn) Trion oil discovery in the Gulf of Mexico will be made in 2023.
The company’s proposed selldown of Scarborough has been a stop-start process over the last two years. Its $40bn merger with BHP Petroleum eased some financial pressure to strike a deal and in August Woodside said it was cautious on a long-held desire to sell half of its Scarborough gas project saying it would not engage in a fire sale of any stake.
Ms O’Neill has visited Mexico this year and the company confirmed a decision would be made on the 100,000 barrel a day Trion oil project in 2023, after its decision in July to delay plans for a go-ahead this year amid rising costs for developments globally.
Woodside said it had mitigated some risks around project. “Inflation and supply chain pressures are currently affecting all parts of our industry. We’ve been able to mitigate some of these through our contracting strategies, and we continue to work with our contractors to minimise any impacts on Sangomar,” said Woodside’s executive vice president for projects Matthew Ridolfi.
Woodside shares fell 1.7 per, or 64c, to close at $36.65.
