Woodside to take hit of up to $77m after axing Kitimat LNG project
Woodside’s dumping of its Kitimat LNG project in Canada, a year after a giant writedown, could cut profit by up to $77m.
Woodside Petroleum has axed its Kitimat LNG project in Canada, a year after taking a giant writedown on the troubled project, with its decision expected to cut up to $US60m ($77m) from 2021 net profit after tax.
The Perth producer’s former boss Peter Coleman bought its 50 per cent, non-operated stake in Kitimat after sealing a $4.5bn deal with US-based Apache Corporation in December 2014 which also gave it a share of Chevron’s Wheatstone LNG project.
The original vision for Kitimat LNG was to run three LNG trains totalling 18m tonnes of annual output, making it a larger project than either Woodside’s North West Shelf or Chevron’s Gorgon LNG plants in Western Australia.
But depressed gas market conditions on the country‘s west coast and the decision by its partner, Chevron, to exit and cease funding the proposed facility signalled the end of the project. Woodside will now focus on higher value developments: Scarborough in Australia and its Senegal venture.
“Following Chevron’s decision to exit KLNG and subsequent decision in March 2021 to cease funding further feasibility work, Woodside undertook a comprehensive review of our options for the project and our wider development portfolio,” Woodside acting chief executive Meg O‘Neill said.
“The Kitimat LNG proposal was designed to develop a new source of LNG to supply Asian markets in the latter part of this decade. However, we have decided to prioritise the allocation of capital to opportunities that will deliver nearer-term shareholder value.
Woodside‘s decision to exit Kitimat is expected to hit 2021 net profit after tax by $US40-60m. The costs will be excluded from underlying net profit for the purposes of calculating the dividend for shareholders.
The producer had already suffered a $US720m writedown on Kitimat in February 2020 after its partner Chevron took a $US1.6bn writedown on the project in the same month.
Mr Coleman maintained at the time it was a world-class project, although Chevron said it saw better investments in other parts of its global portfolio with the stake seen of higher value to another company.
Woodside said it was now focused on a targeted final investment decision for the Scarborough LNG development in Western Australia by the second half of 2021 and progressing its Sangomar oil project off Senegal.
The Canada exit will include the divestment or wind-up and restoration of assets, leases and agreements covering the 480 km Pacific Trail Pipeline route and the site for the proposed LNG facility at Bish Cove.
Woodside will retain a position in Canada‘s Liard Basin upstream gas resource which could include gas, ammonia and hydrogen options in the future.
Ms O’Neill is pitching to win the top job on a permanent basis as it hunts to replace long-serving boss Peter Coleman.
The LNG producer’s search for a new CEO took an unusual twist in April with chairman Richard Goyder calling time on Mr Coleman’s reign, appointing Ms O’Neill in an acting role while still searching for a permanent replacement.
External candidates being considered include Shell’s Zoe Yujnovich and BHP’s Geraldine Slattery.
Ms O’Neill, previously Woodside’s executive VP development and marketing, has already signalled a cultural shake-up at the nation’s biggest oil and gas producer after axing a policy that barred most staff from accessing top executive floors at the company’s Perth headquarters.
Woodside increased the budget by $US500m on its Sangomar oil project in Senegal to $US4.6bn after completing a cost and schedule review.
The offshore development, operated by Woodside, would be the first oil project in the West African country and is targeting production of 100,000 barrels a day of oil in 2023.
Woodside is also targeting the green light for its $16bn Scarborough and Pluto expansion gas project in the second half of 2021 and is watching industry inflation issues, ahead of finalising costs for the Pluto Train 2 expansion within the June quarter.