Woodside watching Fortescue Metals Iron Bridge cost blowout

Woodside Petroleum concerned resources inflation could hit big gas projects as the LNG producer warned of higher costs for offshore drilling.

Woodside CEO Peter Coleman. (AAP Image/Daniel Munoz)

Fortescue Metals Group’s budget blowout on its Iron Bridge mining project in West Australia’s Pilbara is being closely watched by Woodside Petroleum amid concerns resources inflation could hit big gas projects as the LNG producer warned of higher costs for offshore drilling.

The mining giant flagged a $US400m blowout in the likely cost of its Iron Bridge magnetite project in the Pilbara, along with a delay of up to six months in delivering first production.

Woodside is targeting the green light for its $16bn Scarborough and Pluto expansion gas project in the second half of 2021 and said it was watching miners’ cost issues.

“We’ve seen things happening up in the Pilbara with other projects and so forth outside of the oil and gas industry and we’re watching that very closely also to ensure that some of those impacts don’t come across to Pluto train 2 execution,” Woodside chief executive Peter Coleman told analysts after its annual results.

The LNG producer said it does expect a cost jump in WA offshore drilling.

“We believe in that 2023-24 timeframe - particularly in offshore drilling - there is an increased likelihood of price increases in the double digits as we see drilling rigs continue to be cold stacked and scrapped,” Mr Coleman said, referring to the process of shutting down rigs offshore.

Woodside said it had yet to see any cost hit in the construction market yet given the lack of rival LNG projects proceeding in the last year and spare capacity among contractors on the hunt for new work.