Woodside hit by Scarborough cost hike

The cost of developing Scarborough has jumped to $US12.5bn as the WA producer battles to bring on first supplies in 2026.

Woodside Energy LNG vessel. Picture: Supplied

Woodside Energy has revealed a $US500m ($753m) cost hike at its Scarborough LNG project in Western Australia, with analysts predicting further budget pressure as the producer works to bring on first gas by 2026.

The cost of developing Scarborough has lifted to $US12.5bn from the previous $US12bn estimate, a 4 per cent increase, with Woodside’s share now at $US8.2bn.

The WA producer blamed “scope maturation” of the Pluto Train 1 project that will take gas from the offshore field and process it for export.

The market should brace for a further $US500m cost hit, Citi analyst James Byrne said.

“Scarborough capex guidance has increased 4 per cent to $US12.5bn gross, but remains on track for 2026. This is consistent with our view of $US1bn total cost overruns by first gas, but schedule being maintained. Given the track record of major LNG project delivery, we don’t expect this to be the last downgrade,” said Mr Byrne.

Woodside in 2021 lifted the budget by 5 per cent to $US12bn after changing the scope of the project to reflect higher offshore production to be processed through an expanded Pluto LNG plant near Karratha.

“Aside from cost and schedule, we continue to look for updates on Scarborough drilling where placement of the wells is a key challenge, risking output and/or timing of infill drilling,” Mr Byrne said.

Woodside Energy LNG vessel. Picture: Supplied

Woodside said it remains open to exploring further acquisitions, despite announcing a major purchase in the US, as the Australian company commits to its strategy of bolstering supplies amid a global rush for gas.

The group on Monday announced US LNG company Tellurian in a deal worth $US1.2bn ($1.79bn), which the company said would bolster its ambition of being able to meet global demand.

Tellurian is developing a LNG processing facility in the US, and should Woodside proceed with the development – analysts said it could cost in the region of $US10bn for the first stage and another $US5bn for stage two. Woodside has said it could elect to sell equity in Driftwood, and had already received interest from some parties.

The development, which still requires a final investment decision from Woodside once the deal is complete, will stretch the patience of some investors who are pushing for the Australian energy giant to prioritise immediate returns.

But Woodside’s chief executive Meg O’Neill said the company will consider more acquisitions if a deal stacks up.

“We’re always looking for opportunities to ensure that we deliver on that strategy. The Tellurian acquisition is an important element and gives us the opportunity to invest in LNG growth in the Atlantic basin,” Ms O’Neill told The Australian.

“We’ll keep looking at other ways to grow our business consistent with our strategy, including both organic and inorganic opportunities.”

The Tellurian purchase will drastically expand Woodside’s footprint. Tellurian’s Driftwood LNG ­facility in Louisiana had the ­capacity to export 27.6 million tonnes a year, almost three times Woodside’s output from its Australian projects, analysts said.

While the deal will allow Woodside to tap European demand – fulfilling Ms O’Neill’s plan to make the company a global player in the LNG trade, she said the company remains underrepresented in the Atlantic Basin – hinting that the company remains interested in more acquisitions in the region.

“We’ve always had a very strong position in the Pacific. Our Australian business was started supporting Japanese customers, and over the years, we’ve expanded to support customers throughout Asia Pacific. But it’s been clear over the past years, as the gas market dynamics have changed in Europe in particular, that there’s opportunity there, and we have a very modest footprint at this point in time.,” said Ms O’Neill.

The Tellurian purchase has received a lukewarm response from the market. Analysts said the deal would bolster Woodside’s global ambitions, but shares fell more than 2 per cent on Monday as the market worried that it would delay returns to shareholders.

Losses were extended on Tuesday after Woodside announced its second quarter result that showed weaker three month production and higher capital expenditure requirements for its WA signature project, Scarborough.

Woodside said production for the three months ended June 30 totalled 44.4m barrels of oil equivalent, down on market expectations. The result, analysts said, was driven primarily by unplanned outages at Woodside’s Wheatstone and Pyrenees developments.

With production down, revenues were also lower than many had forecast. Woodside said revenues totalled $US5bn, though the result was bolstered by timings of cargo sales.

Originally published as Woodside hit by Scarborough cost hike