Australia’s largest LNG producer slashes expenditure in half

Woodside, Australia’s largest LNG producer, is slashing its total expenditure for 2020 in half and is deferring final investment decisions on a number of major development projects. With cost pressure in the market evaporating, Woodside can prepare the projects in the way it wishes to, CEO Peter Coleman said.

Like all oil and gas companies, Woodside is facing both demand and supply shocks as a result of the Covid-19 fallout and the Opec+1 dispute which has seen the oil price plummeting to below 30 dollars per barrel.

To prepare the company for the uncertainties ahead, Woodside is slashing its total expenditure for 2020 in half to USD 2.4 billion. This includes an approximately USD 100 million reduction in operating expenditure and a 60% reduction in investment expenditure to USD 1.7 to 1.9 billion.

Additionally, the company has deferred final investment decisions (FID) on three projects including Scarborough, Pluto train 2, for which FID has been delayed to 2021, and Browse, for which a new FID date has not been set.

EPC-contractors

In a conference call, Coleman told shareholders and analysts that the timing around moving forward with Train 2 at Pluto LNG was driven by rising cost pressure in the market, meaning rising rates for EPC-contractors. “Cost pressure has now evaporated in the market. So, from that point of view, it means we can prepare the projects in the way that we would wish to, without being concerned about the market running away from us”, the CEO said in response to a question if Woodside would be looking to renegotiate terms with its contractors.

Coleman added that he believes that all the US projects, where the development of shale gas has spurred rapid growth of the local LNG industry, have moved out to the right in their schedule as well. “So, that pressure’s off us”, he said.

There will also be natural delays as a result of supply chain disruptions because some parts, like billets, subsea wellheads and valves come from Northern Italy, where manufacturing has pretty much come to a halt. “We’re
already seeing supply chain stress across the business on some of these critical items”, Coleman said.

Merger & acquisitions

Asked if Woodside would try to take advantage of potential bargains and consider growing through acquisitions, Coleman said that it is too early to think about that.

“Clearly, we, like everybody else, are looking at those particular opportunities, but I’d say it’s too early to conclude that we’ll go one way or the other. The only thing I would point out is, by clearing the balance sheet this year we open up many options as we go through the year. What we wanted to do was make sure that we weren’t committed to a particular path”, Coleman said.

Australia this year overtook Qatar as the largest LNG exporting country in the world. For many logistics and transport providers in the oil and gas industry, the development of the global LNG market is considered an important growth segment.

Author: Tobias Pieffers

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