ON ITS OWN TWO FEET

WOODSIDE

The Australian Energy Review - - CONTENTS - CAMERON DRUM­MOND

EN­ERGY pro­ducer Woodside will con­tinue to fo­cus on a num­ber of ma­jor oil and gas plays on its own af­ter Royal Dutch Shell’s exit from the com­pany.

Th­ese in­clude the Greater En­field, Greater Western Flank, Greater Sun­rise and Browse de­vel­op­ments, as well as pro­duc­tion fo­cus at Wheat­stone, Pluto and Perse­phone.

Shell exit

In mid-novem­ber Shell com­pleted an an­tic­i­pated sell­off of its re­main­ing 13.28 per cent stake in Woodside, in a deal worth $3.5bn.

It ini­tially an­nounced it had en­tered an agree­ment with two in­vest­ment banks to sell 71.6 mil­lion shares on Woodside, how­ever later that day de­cided to off­load all 111.8 mil­lion shares fol­low­ing “strong de­mand” from in­sti­tu­tional in­vestors.

“This sale is another step to­wards the com­ple­tion of our three-year, $US30 bil­lion di­vest­ment pro­gram, which is an im­por­tant part of our strat­egy to re­shape Shell, to de­liver a world-class in­vest­ment case, and to strengthen our fi­nan­cial frame­work,” Shell chief fi­nan­cial of­fi­cer Jes­sica Uhl said.

Woodside’s his­tory with Shell has been a che­quered one. The global oil ma­jor had a $10bn takeover bid for con­trol of Woodside blocked by Peter Costello un­der the Howard Gov­ern­ment in 2001, and had since grad­u­ally sold down its Woodside hold­ings.

In Novem­ber 2010, Shell sold 10 per cent of the is­sued cap­i­tal of Woodside, leav­ing it with a 24.27 per cent in­ter­est. This was fur­ther di­luted be­cause of Shell’s de­ci­sion not to par­tic­i­pate in Woodside’s div­i­dend re-in­vest­ment pro­gram.

Four years later Shell again sold about 78.27 mil­lion shares, rep­re­sent­ing a fur­ther 9.5 per cent di­vest­ment, leav­ing it with a di­luted 13.28 per cent stake.

Woodside chief ex­ec­u­tive Peter Cole­man said the two com­pa­nies’ strong and long-stand­ing re­la­tion­ship would con­tinue into the fu­ture.

“Shell re­mains a key joint ven­ture part­ner in the North West Shelf project and Browse,” Mr Cole­man said.

“Woodside will main­tain a close work­ing re­la­tion­ship with Shell – as a joint ven­ture part­ner and cus­tomer of Shell tech­nol­ogy – and we recog­nise that Shell will al­ways be part of our his­tory,” Mr Cole­man said.

Aus­tralia's Unisu­per and Sin­ga­pore wealth fund GIC were the two in­vestors that snapped a large chunk of Woodside shares, each promis­ing $700m in­vest­ments.

In its H1 re­port, Woodside said 88 per cent of its LNG pro­duc­tion this year had been com­mit­ted un­der short, medium and long-term con­tracts.

H1 sales were mainly long-term con­tracts (77 per cent) with 14 per cent un­der short and medium term deals, and the re­main­ing 12 per cent made avail­able for spot sales.

At the end of H1, 83 per cent of LNG pro­duc­tion in 2018 had been com­mit­ted un­der oil-linked con­tracts.

It’s 90 per cent owned Pluto project de­liv­ered 31 car­goes in H1 equat­ing to about 2.3 mil­lion tonnes (mt) of LNG.

Over the same pe­riod, its 16.67 per cent owned North West Shelf project de­liv­ered 125 car­goes car­ry­ing about 8mt of LNG.

Phase 2 de­vel­op­ment of the North West Shelf’s Greater Western Flank project was about 62 per cent com­plete and pro­gress­ing on sched­ule.

Man­u­fac­tur­ing of sub­sea equip­ment was un­der­way and off­shore con­struc­tion ac­tiv­i­ties are planned to com­mence in the first half of next year.

Mas­sive Mile­stones

Mr Cole­man said the post-third quar­ter start-up of the Wheat­stone LNG project was a high­light.

“In Oc­to­ber, Woodside re­alised a ma­jor com­po­nent of our near-term growth strat­egy with the start of LNG pro­duc­tion at Wheat­stone, which will con­trib­ute more than 13Mm­boe of an­nual pro­duc­tion once its two LNG trains and do­mes­tic gas plant are fully op­er­a­tional.”

Its 13 per cent owned Wheat­stone is ex­pected to pro­duce 8.9mt a year af­ter LNG Train 2 starts up in the next six months.

Dur­ing the Septem­ber quar­ter, its Pluto LNG project broke daily, weekly and monthly pro­duc­tion records: July was 3 per cent higher than the pre­vi­ous record.

“The pe­riod marked fur­ther strong op­er­a­tional per­for­mance from Pluto LNG,” Mr Cole­man said.

“For the sec­ond quar­ter in suc­ces­sion, Pluto achieved a num­ber of pro­duc­tion records, with pro­duc­tion in July 3 per cent higher than the pre­vi­ous high set in the same month of last year.”

The $1.2bn Perse­phone project was also com­pleted $355m un­der bud­get and six months ahead of sched­ule. Woodside said pro­duc­tion flow was per­form­ing to ex­pec­ta­tion, with rates of 280 to 310 mm­scf/d achieved for the two wells.

De­vel­op­ments: Gas

At Browse, 425km north of Broome, WA, Woodside is con­sid­er­ing the de­vel­op­ment of two off­shore gas FSPOS de­liv­er­ing be­tween 10mtpa and 12mtpa of pro­cessed gas to ex­ist­ing fa­cil­i­ties.

The com­pany said it would con­tinue to tar­get de­vel­op­ment con­cepts and com­mence front-end engi­neer­ing and de­sign (FEED) in 2019.

Pro­gres­sion on a de­vel­op­ment de­ci­sion of the Greater Sun­rise gas­fields re­mained un­der ne­go­ti­a­tion with the Ti­mor-leste gov­ern­ment.

The fields con­tain 5.13 tril­lion cu­bic feet of gas, as well as 225.9 mil­lion bar­rels of con­den­sate.

Mr Cole­man said any will­ing­ness by Ti­mor Leste to con­sider other de­vel­op­ment op­tions for Sun­rise would help im­prove the project’s prospects.

Woodside owns a 33.4 per cent stake, with Cono­cophillips — which op­er­ates the Dar­win LNG plant — own­ing 30 per cent, Royal Dutch Shell 26.56 per cent and Osaka Gas 10 per cent.

Mr Cole­man said that al­though the global LNG mar­ket was well sup­plied at the mo­ment, the com­pany ex­pects fur­ther growth in de­mand from Asia.

“The long lead times on projects mean that we'll need to get ready to meet ris­ing de­mand over the next cou­ple of years,” he said.

“That's why we're now work­ing to progress the very low­est cap­i­tal ef­fi­cient projects that we can; low-cost de­vel­op­ments that we ex­pect will de­liver in­creased pro­duc­tion right when it's needed.”

“Woodside will main­tain a close work­ing re­la­tion­ship with Shell – as a joint ven­ture part­ner and cus­tomer of Shell tech­nol­ogy – and we recog­nise that Shell will al­ways be part of our his­tory.”

De­vel­op­ments: Oil

Ap­proved for de­vel­op­ment in June last year, the $US1.9 bil­lion Greater En­field oil project JV off Ex­mouth, the project was more than 37 per cent com­plete and on sched­ule for drilling next year.

The project is tar­get­ing de­vel­op­ment of 2P re­serves of 69Mm­boe (net Woodside share of 41Mm­boe) from the oil ac­cu­mu­la­tions.

Woodside and JV part­ner Mit­sui (40 per cent) are tar­get­ing first oil in mid-2019.

“Our abil­ity to man­age risk and volatil­ity has been shored up by our low breakeven cash costs of sale at $US9.60 per bar­rel of oil equiv­a­lent,” Mr Cole­man said.

“We've been say­ing for some time that we ex­pect oil prices to be range bound be­tween $US45 and $US60 per bar­rel.”

Di­ver­si­fy­ing mar­kets

On 31 Oc­to­ber Woodside signed a sales agree­ment with Ger­many’s RWE for the de­liv­ery of up to a dozen LNG car­goes by the end of the decade, weeks af­ter the start-up of Train 1 at the Wheat­stone LNG joint ven­ture.

“This agree­ment il­lus­trates fur­ther di­ver­si­fi­ca­tion of Woodside's buyer re­la­tion­ships and the in­creas­ing in­ter­ac­tion be­tween Asia-pa­cific and At­lantic LNG par­tic­i­pants,” Mr Cole­man said in a state­ment.

The Good­wyn plat­form at the North West Shelf.

Woodside has signed a 12 cargo LNG agree­ment with Ger­many’s RWE.

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