Wood­side de­lays Pluto LNG Start, raises cost es­ti­mate 7pc

The Pak Banker - - Company& -

MEL­BOURNE: Wood­side Petroleum Ltd., Aus­tralia's sec­ond-largest oil pro­ducer, said its Pluto liq­ue­fied nat­u­ral gas ven­ture will cost A$900 mil­lion ($867 mil­lion) more and start about six months later than pre­vi­ously pro­jected.

Spend­ing on the Western Aus­tralia LNG project is es­ti­mated at A$14 bil­lion, up al­most 7 per­cent from a prior fore­cast of A$13.1 bil­lion, Wood­side said in a state­ment to­day. The com­pany at­trib­uted the de­lay to a con­trac­tor's fail­ure to meet de­sign spec­i­fi­ca­tions for tow­ers used to burn off ex­cess gas.

Wood­side has sought to make Pluto the fastest project of its kind built, with the ini­tial dis­cov­ery of the gas field in 2005 and a de­ci­sion to pro­ceed with the ven­ture in 2007. More than a dozen pro­posed LNG de­vel­op­ments in Aus­tralia and Pa­pua New Guinea are com­pet­ing for cus­tomers and skilled work­ers.

"What we tried is un­heard of in the LNG in­dus­try-a mega-project ac­cel­er­ated to put us at a lead­ing, com­pet­i­tive ad­van­tage," Chief Ex­ec­u­tive Of­fi­cer Don Voelte said on a con­fer­ence call with an­a­lysts and re­porters. "Even with this de­lay, we still have this ad­van­tage."

The project will be ready to start in Au­gust 2011, with the first ex­ports sched­uled a month af­ter it be­gins, the Perth-based com­pany said. Wood­side pre­vi­ously ex­pected Pluto to start by the end of Fe­bru­ary, with first ex­ports be­fore April.

Wood­side said last month it was dis­man­tling parts of the flare tow­ers be­cause they didn't meet re­quire­ments. The tow­ers are be­ing re­placed, it said to­day. Roger Martin, a Wood­side spokesman, said the con­trac­tor is John Zink Co., part of Wi­chita, Kansas-based Koch In­dus­tries Inc., ac­cord­ing to its web­site. Koch spokes­woman Katie Stavinoha said she couldn't im­me­di­ately com­ment when reached by phone af­ter hours.

La­bor dis­putes also have dis­rupted con­struc­tion at the project site in the town of Kar­ratha.

"We're dis­ap­pointed with this," Voelte said on the call. "We wish we didn't have the prob­lem."

Mark Green­wood, a Syd­ney-based an­a­lyst at Cit­i­group Inc., said last week he ex­pected Wood­side to de­lay the start of the Pluto devel­op­ment un­til the mid­dle of the third quar­ter of 2011. Cit­i­group es­ti­mated costs may rise by $360 mil­lion.

Wood­side rose 0.6 per­cent to A$41.95 by the mar­ket's 4:10 p.m. close in Syd­ney. The bench­mark S&P/ASX 200 In­dex dropped 0.7 per­cent.

It's the sec­ond time Wood­side has in­creased its pro­jec­tion of Pluto costs, af­ter say­ing in Novem­ber 2009 that the ex­penses would rise by as much as A$1.1 bil­lion to about A$13 bil­lion.

Moody's In­vestors Ser­vice to­day said there were "ex­e­cu­tion chal­lenges as­so­ci­ated with Pluto." The lat­est cost in­crease "places ad­di­tional pres­sure on the com­pany's credit pro­file and fur­ther con­strains its flex­i­bil­ity" within the Baa1 rat­ing, Ian Lewis, a Moody's vice pres­i­dent, said in a state­ment.

Wood­side's cost in­crease "was a bit more" than ex­pected, Di Brook­man, an an­a­lyst at CLSA Asia-Pa­cific Mar­kets in Syd­ney, said by phone. She had an­tic­i­pated an in­crease of about A$500 mil­lion.

The com­pany has de­ferred a de­ci­sion on ex­pand­ing Pluto to next year af­ter its ex­plo­ration cam­paign to find more gas off Aus­tralia pro­gressed slower than an­tic­i­pated.

Wood­side said drilling is ex­pected to pro­vide the gas to add ca­pac­ity at Pluto and an­tic­i­pates an ex­pan­sion unit would be ready to start by the end of 2014. -Bloomberg

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