Woodside reacts to market woes

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By Emma Brown

April 2, 2015

BUCKING the crude oil price downturn, Perth-based Woodside reported a full-year profit of US$2.414 billion last year – a 9 per cent increase on its 2013 results and the second-highest revenue in its history.

This achievement was underpinned by a record production of 95.1 million barrels of oil equivalent and record operating revenue of $7.435 billion.

Woodside chief executive Peter Coleman said the results reflected Woodside’s rigorous approach to improving facility reliability and achieving cost savings across the business.

“Our 2014 reported profit increased 38 per cent on the previous year, reflecting record production and higher realised prices,” Mr Coleman said.

“Our focus on lowering cost structures is evidenced in unit production costs decreasing.

“Continuous improvement in driving business efficiencies will remain our priority in the current challenging market conditions,” he said.

Mr Coleman said 2014 saw Woodside progress its global growth strategy, balancing its expansion portfolio, and developing marketing and trading opportunities through the proposed acquisition of key Apache Corporation interests.

“We have made significant progress in building our global exploration portfolio in emerging petroleum provinces in parallel with increasing supply optionally for customers,” he said.

“The world-class Wheatstone, Balnaves and Kitimat interests will provide value-enhancing opportunities that complement our existing portfolio.”

As part of its ongoing strategy to streamline costs, Woodside Petroleum cut 300 jobs from its WA workforce in late March.

“Woodside has completed a business review to address the impact of the downturn in the commodities market,” a Woodside spokesperson said.

“The outcome is that about 300 roles will be made redundant.”

Also in March, the Australian Competition and Consumer Commission (ACCC) decided not to oppose Woodside’s proposed acquisition of Apache interests.

Market concerns were raised about the effects of further industry consolidation as Woodside and Apache overlap in the wholesale supply of natural gas to the WA market. The regulator determined the acquisition would be unlikely to raise significant competition concerns.

However, ACCC chairman Rod Sims said the proposed acquisition would face strong competition from other suppliers including Chevron and Santos.

“Apache’s minority interest in domestic gas produced by the Wheatstone project will represent only a small fraction of the total gas to be supplied to WA, when it comes online in around 2018,” Mr Sims said.

“The acquisition will not change the structure of the market in a material way, with Woodside’s share of the total market changing by less than five per cent.”

“Apache will remain a larger supplier of domestic gas in WA than Woodside following the acquisition,” he said.

North West Shelf

Now in its 31st year, the Woodside-operated North West Shelf (NWS) project is one of Australia’s largest oil and gas developments.

The operation moved towards processing third party gas when Woodside signed a non-binding letter of intent with Hess Exploration last December. Hess will deliver gas to the NWS project’s offshore infrastructure for processing at the Karratha Gas Plant where it will market and deliver its own volumes.

Woodside senior vice president NWS Niall Myles said the letter of intent was an important step that indicated the Karratha Gas Plant was open for business.

“It provides an attractive option for third party gas owners to commercialise their resources in proximity to existing LNG infrastructure,” Mr Myles said.

“The NWS project has a proven track record with more than 30 years of safe and reliable operations.

“This opportunity has the potential to add value for the NWS participants through efficient use of infrastructure and provide real benefits to WA and the Pilbara.”

The fourth quarter (ending December 2014) was a progressive time for the North West Shelf. The Persephone project received the green light and is expected to produce around 140mmboe from early 2018.

Progress was also made on Woodside’s $2.5 billion Greater Western Flank project with phase one complete and FEED work commencing on phase two. The project remains on budget and on schedule for start-up in early 2016.

Pluto

Located about 190km northwest of Karratha, Pluto LNG is Woodside’s biggest producing venture. The $15 billion project, which processes gas from the Pluto gas field in the Carnarvon Basin, came to a temporary halt last month after a drilling rig drifted dangerously near its pipelines.

A cyclone tore the 31,000t deepwater rig loose from its moorings at the Chevron-operated Wheatstone project.

Underwater inspections confirmed no damage was caused to Pluto’s flowlines and the precautionary shut-in lasted four days. Despite the unexpected shutdown, the 2015 production target range of 84mmboe to 91mmboe remains unchanged.

Pluto generated about US$10 million a day revenue for Woodside in the December quarter and contributed 46 per cent of the company’s operating revenue for 2014.

Pluto is a joint venture between Woodside (90 per cent), Tokyo Gas (5 per cent) and Kansai Electric (5 per cent).

Browse

In September 2013, the decision was made to progress with floating LNG at the Woodside-operated Browse project, 425km north of Broome, WA.

FLNG was chosen as a technically innovative solution to developing the remote offshore Browse gas fields; combining the functions of an offshore gas receiving facility, with gas treatment and liquefaction plant and storage and offloading facilities.

Basis of design for the development of Browse FLNG and key pre FEED work was completed in the December quarter of 2014.

Woodside’s focus is now on strategic activities, further progressing primary approvals and managing the impacts of the maritime boundary change affecting the Browse retention leases and additional technical work to de-risk development.

Mr Coleman said it was focused on three key factors as Browse FLNG headed into FEED activities.

“The first of those is finalising commercial agreements and the commercial structure within the joint venture,” he said.

“The second part then is working with government around what we’re doing on domestic gas and also on supply chain activities, particularly support of those activities out of WA.

“The third part is the joint venture, working with all of the suppliers and contractors for Browse to ensure the cost base as we enter into FEED reflects the pricing outlook over the next four or five years.

“We’ve already engaged with those contractors, both here and overseas.”

All three aspects are progressing well and are expected to be finalised in the near future. Woodside are anticipating being in a position to enter the FEED phase in the middle of this year with a final investment decision expected to be made in mid-2016.

Plans for 2015

Woodside stated it would assess the impact on near-term profitability and cash flows and revise expenditure for the year in light of the current market conditions which have slashed oil prices in half.

Mr Coleman said Woodside would work on creating a “global mindset” in the company this year.

“Our core is proudly in Australia, proudly in WA. And over the years, we’ve built very strong ties with Asia, as we’ve supplied LNG reliably for more than 25 of those years and of course, more than 30 years of domestic gas to this state,” Mr Coleman said.

“All of us, including consulting companies and service companies in the oil and gas sector, need to concentrate on bolstering our knowledge and leveraging capabilities to pursue new opportunities in places where we have limited operating experience.”

The company‘s 2015 production target range is between 84mmboe and 91mmboe (not including production from the purchase of Apache assets, which were expected to be between 3mmboe and 4mmboe).